<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 20, 1997.
REGISTRATION NO. 333-26519
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NUMBER 2
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
DI INDUSTRIES, INC.
DRILLERS, INC.
DI INTERNATIONAL, INC.
DI ENERGY, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<C> <C>
TEXAS 74-2144774
TEXAS 74-1987143
TEXAS 76-0000351
TEXAS 74-2175411
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
T. SCOTT O'KEEFE
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
10370 RICHMOND AVENUE, SUITE 600 10370 RICHMOND AVENUE, SUITE 600
HOUSTON, TEXAS 77042-4136 HOUSTON, TEXAS 77042-4136
(713) 435-6100 (713) 435-6100
(Address, including zip code, and telephone number, (Name, address, including zip code, and telephone
including area code, of registrant's principal number,
executive offices) including area code, of agent for service)
</TABLE>
Copies to:
<TABLE>
<C> <C>
NICK D. NICHOLAS SETH R. MOLAY, P.C.
PORTER & HEDGES, L.L.P. AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
700 LOUISIANA, 35TH FLOOR 1700 PACIFIC AVENUE, SUITE 4100
HOUSTON, TEXAS 77002 DALLAS, TEXAS 75201
(713) 226-0600 (214) 969-2800
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
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<CAPTION>
====================================================================================================================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
% Senior Notes due 2007................................. $150,000,000 $45,455(1)
- --------------------------------------------------------------------------------------------------------------------
Subsidiary Guarantees(2).................................. (3) (3)
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</TABLE>
(1) Estimated pursuant to Rule 457(o) solely for the purpose of calculating the
registration fee. Of such amount, $37,879 was previously paid with the
original registration statement; the balance due, $7,576, is paid herewith.
(2) Guarantees by Drillers, Inc., DI International, Inc. and DI Energy, Inc.
(the "Guarantors") of the payment of the principal of, and premium, if any,
and interest on the Senior Notes due 2007. Pursuant to Rule 457(n), no
separate registration fee is required.
(3) No separate consideration will be received for the Guarantees.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
================================================================================
<PAGE> 2
SUBJECT TO COMPLETION DATED JUNE 20, 1997
PROSPECTUS
, 1997
$150,000,000
DI INDUSTRIES, INC. [LOGO]
% SENIOR NOTES DUE 2007
The % Senior Notes due 2007 (the "Notes") are being offered (the
"Offering") by DI Industries, Inc. (the "Company" or "DI"). Interest on the
Notes is payable semi-annually on and of each
year, commencing , 1997. The Notes will not be redeemable prior to
, 2002, on or after which the Notes will be redeemable, in whole or
in part, at the option of the Company at the redemption prices set forth herein
plus accrued and unpaid interest, if any, to the date of redemption. In
addition, at any time during the first 36 months after the date of original
issuance of the Notes, the Company may, at its option, redeem up to a maximum of
30% of the aggregate principal amount of the Notes with the net cash proceeds of
one or more Qualified Equity Offerings (as defined herein) at a redemption price
equal to % of the principal amount thereof, plus accrued and unpaid interest
thereon, provided that at least $100.0 million in aggregate principal amount of
Notes remain outstanding immediately after the occurrence of such redemption.
Upon the occurrence of a Change of Control (as defined herein), each holder of
the Notes may require the Company to repurchase such Notes at 101% of the
principal amount thereof, plus accrued and unpaid interest, to the date of
repurchase.
The Notes will be general unsecured senior obligations of the Company
ranking pari passu in right of payment with all indebtedness and other
liabilities of the Company that are not subordinated by their terms to other
Indebtedness (as defined herein) of the Company and senior in right of payment
to all indebtedness of the Company that by its terms is so subordinated. The
Company's obligation to pay the principal of, premium, if any, and interest on
the Notes will be unconditionally guaranteed, on a joint and several basis (the
"Guarantees"), by each of the Company's wholly-owned, domestic subsidiaries and
any other subsidiary that guarantees Indebtedness of the Company or a guarantor
(the "Guarantors"). The Guarantees will be senior unsecured obligations of each
respective Guarantor and will rank pari passu in right of payment with all other
indebtedness and liabilities of such Guarantor that are not subordinated by
their terms to other Indebtedness of such Guarantor. The Guarantees may be
released under certain circumstances. The Notes and Guarantees will be
effectively subordinated to secured Indebtedness of the Company and the
Guarantors, respectively, with respect to the assets securing such Indebtedness,
including any Indebtedness under the Bank Credit Facility (as defined herein),
which is secured by liens on substantially all of the assets of the Company and
certain of the Guarantors. As of March 31, 1997, on a pro forma basis after
giving effect to the issuance of the Notes and the completion of the other
transactions described in "Use of Proceeds," the Company and its subsidiaries
would have had outstanding approximately $1.3 million of secured indebtedness.
The indenture governing the Notes (the "Indenture") will permit the Company and
its subsidiaries, including the Guarantors, to incur additional Indebtedness in
the future, including senior Indebtedness of up to $100.0 million in aggregate
principal amount which may be secured by liens on all of the assets of the
Company and its subsidiaries, subject to limitations.
The Notes will be issued in the form of one or more global Notes (the
"Global Notes") registered in the name of Cede & Co., as nominee of The
Depository Trust Company, which will act as the depositary (the "Depositary").
Beneficial interests in the Global Notes will be shown on, and transfers thereof
will be effected only through, records maintained by the Depositary and its
participants. Except as described herein, Notes in definitive form will not be
issued. See "Description of Notes -- Book-Entry, Delivery and Form." The Notes
will not be listed on any securities exchange or included in any automated
quotation system, and there can be no assurance that there will be a secondary
market therefor.
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC(1) COMMISSIONS(2) COMPANY(3)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note.................................... % % %
Total(3).................................... $ $ $
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from the date of issuance.
(2) The Company and the Guarantors have agreed to indemnify the Underwriters (as
defined herein) against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(3) Before deducting expenses payable by the Company estimated to be $ .
The Notes are offered by the several Underwriters, subject to prior sale,
when, as and if issued to and accepted by the Underwriters, and subject to
various prior conditions, including their right to reject orders in whole or in
part. It is expected that delivery of the Notes will be made in New York, New
York on or about , 1997.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BT SECURITIES CORPORATION
ING BARINGS
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such state.
<PAGE> 3
[LOGO] DI INDUSTRIES, INC.
DI'S GEOGRAPHIC MARKETS
[GRAPHICS INCLUDE A MAP SHOWING THE GEOGRAPHIC EXTENT OF THE COMPANY'S
MARKET AREAS. THE MARKET AREAS DEPICTED ARE: THE ARK-LA-TEX (NORTHEAST TEXAS,
SOUTHERN ARKANSAS AND NORTHERN LOUISIANA); SOUTH TEXAS; GULF COAST (SOUTHEAST
TEXAS AND SOUTHERN LOUISIANA); INDRILLERS (MICHIGAN); EASTERN (OHIO); AND
VENEZUELA.]
The areas depicted on this map are referred to in this Prospectus as the
Company's Ark-La-Tex, South Texas, Gulf Coast, Venezuela, Eastern and INDRILLERS
markets.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING,
AMONG OTHERS, STABILIZING AND SHORT-COVERING TRANSACTIONS IN THE NOTES, AND THE
IMPOSITION OF A PENALTY BID, DURING AND AFTER THE OFFERING. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
contained elsewhere in this Prospectus. Unless the context indicates otherwise,
references in this Prospectus to the "Company" or "DI" mean DI Industries, Inc.
and its subsidiaries and predecessors. Unless otherwise indicated, the
information contained herein gives effect to the Pending Rig Purchase and the
acquisition of Grey Wolf Drilling Company (the "Grey Wolf Acquisition"), which
are described below.
THE COMPANY
The Company is a leading provider of contract land drilling services in the
U.S. with a domestic fleet of 107 rigs, of which 79 are currently marketed. The
Company believes it has the largest or second largest active rig fleet in each
of its three core domestic markets, the Ark-La-Tex, Gulf Coast and South Texas
markets. The Company believes these markets have historically maintained higher
utilization rates and day rates than other domestic markets. In addition to its
domestic operations, the Company operates in Venezuela where the Company intends
to increase its market presence by upgrading its current fleet of six rigs and
deploying additional deep drilling rigs as warranted by market conditions. The
Company has an inventory of 28 rigs, of which 24 are diesel electric SCR rigs,
available for refurbishment and redeployment as demand warrants. The Company
estimates that these rigs can be activated for service in domestic markets at an
average cost of approximately $1.6 million, including the cost of new drill
pipe.
In April 1996, the Company initiated a reorganization of its operations
which consisted of replacing substantially all of the senior management and the
members of the Board of Directors of the Company and implementing a new
operating strategy. The new operating strategy seeks to achieve increased cash
flow and earnings through: (i) acquiring land drilling businesses and assets to
capitalize on anticipated improvements in the industry; (ii) focusing on core
markets and establishing leading positions in these markets to achieve economies
of scale and provide an infrastructure to activate rigs into these markets in a
cost effective manner; (iii) refurbishing and activating inventoried rigs to
satisfy increases in demand; and (iv) attracting and retaining qualified
personnel to support the Company's increased level of operations.
The Company has aggressively implemented its new operating strategy,
acquiring 71 land drilling rigs in nine transactions since August 1996. Four of
these acquisitions were of companies with long histories operating in the Gulf
Coast and South Texas markets. The other acquisitions provided the Company with
an inventory of diesel electric SCR drilling rigs suited for deployment to the
Company's core domestic markets and Venezuela. As a result of these
acquisitions, the Company has obtained (i) increased market presence in each of
its core domestic markets, (ii) management and rig personnel with customer
relationships and operating experience in their markets and (iii) an
infrastructure in each core domestic market to facilitate the cost effective
activation of its fleet of inventoried rigs as needed. Since the beginning of
the fourth quarter of 1996, the Company has refurbished and activated six rigs
and is currently refurbishing an additional seven rigs from its inventory. The
Company has also discontinued unprofitable operations in Argentina and Mexico
and divested its non-core well servicing division, enabling management to focus
on the Company's land drilling business in its core markets.
INDUSTRY OVERVIEW
The domestic land drilling industry is undergoing a period of rapid
consolidation. The Company believes that from January 1, 1996 through May 31,
1997 there have been at least 25 completed or pending transactions involving the
acquisition of a combined total of approximately 379 rigs, the majority of which
were acquired by six land rig companies. Recent and pending transactions by the
Company accounted for nine of these transactions involving the acquisition of 71
rigs, of which 44 were actively marketed at the time of acquisition and 27 were
stacked.
Industry sources estimate that there are approximately 1,400 land drilling
rigs available for work in the U.S. as compared to over 5,000 domestic land
drilling rigs in 1982 and approximately 2,000 land drilling rigs as recently as
1990. The Company believes the demand for land drilling rigs in the Company's
core markets has increased over the past twelve months principally due to
improved oil and gas drilling and production
3
<PAGE> 5
economics resulting from increased use of 3-D seismic, directional drilling and
enhanced recovery techniques. For the first three months of 1997, the Company
believes based on industry sources that the average active domestic land rig
count was 715 as compared to 652 for the full year 1996, and 595 for the first
three months of 1996. The Company's utilization rates in its three core domestic
markets averaged over 90% for the first three months of 1997. The convergence of
land drilling rig supply and demand in its core domestic markets has contributed
to improved financial results for the Company. In the first quarter of 1997, the
Company generated $9.4 million of EBITDA pro forma for the Grey Wolf Acquisition
and the Flournoy Acquisition (as defined below), as compared to $17.8 million of
EBITDA for the full year 1996 on a pro forma basis for all of the Transactions
(as defined below).
RECENT AND PENDING TRANSACTIONS
The Company has entered into a series of transactions since August 1996
that have significantly increased the size of its rig fleet, refocused its
operations, established its market position with the largest or second largest
rig fleet in its core domestic markets, increased its equity capitalization by
approximately $130.0 million and positioned the Company to benefit from
anticipated increases in demand in the land drilling industry. The transactions
(collectively, the "Transactions") are:
- Grey Wolf Acquisition. In March 1997, the Company entered into a
definitive agreement to acquire Grey Wolf Drilling Company ("Grey Wolf").
Grey Wolf owns a fleet of 18 drilling rigs located in the Gulf Coast
market, 16 of which are rated to drill to depths of 20,000 feet or
greater. All of Grey Wolf's drilling rigs are currently operating.
Aggregate consideration for the Grey Wolf Acquisition is approximately
$103.6 million comprised of up to $61.6 million cash and approximately
14.0 million shares of the Company's common stock, par value $.10 per
share (the "Common Stock"), subject to adjustment in certain
circumstances. Grey Wolf establishes the Company's presence in the Gulf
Coast market and provides additional infrastructure to reactivate the
Company's inventory of 28 stacked rigs as demand warrants. The proceeds
from the Offering will be used, in part, to fund the cash portion of the
Grey Wolf Acquisition. The closing of the Offering is contingent upon the
simultaneous closing of the Grey Wolf Acquisition. Following the closing
of the Grey Wolf Acquisition, the Company plans to recommend to its
shareholders that the Company's corporate name be changed to "Grey Wolf
Incorporated."
- Flournoy Acquisition. In January 1997, the Company acquired the operating
assets of Flournoy Drilling Company, which included 13 actively marketed
land drilling rigs and other assets located in the South Texas market, in
exchange for 12.4 million shares of Common Stock, valued by the Company
at $31.1 million, and $800,000 in cash (the "Flournoy Acquisition"). As a
result of the Flournoy Acquisition, DI is currently the largest land
drilling contractor in the South Texas market.
- Diamond M Acquisition. In December 1996, the Company acquired the assets
of Diamond M Onshore, Inc. for $26.0 million in cash (the "Diamond M
Acquisition"). The assets consisted of ten land drilling rigs located in
South Texas, all of which were operating, and other operating assets.
- Mesa Acquisition. In October 1996, the Company acquired six diesel
electric SCR drilling rigs, three of which were operating, from Mesa
Drilling, Inc. in exchange for 5.5 million shares of Common Stock, valued
by the Company at $7.5 million (the "Mesa Acquisition"). The Mesa
Acquisition established the Company's presence in South Texas.
- RTO/LRAC Acquisition and Somerset Acquisition. In August 1996, the
Company acquired 18 inactive land drilling rigs, including 14 drilling
rigs with depth ratings of 25,000 feet or greater, in exchange for
approximately 39.4 million shares of Common Stock, valued by the Company
at $25.0 million (the "RTO/LRAC Acquisition"). The Company also received
$25.0 million cash in exchange for approximately 39.4 million shares of
Common Stock (the "Somerset Acquisition"). The RTO/LRAC Acquisition has
provided the Company with a supply of idle rigs to leverage its existing
operating infrastructure as demand warrants and the Somerset Acquisition
provided capital that was used by the
4
<PAGE> 6
Company for rig refurbishments, debt repayments and general corporate
purposes. These acquisitions are collectively referred to as the
"RTO/LRAC and Somerset Acquisitions."
- Pending Rig Purchase. In May 1997, the Company reached an oral agreement
in principle to purchase from an affiliate of one of its directors three
stacked rigs for a purchase price of $8.9 million in cash (the "Pending
Rig Purchase"). The three rigs, which will be added to the Company's
inventory of rigs held for refurbishment, include a 3,000 horsepower
diesel electric SCR rig, a 1,500 horsepower mechanical rig and a 2,000
horsepower diesel electric SCR rig. The purchase price for the Pending
Rig Purchase will be paid from the net proceeds of the Offering.
- Inventory Rig Purchases. In May 1997, the Company increased its inventory
of rigs held for refurbishment by the purchase of three stacked rigs in
three separate transactions for an aggregate purchase price of $6.9
million in cash (the "Inventory Rig Purchases"). One of the rigs was
purchased from an affiliate of one of the Company's directors. The three
rigs are diesel electric SCR rigs, two of which are 1,000 horsepower rigs
and one of which is a 4,000 horsepower rig.
- Western Division Sale. In June 1996, the Company sold its Western
Division for $3.9 million in cash (the "Western Sale"). The primary
assets of the Western Division consisted of 23 workover rigs which the
Company determined were non-core assets.
5
<PAGE> 7
THE OFFERING
All capitalized terms used in this Prospectus with respect to the Notes and
not otherwise defined herein, have the meanings set forth under "Description of
Notes -- Certain Definitions."
Securities Offered......... % Senior Notes due 2007
Principal Amount........... $150,000,000
Maturity Date.............. , 2007
Interest Payment Dates..... and of each year, commencing
, 1997
Sinking Fund............... None
Guarantees................. The Notes will be unconditionally guaranteed, on a
joint and several basis, by the Guarantors, which
include all domestic wholly-owned Subsidiaries and
any other Subsidiary that guarantees any
Indebtedness of the Company and its Subsidiaries.
The Guarantees will be senior unsecured obligations
of the Guarantors and will rank pari passu in right
of payment with all other indebtedness and
liabilities of such Guarantor that are not
subordinated by their terms to other Indebtedness
of such Guarantor. In addition, the Guarantees will
be effectively subordinated to secured Indebtedness
of the Guarantors, including Indebtedness under the
Bank Credit Facility, which is secured by
substantially all of the assets of the two most
significant Guarantors, Drillers, Inc. ("Drillers")
and DI International, Inc. ("International"). The
Notes will be effectively subordinated to claims of
creditors (other than the Company) of the Company's
Subsidiaries other than the Guarantors. Claims of
creditors (other than the Company) of such
Subsidiaries, including trade creditors, tort
claimants, secured creditors, taxing authorities
and creditors holding guarantees, will generally
have priority as to assets of such Subsidiaries
over the claims and equity interest of the Company
and, thereby indirectly, the holders of the
indebtedness of the Company, including the Notes
and the Guarantees.
Ranking of the Notes....... The Notes will be general unsecured senior
obligations of the Company, ranking pari passu in
right of payment with all indebtedness and other
liabilities of the Company that are not
subordinated by their terms to other Indebtedness
of the Company and senior in right of payment to
all indebtedness of the Company that by its terms
is so subordinated. The holders of secured
indebtedness of the Company (including Indebtedness
under the Company's Bank Credit Facility, which is
secured by first priority liens on substantially
all of the assets of the Company, Drillers and
International), will have claims with respect to
the assets constituting collateral for such
Indebtedness that are prior to claims of holders of
the Notes and the Trustee. The Indenture will
permit the Company and its Subsidiaries to incur
additional Indebtedness, including senior
indebtedness of up to $100.0 million aggregate
principal amount which may be secured by liens on
all of the assets of the Company and its
Subsidiaries, subject to certain limitations. As of
March 31, 1997, on a pro forma basis after giving
effect to the issuance of the Notes, the
application of a portion of the net proceeds
thereof to repay amounts outstanding under the Bank
Credit Facility and the completion of the Grey Wolf
Acquisition, the Company would have had outstanding
approximately $1.3 million of secured indebtedness.
See "Description of Notes -- Guarantees of Notes"
and "-- General."
6
<PAGE> 8
Optional Redemption........ The Notes will be redeemable, at the Company's
option, in whole or in part from time to time on or
after , 2002, at the redemption prices
set forth herein, plus accrued and unpaid interest
to the redemption date. In the event the Company
consummates one or more Qualified Equity Offerings
on or prior to , 2000, the Company at
its option may use all or a portion of the net cash
proceeds from such Qualified Equity Offerings to
redeem up to 30% of the aggregate principal amount
of the Notes at a redemption price equal to %
of the aggregate principal amount thereof, together
with accrued and unpaid interest to the date of
redemption, provided that at least $100.0 million
aggregate principal amount of Notes remains
outstanding immediately after such redemption. See
"Description of Notes -- Optional Redemption."
Change of Control.......... Upon a Change of Control, each holder of Notes will
have the right to require the Company to repurchase
all or any part of such holder's Notes at a
purchase price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid
interest to the date of purchase. See "Description
of Notes -- Change of Control."
Certain Covenants.......... The Indenture will contain covenants limiting the
ability of the Company and its Subsidiaries to,
among other things, pay dividends or make other
Restricted Payments, make Investments, incur
additional Indebtedness, permit Liens, incur
dividend and other payment restrictions affecting
Subsidiaries, enter into consolidation, merger,
conveyance, lease or transfer transactions, make
asset sales, enter into transactions with
Affiliates and engage in unrelated lines of
business. In addition, the Indenture will impose
restrictions on the ability of Subsidiaries to
issue guarantees. These covenants are subject to
certain exceptions and qualifications. See
"Description of Notes -- Certain Covenants" and
"-- Consolidation, Merger, Conveyance, Lease or
Transfer."
Condition to Closing....... Completion of the Offering will be contingent upon,
and will occur simultaneously with, the
consummation of the Grey Wolf Acquisition.
Use of Proceeds............ The net proceeds of the Offering will be used (i)
to pay the cash portion of the Grey Wolf
Acquisition (ii) to pay the purchase price for the
Pending Rig Purchase, (iii) to repay outstanding
indebtedness and (iv) for general corporate
purposes, including capital expenditures for
refurbishment of rigs and possible acquisitions of
complementary assets and businesses. See "Use of
Proceeds."
Risk Factors............... Prospective investors should carefully consider
certain risk factors relating to an investment in
the Notes. See "Risk Factors."
7
<PAGE> 9
SUMMARY FINANCIAL AND OPERATING DATA
The following summary financial data for the years ended and as of December
31, 1996 and 1995 have been derived from the audited consolidated financial
statements of the Company included elsewhere herein. This data should be read in
conjunction with such consolidated financial statements and the notes thereto.
The following summary financial data for the three-month periods ended March 31,
1997 and 1996 and as of March 31, 1997 have been derived from the unaudited
consolidated financial statements of the Company, which include all adjustments,
consisting of normal recurring adjustments, that the Company considers necessary
for a fair presentation of its financial position and results of operations for
these periods. Operating results for the three-month period ended March 31, 1997
are not necessarily indicative of the results that may be expected for the
entire year. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
The pro forma data in the table should be read in conjunction with the
unaudited pro forma consolidated financial data and the notes thereto included
elsewhere in this Prospectus. The pro forma financial data does not purport to
represent what the Company's financial condition or results of operations
actually would have been had the Transactions in fact occurred on the assumed
dates or to project the Company's financial condition or results of operations
for any future period or date. See "Unaudited Pro Forma Consolidated Financial
Data."
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
-------------------------------- -----------------------------------
HISTORICAL HISTORICAL
PRO FORMA(1) ----------------- PRO FORMA(2) --------------------
1997 1997 1996 1996 1996 1995
------------ ------- ------- ------------ -------- --------
(IN THOUSANDS, EXCEPT RATIOS AND DRILLING RIG ACTIVITY DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................... $ 55,709 $35,975 $20,102 $205,316 $ 81,767 $ 94,709
Drilling operations costs... 44,806 28,792 18,936 181,605 80,388 93,825
Depreciation and
amortization............. 5,426 2,207 1,097 24,511 4,689 4,832
General and
administrative........... 2,098 1,654 720 7,659 4,274 3,555
Provision for asset
impairment(3)............ -- -- -- -- -- 5,290
Non-recurring charges(4).... -- -- 602 6,131 6,131 --
-------- ------- ------- -------- -------- --------
Operating income (loss)..... 3,379 3,322 (1,253) (14,590) (13,715) (12,793)
Interest expense(5)......... 3,491 672 262 13,963 1,220 1,472
Other income, net........... 635 326 24 1,719 4,058 1,590
-------- ------- ------- -------- -------- --------
Income (loss) from
continuing operations.... 523 2,976 (1,491) (26,834) (10,877) (12,675)
Loss from discontinued
operations(6)............ -- -- -- -- -- (772)
-------- ------- ------- -------- -------- --------
Income (loss) before income
taxes.................... 523 2,976 (1,491) (26,834) (10,877) (13,447)
Income taxes................ -- 662 -- 845 845 --
-------- ------- ------- -------- -------- --------
Net income (loss)........... $ 523 $ 2,314 $(1,491) $(27,679) $(11,722) $(13,447)
======== ======= ======= ======== ======== ========
OTHER DATA (UNAUDITED):
EBITDA(7)................... $ 9,440 $ 5,855 $ 470 $ 17,771(8) $ 1,163(8) $ (1,853)
Capital expenditures........ $201,093 $47,750 $ 921 $267,199 $ 71,219 $ 5,657
Ratio of EBITDA to interest
expense.................. 2.7x 8.7x 1.8x 1.3x 1.0x --
Ratio of earnings to fixed
charges(9)............... 1.2x 5.2x -- -- -- --
DRILLING RIG ACTIVITY DATA
(UNAUDITED)(10):
Average utilization rate of
drilling rigs available
for service.............. 80% 76% 68% 78% 63% 66%
Average revenues per
day(11).................. $ 8,971 $ 8,134 $ 7,501 $ 8,167 $ 7,610 $ 7,739
Drilling rigs available for
service -- end of
period................... 88 70 44 70 52 58
Inventoried drilling
rigs -- end of period.... 23 23 22 25 25 22
</TABLE>
8
<PAGE> 10
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------
PRO FORMA(12) DECEMBER 31,
MARCH 31, MARCH 31, -------------------
1997 1997 1996 1995
------------- --------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital............................. $ 45,799 $ 9,074 $ 6,195 $ 7,503
Property and equipment, net................. 287,350 134,007 88,476 25,910
Total assets................................ 371,272 169,428 117,819 57,783
Long-term debt net of current maturities.... 150,771 32,071 26,846 11,146
Series A preferred stock -- mandatory
redeemable............................... 726 726 764 900
Shareholders' equity........................ 140,042 98,042 64,646 19,694
</TABLE>
- ------------------------------------
(1) Gives effect to (i) the Offering and application of the net proceeds
therefrom to consummate the Grey Wolf Acquisition and repay all amounts
then outstanding under the Bank Credit Facility and (ii) the consummation
of the Flournoy Acquisition and the Grey Wolf Acquisition as if such
acquisitions had occurred as of January 1, 1996 for the pro forma statement
of operations data, other data and drilling rig activity data. The
Inventory Rig Purchases and Pending Rig Purchase have no pro forma effect
on statement of operations data because the rigs were stacked and had no
material operations or costs for the period presented.
(2) Gives effect to (i) the Offering and the application of the net proceeds
therefrom to consummate the Grey Wolf Acquisition and the Pending Rig
Purchase and repay all amounts then outstanding under the Bank Credit
Facility and (ii) the consummation of the Transactions as if they had
occurred as of January 1, 1996 for the pro forma statement of operations
data, other data and drilling rig activity data. The Inventory Rig
Purchases and Pending Rig Purchase have no pro forma effect on statement of
operations data because the rigs were stacked and had no material
operations or costs for the period presented.
(3) Represents impairment to certain drilling rigs and equipment caused by
market indications that the carrying amounts were not recoverable. See note
1 to the Company's consolidated financial statements included elsewhere in
this Prospectus.
(4) For the three months ended March 31, 1996, represents employment severance
costs for the Company's former President and Chief Executive Officer. For
the year ended December 31, 1996, primarily represents such employment
severance costs and costs to exit the Argentine and Mexican markets. See
note 11 to the Company's consolidated financial statements included
elsewhere in this Prospectus.
(5) Pro forma interest expense assumes that the Notes bear interest at an
annual rate of 9.00%, but does not give effect to interest earned on
proceeds of the Offering prior to application thereof.
(6) To account for the discontinued operations of DI Energy, Inc. effective
April 1, 1995.
(7) EBITDA (earnings before interest, taxes, depreciation and amortization,
asset impairment and non-recurring charges) is presented here to provide
additional information about the Company's operations. EBITDA should not be
considered as an alternative to net income, as determined in accordance
with generally accepted accounting principles ("GAAP"), as an indicator of
the Company's operating performance or as an alternative to cash flows (as
determined in accordance with GAAP) as a better measure of liquidity.
(8) Includes $8.1 million of operating losses related to the Company's
operations in Argentina and Mexico which have since been discontinued.
(9) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (earnings before income taxes plus
fixed charges less capitalized interest) by fixed charges (interest expense
plus capitalized interest and the portion of operating lease rental expense
that represents the interest factor). There were insufficient earnings to
cover fixed charges in each period presented as follows: three months ended
March 31, 1996 -- $1,491; pro forma year ended December 31, 1996 --
$26,834; and years ended December 1996 and 1995 -- $10,759 and $12,675,
respectively.
(10) Excludes the Company's workover rigs.
(11) Represents total contract drilling revenues divided by the total number of
days the Company's drilling rig fleet operated during the period.
(12) Pro forma balance sheet data gives effect to the following as if they
occurred on March 31, 1997: (i) the Grey Wolf Acquisition; (ii) the
Inventory Rig Purchases; (iii) the Pending Rig Purchase; and (iv) the
Offering and application of the net proceeds therefrom to consummate the
Grey Wolf Acquisition and the Pending Rig Purchase and repay all amounts
then outstanding under the Bank Credit Facility.
9
<PAGE> 11
RISK FACTORS
Prospective investors should carefully evaluate all of the information
contained and incorporated by reference in this Prospectus and, in particular,
the following before making an investment in the Notes:
SIGNIFICANT LEVERAGE AND DEBT SERVICE REQUIREMENTS
After giving effect to the Offering, the Company will have significant debt
service requirements due to the substantial indebtedness it has incurred
primarily to finance acquisitions (including the Grey Wolf Acquisition) and
expand its operations. Additionally, the Company and Drillers entered into the
Bank Credit Facility, which is a $50.0 million amended and restated senior
secured revolving credit facility with a syndicate of commercial banks. The Bank
Credit Facility is expected to be substantially undrawn immediately following
the Offering. The Company expects to continue to borrow under the Bank Credit
Facility and possible future credit arrangements in order to finance possible
future acquisitions and for general corporate purposes. The Indenture will
permit the Company to incur additional indebtedness, including up to $100.0
million of senior indebtedness under the Bank Credit Facility or one or more
credit or revolving credit facilities with banks, financial institutions or
other lenders which may be secured by liens on all of the assets of the Company
and its Subsidiaries, subject to certain limitations. As of March 31, 1997, on a
pro forma basis, after giving effect to the Grey Wolf Acquisition, the Pending
Rig Purchase, the Inventory Rig Purchases and the repayment of all indebtedness
then outstanding under the Bank Credit Facility from the proceeds of the
Offering, the Company would have had $151.3 million in total indebtedness and
$140.0 million in shareholders' equity.
The level of the Company's indebtedness could have several important
effects on the Company's future operations, including, among others, (i) its
ability to obtain additional financing for working capital, acquisitions,
capital expenditures, general corporate and other purposes may be limited, (ii)
a substantial portion of the Company's cash flow from operations will be
dedicated to the payment of principal and interest on its indebtedness, thereby
reducing funds available for other purposes and (iii) the Company's significant
leverage could make it more vulnerable to economic downturns in the industry.
The Company's ability to meet its debt service obligations and reduce its total
indebtedness will be dependent upon the Company's future performance, which will
be subject to the success of its business strategy, general economic conditions,
industry cycles, levels of interest rates, and financial, business and other
factors affecting the operations of the Company, many of which are beyond its
control. There can be no assurance that the Company's business will generate
sufficient cash flow from operations to meet debt service requirements and
payments of principal, and if the Company is unable to do so, it may be required
to sell assets, to refinance all or a portion of its indebtedness, including the
Notes, or to obtain additional financing. There can be no assurance that any
such refinancing would be possible or that any additional financing could be
obtained.
HOLDING COMPANY STRUCTURE; EFFECTIVE SUBORDINATION OF THE NOTES; SUBSIDIARY CASH
FLOW
The Company is a holding company that conducts substantially all of its
operations through both U.S. and foreign subsidiaries, and substantially all of
the Company's assets consist of equity in such subsidiaries. Accordingly, the
Company is and will be dependent on its ability to obtain funds from its
subsidiaries to service its indebtedness, including the Notes.
The Notes will not be secured by any assets of the Company or its
subsidiaries. The Notes will therefore be effectively subordinated in right of
payment to all existing and future secured indebtedness of the Company and its
subsidiaries to the extent of the collateral for such secured indebtedness. The
indebtedness under the Bank Credit Facility is secured by a security interest in
(i) all domestic drilling rigs and related equipment owned by the Company,
Drillers and International, (ii) the stock of Drillers and International, (iii)
the member interest of Drillers in INDRILLERS, L.L.C. ("INDRILLERS") and (iv)
substantially all other assets of the Company, Drillers and International,
wherever located (other than stock of other subsidiaries). Drillers is a
co-borrower with the Company under the Bank Credit Facility and International
has guaranteed the obligations under the Bank Credit Facility. Accordingly, the
lenders under the Bank Credit Facility and other secured debt of the Company
have claims with respect to the rigs and other assets constituting collateral
for any indebtedness thereunder and the assets of any subsidiary guaranteeing
such indebtedness, which will
10
<PAGE> 12
be satisfied prior to the unsecured claims of holders of the Notes. In the event
of a default on the Notes or a bankruptcy, liquidation or reorganization of the
Company, such assets will be available to satisfy obligations with respect to
the indebtedness secured thereby before any payment therefrom could be made on
the Notes.
In addition, the Notes are effectively subordinated to the claims of all of
the creditors, including trade creditors and tort claimants, of the Company's
subsidiaries that are not Guarantors and to all secured creditors of the
Guarantors. In the event of an insolvency, bankruptcy, liquidation,
reorganization, dissolution or winding up of the business of any subsidiary of
the Company that is not a Guarantor, creditors of such subsidiary generally will
have the right to be paid in full before any distribution will be made to the
Company or the holders of the Notes. The stock of the Guarantors has been
pledged to secure indebtedness under the Bank Credit Facility. In addition,
certain financing arrangements that the Company's subsidiaries are party to
(including the Bank Credit Facility) impose restrictions on the ability of the
Company to gain access to the cash flow or assets of its subsidiaries. The
Company's foreign subsidiaries may also face governmentally imposed restrictions
from time to time on their ability to transfer funds to the Company. See
"Description of Bank Credit Facility" and "Description of Notes -- General."
UNENFORCEABILITY AND RELEASES OF SUBSIDIARY GUARANTEES
Various fraudulent conveyance laws enacted for the protection of creditors
may apply to the Guarantors' issuance of the Guarantees. To the extent that a
court were to find that (i) a Guarantee was incurred by a Guarantor with intent
to hinder, delay or defraud any present or future creditor or the Guarantor
contemplated insolvency with a design to prefer one or more creditors to the
exclusion, in whole or in part, of others or (ii) a Guarantor did not receive
fair consideration or reasonably equivalent value for issuing its Guarantee and
such Guarantor (A) was insolvent, (B) was rendered insolvent by reason of the
issuance of such Guarantee, (C) was engaged or about to engage in a business or
transaction for which the remaining assets of such Guarantor constituted
unreasonably small capital to carry on its business or (D) intended to incur, or
believed that it would incur, debts beyond its ability to pay such debts as they
matured, the court could avoid or subordinate such Guarantee in favor of the
Guarantor's creditors. Among other things, a legal challenge of a Guarantee on
fraudulent conveyance grounds may focus on the benefits, if any, realized by the
Guarantor as a result of the issuance by the Company of the Notes. The Indenture
contains a savings clause, which generally will limit the obligations of each
Guarantor under its Guarantee to the maximum amount as will, after giving effect
to all of the liabilities of such Guarantor, result in such obligations not
constituting a fraudulent conveyance. To the extent a Guarantee of any Guarantor
was avoided as a fraudulent conveyance or held unenforceable for any other
reason, Holders of the Notes would cease to have any claim against such
Guarantor (and could be required to return payments received from such
Guarantor) and would be creditors solely of the Company and any Guarantor whose
Guarantee was not avoided or held unenforceable. In such event, the claims of
the Holders of the Notes against the issuer of an invalid Guarantee would be
subject to the prior payment of all liabilities of such Guarantor. There can be
no assurance that, after providing for all prior claims, there would be
sufficient assets to satisfy the claims of the Holders of the Notes relating to
any avoided portions of any of the Guarantees.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any such proceeding. Generally, however,
a Guarantor may be considered insolvent if the sum of its debts, including
contingent liabilities, was greater than the fair marketable value of all of its
assets at a fair valuation or if the present fair marketable value of its assets
was less than the amount that would be required to pay its probable liability on
its existing debts, including contingent liabilities, as they become absolute
and matured.
Any Guarantor may be released from its Guarantee at any time upon any sale,
exchange or transfer, in compliance with the provisions of the Indenture, by the
Company of the capital stock of such Guarantor or substantially all of the
assets of such Guarantor and in certain other circumstances. See "Description of
Notes -- Guarantees of Notes."
11
<PAGE> 13
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Indenture will contain covenants restricting or limiting the ability of
the Company and certain of its subsidiaries to, among other things: (i) incur
additional indebtedness; (ii) pay dividends or make other restricted payments;
(iii) make asset dispositions; (iv) permit liens; (v) enter into sale and
leaseback transactions; (vi) enter into certain mergers, acquisitions and
consolidations; (vii) make certain investments; (viii) enter into transactions
with related persons; and (ix) engage in unrelated lines of business.
In addition, the loan agreement setting forth the terms of the Bank Credit
Facility (the "Bank Credit Agreement") contains certain other and more
restrictive covenants than those contained in the Indenture. These covenants may
adversely affect the Company's ability to pursue its acquisition and rig
refurbishment strategies and limit its flexibility in responding to changing
market conditions. The Bank Credit Agreement also requires the Company to
maintain specific financial ratios and satisfy certain financial condition
tests. The Company's ability to meet those financial ratios and financial
condition tests can be affected by events beyond its control, and there can be
no assurance that the Company will meet those tests. The Bank Credit Agreement
contains default terms that effectively cross default with the Indenture.
Accordingly, the breach by the Company or its subsidiaries of the covenants
contained in the Indenture likely will result in a default under not only the
Indenture but also the Bank Credit Facility, and possibly certain other then
outstanding debt obligations of the Company or its subsidiaries. If the
indebtedness under the Bank Credit Facility or other indebtedness of the Company
or its subsidiaries is in excess of $10.0 million and is not paid when due or is
accelerated by the holders thereof, an Event of Default under the Indenture
would occur. In any such case there can be no assurance that the Company's
assets would be sufficient to repay in full all of the Company's and its
subsidiaries' indebtedness, including the Notes. See "Description of the
Notes -- Events of Default" and "Description of Bank Credit Facility."
RISK OF INABILITY TO REPURCHASE NOTES UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control (as defined in the Indenture),
the Company must offer to purchase all Notes then outstanding at a purchase
price equal to 101% of the principal amount thereof plus accrued and unpaid
interest to the date of purchase. The occurrence of a Change of Control (as
defined in the Bank Credit Facility) gives the lenders under the Bank Credit
Facility the right to require the Company to repay all indebtedness outstanding
thereunder. There can be no assurance that the Company will have available funds
sufficient to repay all indebtedness owing under the Bank Credit Facility or to
fund the purchase of the Notes upon a Change of Control under the Indenture. In
the event a Change of Control occurs at a time when the Company does not have
available funds sufficient to pay for all of the Notes delivered by Holders
seeking to accept the Company's repurchase offer, an event of default would
occur under the Indenture. See "Description of Notes -- Certain Covenants" and
"-- Change of Control" and "Description of Bank Credit Facility."
HISTORY OF LOSSES FROM OPERATIONS
The Company has a history of losses and has not had a profitable year since
1991. The Company incurred net losses of $11.7 million and $13.4 million for the
years ended December 31, 1996 and 1995, respectively, and $2.2 million for nine
months ended December 31, 1994. The calendar year 1996 loss includes non-
recurring charges of $6.1 million, while the 1995 loss includes a provision for
asset impairment of $5.3 million. On a historical basis, the Company would not
have been able to service the Notes. Profitability in the future will depend
largely upon utilization rates and day rates for the Company's drilling rigs.
There is no assurance that current utilization rates and day rates will not
decline or that the Company will not continue to experience losses.
DEPENDENCE ON KEY PERSONNEL; NEW BUSINESS STRATEGY
Since April 1996, the Company has hired a majority of its current senior
management team. In addition, in August 1996, the shareholders of the Company
elected a Board of Directors comprised of five members, all but one of whom were
elected for the first time. In connection with the Flournoy Acquisition, another
new
12
<PAGE> 14
member was added to the Company's Board of Directors effective January 31, 1997.
The Company believes that its operations are dependent upon a small group of
relatively new management personnel, the loss of any one of whom could have a
material adverse effect on the Company's financial condition and results of
operations. Material changes in the Company's management and business strategy
have only recently occurred. The Company is therefore unable to predict the
effect of these changes on the Company's financial condition and results of
operations. The Company's ability to meet substantially increased debt service
and principal payments will depend, in part, on the success of the Company's new
business strategy. There can be no assurance these material changes in the
Company's management and business strategy will result in the improvement of the
Company's financial condition and results of operations.
DEPENDENCE ON OIL AND GAS INDUSTRY; INDUSTRY CONDITIONS
The Company's current business and operations are substantially dependent
upon conditions in the oil and gas industry and, specifically, the exploration
and production expenditures of oil and gas companies. The demand for contract
land drilling and related services is directly influenced by oil and gas prices,
expectations about future prices, the cost of producing and delivering oil and
gas, government regulations, local and international political and economic
conditions, including the ability of the Organization of Petroleum Exporting
Countries ("OPEC") to set and maintain production levels and prices, the level
of production by non-OPEC countries and the policies of the various governments
regarding exploration and development of their oil and gas reserves. There can
be no assurance that current levels of oil and gas exploration expenditures will
be maintained or that demand for the Company's services will reflect the level
of such expenditures.
COMPETITION
The land drilling industry is a highly competitive and cyclical business
characterized by high capital and maintenance costs. In addition, the land
drilling industry is highly fragmented. As a result, even though the Company
believes it has the largest or second largest active rig fleet in each of its
three core domestic markets, Ark-La-Tex, Gulf Coast and South Texas, such fleets
represented estimated market shares of 11%, 14% and 26%, respectively, in May
1997. Drilling contracts are usually awarded on a competitive bid basis and,
while an operator may consider factors such as quality of service and type and
location of equipment as well as the ability to provide ancillary services,
price and rig availability are the primary factors in determining which
contractor is awarded a job. An increasingly important competitive factor in the
land drilling industry is the ability to provide drilling equipment adaptable
to, and personnel familiar with, new technologies and drilling techniques as
they become available. Certain of the Company's competitors have greater
financial and human resources than the Company, which may enable them to better
withstand periods of low rig utilization, to compete more effectively on the
basis of price and technology, to build new rigs or acquire existing rigs and to
provide rigs more quickly than the Company in periods of high rig utilization.
There can be no assurance that the Company will be able to compete successfully
against its competitors in the future.
RISKS ASSOCIATED WITH TURNKEY DRILLING
Contract drilling services performed under turnkey drilling contracts have
historically represented, and are expected to continue to represent, a
significant component of the Company's revenues. Under a turnkey drilling
contract, the Company contracts to drill a well to a contract depth under
specified conditions for a fixed price. In addition, the Company provides
technical expertise and engineering services, as well as most of the equipment
required for the well, and is compensated when the contract terms have been
satisfied. On a turnkey well, the Company often subcontracts for related
services and manages the drilling process. The risks to the Company on a turnkey
drilling contract are substantially greater than on a well drilled on a daywork
basis because the Company assumes most of the risks associated with drilling
operations generally assumed by the operator in a daywork contract, including
risk of blowout, loss of hole, stuck drill string, machinery breakdowns,
abnormal drilling conditions and risks associated with subcontractors' services,
supplies and personnel. Although the Company has obtained insurance coverage in
the past to reduce certain of the risks inherent in turnkey drilling operations
there can be no assurance that such coverage will be obtained or
13
<PAGE> 15
available in the future. The occurrence of an uninsured or under insured loss
could have a material adverse effect on the Company's financial position and
results of operations.
OPERATING HAZARDS AND INSURANCE
The Company's operations are subject to the many hazards inherent in the
land drilling business, including blowouts, cratering, fires, explosions, loss
of hole, lost or stuck drill strings and damage or loss from adverse weather.
These hazards could also cause personal injury and loss of life, substantial
damage to the environment, suspension of drilling operations or serious damage
to or destruction of the property and equipment involved and damage to producing
formations and surrounding areas.
The Company maintains insurance coverage against some but not all operating
hazards. The Company believes that it is adequately insured for public liability
and property damage to others with respect to its operations. However, such
insurance may not be sufficient to protect the Company against liability for all
consequences of well disasters, personal injury, extensive fire damage or damage
to the environment. In addition, the Company does not have casualty insurance
with respect to its rigs or drill strings, and other insurance maintained by the
Company is subject to substantial deductibles and provides for premium
adjustments based on claims. In view of difficulties that may be encountered in
renewing such insurance at reasonable rates, no assurance can be given that the
Company will be able to maintain the type and amount of coverage that it
considers adequate. The occurrence of a significant event for which the Company
is not fully insured could have a material adverse effect on the Company's
financial position and results of operations. See "Business -- Insurance."
RISKS OF ACQUISITION STRATEGY
As a key component of its new business strategy, the Company has pursued
and intends to continue to pursue acquisitions of complementary assets and
businesses. Since mid-1996, a number of significant acquisitions have been
completed by the Company or are pending. Possible future acquisitions may be for
purchase prices significantly higher than those paid for recent and pending
acquisitions. Certain risks are inherent in an acquisition strategy, such as
increasing leverage and debt service requirements and combining disparate
company cultures and facilities, which could adversely affect the Company's
operating results. The success of any completed acquisition will depend in part
on the Company's ability to integrate effectively the acquired business into the
Company. The process of integrating such acquired businesses may involve
unforeseen difficulties and may require a disproportionate amount of
management's attention and the Company's financial and other resources. No
assurance can be given that the Company will be able to continue to identify
additional suitable acquisition opportunities, negotiate acceptable terms,
obtain financing for acquisitions on satisfactory terms or successfully acquire
identified targets. The Company's failure to achieve consolidation savings, to
incorporate the acquired businesses and assets into its existing operations
successfully or to minimize any unforeseen operational difficulties could have a
material adverse effect on the Company. See "Business -- Recent and Pending
Transactions."
SHORTAGES OF EQUIPMENT, SUPPLIES AND PERSONNEL
There is a general shortage of drilling equipment and supplies which the
Company believes may intensify. The costs and delivery times of equipment and
supplies are substantially greater than in prior periods and are currently
escalating. Accordingly, in 1996 the Company formed an alliance with a drill
pipe manufacturer that enables the Company to take delivery through 1998 of
agreed maximum quantities of drill pipe in commonly used diameters at fixed
prices plus possible escalations for increases in the manufacturer's cost of raw
materials. Due in part to its alliance arrangement, the Company is not currently
experiencing any material shortages of, or material price increases in, drill
pipe. The Company believes that the alliance may reduce, but not eliminate, its
exposure to price increases and supply shortages of drill pipe. As is common in
the industry, the drill pipe supply alliance is not a formal contractual
agreement but represents an informal arrangement in which both parties undertake
to satisfy the supply objectives of the alliance. If the Company's source of
supply through its alliance becomes unavailable or insufficient for any reason
(including by reason of additional rig acquisitions), the Company will likely
experience substantial delays in, and material price increases for,
14
<PAGE> 16
obtaining substitute or additional supplies for drill pipe. Additionally, the
Company may be subject to shortages and price increases with respect to
quantities in excess of, and varieties of drill pipe not covered by, its drill
pipe supply alliance. Although the Company is attempting to establish
arrangements to assure adequate availability of certain other necessary
equipment and supplies on satisfactory terms, there can be no assurance that it
will be able to do so. Shortages by the Company of drilling equipment or
supplies could delay and adversely affect its ability to refurbish its inventory
rigs and obtain contracts for its marketable rigs, which could have a material
adverse effect on its financial condition and results of operations. See
"Business -- Equipment and Supplies."
The demand for, and wage rates of, qualified rig crews have begun to rise
in the land drilling industry in response to the increasing number of active
rigs in service. Although the Company has not encountered material difficulty in
hiring and retaining qualified rig crews, such shortages have in the past
occurred in the industry in times of increasing demand for land drilling
services. If the number of active drilling rigs continues to increase, the
Company may experience shortages of qualified personnel to operate its rigs,
which could have a material adverse effect on the Company's financial condition
and results of operations.
GOVERNMENTAL REGULATIONS
Many aspects of the Company's operations are affected by domestic and
foreign political developments and are subject to numerous governmental
regulations that may relate directly or indirectly to the contract drilling and
well servicing industries. The Company's operations routinely involve the
handling of waste materials, some of which are classified as hazardous
substances. Consequently, the regulations applicable to the Company's operations
include those with respect to containment, disposal and controlling the
discharge of hazardous oilfield waste and other nonhazardous waste material into
the environment, requiring removal and cleanup under certain circumstances, or
otherwise relating to the protection of the environment. Laws and regulations
protecting the environment have become more stringent in recent years and may in
certain circumstances impose strict liability, rendering a party liable for
environmental damage without regard to negligence or fault on the part of such
party. Such laws and regulations may expose the Company to liability for the
conduct of, or conditions caused by, others or for acts of the Company which
were in compliance with all applicable laws at the time such acts were
performed. The application of these requirements or the adoption of new
requirements could have a material adverse effect on the Company. In addition,
the modification of existing laws or regulations or the adoption of new laws or
regulations curtailing exploratory or development drilling for oil and gas for
economic, environmental or other reasons could have a material adverse effect on
the Company's operations by limiting future contract drilling opportunities.
RISKS OF INTERNATIONAL OPERATIONS
The Company derives revenues from international operations. The Company's
current international operations are conducted only in Venezuela. Risks
associated with operating in international markets include foreign exchange
restrictions and currency fluctuations, foreign taxation, political instability,
foreign and domestic monetary and tax policies, expropriation, nationalization,
nullification, modification or renegotiation of contracts, war and civil
disturbances or other risks that may limit or disrupt markets. Additionally, the
ability of the Company to compete in the international drilling markets may be
adversely affected by foreign government regulations that favor or require the
awarding of such contracts to local contractors, or by regulations requiring
foreign contractors to employ citizens of, or purchase supplies from, a
particular jurisdiction. Furthermore, the Company's foreign subsidiaries may
face governmentally imposed restrictions from time to time on their ability to
transfer funds to the Company. No predictions can be made as to what foreign
governmental regulations may be applicable to the Company's operations in the
future. The Company is currently marketing six rigs in Venezuela, none of which
is under contract. In addition, the Company has budgeted $2.9 million of capital
improvements to these rigs in 1997. There can be no assurance that these
marketing efforts and capital improvements will improve the Company's operating
performance or generate contracts for the Company's rigs in Venezuela. See
"Business -- Foreign Operations -- Venezuela Division" for a discussion of
certain management, operating and financial reporting deficiencies relating to
the Company's operations in Venezuela prior to 1997.
15
<PAGE> 17
QUALIFICATION AS A REORGANIZATION FOR U.S. FEDERAL INCOME TAX PURPOSES
The Grey Wolf Acquisition is intended to qualify as a tax free
reorganization under Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal
Revenue Code of 1986, as amended (the "Code"), with respect to Common Stock
received by Grey Wolf shareholders. A principal condition for such qualification
is that the shareholders of Grey Wolf will satisfy the continuity of proprietary
interest standard with respect to Common Stock received in the Grey Wolf
Acquisition. Thus, under present Internal Revenue Service ("IRS") guidelines,
dispositions of Common Stock by Grey Wolf shareholders during the five years
following the Grey Wolf Acquisition could cause the IRS to assert that the Grey
Wolf Acquisition does not qualify as a tax free reorganization. The Company has
no contractual agreements with Grey Wolf shareholders preventing the disposition
of their shares. If the Grey Wolf Acquisition fails to qualify as a tax free
reorganization for failure to meet the continuity of interest standard or for
any other reason, the receipt of Common Stock will be taxable to the Grey Wolf
shareholders at the time of the Grey Wolf Acquisition, and Grey Wolf will be
deemed to have sold all of its assets in a taxable exchange triggering a
corporate tax liability to Grey Wolf estimated to be in excess of $30.0 million.
The Company's wholly-owned subsidiary, Drillers, as the surviving corporation of
the Grey Wolf Acquisition, would be liable for any such corporate tax which, if
imposed, would have a material adverse effect on the financial condition of the
Company.
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The Notes will be part of a new issue of securities for which there is
currently no public market. The Company does not intend to list the Notes on any
national or regional securities exchange or apply for inclusion of the Notes in
any automated quotation system. Although the Underwriters have informed the
Company that they currently intend to make a market in the Notes, the
Underwriters are not obligated to do so and may discontinue such market-making
at any time without notice. Accordingly, there can be no assurance as to the
development or liquidity of any market for the Notes.
RISKS OF CERTAIN LITIGATION
Grey Wolf is a defendant in litigation in which the plaintiff alleges that
it is entitled to unspecified monetary damages that are characterized in the
lawsuit as "many tens of millions of dollars." In connection with the closing of
the Grey Wolf Acquisition, an escrow consisting of $5.0 million of the cash
consideration for the Grey Wolf Acquisition will be established to provide a
source of payment for the Company's costs, if any, for any eventual settlement
of, or the payment of a monetary court judgment, arising out of this or any
other lawsuit by the plaintiff based on the same facts and circumstances. A
settlement or judgement in favor of the plaintiff in excess of $5.0 million
could have a material adverse effect on the Company's financial condition and
results of operations. See "Business -- Legal Proceedings."
OFFERING PROCEEDS TO BENEFIT AFFILIATES OF UNDERWRITERS
Affiliates of each of BT Securities Corporation and ING Baring (U.S.)
Securities, Inc. will receive more than 10% of the net proceeds from the
Offering as a result of the use of such proceeds to repay all of the borrowings
under the Bank Credit Facility. See "Use of Proceeds." As a result, the Offering
is being made in compliance with Rule 2710(c)(8) of the Conduct Rules of the
National Association of Securities Dealers, Inc. ("NASD") pursuant to which a
"qualified independent underwriter" will assume certain responsibilities of
pricing and conducting due diligence for the Offering. See "Underwriting."
16
<PAGE> 18
FORWARD-LOOKING STATEMENTS
This Prospectus contains, or incorporates by reference, certain statements
that may be deemed "forward-looking statements" within the meaning of Section
27A of the Securities Act and Section 21E of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). All statements, other than statements of
historical facts so included in this Prospectus that address activities, events
or developments that the Company intends, expects, projects, believes or
anticipates will or may occur in the future, including, without limitation,
statements regarding the Company's business strategy, plans and objectives;
statements expressing beliefs and expectations regarding future rig utilization
rates, day rates and other events and conditions that may influence the land rig
drilling market and the Company's performance in the future; statements
concerning future rig refurbishment plans, including the anticipated level of
capital expenditures for, and the nature and scheduling of, rig refurbishment;
statements regarding future redeployment of the Company's rigs to different
markets; trends in the land drilling business and other such matters are
forward-looking statements. Such statements are based on certain assumptions and
analyses made by management of the Company in light of its experience and its
perception of historical trends, current conditions, expected future
developments and other factors it believes to be appropriate. The
forward-looking statements included in this Prospectus are also subject to a
number of material risks and uncertainties. Important factors that could cause
actual results to differ materially from the Company's expectations are
discussed herein under the captions "Risk Factors" and "Management's Discussion
and Analysis of Financial Condition and Results of Operations." Prospective
investors are cautioned that such forward-looking statements are not guarantees
of future performance and that actual results, developments and business
decisions may differ from those envisaged by such forward-looking statements.
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
$145.4 million, after deducting underwriting discounts, commissions and fees and
expenses of the Offering payable by the Company. The Company intends to use the
net proceeds of the Offering to (i) pay the cash portion of the consideration
for the Grey Wolf Acquisition of up to $61.6 million and associated transaction
costs estimated at $300,000, (ii) pay the $8.9 million purchase price for the
Pending Rig Purchase and (iii) repay all indebtedness then outstanding under the
Bank Credit Facility. The balance of the net proceeds will be used for general
corporate purposes, including the refurbishment of rigs and possible
acquisitions of complementary assets and businesses. The amount of proceeds used
for refurbishing rigs will depend on a number of factors, including market
conditions, management's assessment of existing and anticipated demand and day
rates for land drilling rigs in the Company's domestic and Venezuelan markets
and the Company's success in bidding for drilling contracts. Of the Company's
indebtedness under the Bank Credit Facility, which was $45.0 million as of May
31, 1997, $24.0 million in principal amount was borrowed in December 1996 to
finance the Diamond M Acquisition, $6.9 million in principal amount was borrowed
in May 1997 to finance the Inventory Rig Purchases and approximately $14.1
million in principal amount was borrowed for general corporate purposes,
including rig refurbishments and increased working capital requirements
resulting from the Diamond M Acquisition and the Flournoy Acquisition. The Bank
Credit Facility matures on April 30, 2000. Interest under the Bank Credit
Facility accrues at variable rates with respect to each advance under the
facility based on one of two interest rate options available to the Company. As
of May 31, 1997, the weighted average interest rate for all borrowings under the
Bank Credit Facility was 8.25% per annum. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Description of
Bank Credit Facility."
17
<PAGE> 19
CAPITALIZATION
The following table sets forth the cash and cash equivalents, short-term
debt and capitalization of the Company as of March 31, 1997, and as adjusted to
give effect to the Offering and the application of the net proceeds therefrom as
described under "Use of Proceeds." This table should be read in conjunction with
the consolidated financial statements and the notes thereto and the pro forma
consolidated financial data and the notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------
ACTUAL PRO FORMA
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 3,693 $ 38,025
======== ========
Current maturities of long-term debt........................ $ 1,997(1) $ 497
Long-term debt, net of current maturities:
Bank Credit Facility...................................... 30,000(1) --
% Senior Notes due 2007.............................. -- $150,000
Notes payable............................................. 1,300 --
Other..................................................... 771 771
-------- --------
Total long-term debt, net of current maturities... 32,071 150,771
Series A preferred stock.................................... 726 726
Shareholders' equity:
Common stock, $.10 par value per share.................... 13,752 15,152
Additional paid-in capital................................ 129,135 169,735
Cumulative translation adjustments........................ (404) (404)
Accumulated deficit....................................... (44,441) (44,441)
-------- --------
Total shareholders' equity........................ 98,042 140,042
-------- --------
Total capitalization.............................. $132,836 $292,036
======== ========
</TABLE>
- ------------------------------------
(1) Current maturities of long-term debt includes $1.5 million of outstanding
indebtedness under the Bank Credit Facility. As of May 31, 1997, the amount
of outstanding indebtedness under the Bank Credit Facility was $45.0
million.
18
<PAGE> 20
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated balance sheet as of March
31, 1997 includes the historical consolidated balance sheet of the Company as of
March 31, 1997 and gives effect to the following as if they occurred as of March
31, 1997: (i) the Grey Wolf Acquisition; (ii) the acquisition of six stacked
rigs in the Inventory Rig Purchases and the Pending Rig Purchase (collectively,
the "May Rig Purchases") and (iii) the application of the estimated net proceeds
from the Offering (after deducting underwriting discounts and commissions and
estimated expenses of the Offering) to acquire Grey Wolf, pay the purchase price
of the Pending Rig Purchase and repay amounts outstanding under the Bank Credit
Facility. The following unaudited pro forma consolidated statement of operations
for the three months ended March 31, 1997 includes the historical results of the
Company for the three months ended March 31, 1997 and gives effect to the
Flournoy Acquisition, the Grey Wolf Acquisition and the Offering as if they
occurred on January 1, 1996. The following unaudited pro forma consolidated
statements of operations for the year ended December 31, 1996 includes the
historical results of the Company for the year ended December 31, 1996 and gives
effect to each of the above transactions and the Western Sale, the RTO/LRAC and
Somerset Acquisitions, the Mesa Acquisition and the Diamond M Acquisition, all
which occurred before December 31, 1996, as if they occurred on January 1, 1996.
The May Rig Purchases have no historical operations as the rigs have been
stacked and the impact on the pro forma statement of operations is not material
and has not been presented. The basis of presentation and the pro forma
adjustments are described in the accompanying notes.
The following unaudited pro forma consolidated statements of operations are
not necessarily indicative of the actual results of operations that would have
been reported if the events described above had occurred on the dates noted
above nor do they purport to indicate the results of the Company's future
operations. Furthermore, the pro forma results do not give effect to all cost
savings or incremental costs that may occur as a result of the integration and
consolidation of the acquisitions, mergers and sale of assets. In the opinion of
management, all adjustments necessary to present fairly such pro forma financial
statements have been made.
The unaudited pro forma consolidated financial information should be read
in conjunction with "Capitalization," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements and the notes thereto included elsewhere in this Prospectus.
19
<PAGE> 21
DI INDUSTRIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
HISTORICAL
-----------------------
GREY WOLF PRO FORMA
DI ACQUISITION ADJUSTMENTS PRO FORMA
-------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................... $ 3,693 $ 899 $145,375(a) $ 38,025
(61,600)(b)
(34,292)(a)
(300)(b)
(15,750)(c)
Restricted cash -- insurance deposits....... 250 -- 250
Accounts receivable, net of allowance....... 25,395 7,852 33,247
Rig inventory and supplies.................. 428 -- 428
Assets held for sale........................ 557 -- 557
Prepaids and other current assets........... 4,054 1,524 5,578
-------- -------- -------- --------
Total current assets................ 34,377 10,275 33,433 78,085
-------- -------- -------- --------
Property and equipment:
Land, buildings and improvements............ 5,042 815 5,857
Drilling and well service equipment......... 141,916 54,502 81,867(b) 294,035
15,750(c)
Furniture and fixtures...................... 1,208 409 1,617
Accumulated depreciation and amortization... (14,159) (37,300) 37,300(b) (14,159)
-------- -------- -------- --------
Net property and equipment.......... 134,007 18,426 134,917 287,350
-------- -------- -------- --------
Other noncurrent assets....................... 1,044 345 (177)(b) 5,837
4,625(a)
-------- -------- -------- --------
$169,428 $ 29,046 $172,798 $371,272
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt........ $ 1,997 $ 8 $ (1,508)(a) $ 497
Accounts payable -- trade................... 14,050 8,483 22,533
Accrued workers' compensation............... 2,164 -- 2,164
Payroll and related employee costs.......... 4,422 -- 4,422
Customer advances........................... 777 -- 777
Taxes payable............................... 1,083 -- 1,083
Other accrued liabilities................... 810 -- 810
-------- -------- -------- --------
Total current liabilities........... 25,303 8,491 (1,508) 32,286
-------- -------- -------- --------
% Senior Notes.............................. -- -- 150,000(a) 150,000
Long-term debt net of current maturities...... 32,071 1,484 (32,784)(a) 771
Other long-term liabilities and minority
interest.................................... 3,177 381 3,558
Deferred income taxes......................... 10,109 2,933 30,847(b) 43,889
Series A preferred stock-mandatory
redeemable.................................. 726 -- 726
Shareholders' equity:
Common stock, $.10 par value................ 13,752 6,553 (5,153)(b) 15,152
Additional paid-in capital.................. 129,135 -- 40,600(b) 169,735
Cumulative translation adjustments, deferred
compensation and treasury stock.......... (404) (33) 33(b) (404)
Retained earnings (deficit)................. (44,441) 9,237 (9,237)(b) (44,441)
-------- -------- -------- --------
Total shareholders' equity.......... 98,042 15,757 26,243 140,042
-------- -------- -------- --------
$169,428 $ 29,046 $172,798 $371,272
======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial data.
20
<PAGE> 22
DI INDUSTRIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
-----------------------------------
FLOURNOY GREY WOLF PRO FORMA
DI ACQUISITION ACQUISITION ADJUSTMENTS PRO FORMA
------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Contract drilling................... $35,975 $3,871 $15,863 $ -- $55,709
Costs and expenses:
Drilling operations................. 28,792 3,098 12,260 656(d) 44,806
Depreciation and amortization....... 2,207 138 626 2,455(e) 5,426
General and administrative.......... 1,654 250 974 (780)(d)(f) 2,098
------- ------ ------- ------- -------
Total costs and expenses.... 32,653 3,486 13,860 2,331 52,330
------- ------ ------- ------- -------
Operating income (loss)............... 3,322 385 2,003 (2,331) 3,379
------- ------ ------- ------- -------
Other income (expense):
Interest income..................... 92 -- 8 -- 100
Gain on sale of assets.............. 30 -- 235 -- 265
Interest expense.................... (672) (7) (42) (2,770)(g) (3,491)
Minority interest and other......... 204 -- 66 -- 270
------- ------ ------- ------- -------
Other income (expense),
net....................... (346) (7) 267 (2,770) (2,856)
------- ------ ------- ------- -------
Income (loss) before income taxes..... 2,976 378 2,270 (5,101) 523
Income taxes.......................... 662 -- 908 (1,570)(h) --
------- ------ ------- ------- -------
Net income (loss)..................... 2,314 378 1,362 (3,531) 523
Series A preferred stock redemption
premium............................. (22) -- -- -- (22)
------- ------ ------- ------- -------
Net income (loss) applicable to common
stock............................... $ 2,292 $ 378 $ 1,362 $(3,531) $ 501
======= ====== ======= ======= =======
Net income per common share........... $ 0.02 $ 0.00
======= =======
Weighted average common shares
outstanding......................... 133,334 151,469
======= =======
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial data.
21
<PAGE> 23
DI INDUSTRIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS HISTORICAL
------------------------ ---------------------------------------
HISTORICAL WESTERN RTO/LRAC MESA DIAMOND M FLOURNOY
DI SALE ACQUISITION ACQUISITION ACQUISITION ACQUISITION
---------- ------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Contract drilling.................... $ 81,767 $(3,206)(i) -- $4,693 $22,675 $42,850
Costs and expenses:
Drilling operations.................. 80,388 (3,029)(i) 84(j) 3,428 19,405 33,970
Depreciation and amortization........ 4,689 (117)(i) -- -- 759 1,655
General and administrative........... 4,274 (254)(i) -- -- 476 2,994
Non-recurring charges................ 6,131 -- -- -- -- --
-------- ------- ---- ------ ------- -------
Total costs and expenses....... 95,482 (3,400) 84 3,428 20,640 38,619
-------- ------- ---- ------ ------- -------
Operating income (loss)................ (13,715) 194 (84) 1,265 2,035 4,231
-------- ------- ---- ------ ------- -------
Other income (expense):
Interest income...................... 505 -- -- -- -- --
Interest expense..................... (1,220) 4(i) -- -- -- (87)
Gain (loss) on sale of assets........ 3,078 (2,775)(i) -- -- -- --
Minority interest and other.......... 475 -- -- -- -- --
-------- ------- ---- ------ ------- -------
Other income (expense), net.... 2,838 (2,771) -- -- -- (87)
-------- ------- ---- ------ ------- -------
Income (loss) before income taxes...... (10,877) (2,577) (84) 1,265 2,035 4,144
Income taxes........................... 845 -- -- -- -- --
-------- ------- ---- ------ ------- -------
Net income (loss)...................... (11,722) (2,577) (84) 1,265 2,035 4,144
Series A preferred stock redemption
premium.............................. (13) -- -- -- -- --
Series B preferred stock subscription
dividend requirement................. (402) -- 402(k) -- -- --
-------- ------- ---- ------ ------- -------
Net income (loss) applicable to
common stock......................... $(12,137) $(2,577) $318 $1,265 $ 2,035 $ 4,144
======== ======= ==== ====== ======= =======
Net loss per common share.............. $ (0.18)
========
Weighted average common shares
outstanding.......................... 67,495
========
<CAPTION>
HISTORICAL
-----------
GREY WOLF PRO FORMA
ACQUISITION ADJUSTMENTS PRO FORMA
----------- ----------- ---------
<S> <C> <C> <C>
Revenues:
Contract drilling.................... $56,537 -- $205,316
Costs and expenses:
Drilling operations.................. 44,735 2,624(d) 181,605
Depreciation and amortization........ 2,163 15,362(e) 24,511
General and administrative........... 4,036 (3,867)(d)(f) 7,659
Non-recurring charges................ -- -- 6,131
------- -------- --------
Total costs and expenses....... 50,934 14,119 219,906
------- -------- --------
Operating income (loss)................ 5,603 (14,119) (14,590)
------- -------- --------
Other income (expense):
Interest income...................... 2 -- 507
Interest expense..................... (394) (12,266)(g) (13,963)
Gain (loss) on sale of assets........ 368 -- 671
Minority interest and other.......... 66 -- 541
------- -------- --------
Other income (expense), net.... 42 (12,266) (12,244)
------- -------- --------
Income (loss) before income taxes...... 5,645 (26,385) (26,834)
Income taxes........................... 2,265 (2,265)(h) 845
------- -------- --------
Net income (loss)...................... 3,380 (24,120) (27,679)
Series A preferred stock redemption
premium.............................. -- -- (13)
Series B preferred stock subscription
dividend requirement................. -- -- --
------- -------- --------
Net income (loss) applicable to
common stock......................... $ 3,380 $(24,120) $(27,692)
======= ======== ========
Net loss per common share.............. $ (0.18)
========
Weighted average common shares
outstanding.......................... 151,469
========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial data.
22
<PAGE> 24
DI INDUSTRIES, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
(1) Basis of Presentation
The following sets forth the assumptions used in preparing the Company's
unaudited pro forma consolidated balance sheet as of March 31, 1997 and
unaudited pro forma consolidated statements of operations for the three months
ended March 31, 1997 and for the year ended December 31, 1996.
The unaudited pro forma consolidated financial data should be read in
conjunction with (i) the consolidated financial statements of the Company as of
and for the three months ended March 31, 1997 and for the year ended December
31, 1996 and the notes thereto included elsewhere herein and (ii) the financial
statements of Grey Wolf as of and for the three months ended January 31, 1997
and for the year ended October 31, 1996 and the notes thereto, included
elsewhere herein. Pro forma financial data are not necessarily indicative of
future operations of DI due to numerous factors, including changes in
utilization rates for drilling rigs, changes in the rates received for drilling
services and future equipment sales and acquisitions.
(2) Adjustment to the Historical Financial Statements
The unaudited pro forma consolidated balance sheet data assume the Grey
Wolf Acquisition and the May Rig Purchases occurred on March 31, 1997. The
remaining Transactions occurred prior to March 31, 1997, and are included in
DI's historical balance sheet as of March 31, 1997. The unaudited pro forma
consolidated statement of operations data for the three months ended March 31,
1997 assume the Flournoy Acquisition and the Grey Wolf Acquisition occurred on
January 1, 1996 while all the other Transactions are included in historical
results for the period. The unaudited pro forma consolidated statement of
operations data for the year ended December 31, 1996 assume all of the
Transactions occurred on January 1, 1996. The May Rig Purchases have no
historical operations as the rigs have been stacked and the impact on the pro
forma statement of operations is not material and has not been presented.
The following assumptions and pro forma adjustments have been made with
respect to the historical balance sheet of the Company:
(a) To reflect the Offering and the related issuance costs of the
Notes and the repayment of substantially all of the Company's existing
long-term debt.
(b) To reflect the purchase of Grey Wolf for $61.6 million in cash and
the issuance of 14.0 million shares of Common Stock. Also assumes the
payment of approximately $300,000 in transaction costs which were
capitalized as part of the cost of the acquisition. For pro forma
presentation, it was assumed that there would be no adjustment to the
purchase price for changes in the price of Common Stock.
(c) To reflect the May Rig Purchases for $15.8 million in cash.
The following assumptions and pro forma adjustments have been made to the
historical statements of operations of the Company.
(d) To reclassify $656,000 for the three months ended March 31, 1997
and approximately $2.6 million for the year ended December 31, 1996 of Grey
Wolf's general and administrative expenses to operating costs to conform to
the Company's presentation of expenses.
(e) To reflect the additional depreciation expense for the three
months ended March 31, 1997 for the assets acquired in the Flournoy
Acquisition ($221,000) and the Grey Wolf Acquisition (approximately $2.2
million) and the additional depreciation expense for the year ended
December 31, 1996 associated with the assets acquired in the Mesa
Acquisition ($648,000), the Diamond M Acquisition (approximately $2.7
million), the Flournoy Acquisition (approximately $2.7 million) and the
Grey Wolf Acquisition (approximately $9.4 million). Pro forma depreciation
was calculated on a straight line basis over the estimated useful lives of
the assets.
23
<PAGE> 25
(f) To reflect, for the three months ended March 31, 1997, the
elimination of $67,000 of general and administrative expenses of Flournoy
Drilling Company ("Flournoy") for the cost of the founder and president of
Flournoy and one other employee who did not join the Company and the
reclassification of $656,000 of general and administrative expenses of Grey
Wolf to drilling operations costs (see note (c) above) and the elimination
of general and administrative expense for the cost of the president and
other employees of Grey Wolf who will not be joining DI ($57,000) and to
reflect, for the year ended December 31, 1996, (i) the elimination of
$217,000 of general and administrative expenses of Diamond M Onshore, Inc.
("Diamond M") allocated by its parent, less the additional general and
administrative expenses estimated by the Company for an additional
employee; (ii) the elimination of $800,000 of general and administrative
expenses of Flournoy for the cost of the founder and president of Flournoy
and one other employee who did not join the Company; and (iii) the
reclassification of approximately $2.6 million of general and
administrative expenses of Grey Wolf to drilling operations costs (see note
(c) above) and the elimination of general and administrative expenses for
the cost of the president and other employees of Grey Wolf who will not be
joining DI ($226,000).
(g) To reflect, for the three months ended March 31, 1997, the
additional interest expense for the Notes to be issued in the Offering and
the reduction of interest expense associated with the retirement of the
majority of the Company's long term debt and to reflect, for the year ended
December 31, 1996, (i) the elimination of $87,000 of interest expense on
the debt that was repaid by the Company at the closing of the Flournoy
Acquisition, (ii) the additional interest expense for the Notes to be
issued in the Offering and (iii) the reduction of interest expense
associated with the retirement of the majority of the Company's outstanding
long-term debt. The effect of a 0.25% change in the annual interest rate of
the Notes would change pro forma interest expense by $93,750 for the three
months ended March 31, 1997, and $375,000 for the year ended December 31,
1996.
(h) To eliminate the income tax expense of Grey Wolf in order to
conform to the Company's income tax position.
(i) To reflect the sale of the operational assets of the Company's
Western Division on the revenues and expenses of the Company.
(j) To adjust operating expense for the estimated cost to store the
rigs acquired in the RTO/LRAC Acquisition.
(k) To provide for the liquidation of the Series B preferred stock
subscription and related dividend requirement in connection with the
RTO/LRAC and Somerset Acquisitions. See notes 5 and 7 of the Company's
consolidated financial statements included elsewhere herein.
24
<PAGE> 26
SELECTED FINANCIAL DATA
The following selected financial data for the years ended and as of
December 31, 1996 and 1995 and for the nine-months ended December 31, 1994 have
been derived from the audited consolidated financial statements of the Company
included elsewhere herein. This data should be read in conjunction with such
consolidated financial statements and the notes thereto. The selected financial
data for the three-month periods ended March 31, 1997 and 1996, as of March 31,
1997 and for the twelve-month period ended December 31, 1994 have been derived
from the unaudited consolidated financial statements of the Company, which
include all adjustments, consisting of normal recurring adjustments, that the
Company considers necessary for a fair presentation of its financial position
and results of operations for these periods. Operating results for the
three-month period ended March 31, 1997 are not necessarily indicative of the
results that may be expected for the entire year. The selected financial data as
of December 31, 1994, and for the years ended and as of March 31, 1994 and 1993
have been derived from audited consolidated financial statements of the Company
which are not included herein. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED NINE MONTHS YEAR ENDED
MARCH 31, DECEMBER 31, ENDED MARCH 31,
------------------ ----------------------------------- DECEMBER 31, -----------------
1997 1996 1996 1995 1994 1994(1) 1994(1) 1993
-------- ------- -------- -------- ----------- ------------ ------- -------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, RATIOS AND DRILLING RIG ACTIVITY DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................... $ 35,975 $20,102 $ 81,767 $ 94,709 $65,393 $50,987 $67,855 $62,242
Drilling operations costs.......... 28,792 18,936 80,388 93,825 62,929 48,988 62,574 57,583
Depreciation and amortization...... 2,207 1,097 4,689 4,832 3,247 2,377 3,523 3,448
General and administrative......... 1,654 720 4,274 3,555 3,007 2,074 2,910 4,498
Provision for asset
impairment(2).................... -- -- -- 5,290 -- -- -- --
Non-recurring charges(3)........... -- 602 6,131 -- -- -- -- --
-------- ------- -------- -------- ------- ------- ------- -------
Operating income (loss)............ 3,322 (1,253) (13,715) (12,793) (3,790) (2,452) (1,152) (3,287)
Interest expense................... 672 262 1,220 1,472 404 332 257 --
Other income (expense), net........ 326 24 4,058 1,590 637 524 25 (100)
Income (loss) from continuing
operations....................... 2,976 (1,491) (10,877) (12,675) (3,557) (2,260) (1,384) (3,387)
-------- ------- -------- -------- ------- ------- ------- -------
Income (loss) from discontinued
operations(4).................... -- -- -- (772) 55 51 (1,274) 60
-------- ------- -------- -------- ------- ------- ------- -------
Income (loss) before income
taxes............................ 2,976 (1,491) (10,877) (13,447) (3,502) (2,209) (2,658) (3,327)
Income taxes....................... 662 -- 845 -- -- -- -- 168
-------- ------- -------- -------- ------- ------- ------- -------
Net income (loss).................. 2,314 (1,491) (11,722) (13,447) (3,502) (2,209) (2,658) (3,495)
Series A preferred stock redemption
premium.......................... 22 -- 13 -- -- -- -- --
Series B preferred stock
subscription dividend............ -- 150 402 -- -- -- -- --
-------- ------- -------- -------- ------- ------- ------- -------
Net income (loss) applicable to
common stock..................... $ 2,292 $(1,641) $(12,137) $(13,447) $(3,502) $(2,209) $(2,658) $(3,495)
======== ======= ======== ======== ======= ======= ======= =======
Income (loss) per
share -- continuing operations... $ .02 $ (.04) $ (.18) $ (.33) $ (.09) $ (.06) $ (.04) $ (.09)
Loss per share -- discontinued
operations(4).................... -- -- -- (.02) -- -- (.03) --
-------- ------- -------- -------- ------- ------- ------- -------
Net income (loss) per share........ $ .02 $ (.04) $ (.18) $ (.35) $ (.09) $ (.06) $ (.07) $ (.09)
======== ======= ======== ======== ======= ======= ======= =======
Weighted average shares
outstanding...................... 133,334 38,669 67,495 38,669 38,607 38,641 38,416 38,416
OTHER DATA (UNAUDITED):
EBITDA(5).......................... $ 5,855 $ 470 $ 1,163(6) $ (1,853) $ 149 $ 500 $ 1,122 $ 121
Capital expenditures............... $ 47,750 $ 921 $ 71,219 $ 5,657 $14,837 $14,350 $ 2,849 $ 2,479
Ratio of EBITDA to interest
expense.......................... 8.7x 1.8x 1.0x -- 0.4x 1.5x 4.4x --
Ratio of earnings to fixed
charges(7)....................... 5.2x -- -- -- -- -- -- --
DRILLING RIG ACTIVITY DATA
(UNAUDITED)(8):
Average utilization rate of
drilling rigs available for
service.......................... 76% 68% 63% 66% 51% 58% 51% 48%
Average revenues per day(9)........ $ 8,134 $ 7,501 $ 7,610 $ 7,739 $ 8,520 $ 9,609 $ 9,102 $ 7,746
Drilling rigs available for
service -- end of period......... 70 44 52 58 57 57 57 46
Inventoried drilling rigs -- end of
period........................... 23 22 25 22 13 13 13 14
</TABLE>
25
<PAGE> 27
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
MARCH 31, ------------------------------ ------------------
1997 1996 1995 1994(1) 1994(1) 1993
------------- -------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(10):
Working capital................................ $ 9,074 $ 6,195 $ 7,503 $12,462 $ 9,053 $ 7,507
Property and equipment, net.................... 134,007 88,476 25,910 30,786 19,797 21,199
Total assets................................... 169,428 117,819 57,783 62,860 46,524 48,074
Long-term debt net of current maturities....... 32,071 26,846 11,146 10,224 198 223
Series A preferred stock -- mandatory
redeemable................................... 726 764 900 1,900 -- --
Shareholders' equity........................... 98,042 64,646 19,694 29,141 31,150 33,808
</TABLE>
- ------------------------------------
(1) During 1994, the Company changed its fiscal year end from March 31 to
December 31.
(2) Represents impairment to certain drilling rigs and equipment caused by
market indications that the carrying amounts were not recoverable. See note
1 to the Company's consolidated financial statements included elsewhere in
this Prospectus.
(3) For the three months ended March 31, 1996, represents employment severance
costs for the Company's former President and Chief Executive Officer. For
the year ended December 31, 1996, primarily represents such employment
severance costs and costs to exit the Argentine and Mexican markets. See
note 11 to the Company's consolidated financial statements included
elsewhere in this Prospectus.
(4) To account for the discontinued operations of DI Energy, Inc. effective
April 1, 1995.
(5) EBITDA (earnings before interest, taxes, depreciation and amortization,
asset impairment and non-recurring charges) is presented here to provide
additional information about the Company's operations. EBITDA should not be
considered as an alternative to net income, as determined in accordance
with GAAP, as an indicator of the Company's operating performance or as an
alternative to cash flows (as determined in accordance with GAAP) as a
better measure of liquidity.
(6) Includes $8.1 million of operating losses related to the Company's
operations in Argentina and Mexico which have since been discontinued.
(7) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (earnings before income taxes plus
fixed charges less capitalized interest) by fixed charges (interest expense
plus capitalized interest and the portion of operating lease rental expense
that represents the interest factor). There were insufficient earnings to
cover fixed charges in each period presented as follows: three months ended
March 31, 1996 -- $1,491; years ended December 1996, 1995 and 1994 --
$10,759, $12,675 and $3,557, respectively; nine months ended December 31,
1994 -- $2,260; and years ended March 31, 1994 and 1993 -- $1,384 and
$3,387, respectively.
(8) Excludes the Company's workover rigs.
(9) Represents total contract drilling revenues divided by the total number of
days the Company's drilling rig fleet operated during the period.
(10) Except for shareholders' equity, these items have been restated to account
for the discontinued operations of DI Energy, Inc. effective April 1, 1995.
26
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's operations have been and will continue to be significantly
affected by the new management team installed in 1996 and the Transactions which
have transformed the Company into the second largest domestic land drilling
contractor. The historical statements of operations for the years ended December
31, 1996 and 1995 and the twelve months ended December 31, 1994 presented herein
do not include the operations of Grey Wolf, Flournoy and Diamond M and reflect
the operations of Mesa Drilling, Inc. ("Mesa") for only three months. The
statement of operations for the three months ended March 31, 1997 does not
include the operations of Grey Wolf and reflects the operations of Flournoy for
only two months. The rigs acquired in RTO/LRAC Acquisition did not have a
material effect on the Company's results for the periods presented because the
rigs have been idle since they were acquired in August 1996, except for one rig
that was refurbished and placed in service in October 1996. In addition, the
Company exited unprofitable markets in Mexico and Argentina, the results of
which are included in the historical statement of operations for the periods
presented. The Company believes that, due to the Transactions and exiting the
Mexican and Argentine markets, the historical statements of operations presented
herein are not necessarily indicative of the Company's future results,
particularly in light of the recent increased demand and contract rates for land
drilling rigs in its core domestic markets.
FINANCIAL CONDITION AND LIQUIDITY
Since August 1996, the Company has completed the Flournoy Acquisition, the
Diamond M Acquisition, the Mesa Acquisition and the RTO/LRAC and Somerset
Acquisitions. The Diamond M Acquisition was financed primarily by $24.0 million
of borrowings under the Bank Credit Facility. Substantially all of the
consideration paid by the Company in the other acquisitions was in the form of
96.7 million shares of Common Stock, valued by the Company at $88.2 million, and
warrants to purchase approximately 3.4 million shares of Common Stock, of which
approximately 2.9 million had expired without being exercised as of May 31,
1997. As a result of such acquisitions, property and equipment increased by
$100.1 million. In addition, in December 1996 the Company issued approximately
1.8 million shares of Common Stock in a private placement for $4.1 million in
cash.
The following table summarizes the Company's financial position as of March
31, 1997 and as of December 31, 1996 and 1995 (in thousands).
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
-------------- ----------------- -----------------
<S> <C> <C> <C>
Working capital.......................... $ 9,074 $ 6,195 $ 7,503
Property and equipment, net.............. 134,007 88,476 25,910
Other noncurrent assets.................. 1,044 1,132 277
-------- ------- -------
Total.......................... $144,125 $95,803 $33,690
======== ======= =======
Long-term debt net of current
maturities............................. $ 32,071 $26,846 $11,146
Other long-term liabilities.............. 14,012 4,311 2,850
Shareholders' equity..................... 98,042 64,646 19,694
-------- ------- -------
Total.......................... $144,125 $95,803 $33,690
======== ======= =======
</TABLE>
The most significant change in the Company's financial position from
December 31, 1995 to March 31, 1997 was the $108.1 million increase in property
and equipment, net. During this same period, long-term debt net of current
maturities increased by $20.9 million and shareholders' equity increased by
$78.3 million. These changes are a direct result of the transactions described
above.
The Company's cash and cash equivalents increased by $4.3 million for the
year ended December 31, 1996 from $1.9 million as of December 31, 1995 to $6.2
million as of December 31, 1996. This increase was
27
<PAGE> 29
primarily the result of $39.4 million provided by financing activities partially
offset by $1.4 million used by operating activities and $33.5 million used in
investing activities.
Operating Activities
During the year ended December 31, 1996, the Company used $1.4 million of
cash to fund operating activities. This was the result of $7.3 million of cash
used in operations, partially offset by changes in working capital items that
provided $5.9 million of cash. Operating cash losses of $8.4 million were
generated from the Company's Argentine and Mexican divisions. Cash provided from
working capital items primarily included (i) collections of accounts receivable
of $3.3 million, (ii) monetization of inventory and assets held for sale
totaling $3.0 million and (iii) the receipt of customer advances at the end of
1996 of $2.4 million, which were partially offset by payments of $1.9 million
for workers' compensation and $1.2 million of other current liabilities.
During the first quarter of 1997, the Company used $1.9 million to fund
operating activities. While the Company generated cash from operations of $4.9
million, working capital requirements increased by $6.8 million due to recent
acquisitions. In these acquisitions, the Company purchased drilling rigs and
certain other related equipment which required additional working capital to
operate.
Investing Activities
During 1996, the Company invested $33.5 million in fixed assets net of
asset sales. The major components of these additions were the Diamond M
Acquisition for $26.0 million, $2.4 million for rig refurbishments and $5.1
million for other asset additions. Non-cash transactions accounted for an
additional $32.8 million in property and equipment additions. The Company
completed the RTO/LRAC Acquisition in exchange for approximately 39.4 million
shares of Common Stock valued at $25.0 million. In addition, the Company
completed the Mesa Acquisition in exchange for approximately 5.5 million shares
of Common Stock valued at $7.5 million.
During the quarter ended March 31, 1997, the Company invested $7.2 million
in fixed assets, net of asset sales. Rig refurbishments consisted of $2.5
million and $4.7 million was invested in drill pipe and other drilling related
equipment. In addition, the acquisition of Flournoy resulted in a $40.5 million
non-cash addition to property and equipment.
Financing Activities
During 1996, the Company raised $39.4 million from financing activities.
The Company borrowed $31.5 million during the year, including $24.0 million
borrowed under the Bank Credit Facility for the Diamond M Acquisition. The
Company also issued approximately 39.4 million shares of Common Stock for $25.0
million in cash in the Somerset Acquisition and also completed a private
placement of approximately 1.8 million shares of Common Stock for $4.1 million
in cash. The Company made repayments of debt totaling $16.5 million during the
year.
During the first quarter of 1997, the Company obtained $6.6 million from
financing activities, consisting principally of borrowings under the Bank Credit
Facility. See "Description of Bank Credit Facility." These borrowings were used
to fund a portion of the working capital requirements and capital expenditures
discussed above.
Future Activities
In March 1997, the Company entered into an agreement to acquire Grey Wolf
for an estimated price of approximately $103.6 million consisting of up to $61.6
million in cash and the issuance to Grey Wolf's shareholders of approximately
14.0 million shares of Common Stock. Up to $61.6 million of the net proceeds of
the Offering will be used to fund the cash portion of the Grey Wolf Acquisition.
The number of shares of Common Stock to be issued in the Grey Wolf Acquisition
is subject to adjustment if the average closing price of the Common Stock in the
ten trading days immediately preceding the third trading day before closing is
28
<PAGE> 30
greater than $4.00 or less than $3.00 per share. Additionally, the agreement
calls for the decrease of cash consideration and a corresponding increase in the
number of shares issued so that at least 45% of the value of the consideration
consists of Common Stock. If the Grey Wolf Acquisition were to have closed on
June 20, 1997, the aggregate consideration would have consisted of approximately
$61.6 million in cash and 14.0 million shares of Common Stock. An escrow will be
established for certain post-closing contingencies with $5.0 million of the cash
consideration. See "Business -- Recent and Pending Transactions" and "--Legal
Proceedings."
In addition to the capital requirements necessary to fund the Grey Wolf
Acquisition, the Company anticipates substantial additional funding requirements
in connection with its planned equipment acquisitions and rig refurbishment
program. In May 1997, the Company purchased three stacked rigs for a total
purchase price of $6.9 million, funded with borrowings under the Bank Credit
Facility. During the last quarter of 1996 and the first quarter of 1997, the
Company commenced and completed the refurbishment of four rigs at an aggregate
cost of $4.1 million. In addition, as of March 31, 1997, the Company was
refurbishing six additional rigs. The cost of refurbishing these rigs is
estimated to be $8.6 million, of which $743,000 had been expended as of March
31, 1997. The Company also anticipates that during the remainder of 1997, it may
commence the refurbishment of up to an additional 13 rigs depending upon a
variety of factors, including market conditions, management's assessment of
existing and anticipated demand and day rates for land drilling rigs in the
Company's domestic and Venezuelan markets and the Company's success in bidding
for drilling contracts. The estimated costs of refurbishment could vary
substantially, depending upon the type of rig refurbished and its intended
market following refurbishment. The Company estimates that rigs destined for its
core domestic markets will cost an average of approximately $1.6 million to
refurbish while 2,000 to 3,000 horsepower rigs to be deployed to Venezuela are
estimated to cost an average of approximately $12.0 million to refurbish, in
each case including the cost of a new drill string.
In addition to its refurbishment program, the Company undertakes regular
maintenance of and makes capital improvements to its rig fleet. The Company has
budgeted $11.3 million for the costs of such maintenance and capital
requirements during 1997, including $2.9 million on rigs in Venezuela. During
the first quarter of 1997, the Company expended $3.9 million for such purposes.
The Company believes that the balance of the proceeds from the Offering,
cash flow from operations and, to the extent required, borrowings under the Bank
Credit Facility will be sufficient to fund the Company's 1997 rig refurbishment
program and to meet its other anticipated capital requirements for 1997. On
April 30, 1997, the Company amended and restated its Bank Credit Facility
increasing the available borrowing capacity from $35.0 million to $50.0 million.
Upon consummation of the Offering and the application of the net proceeds
therefrom, as described under "Use of Proceeds," the Company will not have any
amounts outstanding under the Bank Credit Facility, and management expects that
the Company will have cash or cash equivalents of $26.0 million to $28.0
million. See "Description of Bank Credit Facility."
The Company continues to actively review possible acquisition
opportunities. While the Company has no agreements to acquire additional
businesses or equipment, other than the Grey Wolf Acquisition and the oral
agreement in principle for the Pending Rig Acquisition, suitable opportunities
may arise in the future. The timing or success of any acquisition effort and the
size of the associated potential capital commitments cannot be predicted at this
time. The ability of the Company to consummate any such transaction will be
dependent in large part by its ability to fund such transaction. There can be no
assurance that adequate funding will be available on terms satisfactory to the
Company.
29
<PAGE> 31
RESULTS OF OPERATIONS
Comparison of Three Months Ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1996
--------------------------------- ---------------------------------
DOMESTIC FOREIGN DOMESTIC FOREIGN
OPERATIONS OPERATIONS TOTAL OPERATIONS OPERATIONS TOTAL
---------- ---------- ------- ---------- ---------- -------
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE REVENUES PER DAY)
<S> <C> <C> <C> <C> <C> <C>
Rig days worked....................... 3,973 450 4,423 1,349 1,331 2,680
Average revenues per day.............. $ 8,205 $7,500 $ 8,134 $ 7,731 $7,267 $ 7,501
Drilling revenues..................... $32,600 $3,375 $35,975 $10,429 $9,673 $20,102
Operating expenses(1)................. 25,817 2,975 28,792 9,770 9,166 18,936
------- ------ ------- ------- ------ -------
Gross profit.......................... $ 6,783 $ 400 $ 7,183 $ 659 $ 507 $ 1,166
======= ====== ======= ======= ====== =======
</TABLE>
- ------------------------------------
(1) Operating expenses exclude depreciation and amortization and general and
administrative expenses.
Revenues increased approximately $15.9 million, or 79%, to $36.0 million
for the three months ended March 31, 1997, from $20.1 million for the three
months ended March 31, 1996. The increase was due to an increase in revenue from
domestic operations of $22.2 million partially offset by a decrease in revenue
from foreign operations of $6.3 million. Revenues from domestic operations
increased due to a 2,624 day increase in rig days worked, and a $474 increase in
the average revenue per day. The increase in domestic days worked was a result
of an increase in the number of rigs owned and available for service to 59 rigs
at March 31, 1997, as compared to 26 rigs at March 31, 1996. The increase in
rigs available for service was principally the result of the acquisitions
completed in 1996 and the first quarter of 1997 in which the Company added 26
working rigs. Rig days worked in domestic operations consisted of 2,254 days
worked in the Company's South Texas Division, 1,152 days worked in the Company's
Ark-La-Tex Division and 567 days worked in all other divisions of the Company.
Revenues from foreign operations decreased due to an 881 day decrease in rig
days worked partially offset by a $233 increase in average revenue per day. The
decrease in days worked was primarily a result of the Company withdrawing from
Mexico and Argentina during the fourth quarter of 1996. Increases in domestic
and foreign revenues per day were a result of the overall increase in demand for
land drilling rigs.
Drilling operating expenses increased by approximately $9.9 million, or
52%, to $28.8 million for the three months ended March 31, 1997, as compared to
$18.9 million for the three months ended March 31, 1996. The increase was due to
a $16.0 million increase in drilling operating expenses from domestic operations
partially offset by a decrease of $6.1 million in drilling operating expenses
from foreign operations. The increase in domestic drilling operating expenses
was a direct result of the increase in the number of rigs owned and available
for service and the corresponding 2,624 day increase in the days worked. The
decrease in drilling operating expenses from foreign operations was due to fewer
rigs operating as a result of the Company's withdrawal from Mexico and
Argentina, as discussed above.
Depreciation and amortization expense increased by $1.1 million, or 101%,
to $2.2 million for the three months ended March 31, 1997 as compared to $1.1
million for the three months ended March 31, 1996. The increase was primarily
due to additional depreciation associated with the acquisition in late 1996 of
13 operating rigs and the acquisition of 13 additional operating rigs in January
1997.
General and administrative expense increased by $1.0 million, or 130%, to
$1.7 million for the three months ended March 31, 1997, from $720,000 for the
same period of 1996 due primarily to (i) increased payroll costs associated with
new management and increased corporate staff, (ii) increased legal fees due to
the Company's expansion activities and (iii) increased insurance expenses due to
an increase in the number of rigs as well as an overall increase in employee
related insurance coverage.
During the first quarter of 1996, the Company incurred $602,000 in
non-recurring charges relating to the contractual severance to be paid over a
two-year period to the Company's former president and chief executive officer.
30
<PAGE> 32
Interest expense increased by $410,000, or 156%, to $672,000 for the three
months ended March 31, 1997 as compared to $262,000 for the three months ended
March 31, 1996. The increase was due to an increase in the average outstanding
debt balance of $18.6 million to $30.8 million for the three months ended March
31, 1997 from $12.2 million for the three months ended March 31, 1996.
Other income, net increased by $302,000 to $326,000 for the three months
ended March 31, 1997 as compared to $24,000 for the three months ended March 31,
1996. The principal reason for the increase was the elimination of the minority
interest share of INDRILLERS' 1997 first quarter loss. There was no comparable
elimination in the first quarter of 1996 because INDRILLERS was formed in April
1996.
For the three months ended March 31, 1997, income tax expense was $662,000.
This expense was the result of the Company's profitable operations and the
resulting taxable income. The Company had no taxable income for the first
quarter of 1996.
The Company had net income of $2.3 million for the three months ended March
31, 1997 as compared to a net loss of $1.5 million for the three months ended
March 31, 1996.
Comparison of Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
---------------------------------- ----------------------------------
DOMESTIC FOREIGN DOMESTIC FOREIGN
OPERATIONS OPERATIONS TOTAL OPERATIONS OPERATIONS TOTAL
---------- ---------- -------- ---------- ---------- --------
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE REVENUES PER DAY)
<S> <C> <C> <C> <C> <C> <C>
Rig days worked..................... 7,050 3,694 10,744 6,289 5,405 11,694
Average revenues per day............ $ 7,446 $ 7,924 $ 7,610 $ 7,123 $ 8,455 $ 7,739
Drilling revenues................... $ 52,495 $ 29,272 $ 81,767 $ 44,797 $ 45,698 $ 90,495
Export sales........................ -- -- -- -- 4,214 4,214
Operating expenses(1)............... 49,431 30,957 80,388 40,867 48,277 89,144
Export sales expenses............... -- -- -- -- 4,681 4,681
-------- -------- -------- -------- -------- --------
Gross profit (loss)................. $ 3,064 $ (1,685) $ 1,379 $ 3,930 $ (3,046) $ 884
======== ======== ======== ======== ======== ========
</TABLE>
- ------------------------------------
(1) Operating expenses exclude for depreciation and amortization and general and
administrative expenses.
Revenues decreased approximately $12.9 million, or 13.6%, to $81.8 million
for the year ended December 31, 1996 from $94.7 million for the year ended
December 31, 1995. This decrease was primarily due to a decrease in revenues
from foreign operations of $20.6 million where rig utilization decreased by
1,711 days. Revenues generated in the Mexican and Argentine markets decreased by
$17.3 million to $11.3 million for the year ended December 31, 1996, compared to
$28.6 million for the year ended December 31, 1995, due to a decline in average
revenues per day, lower rig utilization and the Company's ultimate withdrawal
from these markets. Revenues generated in Venezuela increased slightly to $18.0
million for the year ended December 31, 1996 from $17.1 million for the year
ended December 31, 1995. The increase was due to increases in day rates received
because the number of rig days worked decreased by 360 days caused by the
non-renewal of several drilling contracts for which the Company was unable to
obtain replacement contracts from the same or other customers. The remainder of
the decrease in revenues from foreign operations was due to $4.2 million in
non-recurring export sales during the year ended December 31, 1995. The decrease
in revenues from foreign operations was partially offset by a $7.7 million
increase in revenues from domestic operations to $52.5 million for the year
ended December 31, 1996, as compared to $44.8 million for the year ended
December 31, 1995. Domestic rig utilization improved by 7.0% in 1996, and
average revenues per day increased by 5.0%, due to an overall improvement in the
domestic contract drilling market.
Drilling operating expenses decreased by $13.4 million, or 14.3%, to $80.4
million for the year ended December 31, 1996, from $93.8 million for the year
ended December 31, 1995. The decrease was due to a $22.0 million decrease in
foreign drilling expenses, which was partially offset by a $8.6 million increase
in
31
<PAGE> 33
drilling expenses from domestic operations. Drilling expenses associated with
the Company's Mexican and Argentine operations decreased by $16.0 million to
$15.3 million for the year ended December 31, 1996 from $31.3 million for the
year ended December 31, 1995. This decrease was due to the lower utilization in,
and the Company's ultimate withdrawal from, those markets. Drilling operating
expenses included $1.0 million in mobilization costs to transport the Company's
drilling rigs from Mexico to the United States. Drilling expenses in Venezuela
decreased by $1.3 million to $15.7 million for the year ended December 31, 1996
from $17.0 million for the year ended December 31, 1995 primarily because of
lower rig utilization in 1996. Also contributing to the decrease in operating
expenses from foreign operations was $4.7 million in costs related to
non-recurring export sales for the year ended December 31, 1995. Drilling
expenses from domestic operations increased $8.6 million to $49.4 million for
the year ended December 31, 1996, from $40.9 million for the year ended December
31, 1995. This increase was primarily due to increased utilization and, to a
lesser extent, increased direct labor costs.
Depreciation and amortization expenses decreased by $143,000, or 3%, to
$4.7 million for the year ended December 31, 1996 from $4.8 million for the year
ended December 31, 1995. The decrease in depreciation expense was primarily
attributable to the decrease in the depreciable asset base resulting from the
$5.3 million impairment provision recorded in the fourth quarter of 1995 as a
result of the Company's adoption of SFAS 121, as described below. While the
RTO/LRAC Acquisition, which occurred in August 1996, increased the Company's
asset base, no depreciation expense will be recorded until the acquired rigs are
placed in service. Only one of these rigs was placed in service in late 1996.
During the year ended December 31, 1996, the Company recorded non-recurring
charges of $6.1 million which included $1.1 million in employment severance
costs, $4.6 million in costs to exit the Argentine and Mexican markets and
approximately $400,000 of other non-recurring charges. The employment severance
costs includes $602,000 in contractual severance pay to be paid over a two-year
period to the Company's former President and Chief Executive Officer and the
transfer to him of certain drilling equipment with a net book value of $535,000
in settlement of a dispute over options to purchase Common Stock. As a result of
the Company's desire to redeploy assets to more productive markets, the Company
decided in late 1996 to withdraw from both the Argentine and Mexican markets and
has recorded estimated exit costs of $1.3 million for Mexico, which primarily
consist of the forfeiture of a performance bond and other costs to be incurred
to close the office, and exit costs of $800,000 for Argentina, which primarily
consist of costs expected to be incurred during the period necessary to exit the
market and close the office. Additionally, in 1996, the Company agreed to sell
three of the six drilling rigs and certain other assets located in Argentina for
$1.5 million. As a result, the Company recorded a write down of rig equipment
and other assets of $2.5 million. The remaining Argentine drilling rigs have
been returned to the United States where they are expected to be refurbished and
returned to service. Mobilization costs will be expensed as incurred in 1997.
General and administrative expenses increased by $719,000 to $4.3 million
for the year ended December 31, 1996, from $3.6 million for the year ended
December 31, 1995, due to increased payroll cost associated with the new
management members and the increased corporate staff, legal fees associated with
unsuccessful litigation to recover amounts the Company believed it was owed and
other professional fees.
Interest expense decreased by $252,000 for the year ended December 31,
1996, primarily as a result of lower average outstanding debt levels during 1996
in the United States and lower outstanding levels on an overdraft facility in
Argentina. The consolidated average debt balances during 1996 and 1995 were
$13.7 million and $15.0 million, respectively. Interest rates during these
periods remained relatively unchanged.
Other income, net increased $2.5 million to $4.1 million in 1996 from $1.6
million in 1995 primarily as a result of a $2.8 million gain recorded in
connection with the sale of its Western Division in the second quarter of 1996.
The Company's income tax expense of $845,000 in 1996 was solely
attributable to Venezuelan income taxes.
32
<PAGE> 34
The Company had a net loss of $11.7 million in 1996 as compared to a net
loss of $13.4 million in 1995. The Company's net loss in 1995 includes net
losses from discontinued operations of $772,000 incurred in connection with the
sale of oil and gas properties, for which there was no similar transaction in
1996.
Comparison of Year Ended December 31, 1995 to Twelve Months Ended December 31,
1994
<TABLE>
<CAPTION>
YEAR ENDED TWELVE-MONTH PERIOD ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994(1)
----------------------------------- -----------------------------------
DOMESTIC FOREIGN DOMESTIC FOREIGN
OPERATIONS OPERATIONS TOTAL OPERATIONS OPERATIONS TOTAL
---------- ---------- ------- ---------- ---------- -------
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE REVENUES PER DAY)
<S> <C> <C> <C> <C> <C> <C>
Rig days worked............ 6,289 5,405 11,694 6,246 1,209 7,455
Average revenues per day... $ 7,123 $ 8,455 $ 7,739 $ 7,930 $11,566 $ 8,520
Drilling revenues.......... $44,797 $45,698 $90,495 $49,530 $13,983 $63,513
Export sales............... -- 4,214 4,214 -- 1,880 1,880
Operating expenses(2)...... 40,867 48,277 89,144 47,722 13,204 60,926
Export sales expenses...... -- 4,681 4,681 -- 2,147 2,147
------- ------- ------- ------- ------- -------
Gross profit (loss)........ $ 3,930 $(3,046) $ 884 $ 1,808 $ 512 $ 2,320
======= ======= ======= ======= ======= =======
</TABLE>
- ------------------------------------
(1) Effective December 31, 1994, the Company changed its fiscal year end from
March 31 to December 31.
(2) Operating expenses exclude depreciation and amortization and general and
administrative expenses.
Revenues increased $29.3 million, or 44.8%, to $94.7 million for the fiscal
year ended December 31, 1995 from $65.4 million for the twelve months ended
December 31, 1994. This increase was primarily due to the expansion of the
Company's operations in Argentina, Mexico and Venezuela. Revenues from the
Company's foreign operations increased by $34.0 million to $49.9 million for the
year ended December 31, 1995 from $15.9 million for the twelve months ended
December 31, 1994. This increase was due to an increase in rig days worked from
1,209 during 1994 to 5,405 during 1995, partially offset by a decrease in
average revenues per day from $11,566 to $8,455. The increase in rig days worked
was primarily due to the inclusion of Venezuelan operations for a full twelve
months in 1995 as compared to only four months in 1994 as the Venezuelan
operating company was acquired effective September 1, 1994. The addition of four
rigs to the Argentine market and three rigs to the Mexican market also
contributed to the increase in rig days worked. International export revenues
for the year ended December 31, 1995 were $4.2 million and resulted from
materials sold for export to Costa Rica. The increase in revenue from foreign
operations was partially offset by a decrease in revenue from domestic
operations of $4.7 million to $44.8 million for the year ended December 31, 1995
from $49.5 million for the twelve months ended December 31, 1994. This decrease
was due to an $807 decrease in average revenues per day from $7,930 during 1994
to $7,123 during 1995.
Drilling operating expenses and export sales expenses increased $30.7
million, or 48.8%, to $93.8 million for the year ended December 31, 1995, from
$63.1 million for the twelve months ended December 31, 1994. Operating expenses
for the Company's foreign operations increased $37.6 million for the year ended
December 31, 1995, as compared to the 1994 twelve-month period as a result of
the expansion of the Company's Argentine drilling rig fleet and acquisition of
the Venezuelan operating company discussed above, the start-up costs on the four
rigs added to the Company's Argentine operations and higher than expected
repairs, maintenance and rig move costs experienced on all Argentine rigs during
1995. International export operating and other expenses for the year ended
December 31, 1995 were $4.7 million, primarily representing costs of materials
sold for export to Costa Rica. Domestic operating expenses decreased by $6.9
million for the year ended December 31, 1995 as compared to the twelve months
ended December 31, 1994. This decrease in costs from domestic operations of
approximately $500,000 was due to a change in the mix of the Company's rig
utilization from higher cost markets to lower cost markets and a change in the
type of work from a greater percentage of turnkey projects in 1994 to a greater
percentage of daywork in 1995.
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
effective for years beginning after December 15, 1995. As the FASB
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<PAGE> 35
encouraged earlier application, the Company adopted the provisions of SFAS No.
121 during the fourth quarter of 1995. This new accounting standard requires
certain assets to be reviewed for impairment whenever events or circumstances
indicate the carrying amount may not be recoverable. The Company has provided a
non-cash impairment provision of $5.3 million for certain drilling rigs and
equipment due to market indications that the carrying amounts were not fully
recoverable. Net realizable value was determined based upon appraisal,
comparable sale data and management estimates.
Depreciation and amortization expenses increased $1.7 million, or 54.8%, to
$4.8 million for the year ended December 31, 1995, from $3.1 million for the
twelve months ended December 31, 1994. This increase was due to the acquisition
of drilling equipment for foreign operations.
General and administrative expenses increased approximately $500,000 to
$2.9 million for the year ended December 31, 1995 from $2.4 million for the
twelve months ended December 31, 1994 primarily due to the expanded scope of the
Company's foreign operations.
Interest expense increased $1.0 million to $1.4 million for the year ended
December 31, 1995 from $425,000 for the twelve months ended December 31, 1994.
The increase was due to an increase in borrowings for expansion in foreign
markets. The consolidated average debt balances during the year ended December
31, 1995, and the twelve-months ended December 31, 1994 were $15.0 million and
$7.5 million, respectively. Interest rates during these periods remained
relatively unchanged.
Other income, net increased $1.0 million from $637,000 in 1994 to $1.6
million in 1995, primarily due to a foreign currency gain of $888,000 for the
year ended December 31, 1995 attributable to currency exchange transactions
associated with the Company's Venezuelan operations.
The net loss from discontinued operations was $772,000 for the year ended
December 31, 1995 as compared to net income of $55,000 for the twelve months
ended December 31, 1994. The net loss in 1995 consisted primarily of a non-cash
provision resulting from the disposal of the Company's oil and gas properties.
On June 7, 1995, the Company entered into an agreement to sell its producing oil
and gas properties, effective April 1, 1995, for a cash sales price of $4.2
million, subject to certain adjustments. The sale was closed on August 9, 1995.
Proceeds from this transaction were used to pay off the Company's production
term note which had an outstanding balance of approximately $1.5 million and to
purchase two certificates of deposit totaling approximately $1.4 million as
collateral for two letters of credit that were then outstanding under the
Company's revolving line of credit, with the remainder of the proceeds,
approximately $1.3 million, used for working capital purposes.
The Company had a net loss of $13.4 million in 1995 as compared to a loss
of $3.5 million for the twelve months ended December 31, 1994.
INFLATION AND CHANGING PRICES
Contract drilling revenues do not necessarily track the changes in general
inflation as they tend to respond to the level of activity on the part of the
oil and gas industry in combination with the supply of equipment and the number
of competing companies. Capital and operating costs are influenced to a larger
extent by specific price changes in the oil and gas industry and to a lesser
extent by changes in general inflation.
FOREIGN EXCHANGE
Venezuelan operations are often performed by the Company pursuant to
drilling contracts under which payments to the Company are denominated in United
States Dollars but are payable in Venezuelan currency at a floating exchange
rate. Although the Company's Venezuelan contracts usually allow the Company to
exchange up to 35% of payments made to it in Venezuelan currency for United
States Dollars for a limited period of time following the payment and at the
official Venezuelan exchange rate in effect at the time the payment was made to
the Company (thus offering limited protection against adverse currency
fluctuation), the Company is typically subject to the risk of adverse currency
fluctuations with respect to the balance of such payments. Additionally, a
significant portion of costs and expenses relating to the Company's
international operations are comprised of goods and services procured in the
respective foreign countries and paid for
34
<PAGE> 36
in the respective countries' currencies. Accordingly, management expects that
the Company's subsidiaries operating in Venezuela will be required to maintain
significant cash balances in Venezuelan currency. The Company has not during the
three-year period ended December 31, 1996 entered into any currency hedges to
protect it from foreign currency losses. Instead, the Company attempts to manage
assets in foreign countries to minimize its exposure to currency fluctuations.
Despite these efforts, however, the Company remains subject to the risk of
foreign currency losses. During the year ended December 31, 1995, however, the
Company realized currency gains of $888,000, and, in 1996, $404,000 was recorded
as a decrease to shareholders' equity due to a devaluation of the Venezuelan
Bolivar.
FORWARD-LOOKING INFORMATION
The Management's Discussion and Analysis of Financial Condition and Results
of Operations ("MD&A") contains "forward-looking statements" within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical facts included in the MD&A
including, without limitation, statements regarding the Company's operating
strategy, plans, objectives and beliefs of management for future operations,
planned rig refurbishments and the anticipated closing and methods of financing
the Grey Wolf Acquisition are forward-looking statements. Although the Company
believes the expectations and beliefs reflected in such forward-looking
statements are reasonable, it can give no assurance that such expectations will
prove to have been correct. See "Risk Factors" for a discussion of important
factors that could cause actual results to differ materially from the Company's
expectations. Also, see "Forward-Looking Statements."
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share." SFAS
No. 128 specifies the compilation, presentation and disclosure requirements for
earnings per share for entities with publicly held common stock or potential
common stock. The requirements of this statement will be effective for fiscal
years beginning after December 15, 1997. Management does not believe that the
implementation of SFAS No. 128 will have a material effect on the Company's
financial statements.
35
<PAGE> 37
BUSINESS
GENERAL
The Company is a leading provider of contract land drilling services in the
U.S. with a domestic fleet of 107 rigs, of which 79 are currently marketed. The
Company believes it has the largest or second largest active rig fleet in each
of its three core domestic markets, Ark-La-Tex, Gulf Coast and South Texas, with
an estimated market share of 11%, 14% and 26%, respectively, in May 1997. The
Company believes these markets have historically maintained higher utilization
and day rates than other domestic markets. In addition to its domestic
operations, the Company operates in Venezuela where the Company intends to
increase its market presence by upgrading its current fleet of six rigs and
deploying additional deep drilling rigs as warranted by market conditions. The
Company has an inventory of 28 rigs, of which 24 are diesel electric SCR rigs,
available for refurbishment and redeployment as demand warrants. The Company
estimates that these rigs can be activated for service in domestic markets for
an average cost of approximately $1.6 million, including the cost of new drill
pipe.
In 1996, the Company initiated a reorganization of its operations in which
the Company (i) replaced substantially all of its board of directors, (ii) hired
a new management team, substantially all of whom joined the Company after August
1996 and (iii) implemented a new operating strategy. The Company believes the
reorganization has positioned the Company to benefit from recent improvements in
the land drilling industry.
INDUSTRY OVERVIEW
The domestic land drilling industry is undergoing a period of rapid
consolidation. The Company believes that from January 1, 1996 through May 31,
1997 there have been at least 25 completed or pending transactions involving the
acquisition of a combined total of approximately 379 rigs, the majority of which
were acquired by six land rig companies. Recent and pending transactions by the
Company accounted for nine of these acquisitions involving the acquisition of 71
rigs, of which 44 were actively marketed at the time of acquisition and 27 were
stacked.
Industry sources estimate that there are approximately 1,400 land drilling
rigs available for work in the U.S. as compared to over 5,000 domestic land
drilling rigs in 1982 and approximately 2,000 land drilling rigs as recently as
1990. The Company believes that the demand for land drilling rigs in the
Company's core markets has increased over the past twelve months principally due
to improved oil and gas drilling and production economics resulting from
increased use of 3-D seismic, directional drilling and enhanced recovery
techniques. According to rig count data published by Baker Hughes Incorporated,
the average active domestic land rig count was 715 for the first three months of
1997, as compared to 652 for the full year 1996, and 595 for the first three
months of 1996. The Company's utilization rates in its three core domestic
markets averaged over 90% for the first three months of 1997. The convergence of
land drilling rig supply and demand in its core domestic markets have
contributed to improved financial results for the Company. In the first quarter
of 1997, the Company generated $9.4 million of EBITDA pro forma for the Grey
Wolf Acquisition and the Flournoy Acquisition, as compared to $17.8 million of
EBITDA for the full year 1996 on a pro forma basis for the Transactions. See
"Unaudited Pro Forma Consolidated Financial Data."
OPERATING STRATEGY
The Company's operating strategy, which was initiated in connection with
its change of management, is to achieve increased cash flow and earnings by:
Acquiring Land Drilling Rigs. The Company intends to continue to be
an active consolidator of the land drilling industry. Since August 1996,
the Company has acquired 71 land drilling rigs in nine transactions. Four
of these acquisitions were of land drilling companies with long histories
of operating in the Gulf Coast and South Texas markets. The other
acquisitions provided the Company with an inventory of diesel electric SCR
drilling rigs suited for deployment to the Company's core domestic markets
and Venezuela.
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<PAGE> 38
Focusing on Core Markets. The Company intends to focus its operations
in its three core domestic markets, Ark-La-Tex, Gulf Coast and South Texas,
and Venezuelan markets. In each of its core domestic markets, the Company
believes it has the largest or second largest active rig fleet, and intends
to maintain a leading market position. Management believes these markets
have historically maintained higher demand and utilization rates than other
domestic markets and that the Company's level of operations in these
domestic markets enables it to achieve economies of scale and maintain the
operating infrastructure to facilitate the deployment of inventoried
drilling rigs into these markets in a cost effective manner. In Venezuela,
the Company intends to increase its market presence by upgrading its
current fleet of six rigs and deploying additional diesel electric rigs as
warranted by market conditions.
Refurbishing Rigs. The Company seeks to grow internally by
capitalizing on its rig inventory. The Company has 28 rigs available for
refurbishment and return to marketable status. Twenty-four of these rigs
are diesel electric SCR drilling rigs which are currently in demand because
of their suitability for directional and deep drilling applications. Since
the second quarter of 1996, the Company refurbished and placed in service
six drilling rigs. An additional seven rigs are currently in various stages
of refurbishment and are expected to be available for service by the end of
the third quarter of 1997. The Company anticipates that during 1997 it may
commence the refurbishment of up to an additional 13 rigs, depending upon a
variety of factors, including management's assessment of existing and
anticipated demand and day rates for land drilling rigs in the Company's
domestic and Venezuelan markets and the Company's success in bidding for
drilling contracts. See "-- Rig Inventory and Rig Refurbishments."
Attracting and Retaining Qualified Personnel. The Company intends to
attract and retain qualified personnel by offering a combination of wage
rates, benefits and training programs that it believes will distinguish it
from its competitors. Whenever possible, management intends to retain
qualified operating personnel employed by drilling businesses acquired by
the Company. In the Diamond M Acquisition and Flournoy Acquisition, the
Company employed substantially all of each seller's rig personnel. The
Company expects to retain substantially all the rig personnel of Grey Wolf.
The Company has maintained a strong equity capitalization to provide it
with the financial flexibility to pursue acquisitions and rig refurbishments as
opportunities arise. In four of the Transactions, the acquisition price for the
business or assets acquired by the Company consisted entirely or primarily of
Common Stock, resulting in an increase in shareholders' equity of approximately
$130.0 million. Additionally, the Company has increased its equity
capitalization by raising $4.1 million in cash through a private placement of
its Common Stock in December 1996.
RECENT AND PENDING TRANSACTIONS
Grey Wolf Acquisition. On March 7, 1997, the Company entered into a
definitive agreement to merge Grey Wolf into Drillers (the "Merger Agreement").
Grey Wolf is a land drilling contractor operating primarily in South Louisiana
and along the Texas Gulf Coast and its principal operating assets are a fleet of
18 deep drilling land rigs, related equipment and vehicles. All of Grey Wolf's
18 rigs are currently working. The Grey Wolf Acquisition is subject to obtaining
Grey Wolf shareholders' approval and to certain other conditions. The proceeds
from the Offering will be used, in part, to fund the cash portion of the Grey
Wolf Acquisition. The closing of the Offering is contingent upon the
simultaneous closing of the Grey Wolf Acquisition.
The Merger Agreement provides that Grey Wolf's shareholders will receive up
to $61.6 million in cash and approximately 14.0 million shares of Common Stock.
The Merger Agreement provides, however, that if the "DI Common Stock Price" (as
defined below) is less than $3.00 or more than $4.00, the number of shares of
Common Stock to be issued will be adjusted. If the DI Common Stock Price is less
than $3.00, the number of shares of Common Stock to be issued will be increased
to a number of shares equal to $42.0 million divided by the DI Common Stock
Price. If the DI Common Stock Price is more than $4.00, the number of shares of
Common Stock to be issued will be decreased to the greater of (i) 11,666,667
shares, or (ii) a number of shares equal to $56.0 million divided by the DI
Common Stock Price. Additionally, the Merger Agreement provides for the decrease
of the cash consideration and a corresponding increase in the number of shares
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<PAGE> 39
issued so that at least 45% of the value of the consideration consists of Common
Stock. The "DI Common Stock Price" means an amount equal to the average of the
closing sales price of DI Common Stock on the American Stock Exchange
Consolidated Tape as reported by The Wall Street Journal (Southwest Edition) on
each of the ten consecutive trading days immediately preceding the third trading
day before the closing of the Grey Wolf Acquisition. Grey Wolf has agreed that
it will not, and has agreed that it will request each of its officers and
directors to agree that they will not, engage in trading in Common Stock during
the 20 consecutive days immediately preceding the closing of the Grey Wolf
Acquisition. A post-closing escrow arrangement will be established for certain
Grey Wolf litigation matters with $5.0 million of the cash consideration
otherwise payable in the Merger to Grey Wolf's shareholders. If the Grey Wolf
Acquisition were to have closed on June 20, 1997, the aggregate consideration
would have consisted of $61.6 million in cash and 14.0 million shares of Common
Stock.
In recognition of the name identification and industry goodwill associated
with Grey Wolf's business, the Company agreed in the Merger Agreement to
recommend to its shareholders that its articles of incorporation be amended to
include "Grey Wolf" in its corporate name. Accordingly, the Company plans to
propose to its shareholders that its corporate name be changed to "Grey Wolf
Incorporated" following the Grey Wolf Acquisition.
Flournoy Acquisition. On January 31, 1997, the Company acquired the
operating assets of Flournoy for approximately 12.4 million shares of Common
Stock and cash of approximately $800,000, which was utilized to repay certain
indebtedness of Flournoy. The assets acquired included 13 land drilling rigs, 17
rig hauling trucks, a yard and office facility in Alice, Texas and various other
equipment and drill pipe. Under the purchase method of accounting, the Company
valued the Common Stock issued in the Flournoy Acquisition at $31.1 million. The
Company agreed to issue additional shares of Common Stock to Flournoy's
shareholders if, and to the extent that, on January 31, 1998 the aggregate
market value of one-half of the shares received by the Flournoy shareholders,
plus the gross proceeds from certain sales of Common Stock received in the
transaction by the Flournoy shareholders prior to January 31, 1998, is, in
total, less than $12.4 million.
Diamond M Acquisition. On December 31, 1996, the Company completed the
Diamond M Acquisition for approximately $26.0 million in cash. The assets
acquired consisted of ten land drilling rigs, all of which are currently
operating in South Texas, 19 rig hauling trucks, a yard and office facility in
Alice, Texas and various other drill pipe and equipment.
Mesa Acquisition. On October 3, 1996, the Company acquired all of the South
Texas operating assets of Mesa in exchange for 5.5 million shares of Common
Stock. The assets acquired consist of six diesel electric SCR rigs, three of
which are currently operating in South Texas. Under the purchase method of
accounting, the Company valued the Common Stock issued in the Mesa Acquisition
transaction at $7.5 million.
RTO/LRAC and Somerset Acquisitions. On August 29, 1996, the Company
completed the RTO/LRAC Acquisition in which approximately 39.4 million shares of
Common Stock were exchanged for 18 inactive, deep drilling land rigs. The rigs
acquired in the RTO/LRAC Acquisition include five 3,000 horsepower and nine
2,000 horsepower land rigs rated for depths of 25,000 feet or greater.
Contemporaneously with the closing of the RTO/LRAC Acquisition, the Company
completed the Somerset Acquisition in which it issued approximately 39.4 million
shares of Common Stock for $25.0 million in cash. Under the purchase method of
accounting, the Company valued the Common Stock issued in the RTO/LRAC
Acquisition and the Somerset Acquisition at $25.0 million and $24.6 million,
respectively. The recipients of the shares issued in the RTO/LRAC and Somerset
Acquisitions were also issued warrants to acquire up to an aggregate of 3.4
million shares of Common Stock (the "Shadow Warrants"), exercisable upon the
occurrence of certain events. As of May 30, 1997, approximately 2.9 million of
the Shadow Warrants had been terminated unexercised. The $25.0 million capital
infusion from the Somerset Acquisition was used for rig fleet refurbishment,
debt repayment and general corporate purposes.
Pending Rig Purchase. In May 1997, the Company reached an oral agreement in
principle to purchase three stacked rigs for a purchase price of $8.9 million in
cash (the "Pending Rig Purchase"). The three rigs, which will be added to the
Company's inventory of rigs held for refurbishment, consist of a 3,000
horsepower
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<PAGE> 40
diesel electric SCR rig, a 1,500 horsepower mechanical rig and a 2,000
horsepower diesel electric SCR rig. The purchase price for the Pending Rig
Purchase will be paid from the net proceeds of the Offering.
Inventory Rig Purchases. In May 1997, the Company increased its inventory
of rigs held for refurbishment by the purchase of three stacked rigs in three
separate transactions for an aggregate purchase price of $6.9 million in cash
(the "Inventory Rig Purchases"). One of the rigs was purchased from an affiliate
of one of the Company's directors. The three rigs are diesel electric SCR rigs,
two of which are 1,000 horsepower rigs and one of which is a 4,000 horsepower
rig.
Western Sale. On June 24, 1996, the Company completed the Western Sale for
$3.9 million in cash. The Company's Western Division provided well workover
services in Montana, Utah and North Dakota. The Western Division consisted of 23
carrier-mounted workover rigs and certain real estate owned by the Company in
Glendive, Montana and Roosevelt, Utah. Pursuant to the purchase agreement, the
buyer assumed the obligations of the Company under its real and personal
property leases relating to the division. The Company recognized a gain of
approximately $2.8 million on the sale of this division.
DOMESTIC OPERATIONS
Giving effect to the Grey Wolf Acquisition and the Pending Rig Purchase,
the Company has a total domestic rig fleet of 107 rigs, 79 of which are being
actively marketed and 28 of which are held in inventory for refurbishment. See
"-- Rig Inventory and Refurbishments." The following table summarizes the
Company's domestic rig fleet, by horsepower rating and drive system:
<TABLE>
<CAPTION>
HORSEPOWER RATING DIESEL ELECTRIC MECHANICAL TOTAL
----------------- --------------- ---------- -----
<S> <C> <C> <C>
300-999.................................... 1 34 35
1,000-1,999................................. 23 20 43
2,000-4,000................................. 29 -- 29
-- -- ---
Total............................. 53 54 107
== == ===
</TABLE>
The Company's domestic drilling operations are conducted through five
operating divisions in the United States organized by geographic area. The
market area covered by each of the Company's divisions is depicted on the map
located in the inside front cover of this Prospectus.
Ark-La-Tex Division. The Ark-La-Tex Division provides drilling services
primarily in Northeast Texas, Northern Louisiana and Southern Arkansas, and
currently markets a fleet of 16 rigs. The majority of drilling in the Ark-La-Tex
market is directed to three of the five principal target geologic formations in
the region, generally located at depths ranging from 8,900 to 13,000 feet. For
these target formations, 700 to 1,000 horsepower mechanical rigs are typically
utilized in the Ark-La-Tex market. Thirteen of the division's rigs are suited
for drilling to these depths, ten of which are mechanical, two of which are
electrical and one is an SCR rig. The other two principal geologic targets in
the market, the Austin Chalk and Pinnacle Reef formations, are located at
substantially greater depths, typically from 15,500 to 22,000 feet. The Company
has three marketable rigs suitable for these drilling targets. One of these deep
drilling rigs is a 2,000 horsepower diesel electrical rig and one is a 2,100
horsepower diesel electric SCR rig, both of which have a depth rating of 25,000
feet. The third rig is a 3,000 horsepower diesel electric SCR rig with a depth
rating of 30,000 feet.
During 1996, approximately 42% of the division's revenues were generated
from daywork contracts, 3% from footage contracts and 55% from turnkey
contracts. For the first quarter of 1997, the percentage of its contract
revenues provided by daywork, footage and turnkey contracts was 46%, 5% and 49%,
respectively. The average revenues per day for the division during 1996 and the
first quarter of 1997 were $7,707 and $8,681, respectively, and for the same
periods its average rig utilization rates were 86% and 92%, respectively.
South Texas Division. The South Texas Division markets a fleet of 30 rigs
consisting of 14 trailer mounted rigs with rated depth capacities ranging from
9,000 to 13,000 feet, seven diesel electric SCR rigs with rated depth capacities
from 12,000 to 25,000 feet and eight conventional mechanical rigs with rated
depth capacities ranging from 10,000 to 13,000 feet. The Company believes that
trailer mounted rigs and 1,500 to
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<PAGE> 41
2,000 horsepower diesel electric SCR rigs are in highest demand in this market.
Trailer mounted rigs are relatively more mobile than conventional rigs, thus
decreasing the time and expense to the customer of moving the rig to and from
the drillsite. Under ordinary conditions, the Company's trailer mounted rigs are
capable of drilling an average of two 10,000 foot wells per month. The Company
believes it operates the largest trailer mounted rig fleet in this market. The
South Texas Division also operates a fleet of 35 trucks, which are used
exclusively to move the Company's rigs. Most drilling in this market is for
natural gas at depths ranging from 10,000 to 15,000 feet.
During 1996, approximately 75% of the division's revenues were generated
from daywork contracts, 14% from footage contracts and 11% from turnkey
contracts. For the first quarter of 1997, the percentage of its contract
revenues provided by daywork, footage and turnkey contracts was 47%, 15% and
38%, respectively. The average revenues per day for the division during 1996 and
the first quarter of 1997 were $5,668 and $8,611, respectively, and for the same
periods its average rig utilization rates were 85% and 98%, respectively.
Gulf Coast Division. Upon completion of the Grey Wolf Acquisition, Grey
Wolf's assets and personnel will establish the Company's Gulf Coast Division.
Grey Wolf's drilling services are provided to operators in South Louisiana and
along the upper Texas Gulf Coast. Grey Wolf's rig fleet consists of 18 deep
drilling rigs, including ten diesel electric rigs with rated depth capacities of
20,000 to 25,000 feet, four diesel electric SCR rigs with rated depth capacities
of 15,000 to 20,000 feet and four conventional mechanical rigs with rated depth
capacities of 20,000 feet.
During Grey Wolf's fiscal year ended October 31, 1996, approximately 48% of
its revenues were generated from daywork contracts, 10% from footage contracts
and 42% from turnkey contracts. For the first six months of fiscal 1997, the
percentage of its contract revenues provided by daywork, footage and turnkey
contracts was 65%, 3% and 32%, respectively. The average revenues per day for
Grey Wolf during fiscal 1996 and the first six months of fiscal 1997 were $9,558
and $9,587, respectively, and for the same periods its average rig utilization
rates were 95% and 98%, respectively.
Eastern Division. The Eastern Division markets a fleet of five rigs,
primarily in Ohio. The Eastern Division principally drills gas wells at depths
of 7,000 feet or less using air drilling techniques. This division typically
contracts to drill packages of several wells.
During 1996, approximately 30% of the division's revenues were generated
from daywork contracts and 70% from footage contracts. For the first quarter of
1997, the percentage of its contract revenues provided by daywork and footage
contracts was 11% and 89%, respectively. The average revenues per day for the
division during 1996 and the first quarter of 1997 were $4,976 and $4,872,
respectively, and for the same periods its average rig utilization rates were
72% and 88%, respectively.
INDRILLERS Division. In 1996, the Company and Dart Energy Corp. ("Dart")
formed INDRILLERS in which the Company has a 65% economic interest and Dart has
a 35% economic interest. Rights to manage the company are shared equally. This
division drills oil and gas wells principally in Michigan at depths of 1,000 to
16,000 feet. Nine of the ten rigs in this division have depth ratings ranging
from 5,500 to 10,500 feet, and one is rated to 16,000 feet.
During 1996, approximately 62% of the division's revenues were generated
from daywork contracts, 22% from footage contracts and 16% from turnkey
contracts. For the first quarter of 1997, the percentage of its contract
revenues provided by daywork, footage and turnkey contracts was 69%, 23% and 8%,
respectively. The average revenues per day for the division during 1996 and the
first quarter of 1997, were $5,981 and $5,538, respectively, and for the same
periods its average rig utilization rates were 31% and 19%, respectively.
FOREIGN OPERATIONS
Venezuela Division. The Company began operating in Venezuela in 1994, and
intends to upgrade the performance capabilities of its rig fleet in Venezuela
and intensify its marketing efforts there in response to increased demand for
land rig drilling services. The Company believes this demand has resulted
principally from changes in Venezuelan government policies and legislation
encouraging private sector participation in oil and gas exploration and
production. In recent years, the Venezuelan national oil company, Petroleos de
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<PAGE> 42
Venezuela, S.A. ("PDVSA"), has permitted international oil companies to enter
into operating agreements with one of PDVSA's three main operating subsidiaries
to rehabilitate, reactivate and develop certain of its older fields.
Additionally, the Venezuelan government has enacted legislation enabling
multinational oil companies to conduct exploration and development operations in
Venezuela through production sharing arrangements with PDVSA and its
subsidiaries. Through March 1997, eight large undeveloped properties have been
awarded to multinational oil companies for development through production
sharing arrangements. In November 1996, PDVSA solicited tenders from private
companies for the rehabilitation, reactivation and development of 20 additional
areas. The new operating agreements (referred to by PDVSA as the "Third
Operating Round") are expected to cover 12 areas described by PDVSA as "onshore"
locations covering a combined area of approximately 2,600 square kilometers
(approximately 1,003 square miles). The Company believes that the Third
Operating Round operations will require drilling and workover rigs ranging from
4,000 to 18,000 feet in capacity.
Drilling contractors operating in Venezuela generally obtain contracts
through a bidding process open only to drilling contractors previously approved
for inclusion on the "bid list" of the customer and PDVSA. Drilling contracts
are sometimes awarded on a long-term basis, for periods of up to 24 months. In
the Company's experience, bid specifications for Venezuelan drilling contracts
typically require premium quality, intermediate and deep drilling rigs with
1,500 to 3,000 horsepower ratings equipped with top drive mechanisms. The
Company believes that 3,000 horsepower rigs are currently in highest demand, but
it anticipates that demand for intermediate capacity 1,500 to 2,000 horsepower
rigs may improve in response to the Third Operating Round.
In 1996, the Company became aware of certain management and operating
deficiencies that contributed to reduced operations and profits, and the removal
of the Company from PDVSA's bid list due to the failure of the Company's
Venezuelan subsidiary to file statutorily required financial reports with the
Venezuelan government. To address these problems, the Company recently replaced
its local management with new management having substantial experience with
competing drilling contractors in Venezuela. The Company has since been restored
to PDVSA's bid list. The Venezuela Division is currently marketing four land
drilling rigs with rated depths of 10,000 to 15,000 feet and two workover rigs,
none of which is currently under contract. To improve the marketability of its
existing Venezuelan rig fleet, the Company has scheduled all of its Venezuelan
rigs for capital improvements and is actively seeking contracts for the improved
rigs upon completion. The Company has budgeted $2.9 million for these capital
improvements.
To further increase its market presence and deep drilling capabilities in
Venezuela, the Company is evaluating plans to refurbish and deploy to Venezuela
two 3,000 horsepower diesel electric SCR rigs and two additional 940 horsepower,
10,000 foot drilling capacity rigs, each of which will require refurbishment to
operate in the Venezuelan market. Its decision to refurbish and deploy such rigs
to Venezuela will depend upon a variety of factors, including market conditions,
management's assessment of existing and anticipated demand and day rates and the
Company's success in bidding for drilling contracts. The Venezuelan Division
generally provides its drilling services under daywork contracts and workover
services under hourly contracts. Hourly contracts call for the Company to
provide a rig and crew, for which it is paid on an hourly basis. Historically,
the Venezuelan Division has contracted to provide crews to man rigs owned by the
customer, and may do so in the future.
Prior Foreign Operations. Foreign operations contributed approximately 36%,
53% and 21% of the Company's operating revenues for the years ended December 31,
1996 and 1995 and for the nine month period ended December 31, 1994,
respectively, but accounted for approximately 71%, 68% and 15%, respectively, of
the Company's total losses from continuing operations for the same three
periods. For each of the same periods, the Company's foreign operations were
conducted principally in Mexico and South America.
Consistent with the Company's decision to redeploy its rigs to more
productive markets, the Company has withdrawn from both the Argentine and
Mexican markets. All four of the Company's drilling rigs previously located in
Mexico have been returned to the United States. Of the four repatriated rigs,
three have been refurbished and placed in service in the Company's Ark-La-Tex or
South Texas Divisions and one is held
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<PAGE> 43
for sale. In April 1997, the Company sold three of its six drilling rigs and
certain other assets located in Argentina for $1.5 million. The remaining three
rigs are being mobilized to the United States for refurbishment and redeployment
over the second and third quarters of 1997. Although management has determined
to concentrate its foreign operations in Venezuela, the Company will, from time
to time, consider expansion into additional selected international markets as
opportunities arise.
RIG INVENTORY AND REFURBISHMENTS
On a pro forma basis for the completion of the Grey Wolf Acquisition and
the Pending Rig Purchase, 28 rigs, or approximately 25% of the Company's rig
fleet, are held in inventory for possible refurbishment and deployment as demand
may warrant. Management believes that the demand for land drilling rigs in the
Company's Ark-La-Tex, Gulf Coast, South Texas and Venezuelan markets has
improved sufficiently to justify a program to restore certain of its stacked
rigs to marketable condition.
Since the beginning of the fourth quarter of 1996, the Company completed
the refurbishment of six rigs at an aggregate cost of approximately $6.7
million. Of these six recently refurbished rigs, three were diesel electric SCR
rigs rated at 1,000, 2,000 and 3,000 horsepower with depth ratings of 16,000,
25,000 and 30,000 feet, respectively. The other three refurbished rigs were
previously marketable rigs that were returned to the U.S. following the
Company's withdrawal from the Mexican market in late 1996. These rigs included
three mechanical rigs, rated at 750, 900 and 1,000 horsepower with rated
drilling capacities of 9,000, 10,000 and 14,000 feet, respectively. All six
recently refurbished rigs are now assigned to the Company's Ark-La-Tex and South
Texas Divisions.
The Company is currently refurbishing seven rigs, of which six are diesel
electric rigs and one is a mechanical rig. The mechanical rig is rated at 900
horsepower with a depth rating of 10,000 feet. Three of the diesel electric SCR
rigs undergoing refurbishment are rated at 2,000 horsepower with depth ratings
of 25,000 feet, one is rated at 1,000 horsepower with a depth rating of 15,000
feet, one is rated at 1,500 horsepower with a rated drilling capacity of 20,000
feet, and one is rated at 3,000 horsepower with a rated drilling capacity of
30,000 feet. The Company presently anticipates that the refurbished rigs will be
deployed to the Company's Ark-La-Tex, South Texas and Gulf Coast markets.
The Company anticipates that during 1997 it may commence the refurbishment
of up to an additional 13 rigs, depending upon a variety of factors, including
management's assessment of existing and anticipated demand and day rates and the
Company's success in bidding for contracts. Refurbishment costs for rigs to be
deployed by the Company in its core domestic markets is estimated to average
approximately $1.6 million per rig, while refurbishment costs for 2,000 to 3,000
horsepower rigs for the Venezuelan market are estimated to average approximately
$12.0 million per rig, in each case including the cost of a new drill string.
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<PAGE> 44
RIG FLEET
A land drilling rig consists of engines, drawworks, a mast, substructure,
pumps to circulate drilling fluid, blowout preventers, drill string and related
equipment. The actual drilling capacity of a rig may be less than its rated
drilling capacity due to numerous factors, including the length of its drill
string. The intended well depth and the drill site conditions determine the
drill string length and other equipment needed to complete the well. Generally,
land rigs operate domestically with crews of five to six persons and in
Venezuela with crews of ten to 12 persons. The following table further sets
forth certain information regarding the rigs owned and operated by the Company
and Grey Wolf as of May 31, 1997.
<TABLE>
<CAPTION>
MAXIMUM
RATED
YEAR BUILT/ HORSEPOWER DRILLING
RIG NO. REBUILT DRAWWORKS DRIVE SYSTEM(1) RATING DEPTH STATUS(2)
- ------- -------------- --------- --------------- ---------- --------- ---------
(IN FEET)
<C> <S> <C> <C> <C> <C> <C>
Ark-La-Tex Division
1 1957/1980 Brewster N-85 Mechanical 1,000 15,000 Active
2 1957/1981 Brewster N-85 Mechanical 1,000 15,000 Active
3 1960/1982 Continental-Emsco A-550 Mechanical 700 12,500 Active
6 1957/1980 Brewster N-85 Mechanical 1,000 15,000 Active
7 1978 National 55 Mechanical 700 12,500 Active
10 1964/1989 Gardner-Denver 800 Mechanical 1,000 15,000 Active
12 1980 Gardner-Denver 700 Mechanical 800 12,500 Active
13 1981 Brewster N-75B Mechanical 1,000 12,500 Active
15 1965/1989 National 610 Mechanical 750 12,500 Active
19 1981/1997 National 80-B Mechanical 1,000 15,000 Active
39 1980/1989 Gardner-Denver 800 Diesel Electric 1,000 15,000 Active
40 1979 Gardner-Denver 1100E Diesel Electric 1,500 20,000 Active
42 1981 Continental-Emsco Elec. II Diesel Electric SCR 2,000 25,000 Active
44 1982 Gardner-Denver 1500E Diesel Electric 2,000 25,000 Active
48 1981/1997 Ideco E-3000 Diesel Electric SCR 3,000 30,000 Active
75 1982/1996 Continental-Emsco D-3E Diesel Electric SCR 1,000 15,000 Active
South Texas Division
31 1980/1997 Cabot 750 Mechanical 750 9,500 Active
33 1981/1992 National 80 UE Diesel Electric SCR 1,000 14,000 Active
34 1981/1992 Superior 700 UE Diesel Electric SCR 700 12,000 Active
37 1981/1992 Continental-Emsco Elec. II Diesel Electric SCR 2,000 25,000 Active
43 1981 Ideco E-1200 Diesel Electric SCR 1,200 17,000 Active
70 1981/1997 Ideco BIR 800 Mechanical 900 10,000 Active
86 1981/1997 National 1320 UE Diesel Electric SCR 2,000 25,000 Active
301 1990 Mid-Continent U-36A Mechanical 900 12,000 Active
302 1964/1988 RMI 750 Mechanical 900 10,500 Active
303 1966/1995 Brewster N-75 Mechanical 1,000 14,000 Active
304 1969/1975 Cabot 750 Mechanical 750 9,500 Active
305 1973/1990 Cabot 1000 Mechanical 1,000 13,000 Active
306 1990/1997 RMI 1000 Mechanical 1,000 13,500 Active
307 1993/1995 Ideco E-1200 Diesel Electric SCR 1,200 17,000 Active
308 1975/1992 Ideco BIR 800 Mechanical 900 10,000 Active
309 1976/1990 Gardner-Denver 500 Mechanical 800 10,000 Active
310 1980/1995 Brewster N-46 Mechanical 850 12,000 Active
311 1981/1996 Ideco BIR 800 Mechanical 900 10,000 Active
312 1982 Gardner-Denver 1100E Diesel Electric SCR 1,500 20,000 Active
314 1996 Cabot 750 Mechanical 750 9,500 Active
840 1981/1994 Oilwell 840E Diesel Electric SCR 1,500 20,000 Active
851 1982/1994 National 80-B Mechanical 1,000 14,000 Active
859 1978/1991 Brewster N-75 Mechanical 1,000 14,000 Active
860 1976/1995 Cabot 750 Mechanical 750 9,500 Active
861 1978/1993 Cabot 900 Mechanical 900 11,000 Active
862 1976 Cabot 900 Mechanical 900 11,000 Active
863 1978/1988 Cabot 1000 Mechanical 1,000 13,000 Active
864 1975/1994 Cabot 1000 Mechanical 1,000 13,000 Active
865 1979/1993 Cabot 1200 Mechanical 1,200 14,000 Active
866 1982/1993 Cabot 1200 Mechanical 1,200 14,000 Active
Gulf Coast Division (Grey Wolf Fleet)(3)
502 1987 Continental-Emsco C-II Diesel Electric 2,000 25,000 Active
503 1991 National 1320 UE Diesel Electric 2,000 25,000 Active
504 1990 National 110 M Mechanical 1,500 20,000 Active
505 1995 National 1320 UE Diesel Electric 2,000 25,000 Active
506 1977 Continental-Emsco C-II Diesel Electric 2,000 25,000 Active
507 1979 Continental-Emsco C-II Diesel Electric 2,000 25,000 Active
508 1981 Continental-Emsco C-II Diesel Electric 2,000 25,000 Active
509 1982 Continental-Emsco C-II Diesel Electric 2,000 25,000 Active
510 1983 Continental-Emsco C-I Mechanical 1,500 20,000 Active
</TABLE>
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<PAGE> 45
<TABLE>
<CAPTION>
MAXIMUM
RATED
YEAR BUILT/ HORSEPOWER DRILLING
RIG NO. REBUILT DRAWWORKS DRIVE SYSTEM(1) RATING DEPTH STATUS(2)
- ------- -------------- --------- --------------- ---------- --------- ---------
(IN FEET)
<C> <S> <C> <C> <C> <C> <C>
511 1984 National 110 M Mechanical 1,500 20,000 Active
514 1990 National 110 UE Diesel Electric SCR 1,500 20,000 Active
515 1990 Oilwell 760 E Diesel Electric SCR 1,000 15,000 Active
516 1990 Oilwell 760 E Diesel Electric SCR 1,000 15,000 Active
517 1990 Oilwell 860 M Mechanical 1,500 20,000 Active
518 1991 Continental-Emsco C-I-II Diesel Electric 1,500 20,000 Active
519 1991 Continental-Emsco C-I-II Diesel Electric 1,500 20,000 Active
520 1995 Oilwell 840 E Diesel Electric SCR 1,500 20,000 Active
521 1997 National 1320 UE Diesel Electric 2,000 25,000 Active
Eastern Division
202 1981 Wilson Mogul 42 Mechanical-Air 450 8,000 Idle
203 1980 Wilson Mogul 42 Mechanical-Air 450 8,000 Active
204 1979 Wilson Mogul 42 Mechanical-Air 450 6,500 Idle
208 1980 Wilson Mogul 42 Mechanical-Air 450 6,500 Active
215 1980 Wilson Mogul 42 Mechanical-Air 450 6,500 Active
INDRILLERS Division
1 1980 Challenger 320 Mechanical 350 5,000 Active
2 1979 Ideco H-47 Mechanical 300 7,000 Idle
3 1980 Challenger 320 Mechanical 350 5,000 Active
4 1980 Challenger 320 Mechanical 350 5,000 Active
5 1980 Ideco BIR 800 Mechanical 900 10,000 Active
41 1981 Ideco E-1200 Diesel Electric SCR 1,200 17,000 Idle
53 1976 Cabot 550 Mechanical 450 6,500 Active
56 1980 Ideco DIR 700 Mechanical 700 8,500 Idle
57 1977 Ideco BIR 550 Mechanical 450 6,500 Idle
58 1977 Ideco DIR 700 Mechanical 700 8,500 Active
Venezuelan Division
407 1980 Cooper LTO 350 Mechanical-WO 350 14,000 Idle
423 1981/1996 Mid-Continent 712-U Mechanical 1,500 15,000 Idle
441 1980 Wilson Mogul 42 Mechanical-WO 350 12,000 Idle
451 1981 Cabot 900 Mechanical 900 10,000 Idle
452 1975/1994 Cabot 900 Mechanical 900 10,000 Idle
453 1982/1994 Ideco H-35 Mechanical 450 10,000 Idle
Rigs held in inventory
14 1981 Superior 1000 UE Diesel Electric SCR 1,000 15,000 Inventory
16 1981 Oilwell 760E Diesel Electric SCR 1,000 15,000 Inventory
38 1981 Oilwell 840E Diesel Electric SCR 1,500 20,000 Inventory
47 1982 Ideco E-1200 Diesel Electric SCR 1,200 17,000 Inventory
49 1982 Ideco E-1200 Diesel Electric SCR 1,200 17,000 Inventory
76 1982 Continental-Emsco D-3-E Diesel Electric SCR 1,000 15,000 Inventory
77 1981 Mid-Continent 914 EC Diesel Electric SCR 1,500 20,000 Inventory
78 1981 Oilwell E-2000 Diesel Electric SCR 2,000 25,000 Inventory
79 1981 National 110 UE Diesel Electric SCR 1,500 20,000 Inventory
80 1981/1982 Oilwell E-2000 Diesel Electric SCR 2,000 25,000 Inventory
81 1981 Oilwell E-2000 Diesel Electric SCR 2,000 25,000 Inventory
82 1981 Oilwell E-2000 Diesel Electric SCR 2,000 25,000 Inventory
83 1981 Continental Emsco C-2-E Diesel Electric SCR 2,000 25,000 Inventory
84 1982 Oilwell E-2000 Diesel Electric SCR 2,000 25,000 Inventory
85 1981 National 1320 UE Diesel Electric SCR 2,000 25,000 Inventory
87 1979 National 1320 UE Diesel Electric SCR 2,000 25,000 Inventory
88 1981 Continental-Emsco C-3-E Diesel Electric SCR 3,000 30,000 Inventory
89 1981 Oilwell E-3000 Diesel Electric SCR 3,000 30,000 Inventory
90 1980/1981 National 1625 DE Diesel Electric SCR 3,000 30,000 Inventory
91 1980/1981 National 1625 DE Diesel Electric SCR 3,000 30,000 Inventory
92 1980/1981 National 1625 DE Diesel Electric SCR 3,000 30,000 Inventory
454 1981 Ideco BIR 800 Mechanical 900 10,000 Inventory
455 1981 Ideco BIR 800 Mechanical 900 10,000 Inventory
473 1981/1994 Cabot 900 Mechanical 900 10,000 Inventory
558 1982 Dreco 4000-E Diesel Electric SCR 4,000 40,000 Inventory
--(4) 1981 Gardner-Denver 3000E Diesel Electric SCR 3,000 30,000 Inventory
--(4) 1981 Oilwell E-2000 Diesel Electric SCR 2,000 25,000 Inventory
--(4) 1981 National 110 M Mechanical 1,500 20,000 Inventory
</TABLE>
- ------------------------------------
(1) "SCR" means silicone controlled rectifier; and "WO" means workover rig.
(2) The Company considers a rig that is presently working to be an "active" rig.
Rigs that are not working but which are currently being actively marketed
are viewed as "idle." "Inventory" rigs are rigs that are not
44
<PAGE> 46
working, are not currently being actively marketed and will require
additional capital expenditures to activate them for service.
(3) To become the Company's Gulf Coast Division upon completion of the Grey Wolf
Acquisition.
(4) To be acquired upon closing of the Pending Rig Purchase.
CONTRACTS
The Company's contracts for drilling oil and gas wells are obtained either
through competitive bidding or as a result of negotiations with customers.
Contract terms offered by the Company are generally dependent on the complexity
and risk of operations, on-site drilling conditions, type of equipment used and
the anticipated duration of the work to be performed. Generally, domestic
drilling contracts are for a single well, while foreign drilling contracts are
for multiple wells. The contracts typically obligate the Company to pay certain
operating expenses, including wages of drilling personnel, maintenance expenses,
incidental rig supplies, equipment and local office facilities. Domestic
drilling contracts are typically subject to termination by the customer on short
notice, usually upon payment of a fee. Foreign drilling contracts generally
require longer notice periods for termination and also may require that the
customer pay for the mobilization and demobilization costs.
The Company's drilling contracts generally provide for compensation on
either a daywork, turnkey or footage basis. See "-- Domestic Operations" for the
percentage of revenues by contract type for each domestic division.
Daywork Contracts. Under daywork drilling contracts, the Company provides a
drilling rig with required personnel to the operator, who supervises the
drilling of the well. The Company is paid based on a negotiated fixed rate per
day while the rig is utilized. Daywork drilling contracts generally specify the
type of equipment to be used, the size of the hole and the depth of the well.
Under a daywork drilling contract, the customer bears a large portion of
out-of-pocket costs of drilling and the Company generally bears no part of the
usual capital risks associated with oil and gas exploration (such as time delays
for various reasons, including stuck drill pipe and blowout.)
Turnkey Contracts. Under a turnkey contract, the Company contracts to drill
a well to an agreed-upon depth under specified conditions for a fixed price,
regardless of the time required or the problems encountered in drilling the
well. The Company provides technical expertise and engineering services, as well
as most of the equipment required for the well, and is compensated when the
contract terms have been satisfied. Turnkey contracts afford an opportunity to
earn a higher return than would normally be available on daywork or footage
contracts if the contract can be completed successfully without complications.
The risks to the Company under a turnkey contract are substantially greater
than on a well drilled on a daywork basis because the Company assumes most of
the risks associated with drilling operations generally assumed by the operator
in a daywork contract, including risk of blowout, loss of hole, stuck drill
pipe, machinery breakdowns, abnormal drilling conditions and risks associated
with subcontractors' services, supplies, cost escalation and personnel. The
Company employs or contracts for engineering expertise to analyze seismic,
geologic and drilling data to identify and reduce many of the drilling risks
assumed by the Company. Management uses the results of this analysis to evaluate
the risks of a proposed contract and seeks to account for such risks in its bid
preparation. The Company believes that its operating experience, qualified
drilling personnel, risk management program, internal engineering expertise and
access to proficient third party engineering contractors have allowed it to
reduce the risks inherent in turnkey drilling operations. The Company also
maintains insurance coverage against some but not all drilling hazards.
Footage Contracts. Under footage contracts, the Company is paid a fixed
amount for each foot drilled, regardless of the time required or the problems
encountered in drilling the well. The Company pays more of the out-of-pocket
costs associated with footage contracts compared with daywork contracts. Similar
to a turnkey contract, the risks to the Company on a footage contract are
greater because it assumes most of the risks associated with drilling operations
generally assumed by the operator in a daywork contract, including risk of
blowout, loss of hole, stuck drill pipe, machinery breakdowns, abnormal drilling
conditions and risks associated with subcontractors' services, supplies, cost
escalation and personnel. As with turnkey contracts, the
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<PAGE> 47
Company manages this additional risk through the use of engineering expertise
and bid the footage contracts accordingly. The Company also maintains insurance
coverage against certain drilling hazards.
CUSTOMERS AND MARKETING
The Company's contract drilling customers include independent producers,
major oil companies and national petroleum companies. One unaffiliated customer
accounted for 18% of the Company's revenues for the quarter ended March 31,
1997. No customer accounted for more than 10% of DI's consolidated revenues for
three months ended March 31, 1996, the years ended December 31, 1996 and 1995 or
the nine months ended December 31, 1994.
The Company primarily markets its drilling rigs on a regional basis through
employee salesmen. These salesmen utilize personal contacts and industry
periodicals and publications to determine which operators are planning to drill
oil and gas wells in the immediate future. Once the Company has been placed on
the "bid list" for an operator, the Company will typically be given the
opportunity to bid on all future wells for that operator in the area.
The Company from time to time enters into informal, nonbinding commitments
with its customers to provide drilling rigs for future periods at agreed upon
rates plus fuel and mobilization charges, if applicable, and escalation
provisions. This practice is customary in the land drilling business during
times of tightening rig supply. Although neither the Company nor the customer is
legally required to honor these commitments, the Company strives to satisfy such
commitments in order to maintain good customer relations.
COMPETITION
The land drilling industry has recently experienced a period of
consolidation. All of the Company's markets, however, continue to be highly
fragmented and competitive among several drilling contractors. Competition is
generally based on price, workforce experience, equipment suitability and
availability, reputation, expertise and financial capability. The Company
believes that in each of its markets, it has a significant presence in terms of
equipment and workforce experience. Several of the Company's competitors have
greater financial and other resources than the Company and may commit more
capital and human resources than the Company to these important factors. If
demand for drilling rigs increases in the future, rig and crew availability may
become more critical competitive factors. Although competition is primarily on a
regional basis, rigs can be moved from one region to another in response to
changes in levels of drilling activity, subject to crew availability,
mobilization expenses and the suitability of the rigs for drilling under
conditions in another region.
EQUIPMENT AND SUPPLIES
Although equipment and supplies used in the Company's business are
generally available from multiple sources, there is a general shortage of
drilling equipment and supplies. The Company believes these shortages may
intensify. The costs and delivery times of equipment and supplies are
substantially greater than in prior periods and are currently escalating. In
response to this trend, the Company in 1996 formed an alliance with a major
drill pipe manufacturer. The alliance enables the Company to take delivery
through 1998 of agreed maximum quantities of drill pipe in commonly used
diameters at fixed prices plus possible escalations for increases in the
manufacturer's cost of raw materials. As is common in the industry, the drill
pipe supply alliance is not a formal contractual agreement but represents an
informal arrangement in which both parties undertake to satisfy the supply
objectives of the alliance. Due in part to its alliance arrangement, the Company
is not currently experiencing any material shortages of, or material price
increases in, drill pipe. The Company is also attempting to establish
arrangements to assure adequate availability of certain other necessary drilling
equipment and supplies on satisfactory terms, but there can be no assurance that
it will be able to do so. Accordingly, there can be no assurance that the
Company will not experience shortages of, or material price increases in,
drilling equipment and supplies, including drill pipe, in the future. Any such
shortages could delay and adversely affect the Company's ability to refurbish
its inventory rigs and obtain contracts for its marketable rigs.
46
<PAGE> 48
REGULATION
General. The drilling of oil and gas wells is subject to various federal,
state, local and foreign laws, rules and regulations, including regulations that
control the discharge of materials into the environment or require remediation
of contamination. Many of the Company's activities are conducted in or near
ecologically sensitive areas, such as wetlands, inland waterways and coastal
environments. Numerous federal and state environmental laws regulate drilling
activities and impose liability for causing pollution in inland, coastal and
offshore waters. State and federal legislation also provide special protections
to animal and marine life that could be affected by the Company's activities. In
general, under various applicable environmental programs, the Company may
potentially be subject to regulatory enforcement action in the form of
injunctions, cease and desist orders and administrative, civil and criminal
penalties for violations of environmental laws. The Company may also be subject
to liability for natural resource damages and other civil claims arising out of
a pollution event.
Environmental regulation has led to higher drilling costs, a more difficult
and lengthy well permitting process and, in general, has adversely affected many
oil companies' drilling decisions. Prohibitions on drilling in certain
ecologically sensitive areas are likely to remain in effect or even be extended.
Laws and regulations protecting the environment have become more stringent
in recent years, and may, in certain circumstances, impose strict liability
rendering a person liable for environmental damage without regard to negligence
or fault on the part of such person. Such laws and regulations may expose the
Company to liability for the conduct of or conditions caused by others, or for
acts of the Company which were in compliance with all applicable laws at the
time such acts were performed. The application of these requirements or adoption
of new requirements could have a material adverse effect on the Company.
The primary environmental statutory and regulatory programs that affect the
Company's operations include:
Oil Pollution Act and Clean Water Act. The Oil Pollution Act of 1990
("OPA") amends certain provisions of the Federal Water Pollution Control Act of
1972, commonly referred to as the Clean Water Act ("CWA"), and other statutes as
they pertain to the prevention of and response to hazardous substances and oil
spills into navigable waters. Under OPA, a person owning a facility or equipment
from which there is a discharge or threat of a discharge of oil into or upon
navigable waters and adjoining shorelines is liable as a "responsible party" for
removal costs and damages. Federal law imposes strict, joint and several
liability on facility owners for containment and clean-up costs and certain
other damages, including natural resource damages, arising from a spill.
Responsible parties under OPA include owners or operators of onshore or
offshore drilling facilities. OPA requires responsible parties to maintain proof
of financial responsibility to cover some portion of the cost of a potential
spill and to prepare an oil spill contingency plan. Failure to comply with these
requirements or inadequate cooperation in a spill event may subject a
responsible party to civil or criminal enforcement action.
Wetlands. The CWA regulates the discharge of dredged or fill material and
pollutants to wetlands areas. Many of the Company's activities are conducted in
or near ecologically sensitive areas, such as wetlands, coastal environment and
inland waterways. An oil spill in a wetland or inland waterway could produce
substantial damage to the environment, including wildlife and natural resources.
Clean Air Act. The operations of the Company are subject to the Clean Air
Act ("CAA"), as amended, and comparable state statutes. Traditional air quality
programs relating to prevention of significant deterioration of air quality in
areas with unacceptable pollution levels ("nonattainment areas") restrict
drilling in affected areas. Amendments to the CAA contain provisions that may
result in the imposition over the next decade of certain requirements with
respect to air emissions, which requirements may require capital expenditures by
the Company. The Environmental Protection Agency ("EPA") is currently developing
regulations to implement these requirements which may result in more stringent
air quality standards. Regulations mandating stricter emissions controls in
nonattainment areas would increase the cost associated with operations in those
areas.
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<PAGE> 49
Superfund. The Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), commonly referred to as the "Superfund" law, imposes
strict, joint and several liability on certain classes of persons with respect
to the release or threatened release of a hazardous substance to the
environment. These persons include: (i) the owner and operator of a facility
from which hazardous substances are released; (ii) owners and operators of a
facility at the time any hazardous substances were disposed; (iii) generators of
hazardous substances that were released at such facility; and (iv) parties who
arranged for the transportation of hazardous substances to such facility. The
Company may be responsible under CERCLA for all or part of the costs to clean up
sites at which hazardous substances have been released. To date, however, the
Company has not been named a potentially responsible party under CERCLA or any
similar state Superfund laws.
Hazardous Waste Disposal. The Company's operations involve the generation
or handling of materials that are classified as hazardous waste, and that are
subject to the Federal Resource Conservation and Recovery Act ("RCRA") and
comparable state statutes. The EPA and various state agencies have limited the
disposal options for certain hazardous and nonhazardous wastes and is
considering the adoption of stricter handling and disposal standards for
nonhazardous wastes.
NORM. Oil and gas exploration and production activities have been
identified as generators of naturally-occurring radioactive materials ("NORM").
The generation, handling and disposal of NORM due to oil and gas exploration and
production activities is currently regulated in Louisiana. NORM regulations also
have been adopted recently in Texas. The Company does not believe that its
compliance with such regulations will have a material effect on its operations
or financial condition, but there can be no assurance in this regard.
Right-To-Know. Title III of the Federal Superfund Amendment and
Reauthorization Act ("SARA Title III") of 1986, commonly known as the Emergency
Planning and Community Right-to-Know Act ("EPCRA"), requires owners and
operators of facilities that store, use or release hazardous and extremely
hazardous chemicals over specified threshold amounts to report information about
those chemicals. Non-manufacturing operations, including oil and gas exploration
and producing facilities, are subject to EPCRA and similar state statutes.
Regulations implementing EPCRA require the facility owner and operator to notify
state and local authorities of certain chemicals on site, to report releases of
these chemicals and to submit an annual inventory of chemicals at the facility.
Administrative, civil and criminal penalties may be assessed for regulatory
violations. The Company will likely be required to increase its expenditures
during the next several years to comply with higher industry and regulatory
safety standards. Such expenditures cannot be accurately estimated at this time.
Hazard Communication Standard. The Occupational Safety and Health
Administration issued the Hazard Communication Standard ("HCS") that requires
employers to identify the chemical hazards at their facilities and to educate
employees about these hazards. HCS applies to all private-sector employers
including the oil and gas exploration and producing industry. HCS requires that
employers assess their chemical hazards, obtain and maintain certain written
descriptions of these hazards, develop a hazard communication program and train
employees to work safely with the chemicals on site. Failure to comply with the
requirements of the standard may result in administrative, civil and criminal
penalties.
Frost Laws. The operations of the Company's Eastern Division and INDRILLERS
Division are limited during April and May of each year due to the "frost laws"
of the states in which they operate. These frost laws restrict the movement of
equipment on public roads during these months.
LEGAL PROCEEDINGS
The Company is involved in litigation incidental to the conduct of its
business, none of which management believes is, individually or in the
aggregate, material to the Company's financial condition or results of
operations.
Certain litigation, styled TEPCO, Inc. v. Grey Wolf Drilling Company (Cause
No. 96-49194), is presently pending against Grey Wolf in the 164th Judicial
District Court of Harris County, Texas. In its petition filed on September 30,
1996, TEPCO, Inc. ("TEPCO") alleges that Grey Wolf breached contractual
48
<PAGE> 50
obligations it owed to TEPCO by failing to drill an oil and gas well or wells
for it in the Treasure Isle Field, located in Galveston, Texas. TEPCO also
alleges that it lost rights under an oil and gas lease it had under an alleged
agreement with Mobil Producing Texas and New Mexico, Inc., causing plaintiff to
suffer money damages, which it values in its petition at "many tens of millions
of dollars." TEPCO amended the lawsuit in April 1997, and in addition to
continuing to assert the breach of contract action previously asserted in its
original petition, TEPCO asserted it was fraudulently induced to enter into the
drilling contract it contends Grey Wolf breached and was fraudulently induced by
Grey Wolf to agree to release Grey Wolf's rig from TEPCO's drill site to allow
Grey Wolf to drill a well elsewhere for another customer. TEPCO also asserts a
claim for spoliation of evidence. The damages it claims with respect to these
new allegations are the same damages it alleges it sustained as a result of Grey
Wolf's alleged breach of contract. TEPCO also asserts it is entitled to recovery
of punitive damages. As an alternative claim, TEPCO contends it is entitled to
restitution of all amounts paid to Grey Wolf under the contracts between the
parties, which Grey Wolf has advised the Company was a sum of approximately $3.0
million. Grey Wolf has filed a counterclaim in the lawsuit for approximately
$154,000 for recovery of unpaid statements, and interest, for services rendered
or materials provided by Grey Wolf in connection with the drilling of two wells
for TEPCO which were completed before Grey Wolf ceased performing work for
TEPCO. Grey Wolf has advised the Company that it intends to vigorously defend
the lawsuit. The court has set the action for trial in September 1997.
Following the consummation of the Grey Wolf Acquisition, Messrs. James K.
B. Nelson and Sheldon B. Lubar, as representatives of the Grey Wolf
shareholders, will control and direct the handling of the lawsuit, and the
Company will provide such assistance and cooperation as is reasonably requested
by the attorneys representing the Company in the case. Mr. Nelson is a director
nominee to be elected following the Grey Wolf Acquisition and Mr. Lubar is a
principal shareholder of Grey Wolf. An escrow, consisting of $5.0 million of the
cash consideration for the Grey Wolf Acquisition, will be established to provide
a source of payment for the net costs to the Company, if any, for any eventual
settlement by, or the payment of a monetary court judgment against, the Company
arising out of this or any other lawsuit by TEPCO based on the same facts and
circumstances. A judgment in favor of TEPCO in excess of $5.0 million could have
a material adverse effect on the Company.
INSURANCE
The Company's operations are subject to the many hazards inherent in the
drilling business, including, for example, blowouts, cratering, fires,
explosions and adverse weather. These hazards could cause personal injury,
suspend drilling operations or seriously damage or destroy the equipment
involved and could cause substantial damage to producing formations and
surrounding areas. Damage to the environment could also result from the
Company's operations, particularly through oil spillage and extensive,
uncontrolled fires. As a protection against operating hazards, the Company
maintains insurance coverage, including property casualty insurance on its rigs
and drilling equipment, comprehensive general liability and commercial contract
indemnity (including a separate policy for foreign liability), commercial
umbrella and workers' compensation insurance and "control of well" insurance.
The Company's insurance coverage for property damage to its rigs and
drilling equipment is based on the Company's estimate, as of June 1997, of the
cost of comparable used equipment to replace the insured property. There is an
annual aggregate deductible on rigs of $500,000 to be comprised of losses
otherwise recoverable thereafter in excess of a $50,000 maintenance deductible.
There is a $10,000 deductible per occurrence on equipment.
The Company's third party liability insurance coverage under each of the
general and foreign policies is $1.0 million per occurrence, with a deductible
of $50,000 per occurrence and annual maximum coverage of $2.0 million. The
commercial umbrella limit is $50.0 million per occurrence. The Company believes
that it is adequately insured for public liability and property damage to others
with respect to its operations. However, such insurance may not be sufficient to
protect the Company against liability for all consequences of well disasters,
extensive fire damage or damage to the environment.
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<PAGE> 51
The Company also maintains insurance coverage to protect against certain
hazards inherent in its turnkey contract drilling operations. This insurance
covers "control of well" (including blowouts above and below the surface),
cratering, seepage and pollution and care, custody and control. The Company's
current insurance provides $500,000 coverage per occurrence for care, custody
and control, and coverage per occurrence for control of well, cratering and
seepage and pollution associated with drilling operations of either $10.0
million or $20.0 million, depending upon the area in which the well is drilled
and its target depth. Each form of coverage provides for a deductible for the
account of the Company, as well as a maximum limit of liability. Each casualty
is an occurrence, and there may be more than one such occurrence on a well, each
of which would be subject to a separate deductible.
FACILITIES
The following table summarizes the Company's significant owned and leased
properties:
<TABLE>
<CAPTION>
LOCATION INTEREST USES
-------- -------- ----
<S> <C> <C>
Houston, Texas........................... Leased Executive Offices
Houston, Texas........................... Owned Rig Yard
Alice, Texas............................. Owned Field Office, Rig Yard, Truck Yard
Duson, Louisiana......................... Owned Rig Yard
Eunice, Louisiana........................ Owned Field Office
Fillmore, Louisiana...................... Owned Field Office
Oklahoma City, Oklahoma.................. Owned Rig Yard
Mt. Pleasant, Michigan................... Owned Field Office, Rig Yard
Midvale, Ohio............................ Owned Field Office, Rig Yard
</TABLE>
The Company has leased approximately 17,200 square feet of office space for
its principal executive offices at a cost of approximately $22,000 per month.
The Company considers all of its facilities to be in good operating condition
and adequate for their present uses.
EMPLOYEES
At May 30, 1997, the Company had approximately 1,600 employees and Grey
Wolf had approximately 400 employees, substantially all of whom are expected to
join the Company. None of the Company's or Grey Wolf's employees are subject to
collective bargaining agreements, and management believes its employee relations
are satisfactory.
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<PAGE> 52
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The table and descriptions below set forth certain information regarding
the Company's executive officers, directors and director nominees to be elected
following the Grey Wolf Acquisition:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE COMPANY
---- --- ----------------------------
<S> <C> <C>
Ivar Siem.............................. 51 Chairman of the Board and Director
Thomas P. Richards..................... 53 President and Chief Executive Officer
T. Scott O'Keefe....................... 41 Senior Vice President, Chief Financial Officer
and Secretary
Terrell L. Sadler...................... 47 Senior Vice President -- Domestic Operations
Ronnie E. McBride...................... 47 Senior Vice President -- Domestic Operations
Forrest M. Conley, Jr.................. 49 Senior Vice President -- International
Operations
David W. Wehlmann...................... 38 Vice President and Controller
Gary D. Lee............................ 51 Vice President -- Human Resources
Donald J. Guedry, Jr................... 40 Treasurer
Lucien Flournoy........................ 77 Director
Peter M. Holt.......................... 48 Director
Roy T. Oliver, Jr...................... 44 Director
Steven A. Webster...................... 45 Director
William R. Ziegler..................... 54 Vice Chairman of the Board and Director
William T. Donovan..................... 45 Director Nominee
James K. B. Nelson..................... 69 Director Nominee
</TABLE>
Ivar Siem has been Chairman of the Board since August 1995 and was
President and Chief Executive Officer from April 1996 through August 1996. He
has been an international consultant in energy, technology and finance since
1985. He is a member of the board of directors of several privately held and
publicly traded companies, including: Chairman of the Board of Blue Dolphin
Energy Company, an oil and gas pipeline and exploration company, since 1989;
director of Norex Industries, Inc., a company with investments in the oil and
gas, cruise and shipping industries, since 1992; and director of DSND ASA, a
Norwegian service company that operates specialty vessels and provides subsea
engineering services, since 1993.
Thomas P. Richards joined the Company in September 1996 as President and
Chief Executive Officer. Mr. Richards was with Diamond Offshore Drilling, Inc.
("Diamond Offshore") from September 1990 until September 1996. He started as
Senior Vice President of Diamond M Onshore, Inc., a subsidiary of Diamond
Offshore, in 1990 and was serving as Senior Vice President of Worldwide
Operations when he left Diamond Offshore in 1996. Mr. Richards served as Vice
President -- Land for Penrod Drilling Corporation from January 1989 until
September 1990 when Diamond M Corporation purchased substantially all of
Penrod's land drilling assets. From February 1974 until December 1988, Mr.
Richards owned and served as President and Chief Executive Officer of Richards
Drilling Company, a land drilling contractor based in Bay City, Texas.
T. Scott O'Keefe was appointed Senior Vice President and Chief Financial
Officer of the Company in September 1996. During the period beginning in April
1996 and ending with such appointment, Mr. O'Keefe provided consulting services
to the Company. Prior to joining the Company, he was Vice President and Chief
Financial Officer of Convest Energy Corporation ("Convest") for six years.
Convest is a publicly held oil and gas exploration and production company. From
1985 to 1989, Mr. O'Keefe was employed in various financial management
capacities with Convest or its affiliates. Mr. O'Keefe is a certified public
accountant.
Terrell L. Sadler joined the Company in 1989 as the Ark-La-Tex District
Manager. He was promoted to Vice President -- Mid Continent Division in November
1994, and became Vice President -- Domestic Drilling in April 1996. Mr. Sadler
was promoted to Senior Vice President -- Domestic Operations in September 1996.
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<PAGE> 53
Ronnie E. McBride joined the Company in September 1996 as Senior Vice
President -- Domestic Operations. Mr. McBride was the Vice President of Turnkey
Services at Diamond Offshore from December 1995 until September 1996. He served
as Operational Manager of Diamond M from October 1991 until March 1993, at which
time he was promoted to Vice President -- Onshore Operations and served in this
position until December 1995. Prior to October 1991, Mr. McBride was Vice
President -- Operations for Harkins & Company for four years until it was
acquired by Diamond M.
Forrest M. Conley, Jr. joined the Company in September 1996 as Senior Vice
President -- International Operations. Mr. Conley has twenty-six years of
drilling industry experience. From May 1993 until joining the Company, he was
with Noble Drilling Corporation -- Triton Engineering where he served as
Manager -- Sales and Marketing, Manager -- International Marketing and most
recently as the Vice President and General Manager of Triton International.
Previously, he was General Manager of ENSCO Tool & Supply's West Africa division
from December 1991 until May 1993.
David W. Wehlmann joined the Company in July 1996 as Vice President and
Controller. From November 1994 until he joined the Company, Mr. Wehlmann was
Vice President and Chief Accounting Officer of EnerVest Management Company,
L.C., a privately-held oil and gas property acquisition and management company.
Mr. Wehlmann was Controller of Convest from April 1991 to November 1994. Mr.
Wehlmann is a certified public accountant.
Gary D. Lee joined the Company in March 1997 as Vice President -- Human
Resources. For the past 15 years, he was with Diamond Offshore where from 1990
until March 1997, he served as Vice President -- Human Resources.
Donald J. Guedry, Jr. has been the Company's Treasurer since October 1996.
During the seven years prior to joining the Company, Mr. Guedry served in
various treasury management positions for Weatherford Enterra, Inc. and a
predecessor company.
Lucien Flournoy became a director of the Company in January 1997 in
connection with the Company's purchase of the operating assets of Flournoy. Mr.
Flournoy has over 50 years of experience in the land drilling business. He
founded Flournoy in 1950 and had served as its President and a Director from
that time until Flournoy was acquired by the Company on January 31, 1997.
Peter M. Holt has been a director of the Company since August 1996. He has
been the President, Chief Executive Officer and principal owner of Holt
Companies for over 13 years. Holt Companies is comprised of two Caterpillar
dealerships in central/south Texas and western Ohio and various other business
interests.
Roy T. Oliver, Jr. has been a director of the Company since August 1996. He
has been the Chairman of the Board and Chief Executive Officer of U.S. Rig &
Equipment, Inc., an Oklahoma corporation, a worldwide supplier of drilling
equipment, since its organization in 1982.
Steven A. Webster has been a director of the Company since August 1996. He
has been the Chairman of the Board and Chief Executive Officer of Falcon
Drilling Company, Inc. ("Falcon Drilling"), a marine oil and gas drilling
contractor, since 1988. He serves as a director of Crown Resources Corporation,
(a mining company), and as Trust Manager of Camden Property Trust and is a
managing member of Somerset Drilling Associates, L.L.C., a Delaware limited
liability company ("SDA"), and a general partner of Somerset Capital Partners
("SCP").
William R. Ziegler has been a director of the Company since August 1996 and
is currently Vice Chairman of the Board of Directors. He has been a partner of
the law firm of Parson & Brown since June 1994. Prior to that time he was a
partner in the law firm of Whitman Breed Abbott & Morgan and a predecessor firm
for over five years. Mr. Ziegler is a director of Falcon Drilling, a general
partner of SCP and a managing member of SDA.
William T. Donovan is expected to become a director of the Company upon
closing of the Grey Wolf Acquisition. Since 1980, Mr. Donovan has been a
Principal and Managing Director of Lubar & Co., a private investment and venture
capital firm. Mr. Donovan also serves as Executive Vice President and Chief
Financial Officer of Christiana Companies, Inc. and as a director of various
private industrial companies. Prior to joining
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<PAGE> 54
Lubar & Co., Mr. Donovan was an officer with Manufacturers Hanover Trust Company
from 1976 to 1980, where he specialized in merger acquisition financing.
James K. B. Nelson is expected to become a director of the Company upon
closing of the Grey Wolf Acquisition. He joined Grey Wolf in 1960 and has served
as President and Chief Executive Officer of Grey Wolf since 1978. He began his
career in the oil field drilling industry as a roughneck in 1946.
CERTAIN TRANSACTIONS
The Company has in the past, and may in the future, purchase rigs and
related equipment from its affiliates. The Company believes that the prices paid
in such transactions have been and will be no less favorable than in comparable
transactions with unaffiliated third parties in arms' length transactions. One
of the three stacked rigs acquired by the Company in the Inventory Rig Purchases
(Rig No. 14, a 1,000 horsepower, diesel electric SCR rig) was purchased for $1.8
million in cash from R. T. Oliver, Inc., a company controlled by director Roy T.
Oliver, Jr. The three stacked rigs expected to be purchased by the Company in
the Pending Rig Purchase are also proposed to be acquired from R. T. Oliver,
Inc. for a purchase price of $8.9 million in cash.
DESCRIPTION OF NOTES
The Notes will be issued under an indenture, dated as of , 1997
(the "Indenture") by and among the Company, the Guarantors and Texas Commerce
Bank National Association, as trustee under the Indenture (the "Trustee"). The
Notes are subject to the terms stated in the Indenture and the Trust Indenture
Act of 1939, as amended (the "Trust Indenture Act"). Holders of the Notes are
referred to the Indenture and the Trust Indenture Act for a statement of those
terms. The statements and definitions of terms under this caption relating to
the Notes, the Guarantees and the Indenture described below are summaries and do
not purport to be complete. Such summaries make use of certain terms defined in
the Indenture and are qualified in their entirety by express reference to the
Indenture. A copy of the Indenture in substantially the form in which it is to
be executed has been filed as an exhibit to the Registration Statement of which
this Prospectus is a part. For purposes of this section of this Prospectus,
references to the "Company" means DI Industries, Inc., excluding its
subsidiaries. Certain terms used herein are defined below under "-- Certain
Definitions."
GENERAL
The Notes will be general unsecured senior obligations of the Company,
limited in aggregate principal amount at Stated Maturity to $150.0 million. The
Indebtedness evidenced by the Notes will rank pari passu in right of payment
with all indebtedness and other liabilities of the Company that are not
subordinated by their terms to other Indebtedness of the Company and senior to
all Indebtedness of the Company that by its terms is so subordinated. At March
31, 1997, on a pro forma basis after giving effect to the issuance of the Notes
and the completion of the other transactions described herein, the Company would
have had outstanding approximately $1.3 million of secured indebtedness.
The Indenture provides that each of the Company's wholly-owned domestic
Subsidiaries (and any other Subsidiaries that guarantee any Indebtedness of an
Obligor) shall be a Guarantor. The holders of secured indebtedness of the
Company (including Indebtedness under the Company's Bank Credit Facility, which
is secured by first priority liens on substantially all of the assets of the
Company and its domestic Subsidiaries), will have claims with respect to the
assets constituting collateral for such Indebtedness that are prior to claims of
holders of the Notes and the Trustee. In the event of a default on the Notes or
the Guarantees, or a bankruptcy, liquidation or reorganization of the Company or
any Guarantors, such assets will be available to satisfy obligations with
respect to the indebtedness secured thereby before any payment therefrom could
be made on the Notes or the Subsidiary Guarantees. To the extent that the value
of such collateral is not sufficient to satisfy the indebtedness secured
thereby, amounts remaining outstanding on such Indebtedness would be entitled to
share with the holders of the Notes and the Trustee and their claims with
respect to any other assets of the Company. The Guarantees will be senior
unsecured obligations of each respective
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<PAGE> 55
Guarantor and will rank pari passu in right of payment with all other
indebtedness and liabilities of such Guarantor that are not subordinated by
their terms to other Indebtedness of such Guarantor, and senior in right of
payment to all Subordinated Indebtedness of such Guarantor. However, the
Guarantees will be effectively subordinated to secured indebtedness of the
Guarantors, including Indebtedness under the Bank Credit Facility, which is
secured by liens on substantially all of their assets.
The Notes will be effectively subordinated to claims of creditors (other
than the Company) of the Company's Subsidiaries other than the Guarantors.
Claims of creditors (other than the Company) of such Subsidiaries, including
trade creditors, tort claimants, secured creditors, taxing authorities and
creditors holding guarantees, will generally have priority as to assets of such
Subsidiaries over the claims and equity interest of the Company and, thereby
indirectly, the holders of the indebtedness of the Company, including the Notes
and the Guarantees. In addition, the Indenture permits under limited
circumstances the creation of, or the designation of existing Subsidiaries as,
Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be generally
subject to the covenants applicable to the Company and the Subsidiaries under
the Indenture. See "-- Certain Covenants -- Unrestricted Subsidiaries."
PRINCIPAL, MATURITY AND INTEREST
The Notes will mature on , 2007, and will bear interest at the
rate per annum stated on the cover page hereof from the date of issuance or from
the most recent interest payment date to which interest has been paid or
provided for. Interest on the Notes will be payable semi-annually in arrears on
and of each year, commencing , 1997, to
the Persons in whose names such Notes are registered at the close of business on
the or immediately preceding such interest payment
date. Interest will be calculated on the basis of a 360-day year consisting of
twelve 30-day months.
The Notes may be presented or surrendered for payment of principal,
premium, if any, and interest, and for registration of transfer or exchange, at
the office or agency of the Company within the City and State of New York,
maintained for such purpose. In addition, in the event the Notes do not remain
in book-entry form, interest may be paid, at the option of the Company, by check
mailed to the registered holders of the Notes at the respective addresses as set
forth on the Note Register. The Notes will be issued only in fully registered
form, without coupons, in denominations of $1,000 and integral multiples
thereof. No service charge will be made for any registration of transfer or
exchange or redemption of Notes, but the Company or Trustee may require in
certain circumstances payment of a sum sufficient to cover any tax or other
governmental charge payable in connection therewith.
GUARANTEES OF NOTES
Each Guarantor will unconditionally guarantee, jointly and severally, to
each holder and the Trustee, the full and prompt performance of the Company's
Obligations under the Indenture and the Notes, including the payment of
principal of, premium, if any, and interest on the Notes pursuant to its
Guarantee. If any Subsidiary of the Company that is not an initial Guarantor
guarantees any Indebtedness of the Company or any other Obligor on the Notes or
the Indenture at any time in the future, then the Company will cause the Notes
to be equally and ratably guaranteed by such Subsidiary. In addition, the
Company will cause each domestic subsidiary that is or becomes a Subsidiary to
execute and deliver a supplement to the Indenture pursuant to which such
Subsidiary will guarantee the payment of the Notes on the same terms and
conditions as the Guarantees by the initial Guarantors.
The Obligations of each Guarantor will be limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from or payments made by or
on behalf of any other Guarantor in respect of the Obligations of such other
Guarantor under its Guarantee or pursuant to its contribution obligations under
the Indenture, result in the Obligations of such Guarantor under its Guarantee
not constituting a fraudulent conveyance or fraudulent transfer under federal or
state law or otherwise not being void, voidable or unenforceable under any
bankruptcy, reorganization, receivership, insolvency, liquidation or other
similar legislation or legal principles under any applicable foreign law. Each
Guarantor that makes a payment or distribution under a Guarantee shall be
entitled to a
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<PAGE> 56
contribution from each other Guarantor in a pro rata amount based on the
Adjusted Net Assets of each Guarantor.
Each Guarantor may consolidate with or merge into or sell or otherwise
dispose of all or substantially all of its Property and assets to the Company or
another Guarantor without limitation, except to the extent any such transaction
is subject to the "Consolidation, Merger, Conveyance, Lease or Transfer"
covenant of the Indenture. Each Guarantor may consolidate with or merge into or
sell all or substantially all of its Property and assets to a Person other than
the Company or another Guarantor (whether or not Affiliated with the Guarantor),
provided that (a) if the surviving Person is not the Guarantor, the surviving
Person agrees to assume such Guarantor's Guarantee and all its Obligations
pursuant to the Indenture (except to the extent the following paragraph would
result in the release of such Guarantee) and (b) such transaction does not (i)
violate any of the covenants described below under "-- Certain Covenants" or
(ii) result in a Default or Event of Default being in existence or continuing
immediately thereafter.
Upon the sale or other disposition (by merger or otherwise) of a Guarantor
(or all or substantially all of its Property and assets) to a Person other than
the Company or another Guarantor and pursuant to a transaction that is otherwise
in compliance with the Indenture (including as described in clause (b) of the
foregoing paragraph and as described below in the covenant described "-- Certain
Covenants -- Limitation on Asset Sales"), such Guarantor (unless it otherwise
remains a Subsidiary) shall be deemed released from its Guarantee and the
related Obligations set forth in the Indenture; provided that any such
termination shall occur only to the extent that all Obligations of such
Guarantor under all of its guarantees of and under all of its pledges of assets
or other security interests which secure, other Indebtedness of the Company or
any other Subsidiary shall also terminate or be released upon such sale or other
disposition. Each Guarantor that is designated as an Unrestricted Subsidiary in
accordance with the Indenture shall be released from its Guarantee and the
related Obligations set forth in the Indenture so long as it remains an
Unrestricted Subsidiary.
OPTIONAL REDEMPTION
Except as provided in the next paragraph, the Notes will not be redeemable
at the option of the Company prior to , 2002. On or after such date,
the Notes will be redeemable at the option of the Company, in whole at any time
or in part from time to time, at the following prices (expressed in percentages
of the principal amount), if redeemed during the 12 months beginning
of the years indicated below, in each case together with interest
accrued to the redemption date (subject to the right of holders of record on the
relevant record date to receive interest due on the relevant interest payment
date):
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002........................................................ %
2003........................................................ %
2004........................................................ %
2005 and thereafter......................................... 100.0000%
</TABLE>
Notwithstanding the foregoing, at any time during the first 36 months after
the Issue Date, the Company may, at its option, redeem up to a maximum of 30% of
the aggregate principal amount of the Notes with the net cash proceeds of one or
more Qualified Equity Offerings at a redemption price equal to % of the
principal amount thereof, plus accrued and unpaid interest thereon to the
redemption date; provided that at least $100.0 million aggregate principal
amount of Notes shall remain outstanding immediately after the occurrence of any
such redemption; and provided, further, that each such redemption shall occur
within 90 days of the closing of such Qualified Equity Offering.
If fewer than all the Notes are redeemed, selection for redemption will be
made by the Trustee in accordance with the principal stock exchange, if any, on
which the Notes are listed, or, if the Notes are not so listed, on a pro rata
basis, by lot or by any other means which the Trustee determines to be fair and
appropriate.
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<PAGE> 57
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder will have the right
to require the Company to repurchase all of such holder's Notes in whole or in
part (the "Change of Control Offer") at a purchase price (the "Change of Control
Purchase Price") in cash equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the Change of
Control Payment Date (as defined below) on the terms described below.
Within 30 days following any Change of Control, the Company or the Trustee
(at the expense of the Company) will mail a notice to each holder and to the
Trustee stating, among other things, (i) that a Change of Control has occurred
and a Change of Control Offer is being made as provided for in the Indenture,
and that, although holders are not required to tender their Notes, all Notes
that are timely tendered will be accepted for payment; (ii) the Change of
Control Purchase Price and the repurchase date, which will be no earlier than 30
days and no later than 60 days after the date such notice is mailed (the "Change
of Control Payment Date"); (iii) that any Note accepted for payment pursuant to
the Change of Control Offer (and duly paid for on the Change of Control Payment
Date) will cease to accrue interest after the Change of Control Payment Date;
and (iv) the instructions and any other information necessary to enable holders
to tender their Notes and have such Notes purchased pursuant to the Change of
Control Offer. The Company will comply with any applicable tender offer rules
(including, without limitation, any applicable requirements of Rule 14e-1 under
the Exchange Act) in the event that the Change of Control Offer is triggered
under the circumstances described herein.
The existence of the holders' rights to require, subject to certain
conditions, the Company to repurchase Notes upon a Change of Control may deter a
third party from acquiring the Company in a transaction that constitutes a
Change of Control. The source of funds for the repurchase of Notes upon a Change
of Control will be the Company's cash or cash generated from operations or other
sources, including borrowings or sales of assets; however, a "Change of Control"
(as defined in the Bank Credit Facility) constitutes an event of default
thereunder that alleviates the lenders from any obligation to make loans and
allows them to accelerate the Indebtedness outstanding thereunder. There can be
no assurance that sufficient funds will be available at the time of any Change
of Control to repay all amounts owing under such other Indebtedness or to make
the required payments of the Notes. In the event that a Change of Control Offer
occurs at a time when the Company does not have sufficient available funds to
pay the Change of Control Purchase Price for all Notes timely tendered pursuant
to such offer or at a time when the Company is prohibited from purchasing the
Notes (and the Company is unable either to obtain the consent of the holders of
the relevant Indebtedness or to repay such Indebtedness), an Event of Default
would occur under the Indenture. In addition, one of the events that constitutes
a Change of Control under the Indenture is a sale, conveyance, transfer or lease
of all or substantially all of the assets of the Company or the Company and the
Subsidiaries, taken as a whole. The Indenture will be governed by New York law,
and there is no established quantitative definition under New York law of
"substantially all" of the assets of a corporation. Accordingly, if the Company
or its Subsidiaries were to engage in a transaction in which it or they disposed
of less than all of the assets of the Company or the Company and its
Subsidiaries taken as a whole, as applicable, a question or interpretation could
arise as to whether such disposition was of "substantially all" of its assets
and whether the Company was required to make a Change of Control Offer.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
repurchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the holders to require the
Company to repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar restructuring. The provisions of the Indenture may
not afford holders protection in the event of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction affecting the
Company that may adversely affect holders because (i) such transactions may not
involve a shift in voting power or beneficial ownership or, even if they do, may
not involve a shift of the magnitude required
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under the definition of Change of Control to require the Company to make a
Change of Control Offer or (ii) such transactions may include an actual shift in
voting power or beneficial ownership to a Permitted Holder which is excluded
under the definition of Change of Control from the amount of shares involved in
determining whether or not the transaction involves a shift of the magnitude
required to trigger the provisions. A transaction involving the management of
the Company or its Affiliates, or a transaction involving a recapitalization of
the Company, will result in a Change of Control only if it is the type of
transaction specified in such definition.
CERTAIN COVENANTS
Set forth below are certain covenants contained in the Indenture.
Transactions with Affiliates. Subsequent to the Issue Date, the Company
will not, and will not permit any Subsidiary to, directly or indirectly, enter
into or permit to exist any transaction or series of related transactions
(including, but not limited to, the purchase, sale or exchange of Property, the
making of any Investment, the giving of any guarantee or the rendering of any
service with any Affiliate of the Company, other than transactions among the
Company and any Guarantor or any Wholly Owned Subsidiaries) unless (i) such
transaction or series of related transactions is on terms no less favorable to
the Company or such Subsidiary than those that could be obtained in a comparable
arm's length transaction with a Person that is not such an Affiliate and (ii)
(a) with respect to a transaction or series of related transactions that has a
Fair Market Value in excess of $2.0 million but less than $5.0 million, the
Company delivers an Officers' Certificate to the Trustee certifying that such
transaction or series of related transactions complies with clause (i) above; or
(b) with respect to a transaction or series of related transactions that has a
Fair Market Value equal to or in excess of $5.0 million, the transaction or
series of related transactions are approved by a majority of the Board of
Directors of the Company (including a majority of the disinterested directors),
which approval is set forth in a Board Resolution certifying that such
transaction or series of transactions comply with clause (i) above. The
foregoing provisions shall not be applicable to (i) reasonable and customary
compensation, indemnification and other benefits paid or made available to an
officer, director or employee of the Company or a Subsidiary for services
rendered in such person's capacity as an officer, director or employee
(including reimbursement or advancement of reasonable out-of-pocket expenses and
provisions of directors' and officers' liability insurance) or (ii) the making
of any Restricted Payment otherwise permitted by the Indenture.
Limitation on Restricted Payments. The Company will not, and will not
permit any Subsidiary to, make any Restricted Payment, unless at the time of and
after giving effect to the proposed Restricted Payment, (a) no Default shall
have occurred and be continuing (or would result therefrom), (b) the Company
could incur at least $1.00 of additional indebtedness under the tests described
in the first sentence under the caption "-- Certain Covenants -- Limitation on
Indebtedness" and (c) the aggregate amount of all Restricted Payments declared
or made on or after the Issue Date by the Company or any Subsidiary shall not
exceed the sum of (i) 50% (or if such Consolidated Net Income shall be a
deficit, minus 100% of such deficit) of the aggregate Consolidated Net Income
accrued during the period beginning on the first day of the fiscal quarter in
which the Issue Date falls and ending on the last day of the fiscal quarter
ending immediately prior to the date of such proposed Restricted Payment, minus
100% of the amount of any writedowns, write-offs and other negative
extraordinary charges not otherwise reflected in Consolidated Net Income during
such period, plus (ii) an amount equal to the aggregate net cash proceeds
received by the Company, subsequent to the Issue Date, from the issuance or sale
(other than to a Subsidiary) of shares of its Capital Stock (excluding
Redeemable Stock, but including Capital Stock issued upon the exercise of
options, warrants or rights to purchase Capital Stock (other than Redeemable
Stock) of the Company) and the liability (expressed as a positive number) as
expressed on the face of a balance sheet in accordance with GAAP in respect of
any Indebtedness of the Company or any of its Subsidiaries, or the carrying
value of Redeemable Stock, which has been converted into, exchanged for or
satisfied by the issuance of shares of Capital Stock (other than Redeemable
Stock) of the Company, subsequent to the Issue Date, plus (iii) 100% of the net
reduction in Restricted Investments, subsequent to the Issue Date, in any
Person, resulting from payments of interest on Indebtedness, dividends,
repayments of loans or advances, or other transfers of Property (but only to the
extent such interest, dividends, repayments or other transfers of Property are
not included in the calculation of
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Consolidated Net Income), in each case to the Company or any Subsidiary from any
Person (including, without limitation, from Unrestricted Subsidiaries) or from
redesignations of Unrestricted Subsidiaries as Subsidiaries (valued in each case
as provided in the definition of "Investments"), not to exceed in the case of
any Person the amount of Restricted Investments previously made by the Company
or any Subsidiary in such Person and in each such case which was treated as a
Restricted Payment.
The foregoing provisions will not prevent (A) the payment of any dividend
on Capital Stock of any class within 60 days after the date of its declaration
if at the date of declaration such payment would be permitted by the Indenture;
(B) any repurchase or redemption of Capital Stock or Subordinated Indebtedness
of the Company or a Subsidiary made by exchange for Capital Stock of the Company
(other than Redeemable Stock), or out of the net cash proceeds from the
substantially concurrent issuance or sale (other than to a Subsidiary) of
Capital Stock of the Company (other than Redeemable Stock), provided that the
net cash proceeds from such sale are excluded from computations under clause
(c)(ii) above to the extent that such proceeds are applied to purchase or redeem
such Capital Stock or Subordinated Indebtedness; (C) so long as no Default shall
have occurred and be continuing or should occur as a consequence thereof, any
repurchase or redemption of Subordinated Indebtedness of the Company or a
Subsidiary solely in exchange for, or out of the net cash proceeds from the
substantially concurrent sale of, new Subordinated Indebtedness of the Company
or a Subsidiary, so long as such Subordinated Indebtedness is permitted under
the covenant described under "-- Limitation on Indebtedness" and (x) is
subordinated to the Notes at least to the same extent as the Subordinated
Indebtedness so exchanged, purchased or redeemed, (y) has a stated maturity
later than the stated maturity of the Subordinated Indebtedness so exchanged,
purchased or redeemed and (z) has an Average Life at the time incurred that is
greater than the remaining Average Life of the Subordinated Indebtedness so
exchanged, purchased or redeemed; (D) Investments in any Joint Ventures, foreign
Subsidiaries not constituting Guarantors and INDRILLERS in an aggregate amount
not to exceed $10.0 million, and (E) redemptions of the Series A Preferred Stock
issued and outstanding on the Issue Date for an aggregate redemption price of
not more than $1.0 million. Notwithstanding the foregoing, the amount available
for Investments in Joint Ventures and foreign Subsidiaries pursuant to clause
(D) of the preceding sentence may be increased by the aggregate amount received
by the Company and its Subsidiaries from a Joint Venture or a foreign Subsidiary
on or before such date resulting from payments of interest on Indebtedness,
dividends, repayments of loans or advances or other transfers of Property made
to such Joint Venture or foreign Subsidiary (but only to the extent such
interest dividends, repayments or other transfers of Property are not included
in the calculation of Consolidated Net Income). Restricted Payments permitted to
be made as described in the first sentence of this paragraph will be excluded in
calculating the amount of Restricted Payments thereafter, except that any such
Restricted Payments to be permitted made pursuant to clause (D) will be included
in calculating the amount of Restricted Payments made pursuant to such clause
(D) thereafter.
For purposes of this covenant, if a particular Restricted Payment involves
a non-cash payment, including a distribution of assets, then such Restricted
Payment shall be deemed to be an amount equal to the cash portion of such
Restricted Payment, if any, plus an amount equal to the Fair Market Value of the
non-cash portion of such Restricted Payment.
Limitation on Indebtedness. The Company will not, and will not permit any
Subsidiary to, directly or indirectly, incur any Indebtedness (including
Acquired Indebtedness), unless after giving pro forma effect to the incurrence
of such Indebtedness, the Consolidated Interest Coverage Ratio for the
Determination Period preceding the Transaction Date is at least 2.0 to 1.0 if
such Indebtedness is incurred prior to , 1998 and at least 2.25 to 1.0 if
such Indebtedness is incurred thereafter. Notwithstanding the foregoing, the
Company or any Subsidiary may incur Permitted Indebtedness. Any Indebtedness of
a Person existing at time at which such Person becomes a Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be incurred
by such Subsidiary at the time at which it becomes a Subsidiary.
Limitation on Subsidiary Indebtedness and Preferred Stock. The Company will
not permit any Subsidiary to, directly or indirectly, incur any Indebtedness or
issue any Preferred Stock except:
(a) Indebtedness or Preferred Stock issued to and held by the Company, a
Guarantor or a Wholly Owned Subsidiary, so long as any transfer of such
Indebtedness or Preferred Stock to a Person other than the
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Company, Guarantor or a Wholly Owned Subsidiary will be deemed to constitute an
incurrence of such Indebtedness or Preferred Stock by the issuer thereof as of
the date of such transfer;
(b) Acquired Indebtedness or Preferred Stock of a Subsidiary issued and
outstanding prior to the date on which such Subsidiary was acquired by the
Company (other than Indebtedness or Preferred Stock issued in connection with or
in anticipation of such acquisition);
(c) Indebtedness or Preferred Stock outstanding on the Issue Date and
listed in a schedule attached to the Indenture;
(d) Indebtedness described in clauses (b), (c), (d), (e), (f), (g) and (h)
under the definition of "Permitted Indebtedness";
(e) Permitted Subsidiary Refinancing Indebtedness of such Subsidiary;
(f) Indebtedness or Preferred Stock issued in exchange for, or the proceeds
of which are used to refinance, repurchase or redeem, Indebtedness or Preferred
Stock described in clauses (a) and (c) of this paragraph (the "Retired
Indebtedness or Stock"), provided that the Indebtedness or the Preferred Stock
so issued has (i) a principal amount or liquidation value, as the case may be,
not in excess of the principal amount or liquidation value of the Retired
Indebtedness or Stock plus related expenses for redemption and issuance, (ii) a
final redemption date later than the Stated Maturity or final redemption date
(if any) of the Retired Indebtedness or Stock and (iii) an Average Life at the
time of issuance of such Indebtedness or Preferred Stock that is greater than
the Average Life of the Retired Indebtedness or Stock;
(g) Indebtedness of a Subsidiary which represents the assumption by such
Subsidiary of Indebtedness of another Subsidiary in connection with a merger of
such Subsidiaries, provided that no Subsidiary or any successor (by way of
merger) thereto existing on the Issue Date shall assume or otherwise become
responsible for any Indebtedness of an entity which is not a Subsidiary on the
Issue Date, except to the extent that a Subsidiary would be permitted to incur
such Indebtedness under this paragraph; and
(h) Non-Recourse Indebtedness incurred by a foreign Subsidiary not
constituting a Guarantor.
Limitations on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not permit any Subsidiary, directly
or indirectly, to create, enter into any agreement with any Person or otherwise
cause or suffer to exist or become effective any consensual encumbrance or
restriction of any kind which by its terms restricts the ability of any
Subsidiary to (a) pay dividends, in cash or otherwise, or make any other
distributions on its Capital Stock to the Company or any Subsidiary, (b) pay any
Indebtedness owed to the Company or any Subsidiary, (c) make loans or advances
to the Company or any Subsidiary or (d) transfer any of its Property or assets
to the Company or any Subsidiary except any encumbrance or restriction contained
in any agreement or instrument:
(i) existing on the Issue Date;
(ii) relating to any Property or assets acquired after the Issue Date, so
long as such encumbrance or restriction relates only to the Property or assets
so acquired and is not and are not created in anticipation of such acquisition;
(iii) relating to any Acquired Indebtedness of any Subsidiary at the date
on which such Subsidiary was acquired by the Company or any Subsidiary (other
than Indebtedness incurred in anticipation of such acquisition);
(iv) effecting a refinancing of Indebtedness incurred pursuant to an
agreement referred to in the foregoing clauses (i) through (iii), so long as the
encumbrances and restrictions contained in any such refinancing agreement are no
more restrictive than the encumbrances and restrictions contained in such
agreements;
(v) constituting customary provisions restricting subletting or assignment
of any lease of the Company or any Subsidiary or provisions in license
agreements or similar agreements that restrict the assignment of such agreement
or any rights thereunder;
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(vi) constituting restrictions on the sale or other disposition of any
Property securing Indebtedness as a result of a Permitted Lien on such Property;
or
(vii) constituting any temporary encumbrance or restriction with respect to
a Subsidiary pursuant to an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock of, or Property and
assets of, such Subsidiary.
Limitation on Asset Sales. The Company will not engage in, and will not
permit any Subsidiary to engage in, any Asset Sale unless (a) except in the case
of (i) an Asset Sale resulting from the requisition of title to, seizure or
forfeiture of any Property or assets or any actual or constructive total loss or
an agreed or compromised total loss or (ii) a Bargain Purchase Contract, the
Company or such Subsidiary, as the case may be, receives consideration at the
time of such Asset Sale at least equal to the Fair Market Value of the Property;
(b) at least 75% of such consideration consists of Cash Proceeds (or the
assumption of Indebtedness of the Company or such Subsidiary relating to the
Capital Stock or Property or asset that was the subject of such Asset Sale and
the unconditional release of the Company or such Subsidiary from such
Indebtedness); (c) after giving effect to such Asset Sale, the total non-cash
consideration held by the Company from all such Asset Sales does not exceed $10
million; and (d) the Company delivers to the Trustee an Officers' Certificate
certifying that such Asset Sale complies with clauses (a), (b) and (c). The
Company or such Subsidiary, as the case may be, may apply the Net Available
Proceeds from each Asset Sale (x) to the acquisition of one or more Replacement
Assets, or (y) to repurchase or repay Senior Debt (with a permanent reduction of
availability in the case of revolving credit borrowings); provided that such
acquisition or such repurchase or repayment shall be made within 365 days after
the consummation of the relevant Asset Sale.
Any Net Available Proceeds from any Asset Sale that are not used to so
acquire Replacement Assets or to repurchase or repay Senior Debt within 365 days
after consummation of the relevant Asset Sale constitute "Excess Proceeds." When
the aggregate amount of Excess Proceeds exceeds $15.0 million, the Company shall
within 30 days thereafter, or at any time after receipt of Excess Proceeds but
prior to there being $15.0 million of Excess Proceeds, the Company may, at its
option, make a pro rata offer (an "Asset Sale Offer") to purchase from all
holders an aggregate principal amount of Notes equal to the Excess Proceeds, at
a price in cash (the "Asset Sale Offer Purchase Price") equal to 100% of the
outstanding principal thereof plus accrued interest, if any, to the purchase
date, in accordance with the procedures set forth in the Indenture. Upon
completion of such Asset Sale Offer, the amount of Excess Proceeds shall be
reset to zero and the Company may use any remaining amount for general corporate
purposes.
The Company will comply with any applicable tender offer rules (including,
without limitation, any applicable requirements of Rule 14e-1 under the Exchange
Act) in the event that an Asset Sale Offer is required under the circumstances
described herein.
Limitation on Sale and Lease-Back Transactions. The Company will not, and
will not permit any Subsidiary to, directly or indirectly, enter into, assume,
guarantee or otherwise become liable with respect to any Sale and Lease-Back
Transaction unless (i) the proceeds from such Sale and Lease-Back Transaction
are at least equal to the Fair Market Value of such Property being transferred
and (ii) the Company or such Subsidiary would have been permitted to enter into
such transaction under the covenants described in "-- Certain
Covenants -- Limitation on Indebtedness" and "-- Certain Covenants -- Limitation
on Liens," and "-- Certain Covenants -- Limitation on Subsidiary Indebtedness
and Preferred Stock."
Limitation on Liens. The Company will not, and will not permit any
Subsidiary to, directly or indirectly, create, affirm, incur, assume or suffer
to exist any Liens of any kind other than Permitted Liens on or with respect to
any Property or assets of the Company or such Subsidiary or any interest therein
or any income or profits therefrom, whether owned at the Issue Date or
thereafter acquired, without effectively providing that the Notes shall be
secured equally and ratably with (or prior to) the Indebtedness so secured for
so long as such obligations are so secured.
Limitation on Guarantees by Guarantors. The Company will not permit any
Guarantor to guarantee the payment of any Subordinated Indebtedness of the
Company unless such guarantee shall be subordinated to such Guarantor's
Guarantee at least to the same extent as such Subordinated Indebtedness is
subordinated to
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the Notes; provided that this covenant will not be applicable to any guarantee
of any Guarantor that (i) existed at the time at which such Person became a
Subsidiary of the Company and (ii) was not incurred in connection with, or in
contemplation of, such Person becoming a Subsidiary of the Company.
Unrestricted Subsidiaries. The Indenture provides that the Company may
designate a subsidiary (including a newly formed or newly acquired subsidiary)
of the Company or any of its Subsidiaries as an Unrestricted Subsidiary;
provided that (i) immediately after giving effect to the transaction, the
Company could incur $1.00 of additional Indebtedness pursuant to the first
sentence of "-- Certain Covenants -- Limitation on Indebtedness" and (ii) such
designation is at the time permitted under "-- Certain Covenants -- Limitation
on Restricted Payments." Notwithstanding any provisions of this covenant all
subsidiaries of an Unrestricted Subsidiary will be Unrestricted Subsidiaries.
The Indenture further provides that the Company will not, and will not
permit any of its Subsidiaries to, take any action or enter into any transaction
or series of transactions that would result in a Person (other than a newly
formed subsidiary having no outstanding Indebtedness (other than Indebtedness to
the Company or a Subsidiary) at the date of determination) becoming a Subsidiary
(whether through an acquisition, the redesignation of an Unrestricted Subsidiary
or otherwise) unless, after giving effect to such action, transaction or series
of transactions on a pro forma basis, (i) the Company could incur at least $1.00
of additional Indebtedness pursuant to the first sentence of "-- Certain
Covenants -- Limitation on Indebtedness" and (ii) no Default or Event of Default
would occur.
Subject to the preceding paragraphs, an Unrestricted Subsidiary may be
redesignated as a Subsidiary. The designation of a subsidiary as an Unrestricted
Subsidiary or the designation of an Unrestricted Subsidiary as a Subsidiary in
compliance with the preceding paragraphs shall be made by the Board of Directors
pursuant to a Board Resolution delivered to the Trustee and shall be effective
as of the date specified in such Board Resolution, which shall not be prior to
the date such Board Resolution is delivered to the Trustee. Any Unrestricted
Subsidiary shall become a Subsidiary if it incurs any Indebtedness other than
Non-Recourse Indebtedness. If at any time Indebtedness of an Unrestricted
Subsidiary which was Non-Recourse Indebtedness no longer so qualifies, such
Indebtedness shall be deemed to have been incurred when such Non-Recourse
Indebtedness becomes Indebtedness.
Limitations on Line of Business. The Indenture provides that neither the
Company nor any of its Subsidiaries will directly or indirectly engage to any
substantial extent in any line or lines of business activity other than a
Related Business.
Reports. The Indenture provides that, whether or not the Company is subject
to Section 13(a) or 15(d) of the Exchange Act, or any successor provision
thereto, the Company shall file with the Commission the annual reports,
quarterly reports and other documents which the Company would have been required
to file with the Commission pursuant to such Section 13(a) or 15(d) or any
successor provision thereto if the Company were subject thereto, such documents
to be filed with the Commission on or prior to the respective dates (the
"Required Filing Dates") by which the Company would have been required to file
them. The Company shall also (whether or not it is required to file reports with
the Commission), within 30 days of each Required Filing Date, (i) transmit by
mail to all holders of Notes, as their names and addresses appear in the
applicable Security Register, without cost to such holders or Persons, and (ii)
file with the Trustee, copies of the annual reports, quarterly reports and other
documents (without exhibits) which the Company has filed or would have filed
with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act, any
successor provisions thereto or this covenant. The Company shall not be required
to file any report with the Commission if the Commission does not permit such
filing.
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CONSOLIDATION, MERGER, CONVEYANCE, LEASE OR TRANSFER
The Company will not, in any transaction or series of transactions,
consolidate with or merge into any other Person (other than a merger of a
Subsidiary into the Company in which the Company is the continuing corporation),
or continue in a new jurisdiction or sell, convey, assign, transfer, lease or
otherwise dispose of all or substantially all of the Property and assets of the
Company and the Subsidiaries, taken as a whole, to any Person, unless
(i) either (a) the Company shall be the continuing corporation or (b) the
corporation (if other than the Company) formed by such consolidation or into
which the Company is merged, or the Person which acquires, by sale, assignment,
conveyance, transfer, lease or disposition, all or substantially all of the
Property and assets of the Company and the Subsidiaries, taken as a whole (such
corporation or Person, the "Surviving Entity"), shall be a corporation organized
and validly existing under the laws of the United States of America, any
political subdivision thereof or any state thereof or the District of Columbia,
and shall expressly assume, by a supplemental indenture, the due and punctual
payment of the principal of (and premium, if any) and interest on all the Notes
and the performance of the Company's covenants and obligations under the
Indenture;
(ii) immediately before and after giving effect to such transaction or
series of transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), no Event of Default or
Default shall have occurred and be continuing or would result therefrom;
(iii) immediately after giving effect to such transaction or series of
transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), the Company (or the
Surviving Entity if the Company is not continuing) shall have a Consolidated Net
Worth equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transactions; and
(iv) immediately after giving effect to any such transaction or series of
transactions on a pro forma basis as if such transaction or series of
transactions had occurred on the first day of the Determination Period, the
Company (or the Surviving Entity if the Company is not continuing) would be
permitted to incur $1.00 of additional Indebtedness pursuant to the test
described in the first sentence under the caption "-- Certain
Covenants -- Limitation on Indebtedness."
The provision of clause (iv) shall not apply to any merger or consolidation
into or with, or any such transfer of all or substantially all of the Property
and assets of the Company and the Subsidiaries taken as a whole into, the
Company.
In connection with any consolidation, merger, transfer of assets or other
transactions contemplated by this provision, the Company shall deliver, or cause
to be delivered, to the Trustee, in form and substance reasonably satisfactory
to the Trustee, an Officers' Certificate and an opinion of counsel, each stating
that such consolidation, merger, sale, assignment, conveyance or transfer and
the supplemental indenture in respect thereto comply with the provisions of the
Indenture and that all conditions precedent in the Indenture relating to such
transactions have been complied with.
Upon any transaction or series of transactions that are of the type
described in, and are effected in accordance with, the foregoing paragraphs, the
Surviving Entity shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under the Indenture and the Notes with the
same effect as if such Surviving Entity had been named as the Company in the
Indenture; and when a Surviving Person duly assumes all of the obligations and
covenants of the Company pursuant to the Indenture and the Notes, except in the
case of a lease, the predecessor Person shall be relieved of all such
obligations.
EVENTS OF DEFAULT
Each of the following is an "Event of Default" under the Indenture:
(a) default in the payment of interest on any Note issued pursuant to the
Indenture when the same becomes due and payable, and the continuance of such
default for a period of 30 days;
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(b) default in the payment of the principal of (or premium, if any, on) any
Note issued pursuant to the Indenture at its Maturity, whether upon optional
redemption, required repurchase (including pursuant to a Change of Control Offer
or an Asset Sale Offer) or otherwise or the failure to make an offer to purchase
any such Note as required;
(c) the Company fails to comply with any of its covenants or agreements
contained in "-- Change of Control," "-- Certain Covenants -- Limitation on
Restricted Payments," "-- Certain Covenants -- Limitation on Asset Sales,"
"-- Certain Covenants -- Limitation on Indebtedness," "-- Certain Covenants --
Limitation on Sale and Lease-back Transactions" or "-- Consolidation, Merger,
Conveyance, Lease or Transfer";
(d) default in the performance, or breach, of any covenant or warranty of
the Company in the Indenture (other than a covenant or warranty addressed in
clause (a), (b) or (c) above) and continuance of such Default or breach for a
period of 30 days after written notice thereof has been given to the Company by
the Trustee or to the Company and the Trustee by holders of at least 25% of the
aggregate principal amount at Stated Maturity of the outstanding Notes;
(e) Indebtedness of the Company or any Subsidiary is not paid when due
within the applicable grace period, if any, or is accelerated by the holders
thereof and, in either case, the principal amount of such unpaid or accelerated
Indebtedness exceeds $10.0 million;
(f) the entry by a court of competent jurisdiction of one or more final
judgments against the Company or any Subsidiary in an uninsured or unindemnified
aggregate amount in excess of $5.0 million which is not discharged, waived,
appealed, stayed, bonded or satisfied for a period of 60 consecutive days;
(g) the entry by a court having jurisdiction in the premises of (i) a
decree or order for relief in respect of the Company or any Significant
Subsidiary in an involuntary case or proceeding under U.S. bankruptcy laws, as
now or hereafter constituted, or any other applicable Federal, state, or foreign
bankruptcy, insolvency, or other similar law or (ii) a decree or order adjudging
the Company or any Significant Subsidiary a bankrupt or insolvent, or approving
as properly filed a petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company or any Significant Subsidiary under
U.S. bankruptcy laws, as now or hereafter constituted, or any other applicable
Federal, state or foreign bankruptcy, insolvency, or similar law, or appointing
a custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or any Significant Subsidiary or of any
substantial part of the Property or assets of the Company or any Significant
Subsidiary, or ordering the winding up or liquidation of the affairs of the
Company or any Significant Subsidiary, and the continuance of any such decree or
order for relief or any such other decree or order unstayed and in effect for a
period of 60 consecutive days;
(h) (i) the commencement by the Company or any Significant Subsidiary of a
voluntary case or proceeding under U.S. bankruptcy laws, as now or hereafter
constituted, or any other applicable Federal, state or foreign bankruptcy,
insolvency or other similar law or of any other case or proceeding to be
adjudicated a bankrupt or insolvent; or (ii) the consent by the Company or any
Significant Subsidiary to the entry of a decree or order for relief in respect
of the Company or any Significant Subsidiary in an involuntary case or
proceeding under U.S. bankruptcy laws, as now or hereafter constituted, or any
other applicable Federal, state, or foreign bankruptcy, insolvency or other
similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against the Company or any Significant Subsidiary; or (iii) the
filing by the Company or any Significant Subsidiary of a petition or answer or
consent seeking reorganization or relief under U.S. bankruptcy laws, as now or
hereafter constituted, or any other applicable Federal, state or foreign
bankruptcy, insolvency or other similar law; or (iv) the consent by the Company
or any Significant Subsidiary to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or of any substantial part of the Property or assets of
the Company or any Significant Subsidiary or of any substantial part of the
Property or assets of the Company or any Significant Subsidiary, or the making
by the Company or any Significant Subsidiary of an assignment for the benefit of
creditors; or (v) the admission by the Company or any Significant Subsidiary in
writing of its inability to pay its debts generally as they become due; or
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(vi) the taking of corporate action by the Company or any Significant Subsidiary
in furtherance of any such action; or
(i) any Guarantee shall for any reason cease to be, or be asserted by the
Company or any Guarantor, as applicable, not to be, in full force and effect
(except pursuant to the release of any such Guarantee in accordance with the
Indenture).
If any Event of Default (other than an Event of Default specified in clause
(g) or (h) above) occurs and is continuing, then and in every such case the
Trustee or the holders of not less than 25% of the outstanding aggregate
principal amount at Stated Maturity of the Notes, may declare the principal
amount at Stated Maturity, premium, if any, and any accrued and unpaid interest
on all such Notes then outstanding to be immediately due and payable by a notice
in writing to the Company (and to the Trustee if given by holders of such
Notes), and upon any such declaration all amounts payable in respect of the
Notes will become and be immediately due and payable. If any Event of Default
specified in clause (g) or (h) above occurs, the principal amount at Stated
Maturity, premium, if any, and any accrued and unpaid interest on the Notes then
outstanding shall become immediately due and payable without any declaration or
other act on the part of the Trustee or any holder of such Notes. In the event
of a declaration of acceleration because an Event of Default set forth in clause
(e) above has occurred and is continuing, such declaration of acceleration shall
be automatically rescinded and annulled if the event of default triggering such
Event of Default pursuant to clause (e) shall be remedied, or cured or waived by
the holders of the relevant Indebtedness within 30 days after such event of
default; provided that no judgment or decree for the payment of the money due on
the Notes has been obtained by the Trustee as provided in the Indenture. Under
certain circumstances, the holders of a majority in principal amount at Stated
Maturity of the outstanding Notes by notice to the Company and the Trustee may
rescind an acceleration and its consequences.
The holders of a majority in aggregate principal amount at Stated Maturity
of the Notes then outstanding by notice to the Trustee may on behalf of the
holders of all such Notes waive any existing Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, premium, if any on or the principal of, such Notes. Subject to the
provisions of the Indenture relating to the duties of the Trustee, the Trustee
is under no obligation to exercise any of its rights or powers under the
Indenture at the request, order or direction of any of the holders, unless such
holders have offered to such Trustee reasonable security or indemnity. Subject
to the provisions of the Indenture and applicable law, the holders of a majority
in aggregate principal amount at Stated Maturity of the Notes at the time
outstanding have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or exercising any trust
or power conferred upon the Trustee.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required within five
Business Days after becoming aware of any Default or Event of Default, to
deliver to the Trustee a statement describing such Default or Event of Default,
its status and what action the Company is taking or proposes to take with
respect thereto.
AMENDMENT, SUPPLEMENT AND WAIVER
The Company, the Guarantors and the Trustee may, at any time and from time
to time, without notice to or consent of any holder, enter into one or more
indentures supplemental to the Indenture (a) to evidence the succession of
another Person to the Company and the Guarantors and the assumption by such
successor of the covenants and Obligations of the Company under the Indenture
and contained in the Notes and the Guarantors contained in the Indenture and the
Guarantees, (b) to add to the covenants of the Company, for the benefit of the
holders, or to surrender any right or power conferred upon the Company or the
Guarantors by the Indenture, (c) to add any additional Events of Default, (d) to
provide for uncertificated Notes in addition to or in place of certificated
Notes, (e) to evidence and provide for the acceptance of appointment under the
Indenture by the successor Trustee, (f) to secure the Notes and/or the
Guarantees, (g) to cure any ambiguity, to correct or supplement any provision in
the Indenture which may be inconsistent with any other provision therein or to
add any other provisions with respect to matters or questions arising under the
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Indenture, provided that such actions will not adversely affect the interests of
the holders in any material respect or (h) to add or release any Guarantor
pursuant to the terms of the Indenture.
With the consent of the holders of not less than a majority in principal
amount at Stated Maturity of the outstanding Notes (including consents obtained
in connection with a tender offer or exchange offer for the Notes), the Company
and the Trustee may enter into one or more indentures supplemental to the
Indenture for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of the Indenture or of modifying in any
manner the rights of the holders; provided, however, that no such supplemental
indenture will, without the consent of the holder of each Outstanding Note
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, or reduce the principal amount thereof (or
premium, if any), or the interest thereon that would be due and payable upon
Maturity thereof, or change the place of payment where, or the coin or currency
in which, any Note or any premium or interest thereon is payable, or impair the
right to institute suit for the enforcement of any such payment on or after the
Stated Maturity thereof, (b) reduce the percentage in principal amount at Stated
Maturity of the Outstanding Notes, the consent of whose Holders is necessary for
any such supplemental indenture or required for any waiver of compliance with
certain provisions of the Indenture, or certain Defaults thereunder, (c) modify
the Obligations of the Company to make offers to purchase Notes upon a Change of
Control or from the proceeds of Asset Sales, (d) subordinate in right of
payment, or otherwise subordinate, the Notes or the Guarantees to any other
Indebtedness, (e) amend, supplement or otherwise modify the provisions of the
Indenture relating to Guarantees or (f) modify any of the provisions of this
paragraph (except to increase any percentage set forth herein).
The holders of not less than a majority in principal amount at Stated
Maturity of the outstanding Notes may on behalf of the holders of all the Notes
waive any past Default or Event of Default under the Indenture and its
consequences, except a Default or Event of Default (a) in the payment of the
principal of (or premium, if any) or interest on any Note or (b) in respect of a
covenant or provision hereof which under the proviso to the prior paragraph
cannot be modified or amended without the consent of the Holder of each
outstanding Note affected.
SATISFACTION AND DISCHARGE OF THE INDENTURE; DEFEASANCE
The Company may terminate its obligations and the obligations of the
Guarantors under the Notes, the Indenture, and the Guarantees when (i) either
(A) all outstanding Notes have been delivered to the Trustee for cancellation or
(B) all such Notes not therefore delivered to the Trustee for cancellation have
become due and payable, will become due and payable within one year or are to be
called for redemption within one year under irrevocable arrangements
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name and at the expense of the Company, and the Company has
irrevocably deposited or caused to be deposited with the Trustee funds in an
amount sufficient to pay and discharge the entire indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of
(premium, if any, on) and interest to the date of deposit or Maturity or date of
redemption; (ii) the Company has paid or caused to be paid all sums then due and
payable by the Company under the Indenture; and (iii) the Company has delivered
an Officers' Certificate and an opinion of counsel relating to compliance with
the conditions set forth in the Indenture.
The Company, at its election, shall (a) be deemed to have paid and
discharged its debt on the Notes and the Indenture and Guarantees shall cease to
be of further effect as to all outstanding Notes (except as to (i) rights of
registration of transfer, substitution and exchange of Notes, (ii) the Company's
right of optional redemption, (iii) rights of holders to receive payments of
principal of, premium, if any, and interest on the Notes (but not the Change of
Control Purchase Price or the Asset Sale Offer Purchase Price) and any rights of
the holders with respect to such amounts, (iv) the rights, obligations and
immunities of the Trustee under the Indenture, and (v) certain other specified
provisions in the Indenture) or (b) cease to be under any obligation to comply
with certain restrictive covenants that are described in the Indenture, after
the irrevocable deposit by the Company with the Trustee, in trust for the
benefit of the holders, at any time prior to the Stated Maturity of the Notes,
of (A) money in an amount, (B) U.S. Government Obligations which through the
payment of interest and principal will provide, not later than one business day
before the due date
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of payment in respect of such Notes, money in an amount, or (C) a combination
thereof sufficient to pay and discharge the principal of, premium, if any on,
and interest on, such Notes then outstanding on the dates on which any such
payments are due in accordance with the terms of the Indenture and of such
Notes. Such defeasance or covenant defeasance shall be deemed to occur only if
certain conditions are satisfied, including, among other things, delivery by the
Company to the Trustee of an opinion of outside counsel acceptable to the
Trustee to the effect that (i) such deposit, defeasance and discharge will not
be deemed, or result in, a taxable event for federal income tax purposes with
respect to the holders; and (ii) the Company's deposit will not result in the
trust or such Trustee being subject to regulation under the Investment Company
Act of 1940.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any capitalized terms used herein for which no definition
is provided.
"Acquired Indebtedness" means, with respect to any specified Person,
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a subsidiary of such specified Person, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a subsidiary of such specified Person,
but excluding Indebtedness which is extinguished, retired or repaid in
connection with such other Person merging with or into or becoming a subsidiary
of such specified Person.
"Affiliate" of any specified Person means another Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that beneficial ownership of 10% or more of the Voting Stock of a Person shall
be deemed to be control.
"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
or other disposition (including, without limitation, by way of merger or
consolidation or by means of a Sale and Lease-Back Transaction) by the Company
or any Subsidiary to any Person other than the Company, a Guarantor or a Wholly
Owned Subsidiary, in one transaction, or a series of related transactions, of
(i) any Capital Stock of any Subsidiary (except for directors' qualifying shares
or certain minority interests sold to other Persons solely due to local law
requirements that there be more than one stockholder, but which are not in
excess of what is required for such purpose), or (ii) any other Property or
assets of the Company or any Subsidiary, other than (A) sales of drill-string
components and obsolete or worn out equipment in the ordinary course of business
or other assets that, in the Company's reasonable judgment, are no longer used
or useful in the conduct of the business of the Company and its Subsidiaries),
(B) any drilling contract, charter or other lease of Property or other assets
entered into by the Company or any Subsidiary in the ordinary course of
business, other than any Bargain Purchase Contract, (C) a Restricted Payment or
Restricted Investment permitted under "-- Certain Covenants -- Limitation on
Restricted Payments," (D) a Change of Control, (E) a consolidation, merger,
continuance or the disposition of all or substantially all of the assets of the
Company and the Subsidiaries, taken as a whole in compliance with the provision
of the Indenture described in "-- Consolidation, Merger, Conveyance, Lease or
Transfer," (F) any trade or exchange by the Company or any Subsidiary of one or
more drilling rigs for one or more other drilling rigs of like kind owned or
held by another Person, provided that (x) the Fair Value of the rig or rigs
traded or exchanged by the Company or such Subsidiary (including cash or cash
equivalents to be delivered by the Company or such Subsidiary) is reasonably
equivalent to the Fair Value of the drilling rig or rigs (together with cash or
cash equivalents to be received by the Company or such Subsidiary) or other
assets as determined by written appraisal by a nationally (or industry)
recognized investment banking firm or appraisal firm and (y) such exchange is
approved by a majority of the disinterested directors of the Company. An Asset
Sale shall include the requisition of title to, seizure of or forfeiture of any
Property or assets, or any actual or constructive total loss or an agreed or
compromised total loss of any Property or assets.
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"Attributable Indebtedness" in respect of a Sale and Lease-Back Transaction
means, at any date of determination, the present value (discounted at the
interest rate borne by the Notes, compounded annually) of the total obligations
of the lessee for rental payments during the remaining term of the lease (or to
the first date on which the lessee is permitted to terminate such lease without
the payment of a penalty) included in such Sale and Lease-Back Transaction
(including any period for which such lease has been extended).
"Average Life" means, as of any date, with respect to any debt security,
the quotient obtained by dividing (i) the sum of the products of (x) the number
of years from such date to the date of each scheduled principal payment
(including any sinking fund or mandatory redemption payment requirements) of
such debt security multiplied in each case by (y) the amount of such principal
payment by (ii) the sum of all such principal payments.
"Bank Credit Facility" means the $50.0 million Amended and Restated Senior
Secured Revolving Credit Agreement dated as of April 30, 1997 among the Company
and Drillers as co-borrowers, International as guarantor and the lending
institutions party thereto, Bankers Trust Company, as agent and administrative
agent, and ING (US) Capital Corporation, as co-agent and documentation agent, as
from time to time amended.
"Bargain Purchase Contract" means a drilling contract, charter or lease
that provides for acquisition of Property by the other party to such agreement
during or at the end of the term thereof for less than Fair Market Value thereof
at the time such right to acquire such Property is granted.
"Capital Lease Obligation" means, at any time as to any Person with respect
to any Property leased by such Person as lessee, the amount of the liability
with respect to such lease that would be required at such time to be capitalized
and accounted for as a capital lease on the balance sheet of such Person
prepared in accordance with GAAP.
"Capital Stock" in any Person means any and all shares, interests,
partnership interests, participations or other equivalents in the equity
interest (however designated) in such Person and any rights (other than debt
securities convertible into an equity interest), warrants or options to acquire
any equity interest in such Person.
"Cash Proceeds" means, with respect to any Asset Sale by any Person, the
aggregate consideration received for such Asset Sale by such Person in the form
of cash or cash equivalents (including any amounts of insurance or other
proceeds received in connection with an Asset Sale of the type described in the
last sentence of the definition thereof), including payments in respect of
deferred payment obligations when received in the form of cash or cash
equivalents (except to the extent that such obligations are financed or sold
with recourse to such Person or any subsidiary thereof).
"Change of Control" means (i) a determination by the Company that any
Person or group (as defined in Section 13(d)(3) or 14(d)(2) of the Exchange Act)
has become the direct or beneficial owner (as defined in Rule 13d-3 under the
Exchange Act) of more than 50% of the Voting Stock of the Company other than
Permitted Holders; (ii) the Company is merged with or into or consolidated with
another corporation and, immediately after giving effect to the merger or
consolidation, less than 50% of the outstanding voting securities entitled to
vote generally in the election of directors or persons who serve similar
functions of the surviving or resulting entity are then beneficially owned
(within the meaning of Rule 13d-3 of the Exchange Act) in the aggregate by (x)
the stockholders of the Company immediately prior to such merger or
consolidation, or (y) if the record date has been set to determine the
stockholders of the Company entitled to vote on such merger or consolidation,
the stockholders of the Company as of such a record date; (iii) the Company,
either individually or in conjunction with one or more Subsidiaries, sells,
conveys, transfers or leases, or the Subsidiaries sell, convey, transfer or
lease, all or substantially all of the assets of the Company or the Company and
the Subsidiaries, taken as a whole (either in one transaction or a series of
related transactions), including Capital Stock of the Subsidiaries, to any
Person (other than a Wholly Owned Subsidiary); (iv) the liquidation or
dissolution of the Company; or (v) the first day on which a majority of the
individuals who constitute the Board of Directors of the Company are not
Continuing Directors.
"Consolidated Interest Coverage Ratio" means as of the date of the
transaction giving rise to the need to calculate the Consolidated Interest
Coverage Ratio (the "Transaction Date"), the ratio of (i) the aggregate
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amount of EBITDA of the Company and its consolidated Subsidiaries for the four
fiscal quarters for which financial information in respect thereof is available
immediately prior to the applicable Transaction Date (the "Determination
Period") to (ii) the aggregate Consolidated Interest Expense of the Company and
its consolidated Subsidiaries that is anticipated to accrue during a period
consisting of the fiscal quarter in which the Transaction Date occurs and the
three fiscal quarters immediately subsequent thereto (based upon the pro forma
amount and maturity of, and interest payments in respect of, Indebtedness of the
Company and its consolidated Subsidiaries expected by the Company to be
outstanding on the Transaction Date), assuming for the purposes of this
measurement the continuation of market interest rates prevailing on the
Transaction Date and base interest rates in respect of floating interest rate
obligations equal to the base interest rates on such obligations in effect as of
the Transaction Date, provided that if the Company or any of its consolidated
Subsidiaries is a party to any Interest Swap Obligation that would have the
effect of changing the interest rate on any Indebtedness of the Company or any
of its consolidated Subsidiaries for such four-quarter period (or a portion
thereof), the resulting rate shall be used for such four-quarter period or
portion thereof; provided, further, that any Consolidated Interest Expense of
the Company with respect to Indebtedness incurred or retired by the Company or
any of its Subsidiaries during the fiscal quarter in which the Transaction Date
occurs shall be calculated as if such debt was incurred or retired on the first
day of the fiscal quarter in which the Transaction Date occurs; provided,
further, that if the transaction giving rise to the need to calculate the
Consolidated Interest Coverage Ratio would have the effect of increasing or
decreasing EBITDA in the future and if such increase or decrease is readily
quantifiable and is attributable to such transaction, EBITDA shall be calculated
on a pro forma basis as if such transaction had occurred on the first day of the
four fiscal quarters referred to in clause (i) of this definition, and if,
during the same four fiscal quarters, (x) the Company or any of its consolidated
Subsidiaries shall have engaged in any Asset Sale, EBITDA for such period shall
be reduced by an amount equal to the EBITDA (if positive), or increased by an
amount equal to the EBITDA (if negative), directly attributable to the assets
which are the subject of such Asset Sale for such period calculated on a pro
forma basis as if such Asset Sale and any related retirement of Indebtedness had
occurred on the first day of such period or (y) after the Issue Date, the
Company or any of its consolidated Subsidiaries shall have acquired any material
assets other than in the ordinary course of business, EBITDA and Consolidated
Interest Expense shall be calculated on a pro forma basis as if such acquisition
had occurred on the first day of such period.
"Consolidated Interest Expense" means, with respect to any Person for any
period, without duplication (A) the sum of (i) the aggregate amount of cash and
noncash interest expense (including capitalized interest) of such Person and its
subsidiaries for such period as determined on a consolidated basis in accordance
with GAAP in respect of Indebtedness (including, without limitation, (v) any
amortization of debt discount, (w) net costs associated with Interest Swap
Obligations (including any amortization of discounts), (x) the interest portion
of any deferred payment obligation calculated in accordance with the effective
interest method, (y) all accrued interest and (z) all commissions, discounts and
other fees and charges owed with respect to letters of credit, bankers
acceptances or similar facilities) paid or accrued, or scheduled to be paid or
accrued, during such period; (ii) dividends on Preferred Stock or Redeemable
Stock of such Person (and Preferred Stock or Redeemable Stock of its
subsidiaries if paid to a Person other than such Person or its subsidiaries)
declared and payable in cash; (iii) the portion of any rental obligation of such
Person or its subsidiaries in respect of any Capital Lease Obligation allocable
to interest expense in accordance with GAAP; (iv) the portion of any rental
obligation of such Person or its subsidiaries in respect of any Sale and
Lease-Back Transaction allocable to interest expense (determined as if such were
treated as a Capital Lease Obligation); and (v) to the extent any debt of any
other Person is guaranteed by such Person or any of its subsidiaries, the
aggregate amount of interest paid, accrued or scheduled to be paid or accrued,
by such other Person during such period attributable to any such debt, less (B)
to the extent included in (A) above, amortization or write-off of deferred
financing costs of such Person and its subsidiaries during such period and any
charge related or any premium or penalty paid in connection with redeeming or
retiring any Indebtedness of such Person and its subsidiaries prior to its
stated maturity; in the case of both (A) and (B) above, after elimination of
intercompany accounts among such Person and its subsidiaries and as determined
in accordance with GAAP. For purposes of clause (ii) above, dividend
requirements attributable to any Preferred Stock or Redeemable Stock shall be
deemed to be an amount equal to the amount of dividend
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requirements on such Preferred Stock or Redeemable Stock times a fraction, the
numerator of which is the amount of such dividend requirements, and the
denominator of which is one minus the applicable combined federal, state, local
and foreign income tax rate of the Company and its Subsidiaries (expressed as a
decimal), on a consolidated basis, for the fiscal year immediately preceding the
date of the transaction giving rise to the need to calculate Consolidated
Interest Expense.
"Consolidated Net Income" of any Person means, for any period, the
aggregate net income (or net loss, as the case may be) of such Person and its
subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP, provided that there shall be excluded therefrom, without duplication,
(i) any net income of any Unrestricted Subsidiary, except that the Company's or
any Subsidiary's interest in the net income of such Unrestricted Subsidiary for
such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash or cash equivalents actually distributed by such
Unrestricted Subsidiary during such period to the Company or a Subsidiary as a
dividend or other distribution, (ii) gains and losses, net of taxes, from Asset
Sales or reserves relating thereto, (iii) the net income of any Person that is
not a subsidiary or that is accounted for by the equity method of accounting
which shall be included only to the extent of the amount of dividends or
distributions paid to such Person or its subsidiaries, (iv) items (but not loss
items) classified as extraordinary, unusual or nonrecurring (other than the tax
benefit, if any, of the utilization of net operating loss carryforwards or
alternative minimum tax credits), (v) the net income (but not net loss) of any
Person acquired by such specified Person or any of its subsidiaries in a
pooling-of-interests transaction for any period prior to the date of such
acquisition, (vi) any gain or loss, net of taxes, realized on the termination of
any employee pension benefit plan, (vii) the net income (but not net loss) of
any subsidiary of such specified Person to the extent that the transfer to that
Person of that income is not at the time permitted, directly or indirectly, by
any means (including by dividend, distribution, advance or loan or otherwise),
by operation of the terms of its charter or any agreement with a Person other
than with such specified Person, instrument held by a Person other than by such
specified Person, judgment, decree, order, statute, law, rule or governmental
regulations applicable to such subsidiary or its stockholders, except for any
dividends or distributions actually paid by such subsidiary to such Person, and
(viii) with regard to a non-Wholly Owned Subsidiary, any aggregate net income
(or loss) in excess of such Person's or such subsidiary's pro rata share of such
non-Wholly Owned Subsidiary's net income (or loss).
"Consolidated Net Worth" of any Person means, as of any date, the sum of
the Capital Stock and additional paid-in capital plus retained earnings (or
minus accumulated deficit) of such Person and its subsidiaries on a consolidated
basis at such date, each item determined in accordance with GAAP, less amounts
attributable to Redeemable Stock of such Person or any of its subsidiaries.
"Continuing Director" means an individual who (i) is a member of the Board
of Directors of the Company and (ii) either (A) was a member of the Board of
Directors of the Company on the Issue Date or (B) whose nomination for election
or election to the Board of Directors of the Company was approved by vote of at
least a majority of the directors then still in office who were either directors
on the Issue Date or whose election or nomination for election was previously so
approved.
"Currency Hedge Obligations" means, at any time as to any Person, the
obligations of such Person at such time which were incurred in the ordinary
course of business pursuant to any foreign currency exchange agreement, option
or future contract or other similar agreement or arrangement designed to protect
against or manage such Person's or any of its subsidiaries exposure to
fluctuations in foreign currency exchange rates.
"Default" means any event, act or condition the occurrence of which is, or
after notice or the passage time or both would be, an Event of Default.
"Determination Period" has the meaning specified under clause (i) of the
definition of "Consolidated Interest Coverage Ratio."
"EBITDA" means, with respect to any Person for any period, the Consolidated
Net Income of such Person for such period, plus to the extent reflected in the
income statement of such Person for such period from which Consolidated Net
Income is determined, without duplication, (i) Consolidated Interest Expense,
(ii) income tax expense, (iii) depreciation expense, (iv) amortization expense,
(v) any charge related to any
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premium or penalty paid in connection with redeeming or retiring any
Indebtedness prior to its Stated Maturity, (vi) any other non-cash charges and
(vii) to the extent not otherwise covered by the adjustments contained in the
proviso to this definition, non-recurring charges of approximately $6.1 million
incurred during 1996 in employment severance costs, exit costs attributable to
its exiting Argentina and Mexico and other non-recurring charges, all as
described in the Company's Form 10-K for the year ended December 31, 1996 and
minus, to the extent reflected in such income statement, any noncash credits
that had the effect of increasing Consolidated Net Income of such Person for
such period; provided that for purposes of determining EBITDA with respect to
the Company, Consolidated Net Income shall exclude any net income or loss for
the year ended December 31, 1996 associated with the Company's Argentine and
Mexican divisions.
"Fair Market Value" means, with respect to consideration received or to be
received pursuant to any transaction by any Person, the fair market value of
such consideration as determined in good faith by the Board of Directors of the
Company.
"Fair Value" means, with respect to any asset or Property, the price which
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction.
"GAAP" means, at any date, United States generally accepted accounting
principles, consistently applied, as set forth in the opinions of the Accounting
Principles Board of the American Institute of Certified Public Accountants
("AICPA") and statements of the Financial Accounting Standards Board, or in such
other statements by such other entity as may be designated by the AICPA, that
are applicable to the circumstances as of the date of determination; provided,
however, that all calculations made for purposes of determining compliance with
the provisions set forth in the Indenture shall utilize GAAP in effect at the
Issue Date.
"Guarantee" means any guarantee of the Notes by any Guarantor in accordance
with the provisions described under "-- Guarantees of Notes."
"Guarantor" means Drillers, International and DI Energy, Inc. and each
other Subsidiary of the Company that is required to guarantee the Company's
Obligations under the Notes and the Indenture as described in "-- Guarantees of
Notes" and any other Subsidiary of the Company that executes a supplemental
indenture in which such Subsidiary agrees to guarantee the Company's Obligations
under the Notes and the Indenture.
"incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, suffer to exist, incur (by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or obligation on the balance sheet of
such Person (and "incurrence," "incurred," "incurrable" and "incurring" shall
have meanings correlative to the foregoing); provided that a change in GAAP that
results in an obligation of such Person that exists at such time becoming
Indebtedness shall not be deemed an incurrence of such Indebtedness.
Indebtedness otherwise incurred by a Person before it becomes a Subsidiary shall
be deemed to have been incurred at the time at which it becomes a Subsidiary.
"Indebtedness" as applied to any Person means, at any time, without
duplication, whether recourse is to all or a portion of the assets of such
Person, and whether or not contingent, (i) any obligation of such Person for
borrowed money; (ii) any obligation of such Person evidenced by bonds,
debentures, notes or other similar instruments, including, without limitation,
any such obligations incurred in connection with acquisition of Property, assets
or businesses, excluding accounts payable made in the ordinary course of
business which are not more than 90 days overdue or which are being contested in
good faith and by appropriate proceedings; (iii) any obligation of such Person
for all or any part of the purchase price of Property or for the cost of
Property constructed or of improvements thereto (including any obligation under
or in connection with any letter of credit related thereto), other than accounts
payable incurred in respect of Property and services purchased in the ordinary
course of business which are no more than 90 days overdue or which are being
contested in good faith and by appropriate proceedings; (iv) any obligation of
such Person upon which interest charges are customarily paid (other than
accounts payable incurred in the ordinary course of business); (v) any
obligation of such Person under conditional sale or other title retention
agreements relating to
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purchased Property; (vi) any obligation of such Person issued or assumed as the
deferred purchase price of Property (other than accounts payable incurred in the
ordinary course of business which are no more than 90 days overdue or which are
being contested in good faith and by appropriate proceedings); (vii) any Capital
Lease Obligation or Attributable Indebtedness pursuant to any Sale and
Lease-Back Transaction of such Person; (viii) any obligation of any other Person
secured by (or for which the obligee thereof has an existing right, contingent
or otherwise, to be secured by) any Lien on Property owned or acquired, whether
or not any obligation secured thereby has been assumed, by such Person; (ix) any
obligation of such Person in respect of any letter of credit supporting any
obligation of any other Person; (x) the maximum fixed repurchase price of any
Redeemable Stock of such Person (or if such Person is a subsidiary, any
Preferred Stock of such Person); (xi) the notional amount of any Interest Swap
Obligation or Currency Hedge Obligation of such Person at the time of
determination; and (xii) any obligation which is in economic effect a guarantee,
regardless of its characterization (other than an endorsement in the ordinary
course of business), with respect to any Indebtedness of another Person, to the
extent guaranteed. For purposes of the preceding sentence, the maximum fixed
repurchase price of any Redeemable Stock or subsidiary Preferred Stock that does
not have a fixed repurchase price shall be calculated in accordance with the
terms of such Redeemable Stock or subsidiary Preferred Stock as if such
Redeemable Stock or subsidiary Preferred Stock were repurchased on any date on
which Indebtedness shall be required to be determined pursuant to the Indenture
Supplement; provided, however, that if such Redeemable Stock or subsidiary
Preferred Stock is not then permitted to be repurchased, the repurchase price
shall be the book value of such Redeemable Stock or subsidiary Preferred Stock.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability of any guarantees at such date; provided that for purposes of
calculating the amount of any non-interest bearing or other discount security,
such Indebtedness shall be deemed to be the principal amount thereof that would
be shown on the balance sheet of the issuer dated such date prepared in
accordance with GAAP but that such security shall be deemed to have been
incurred only on the date of the original issuance thereof.
"Interest Swap Obligation" means, with respect to any Person, the
obligation of such Person pursuant to any interest rate swap agreement, interest
rate cap, collar or floor agreement or other similar agreement or arrangement
designed to protect against or manage such Person's or any of its subsidiaries
exposure to fluctuations in interest rates.
"Investment" means, with respect to any Person, any direct, indirect or
contingent investment in another Person, whether by means of a share purchase,
capital contribution, loan, advance (other than advances to employees for moving
and travel expenses, drawing accounts and similar expenditures in the ordinary
course of business) or similar credit extension constituting Indebtedness of
such other Person, and any guarantee of Indebtedness of any other Person;
provided that the term "Investment" shall not include any transaction involving
the purchase or other acquisition (including by way of merger) of Property
(including Capital Stock) by the Company or any Subsidiary in exchange for
Capital Stock (other than Redeemable Stock) of the Company. The amount of any
Person's Investment shall be the original cost of such Investment to such
Person, plus the cost of all additions thereto paid by such Person, and minus
the amount of any portion of such Investment repaid to such Person in cash as a
repayment of principal or a return of capital, as the case may be, but without
any other adjustments for increases or decreases in value, or write-ups,
writedowns, or write-offs with respect to such Investment. In determining the
amount of any Investment involving a transfer of any Property or assets other
than cash, such Property or assets shall be valued at its Fair Value at the time
of such transfer as determined in good faith by the board of directors (or
comparable body) of the Person making such transfer. The Company shall be deemed
to make an "Investment" in the amount of the Fair Value of the Assets of a
Subsidiary at the time such Subsidiary is designated an Unrestricted Subsidiary.
"Issue Date" means the date on which the Notes are first authenticated and
delivered under the Indenture.
"Joint Venture" means any Person (other than a Guarantor) designated as
such by a resolution of the Board of Directors of the Company and as to which
(i) the Company, any Guarantor or any Joint Venture owns less than 50% of the
Capital Stock of such Person; (ii) no more than ten unaffiliated Persons own of
record any Capital Stock of such Person; (iii) at all times, each such Person
owns the same proportion of each
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class of Capital Stock of such Person outstanding at such time; (iv) no
Indebtedness of such Person is or becomes outstanding other than Non-Recourse
Indebtedness; (v) there exist no consensual encumbrances or restrictions on the
ability of such Person to (x) pay, directly or indirectly, dividends or make any
other distributions in respect of its Capital Stock to the holders of its
Capital Stock or (y) pay any Indebtedness or other obligation owed to the
holders of its Capital Stock or (z) make any Investment in the holders of its
Capital Stock, in each case other than the types of consensual encumbrances or
restrictions that would be permitted by the "Limitation on Dividends and Other
Payment Restrictions Affecting Subsidiaries" covenant if such Person were a
Subsidiary; and (vi) the business engaged in by such Person is a Related
Business.
"Lien" means any mortgage, pledge, hypothecation, charge, assignment,
deposit arrangement, encumbrance, security interest, lien (statutory or other),
or preference, priority or other security or similar agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
agreement to give or grant a Lien or any lease, conditional sale or other title
retention agreement having substantially the same economic effect as any of the
foregoing).
"Maturity" means the date on which the principal of a Note becomes due and
payable as provided therein or in the Indenture, whether at the Stated Maturity
or the Change of Control Payment Date or purchase date established pursuant to
the terms of the Indenture for an Asset Sale Offer or by declaration of
acceleration, call for redemption or otherwise.
"Net Available Proceeds" means, (a) as to any Asset Sale (other than a
Bargain Purchase Contract), the Cash Proceeds therefrom, net of all legal and
title expenses, commissions and other fees and expenses incurred, and all
Federal, state, foreign, recording and local taxes payable as a consequence of
such Asset Sale, net of all payments made to any Person other than the Company
or a Subsidiary on any Indebtedness which is secured by such assets, in
accordance with the terms of any Lien upon or with respect to such assets, or
which must by its terms, or in order to obtain a necessary consent to such Asset
Sale, or by applicable law, be repaid out of the proceeds from such Asset Sale
and, as for any Asset Sale by a Subsidiary, net of the equity interest in such
Cash Proceeds of any holder of Capital Stock of such Subsidiary (other than the
Company, any other Subsidiary or any Affiliate of the Company or any such other
Subsidiary) and (b) as to any Bargain Purchase Contract, an amount equal to (i)
that portion of the rental or other payment stream arising under a Bargain
Purchase Contract that represents an amount in excess of the Fair Market Value
of the rental or other payments with respect to the pertinent Property or other
asset and (ii) the Cash Proceeds from the sale of such Property or other asset,
net of the amount set forth in clause (a) above, in each case as and when
received.
"Non-Recourse Indebtedness" means Indebtedness or that portion of
Indebtedness of an Unrestricted Subsidiary or a foreign Subsidiary not
constituting a Guarantor as to which (a) neither the Company nor any other
Subsidiary (other than an Unrestricted Subsidiary or a Subsidiary of such
foreign Subsidiary) (i) provides credit support including any undertaking,
agreement or instrument which would constitute Indebtedness or (ii) is directly
or indirectly liable for such Indebtedness and (b) no default with respect to
such Indebtedness (including any rights which the holders thereof may have to
take enforcement action against an Unrestricted Subsidiary or such foreign
Subsidiary) would permit (upon notice, lapse of time or both) any holder of any
other Indebtedness of the Company or its other Subsidiaries to declare a default
on such other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity.
"Obligations" means, with respect to any Indebtedness, any obligation
thereunder, including, without limitation, principal, premium and interest
(including post petition interest thereon), penalties, fees, costs, expenses,
indemnifications, reimbursements, damages and other liabilities.
"Obligors" means the Company and the Guarantors, collectively; "Obligor"
means the Company or any Guarantor.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, a Vice Chairman of the Board, the President, the Chief Executive Officer,
the Chief Operating Officer or a Vice President, and by the Chief Financial
Officer, the Chief Accounting Officer, the Treasurer, an Assistant Treasurer,
the Secretary or
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an Assistant Secretary of the Company or a Subsidiary and delivered to the
Trustee, which shall comply with the Indenture.
"Permitted Holders" means Norex Industries, Inc., Somerset Capital
Partners, Mike L. Mullen and Roy T. Oliver, Jr. and their respective Affiliates.
"Permitted Indebtedness" means (a) Indebtedness of the Company under the
Notes; (b) Indebtedness (and any guarantee thereof) under one or more credit or
revolving credit facilities with a bank or syndicate of banks or financial
institutions or other lenders, including the Bank Credit Facility, as such may
be amended, modified, revised, extended, replaced, or refunded from time to
time, in an aggregate principal amount at any one time outstanding not to exceed
$100.0 million, less any amounts derived from Asset Sales and applied to the
required permanent reduction of Senior Debt (and a permanent reduction of the
related commitment to lend or amount available to be reborrowed in the case of a
revolving credit facility) under such credit facilities as contemplated by the
"Limitation on Asset Sales" covenant; (c) Indebtedness of the Company or any
Subsidiary under Interest Swap Obligations, provided that (i) such Interest Swap
Obligations are related to payment obligations on Indebtedness otherwise
permitted under the covenants described in "-- Certain Covenants -- Limitation
on Indebtedness" and (ii) the notional principal amount of such Interest Swap
Obligations does not exceed the principal amount of the Indebtedness to which
such Interest Swap Obligations relate; (d) Indebtedness of the Company or any
Subsidiary under Currency Hedge Obligations, provided that (i) such Currency
Hedge Obligations are related to payment obligations on Indebtedness otherwise
permitted under the covenants described in "-- Certain Covenants -- Limitation
on Indebtedness" or to the foreign currency cash flows reasonably expected to be
generated by the Company and the Subsidiaries and (ii) the notional principal
amount of such Currency Hedge Obligations does not exceed the principal amount
of the Indebtedness and the amount of the foreign currency cash flows to which
such Currency Hedge Obligations relate; (e) Indebtedness of the Company or any
Subsidiary outstanding on the Issue Date; (f) the Guarantees of the Notes (and
any assumption of the Obligations guaranteed thereby); (g) Indebtedness of the
Company or any Subsidiary in respect of bid performance bonds, surety bonds,
appeal bonds and letters of credit or similar arrangements issued for the
account of the Company or any Subsidiary, in each case in the ordinary course of
business and other than for an obligation for money borrowed; (h) Indebtedness
of the Company to a Guarantor or other Wholly Owned Subsidiary and Indebtedness
of a Guarantor or other Wholly Owned Subsidiary to the Company or another
Guarantor or other Wholly Owned Subsidiary; provided that upon any subsequent
issuance or transfer of any Capital Stock or any other event which results in
any such Guarantor ceasing to be a Guarantor or such Wholly Owned Subsidiary
ceasing to be a Wholly Owned Subsidiary, as the case may be, or any other
subsequent transfer of any such Indebtedness (except to the Company or a
Guarantor or other Wholly Owned Subsidiary), such Indebtedness shall be deemed,
in each case, to be incurred and shall be treated as an incurrence for purposes
of the "Limitation on Indebtedness" covenants at the time the Guarantor in
question ceased to be a Guarantor or the Wholly Owned Subsidiary in question
ceased to be a Wholly Owned Subsidiary; (i) Subordinated Indebtedness of the
Company to an Unrestricted Subsidiary for money borrowed; (j) Indebtedness of
the Company in connection with a purchase of the Notes pursuant to a Change of
Control Offer, provided that the aggregate principal amount of such Indebtedness
does not exceed 101% of the aggregate principal amount at Stated Maturity of the
Notes purchased pursuant to such Change of Control Offer; provided, further,
that such Indebtedness (A) has an Average Life equal to or greater than the
remaining Average Life of the Notes and (B) does not mature prior to one year
following the Stated Maturity of the Notes; (k) Permitted Refinancing
Indebtedness; (l) Permitted Subsidiary Refinancing Indebtedness; and (m)
additional Indebtedness in an aggregate principal amount not in excess of $2.5
million at any one time outstanding. So as to avoid duplication in determining
the amount of Permitted Indebtedness under any clause of this definition,
guarantees permitted to be incurred pursuant to the Indenture of, or obligations
permitted to be incurred pursuant to the Indenture in respect of letters of
credit supporting, Indebtedness otherwise included in the determination of such
amount shall not also be included.
"Permitted Investments" means (a) certificates of deposit, bankers
acceptances, time deposits, Eurocurrency deposits and similar types of
Investments routinely offered by commercial banks with final maturities of one
year or less issued by commercial banks organized in the United States having
capital and surplus in
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excess of $300.0 million; (b) commercial paper issued by any corporation, if
such commercial paper has credit ratings of at least "A-1" or its equivalent by
S&P and at least "P-I" or its equivalent by Moody's; (c) U.S. Government
Obligations with a maturity of four years or less; (d) repurchase obligations
for instruments of the type described in clause (c) with any bank meeting the
qualifications specified in clause (a) above; (e) shares of money market mutual
or similar funds having assets in excess of $100.0 million; (f) payroll advances
in the ordinary course of business; (g) other advances and loans to officers and
employees of the Company or any Subsidiary, so long as the aggregate principal
amount of such advances and loans does not exceed $500,000 at any one time
outstanding; (h) Investments represented by that portion of the proceeds from
Asset Sales that is not required to be Cash Proceeds by the covenant described
in "-- Certain Covenants -- Limitation on Asset Sales"; (i) Investments made by
the Company in Guarantors or in its other Wholly Owned Subsidiaries (or any
Person that will be a Wholly Owned Subsidiary as a result of such Investment) or
by a Subsidiary in the Company or in one or more Guarantors or other Wholly
Owned Subsidiaries (or any Person that will be a Wholly Owned Subsidiary as a
result of such Investment); (j) Investments in stock, obligations or securities
received in settlement of debts owing to the Company or any Subsidiary as a
result of bankruptcy or insolvency proceedings or upon the foreclosure,
perfection or enforcement of any Lien in favor of the Company or any Subsidiary,
in each case as to debt owing to the Company or any Subsidiary that arose in the
ordinary course of business of the Company or any such Subsidiary; (k)
certificates of deposit, bankers acceptances, time deposits, Eurocurrency
deposits and similar types of Investments routinely offered by commercial banks
organized in the United States with final maturities of one year or less and in
an aggregate amount not to exceed $5.0 million at any one time outstanding with
a commercial bank organized in the United States having capital and surplus in
excess of $75.0 million; (l) Venezuelan and other foreign bank deposits and cash
equivalents in jurisdictions where the Company or its Subsidiaries are then
actively conducting business; (m) Investment in Grey Wolf pursuant to the Grey
Wolf Acquisition agreement; (n) Interest Swap Obligations with respect to any
floating rate Indebtedness that is permitted by the terms of the Indenture to be
outstanding; (o) Currency Hedge Obligations, provided that such Currency Hedge
Obligations constitute Permitted Indebtedness permitted by clause (d) of the
definition thereof; (p) Investments in prepaid expenses, negotiable instruments
held for collection and lease, utility, worker's compensation and performance
and other similar deposits in the ordinary course of business; and (q)
Investments pursuant to any agreement or obligation of the Company or any
Subsidiary in effect on the Issue Date and listed on a schedule attached to the
Indenture.
"Permitted Liens" means (a) Liens in existence on the Issue Date; (b) Liens
created for the benefit of the Notes and/or the Guarantees; (c) Liens on
Property of a Person existing at the time such Person is merged or consolidated
with or into the Company or a Subsidiary (and not incurred as a result of, or in
anticipation of, such transaction), provided that any such Lien relates solely
to such Property; (d) Liens on Property existing at the time of the acquisition
thereof (and not incurred as a result of, or in anticipation of such
transaction), provided that any such Lien relates solely to such Property; (e)
Liens incurred or pledges and deposits made in connection with worker's
compensation, unemployment insurance and other social security benefits,
statutory obligations, bid, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business; (f)
Liens imposed by law or arising by operation of law, including without
limitation, landlords', mechanics', carriers', warehousemen's, materialmen's,
suppliers' and vendors' Liens and Liens for master's and crew's wages and other
similar maritime Liens, and incurred in the ordinary course of business for sums
not delinquent or being contested in good faith, if such reserves or other
appropriate provisions, if any, as shall be required by GAAP shall have been
made with respect thereof; (g) zoning restrictions, easements, licenses,
covenants, reservations, restrictions on the use of real property and defects,
irregularities and deficiencies in title to real property that do not,
individually or in the aggregate, materially affect the ability of the Company
or any Subsidiary to conduct its business presently conducted; (h) Liens for
taxes or assessments or other governmental charges or levies not yet due and
payable, or the validity of which is being contested by the Company or a
Subsidiary in good faith and by appropriate proceedings upon stay of execution
or the enforcement thereof and for which adequate reserves in accordance with
GAAP or other appropriate provision has been made; (i) Liens to secure
Indebtedness incurred for the purpose of financing all or a part of the purchase
price or construction cost of Property acquired or constructed after the Issue
Date, provided that (1) the principal amount of Indebtedness secured by such
Liens shall not
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exceed 100% of the lesser of cost or Fair Market Value of the Property so
acquired, upgraded or constructed plus transaction costs related thereto, (2)
such Liens shall not encumber any other assets or Property of the Company or any
Subsidiary (other than the proceeds thereof and accessions and upgrades thereto)
and (3) such Liens shall attach to such Property within 120 days of the date of
the completion of the construction or acquisition of such Property; (j) Liens
securing Capital Lease Obligations, provided, further, that such Liens secure
Capital Lease Obligations which, when combined with (1) the outstanding secured
Indebtedness of the Company and its Subsidiaries (other than Indebtedness
secured by Liens described under clauses (b) and (i) hereof) and (2) the
aggregate principal amount of all other Capital Lease Obligations of the Company
and Subsidiaries, does not exceed $5.0 million at any one time outstanding; (k)
Liens to secure any extension, renewal, refinancing or refunding (or successive
extensions, renewals, refinancings or refundings), in whole or in part, of any
Indebtedness secured by Liens referred to in the foregoing clauses (a), (c) and
(d), provided, further, that such Lien does not extend to any other Property of
the Company or any Subsidiary and the principal amount of the Indebtedness
secured by such Lien is not increased; (l) any charter (bareboat or otherwise)
or lease; (m) leases or subleases of real property to other Persons; (n) Liens
securing Permitted Indebtedness described in clause (b) of the definition
thereof; (o) judgment liens not giving rise to an Event of Default so long as
any appropriate legal proceedings which may have been initiated for the review
of such judgment shall not have been finally terminated or the period within
which such proceeding may be initiated shall not have expired; (p) rights of
off-set of banks and other Persons; and (q) liens in favor of the Company.
"Permitted Refinancing Indebtedness" means Indebtedness of the Company,
incurred in exchange for, or the net proceeds of which are used to renew,
extend, refinance, refund or repurchase, outstanding Indebtedness of the Company
which outstanding Indebtedness was incurred in accordance with, or is otherwise
permitted by, the terms of clauses (a) and (e) of the definition of "Permitted
Indebtedness", provided that (i) if the Indebtedness being renewed, extended,
refinanced, refunded or repurchased is pari passu with or subordinated in right
of payment (without regard to its being secured) to the Notes, then such new
Indebtedness is pari passu with or subordinated in right of payment (without
regard to its being secured) to, as the case may be, the Notes at least to the
same extent as the Indebtedness being renewed, extended, refinanced, refunded or
repurchased, (ii) such new Indebtedness is scheduled to mature later than the
Indebtedness being renewed, extended, refinanced, refunded or repurchased, (iii)
such new Indebtedness has an Average Life at the time such Indebtedness is
incurred that is greater than the Average Life of the Indebtedness being
renewed, extended, refinanced, refunded or repurchased, and (iv) such new
Indebtedness is in aggregate principal amount (or, if such Indebtedness is
issued at a price less than the principal amount thereof, the aggregate amount
of gross proceeds therefrom is) not in excess of the aggregate principal amount
then outstanding of the Indebtedness being renewed, extended, refinanced,
refunded or repurchased (or if the Indebtedness being renewed, extended,
refinanced, refunded or repurchased was issued at a price less than the
principal amount thereof, then not in excess of the amount of liability in
respect thereof determined in accordance with GAAP) plus the amount of
reasonable fees, expenses, and premium, if any, incurred by the Company or such
Subsidiary in connection therewith.
"Permitted Subsidiary Refinancing Indebtedness" means Indebtedness of any
Subsidiary, incurred in exchange for, or the net proceeds of which are used to
renew, extend, refinance, refund or repurchase, outstanding Indebtedness of such
Subsidiary which outstanding Indebtedness was incurred in accordance with, or is
otherwise permitted by, the terms of clauses (e) and (f) of the definition of
Permitted Indebtedness, provided that (i) if the Indebtedness being renewed,
extended, refinanced, refunded or repurchased is pari passu with or subordinated
in right of payment (without regard to its being secured) to the Guarantee of
such Subsidiary, then such new Indebtedness is pari passu with or subordinated
in right of payment (without regard to its being secured) to, as the case may
be, the Guarantee of such Subsidiary at least to the same extent as the
Indebtedness being renewed, extended, refinanced refunded or repurchased, (ii)
such new Indebtedness is scheduled to mature later than the Indebtedness being
renewed, extended, refinanced, refunded or repurchased, (iii) such new
Indebtedness has an Average Life at the time such Indebtedness is incurred that
is greater than the Average Life of the Indebtedness being renewed, extended,
refinanced, refunded or repurchased, and (iv) such new Indebtedness is in an
aggregate principal amount (or, if such Indebtedness is issued at a price less
than the principal amount thereof, the aggregate amount of gross proceeds
therefrom is) not in excess of the aggregate principal amount then outstanding
of the Indebtedness
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being renewed, extended, refinanced, refunded or repurchased (or if the
Indebtedness being renewed, extended, refinanced, refunded or repurchased was
issued at a price less than the principal amount thereof, then not in excess of
the amount of liability in respect thereof determined in accordance with GAAP)
plus the amount of reasonable fees, expenses, and premium, if any, incurred by
the Company or such Subsidiary in connection therewith.
"Person" means any individual, corporation, partnership, joint venture,
incorporated or unincorporated association, joint stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof or other entity of any kind.
"Preferred Stock" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends and/or as to the distribution of assets upon any voluntary or
involuntary liquidation, dissolution or winding up of such Person, to shares of
Capital Stock of at least one other class of such Person.
"Property" means, with respect to any Person, any interest of such Person
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible, excluding Capital Stock in any other Person.
"Qualified Equity Offering" means an offering of Capital Stock (other than
Redeemable Stock) of the Company for cash, whether pursuant to an effective
registration statement under the Securities Act or pursuant to an exemption from
registration under the Securities Act.
"Redeemable Stock" means, with respect to any Person, any equity security
that by its terms or otherwise is required to be redeemed, or is redeemable at
the option of the holder thereof, at any time prior to one year following the
Stated Maturity of the Notes or is exchangeable into Indebtedness of such Person
or any of its subsidiaries.
"Related Business" means the land drilling business and activities
incidental thereto and any business related or ancillary thereto.
"Replacement Asset" means a Property or asset that, as determined by the
Board of Directors of the Company as evidenced by a Board Resolution, is used or
is useful in a Related Business.
"Restricted Investment" means any Investment in any Person, including an
Unrestricted Subsidiary or the designation of a Subsidiary as an Unrestricted
Subsidiary, other than a Permitted Investment.
"Restricted Payment" means to (i) declare or pay any dividend on, or make
any distribution in respect of, or purchase, redeem, retire or otherwise acquire
for value, any Capital Stock of the Company or any Affiliate of the Company, or
warrants, rights or options to acquire such Capital Stock, other than (x)
dividends payable solely in the Capital Stock (other than Redeemable Stock) of
the Company or such Affiliate, as the case may be, or in warrants, rights or
options to acquire such Capital Stock and (y) dividends or distributions by a
Subsidiary to the Company or to a Wholly Owned Subsidiary; (ii) make any
principal payment on, or redeem, repurchase, defease (including an in-substance
or legal defeasance) or otherwise acquire or retire for value (including
pursuant to mandatory repurchase covenants), prior to any scheduled principal
payment, scheduled sinking fund payment or other stated maturity, Indebtedness
of the Company or any Subsidiary which is subordinated (whether pursuant to its
terms or by operation of law) in right of payment to the Notes or the
Guarantees, as applicable; or (iii) make any Restricted Investment in any
Person.
"Sale and Lease-Back Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which Property is sold or transferred
by such Person or a subsidiary of such Person and is thereafter leased back from
the purchaser or transferee thereof by such Person or one of its subsidiaries.
"Senior Debt" means any Indebtedness incurred by the Company, unless the
instrument under which such Indebtedness is incurred expressly provides that it
is subordinated in right of payment to the Notes, provided that Senior Debt will
not include (a) any liability for federal, state, local or other taxes owed or
owing, (b) any Indebtedness owing to any Subsidiaries of the Company, (c) any
trade payables or (d) any Indebtedness that is incurred in violation of the
Indenture.
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"Significant Subsidiary" means a Subsidiary that is a "significant
subsidiary" as defined in Rule 1-02(w) of Regulation S-X under the Securities
Act and the Exchange Act.
"Stated Maturity" when used with respect to a Note or any installment of
interest thereon, means the date specified in such Note as the fixed date on
which the principal of such Note or such installment of interest is due and
payable.
"Subordinated Indebtedness" means any Indebtedness of the Company or any
Guarantor that is subordinated in right of payment to the Notes or the
Guarantees, as the case may be, and does not mature prior to one year following
the Stated Maturity of the Notes.
"subsidiary" means, with respect to any Person, (i) any corporation more
than 50% of the outstanding Voting Stock of which is owned, directly or
indirectly, by such Person, or by one or more other subsidiaries of such Person,
or by such Person and one or more other subsidiaries of such Person, (ii) any
general partnership, joint venture or similar entity, more than 50% of the
outstanding partnership or similar interest of which is owned, directly or
indirectly, by such Person, or by one or more other subsidiaries of such Person,
or by such Person and one or more other subsidiaries of such Person and (iii)
any limited partnership of which such Person or any subsidiary of such Person is
a general partner.
"Subsidiary" means a subsidiary of the Company other than an Unrestricted
Subsidiary; provided that INDRILLERS shall not be considered a Subsidiary for
purposes of the Indenture.
"Transaction Date" has the meaning specified within the definition of
Consolidated Interest Coverage Ratio.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged; (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case under
clauses (i) or (ii) above, are not callable or redeemable at the option of the
issuers thereof; or (iii) depository receipts issued by a bank or trust company
as custodian with respect to any such U.S. Government Obligations or a specific
payment of interest on or principal of any such U.S. Government Obligation held
by such custodian for the account of the holder of a Depository receipt,
provided that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the holder of such Depository
receipt from any amount received by the custodian in respect of the U.S.
Government Obligation evidenced by such Depository receipt.
"Unrestricted Subsidiary" means any subsidiary of the Company that the
Company has classified as an Unrestricted Subsidiary and that has not been
reclassified as a Subsidiary pursuant to the terms of the Indenture.
"Voting Stock" means with respect to any Person, securities of any class or
classes of Capital Stock in such Person entitling the holder thereof (whether at
all times or at the times that such class of Capital Stock has voting power by
reason of the happening of any contingency) to vote in the election of members
of the board of directors or comparable body of such Person.
"Wholly Owned Subsidiary" means any Subsidiary to the extent (i) all of the
Capital Stock or other ownership interests in such Subsidiary, other than any
directors' qualifying shares mandated by applicable law, is owned directly or
indirectly by the Company or (ii) such Subsidiary is organized in a foreign
jurisdiction and is required by the applicable laws and regulations of such
foreign jurisdiction to be partially owned by the government of such foreign
jurisdiction or individual or corporate citizens of such foreign jurisdiction in
order for such Subsidiary to transact business in such foreign jurisdiction,
provided that the Company, directly or indirectly, owns the remaining Capital
Stock or ownership interest in such Subsidiary and, by contract or otherwise,
controls the management and business of such Subsidiary and derives the economic
benefits of ownership of such Subsidiary to substantially the same extent as if
such Subsidiary were a wholly owned Subsidiary.
77
<PAGE> 79
BOOK-ENTRY, DELIVERY AND FORM
The Notes will be issued in the form of a fully registered Global Note (the
"Global Note"). The Global Note will be deposited on the date of the closing of
the sale of the Notes offered hereby (the "Closing Date") with, or on behalf of,
the Depositary and registered in the name of Cede & Co., as nominee of the
Depositary (such nominee being referred to herein as the "Global Note Holder").
The Depositary is a limited-purpose trust company which was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants includes securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Note, the Depositary will credit the
accounts of Participants designated by the Underwriters with portions of the
principal amount of the Global Note and (ii) ownership of the Notes will be
shown on, and the transfer of ownership thereof will be effected only through,
records maintained by the Depositary's Indirect Participants. Prospective
purchasers are advised that the laws of some states require that certain Persons
take physical delivery in definitive form of securities that they own.
Consequently, the ability to transfer Notes will be limited to such extent.
DESCRIPTION OF BANK CREDIT FACILITY
On December 31, 1996, DI and Drillers entered into a senior secured
reducing revolving credit facility as co-borrowers. This facility was amended
and restated on April 30, 1997, as the Bank Credit Facility. International
guaranteed the obligations of the borrowers under the Bank Credit Facility. The
Bank Credit Facility, which replaced Drillers' 1994 credit facility, provides
the Company and Drillers with the ability to borrow up to $50.0 million from
time to time prior to April 30, 2000, subject to the reductions described below,
with up to $5.0 million of such amount available for letters of credit. Interest
under the Bank Credit Facility accrues at a variable rate, using (at the
borrowers' election) either the agent's base rate plus a margin ranging from
0.75% to 1.50%, depending upon the Company's trailing 12-month debt to EBITDA
ratio, or a rate based on the interbank Eurodollar market plus a margin ranging
from 1.75% to 2.50%, depending upon the Company's trailing 12-month debt to
EBITDA ratio. Letters of credit accrue a letter of credit fee equal to the
margin described above for the interbank Eurodollar market interest rate plus a
facing fee of 0.25% per annum. The borrowers pay a commitment fee of 0.5% per
annum on the average unused portion of the lenders' commitments. The borrowers'
indebtedness under the Bank Credit Facility is secured by a security interest in
(i) all domestic drilling rigs and related equipment owned by the Company or the
Guarantors, (ii) the stock of the Guarantors, (iii) the member interest of
Drillers in INDRILLERS and (iv) substantially all other assets of the Company
and the Guarantors, wherever located (other than stock of other subsidiaries).
Drillers is a co-borrower with the Company under the Bank Credit Facility and
International has guaranteed the Company's obligations under the Bank Credit
Facility.
The lenders' commitments will be reduced by the amount of net cash proceeds
received by the Company or its subsidiaries from sales of collateral in excess
of $1.0 million individually or $2.0 million in the aggregate in any 12-month
period. In addition, mandatory prepayments would be required upon (i) the
receipt of net proceeds received by the Company or its subsidiaries from the
incurrence of certain other debt or sales of debt or equity securities in a
public offering or private placement, or (ii) the receipt of net cash proceeds
received by the Company or its subsidiaries from asset sales (other than
proceeds from dispositions of inventory in the ordinary course of business,
certain licenses of intellectual property, certain inter-company transfers, and
sales of rigs identified in the credit agreement as equipment held for resale)
or the receipt of insurance proceeds on assets of the borrowers, in each case to
the extent that such proceeds are in excess of $500,000 individually or
78
<PAGE> 80
$1.0 million in the aggregate in any 12-month period. The final maturity date of
the Bank Credit Facility is April 30, 2000.
The initial borrowings under the Bank Credit Facility on December 31, 1996,
were used to complete the Diamond M Acquisition. Other borrowings may be used to
make land rig acquisitions and for general corporate purposes.
Among the various covenants that must be satisfied by the Company under the
Bank Credit Agreement are the following five financial covenants under which the
Company will not permit:
(i) working capital (as defined in the Bank Credit Agreement) to be
less than $5.0 million on the last day of any fiscal quarter;
(ii) consolidated net worth to be less than the sum of $60.0 million
plus (a) 50% of the Company's consolidated net income, if positive, for the
period from January 1, 1997, to the final day of the most recent period for
which consolidated financial information of the Company is available and
(b) 50% of the increase to shareholders' equity of the Company attributable
to the issuance of Common Stock;
(iii) the ratio of (a) the appraised fair market value of rigs and
related equipment to (b) the lenders' commitments to be less than 2 to 1;
(iv) the ratio of consolidated debt to total capitalization to exceed
0.6 to 1; and
(v) the ratio of consolidated EBITDA to consolidated interest expense
for the most recent quarter to be less than 2.5 to 1 through December 31,
1997 and less than 3 to 1 thereafter.
The Bank Credit Agreement also contains provisions restricting the ability
of the Company and its subsidiaries to (i) engage in new lines of business
unrelated to their current activities, (ii) enter into mergers or consolidations
or asset sales or purchases (with specified exceptions), (iii) incur liens or
debts or make advances, investments or loans (in each case, with specified
exceptions), (iv) pay dividends or redeem stock (except for certain
inter-company transfers), (v) enter into transactions with affiliates other than
on an arm's-length basis in the ordinary course of business (with specified
exceptions), (vi) prepay or materially amend any other indebtedness, (vii)
modify any certificate of incorporation or by-laws in a manner adverse to the
lenders, (viii) issue any stock (other than common stock), (ix) agree to or
incur any restriction on the rights of the Company's subsidiaries to pay
dividends, make loans, transfer assets or take similar actions (with certain
exceptions) or (x) form new subsidiaries (with certain exceptions).
Events of default under the Bank Credit Facility include (i) non-payment of
amounts owing under the Bank Credit Facility, (ii) misrepresentation, (iii)
breach of covenants, (iv) default with respect to other indebtedness in excess
of $350,000, (v) bankruptcy, (vi) certain ERISA events, (vii) default under, or
noneffectiveness of, the security documents covering the collateral, (viii)
default under, or noneffectiveness of, the guaranty by International (or any
other future guaranty), (ix) judgments in excess of $350,000, and (x) a change
of control (meaning that (a) the Company ceases to own 100% of Drillers and
International, (b) some person or group (other than persons named in clause (d)
below) has either acquired beneficial ownership of 30% or more of the Company or
obtained the power to elect a majority of the Company's board of directors, (c)
the Company's board of directors ceases to consist of a majority of "continuing
directors" (as defined in the Bank Credit Agreement) or (d) Norex Drilling Ltd.,
SDA and SCP cease to own or control at least 25% of the Company).
79
<PAGE> 81
UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
relating to the Notes, the Company has agreed to sell to the several
Underwriters named below (the "Underwriters"), and the several Underwriters have
agreed to purchase, the principal amounts of the Notes set forth opposite their
respective names:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITER NOTES
----------- ------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation......... $
BT Securities Corporation...................................
ING Baring (U.S.) Securities, Inc...........................
------------
Total............................................. $150,000,000
============
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer the Notes to the public at the public offering price set forth on the
cover page of this Prospectus, and to certain dealers at such price less a
concession not in excess of % of the principal amount of the Notes. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of % of the principal amount of the Notes to certain other dealers. After
the Offering, the public offering price, concession and discount may be changed.
During and after the Offering, the Underwriters may purchase and sell the
Notes in the open market. These transactions may include stabilizing
transactions and purchases to cover syndicate short positions created in
connection with the Offering. The Underwriters may also impose a penalty bid,
whereby selling concessions allowed to syndicate members or other broker-dealers
for the Notes sold in the Offering for their account may be reclaimed by the
syndicate if such Notes are repurchased by the syndicate in stabilizing or
covering transactions. These activities may stabilize, maintain or otherwise
affect the market price of the Notes, which may be higher than the price that
might otherwise prevail in the open market, and, if commenced, may be
discontinued at any time.
The Company has agreed to indemnify the Underwriters against or make
contributions relating to certain liabilities, including liabilities under the
Securities Act.
There currently is no public market for the Notes. The Notes will not be
listed on any securities exchange, and there can be no assurance that there will
be a secondary market for the Notes. From time to time, the Underwriters may
make a market in the Notes; however, the Underwriters are not obligated to do so
and may discontinue such market-making at any time. Accordingly, there can be no
assurance as to whether an active trading market for the Notes will develop or
as to the liquidity of any trading of any trading market for the Notes.
The Underwriting Agreement will provide that the obligations of the several
Underwriters to pay for and accept delivery of the Notes are subject to the
approval of certain legal matters by counsel to the Underwriters and to certain
other conditions. The Underwriters are committed to take and pay for all of the
Notes if any are taken.
As of May 1, 1997, certain affiliates and employees of Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ") owned indirectly 4,849,000 shares of the
Common Stock in the aggregate, which represented 3.5% of the outstanding shares
of Common Stock of the Company on such date.
Under the Conduct Rules of the NASD, when 10% or more of the net proceeds
of a public offering of debt securities are to be paid to a member of the NASD
participating in such public offering or an affiliate of such member, the yield
at which the debt securities are distributed to the public must be no lower than
that recommended by a "qualified independent underwriter" as defined in Rule
2720 of the Conduct Rules of the NASD. BT Securities Corporation is a member of
the NASD and is an affiliate of Bankers Trust Company, a lender under the Bank
Credit Facility. In addition, ING Baring (U.S.) Securities, Inc. is a member of
the NASD and an affiliate of ING (U.S.) Capital Corporation, a lender under the
Bank Credit Facility. Each of
80
<PAGE> 82
Bankers Trust Company and ING (U.S.) Capital Corporation will receive more than
10% of the net proceeds from this Offering as a result of the use of such
proceeds to repay all of the borrowings outstanding under the Bank Credit
Facility. See "Use of Proceeds." As a result, this Offering is being made in
compliance with Rule 2710(c)(8) of the Conduct Rules of the NASD. DLJ will act
as a qualified independent underwriter in connection with this Offering and
assume the customary responsibilities of acting as a qualified independent
underwriter in pricing and conducting due diligence for this Offering.
Accordingly, the yield on the Notes sold to the public will be no lower than
that recommended by DLJ acting as a qualified independent underwriter for this
Offering. DLJ will receive a fee of $5,000 for acting as the qualified
independent underwriter.
LEGAL MATTERS
The legality of the Notes being offered hereby will be passed upon for the
Company by Porter & Hedges, L.L.P., Houston, Texas. Certain legal matters in
connection with the Offering will be passed upon for the Underwriters by Akin,
Gump, Strauss, Hauer & Feld, L.L.P.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1996, and for the year then ended included herein and elsewhere in the
Registration Statement have been included herein and in the Registration
Statement in reliance on the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
The consolidated financial statements of the Company as of December 31,
1994, and 1995, for the year ended December 31, 1995 and for the nine months
ended December 31, 1994 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and have been so included
in reliance upon such report given upon the authority of that firm as experts in
accounting and auditing.
The audited financial statements of Grey Wolf included in this prospectus
and elsewhere in the registration statement to the extent and for the periods
indicated in their report have been audited by Arthur Andersen LLP, independent
public accountants, and are included herein in reliance upon the authority of
said firm as experts in accounting and auditing in giving said report.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and, in accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). The
Registration Statement (defined herein), as well as such reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at
its regional offices located at Seven World Trade Center, 13th Floor New York,
New York 10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material can also be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a site on the World Wide Web
that contains certain documents filed with the Commission electronically. The
address of such site is http://www.sec.gov and the Registration Statement may be
inspected at such site. The Common Stock is listed and traded on the American
Stock Exchange ("AMEX") and certain of the Company's reports, proxy statements
and other information can be inspected at the offices of the AMEX, 86 Trinity
Place, New York, New York 10006.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with any amendments or supplements thereto, the "Registration
Statement") under the Securities Act with respect to the Notes. This Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits thereto, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and the Notes, reference is made to the
81
<PAGE> 83
Registration Statement and the exhibits thereto. Statements contained in this
Prospectus (or in any document incorporated into this Prospectus by reference)
as to the contents of any contract or other document referred to herein (or
therein) are not necessarily complete, and in each instance reference is made to
the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed with the Commission pursuant
to the Exchange Act (File No. 1-8826), are incorporated herein by reference and
made a part of this Prospectus:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.
2. The Company's Definitive Proxy Statement for the 1997 Annual
Meeting of Shareholders to be held May 14, 1997.
3. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997.
4. The Company's Current Reports on Form 8-K filed January 31, 1997,
as amended by Form 8-K/A dated April 11, 1997, Form 8-K filed March 10,
1997 and Form 8-K filed May 16, 1997.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the Offering shall be deemed to be incorporated by reference
into this Prospectus and to be a part hereof from the respective dates of filing
of such documents. Any statement contained in a document or information
incorporated or deemed to be incorporated herein by reference shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any subsequently filed document that also is,
or is deemed to be, incorporated herein by reference, modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company undertakes to provide, without charge, to each person,
including any beneficial owner, to whom a copy of this Prospectus is delivered,
upon the written or oral request of such person, a copy of any and all of the
documents or information referred to above that have been or may be incorporated
by reference in this Prospectus (excluding exhibits to such documents unless
such exhibits are specifically incorporated by reference). Requests should be
directed to the corporate secretary, DI Industries, Inc., 10370 Richmond Avenue,
Suite 600, Houston, Texas 77042, telephone (713) 435-6100.
82
<PAGE> 84
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
DI INDUSTRIES, INC.
Independent Auditors' Report................................ F-2
Independent Auditors' Report................................ F-3
Consolidated Balance Sheets as of March 31, 1997
(unaudited), December 31, 1996 and 1995................... F-4
Consolidated Statements of Operations for the Three Months
Ended March 31, 1997 and March 31, 1996 (unaudited), Years
Ended December 31, 1996 and 1995, and the Nine Months
Ended December 31, 1994................................... F-5
Consolidated Statements of Shareholders' Equity for the
Three Months Ended March 31, 1997 and March 31, 1996
(unaudited), Years Ended December 31, 1996 and 1995, and
the Nine Months Ended December 31, 1994................... F-6
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1997 and March 31, 1996 (unaudited), Years
Ended December 31, 1996 and 1995, and the Nine Months
Ended December 31, 1994................................... F-7
Notes to Consolidated Financial Statements.................. F-9
GREY WOLF DRILLING COMPANY
Report of Independent Public Accountants.................... F-22
Balance Sheets as of April 30, 1997 (unaudited), October 31,
1996 and 1995............................................. F-23
Statements of Operations for the Six Months Ended April 30,
1997 and 1996 (unaudited) and the Years Ended October 31,
1996, 1995 and 1994....................................... F-24
Statements of Shareholders' Investment for the Six Months
Ended April 30, 1997 (unaudited) and the Years Ended
October 31, 1996, 1995 and 1994........................... F-25
Statements of Cash Flows for the Six Months Ended April 30,
1997 and 1996 (unaudited) and the Years Ended October 31,
1996, 1995 and 1994....................................... F-26
Notes to Financial Statements............................... F-27
</TABLE>
F-1
<PAGE> 85
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
of DI Industries, Inc.:
We have audited the accompanying consolidated balance sheet of DI
Industries, Inc. and Subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for the year then ended. In connection with our audit of the consolidated
financial statements, we have also audited the financial statement schedule for
the year ended December 31, 1996. These consolidated financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of DI
Industries, Inc. and Subsidiaries as of December 31, 1996, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects the information set forth therein.
KPMG PEAT MARWICK LLP
Houston, Texas
March 14, 1997
F-2
<PAGE> 86
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
of DI Industries, Inc.:
We have audited the accompanying consolidated balance sheet of DI
Industries, Inc. and its Subsidiaries (the "Company") as of December 31, 1995
and the related consolidated statements of operations, cash flows and
shareholders' equity for the year ended December 31, 1995 and the nine months
ended December 31, 1994. Our audits also included the financial statement
schedule listed in the Index. These financial statements and the financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at December 31,
1995 and the results of its operations and its cash flows for the year then
ended and the nine months ended December 31, 1994 in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
Houston, Texas
March 28, 1996
F-3
<PAGE> 87
DI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------
1997 1996 1995
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............. $ 3,693 $ 6,162 $ 1,859
Restricted cash -- insurance
deposits........................... 250 1,000 1,612
Accounts receivable, net of allowance
of $1,310, $1,333 and $1,951,
respectively....................... 25,395 15,866 19,423
Rig inventory and supplies............ 428 936 2,498
Assets held for sale.................. 557 557 2,398
Prepaids and other current assets..... 4,054 3,690 3,806
-------- -------- --------
Total current assets.......... 34,377 28,211 31,596
-------- -------- --------
Property and equipment:
Land, buildings and improvements...... 5,042 4,312 3,523
Drilling and well service equipment... 141,916 95,059 39,039
Furniture and fixtures................ 1,208 1,088 1,136
Less: accumulated depreciation and
amortization....................... (14,159) (11,983) (17,788)
-------- -------- --------
Net property and equipment.... 134,007 88,476 25,910
-------- -------- --------
Other noncurrent assets................. 1,044 1,132 277
-------- -------- --------
$169,428 $117,819 $ 57,783
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
debt............................... $ 1,997 $ 613 $ 1,315
Accounts payable -- trade............. 14,050 11,826 12,529
Accrued workers' compensation......... 2,164 1,502 3,357
Payroll and related employee costs.... 4,422 3,340 3,172
Customer advances..................... 777 2,466 116
Taxes payable......................... 1,083 845 --
Other accrued liabilities............. 810 1,424 3,604
-------- -------- --------
Total current liabilities..... 25,303 22,016 24,093
-------- -------- --------
Long-term debt net of current
maturities............................ 32,071 26,846 11,146
Other long-term liabilities and minority
interest.............................. 3,177 3,299 1,950
Deferred income taxes................... 10,109 248 --
Series A preferred stock -- mandatory
redeemable............................ 726 764 900
Commitments and contingent
liabilities........................... -- -- --
Shareholders' equity:
Series B preferred stock, $1 par
value; 10,000 shares authorized,
4,000 shares subscribed............ -- -- 4,000
Common stock, $.10 par value;
300,000,000, 300,000,000 and
75,000,000 shares authorized;
137,524,034, 125,043,234 and
38,669,378 issued and outstanding,
respectively....................... 13,752 12,504 3,867
Additional paid-in capital............ 129,135 99,301 46,458
Cumulative translation adjustments.... (404) (404) --
Accumulated deficit................... (44,441) (46,755) (34,631)
-------- -------- --------
Total shareholders' equity.... 98,042 64,646 19,694
-------- -------- --------
$169,428 $117,819 $ 57,783
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 88
DI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS
MARCH 31, YEAR ENDED YEAR ENDED ENDED
------------------ DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1996 1995 1994
-------- ------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Contract drilling..................... $ 35,975 $20,102 $ 81,767 $ 94,709 $50,987
Costs and expenses:
Drilling operations................... 28,792 18,936 80,388 93,825 48,988
Depreciation and amortization......... 2,207 1,097 4,689 4,832 2,377
General and administrative............ 1,654 720 4,274 3,555 2,074
Non-recurring charges................. -- 602 6,131 -- --
Provision for asset impairment........ -- -- -- 5,290 --
-------- ------- -------- -------- -------
Total costs and expenses........... 32,653 21,355 95,482 107,502 53,439
-------- ------- -------- -------- -------
Operating income (loss)................. 3,322 (1,253) (13,715) (12,793) (2,452)
Other income (expense):
Interest income....................... 92 11 505 292 353
Gain on sale of assets................ 30 15 3,078 466 277
Interest expense...................... (672) (262) (1,220) (1,472) (332)
Minority interest..................... 202 (2) 475 (56) 17
Foreign currency gains................ -- -- -- 888 --
Other, net............................ 2 -- -- -- (123)
-------- ------- -------- -------- -------
Other income (expense), net........ (346) (238) 2,838 118 192
-------- ------- -------- -------- -------
Income (loss) from continuing
operations............................ 2,976 (1,491) (10,877) (12,675) (2,260)
Discontinued operations:
Income (loss) from oil and gas
operations......................... -- -- -- (4) 51
Loss from sale of oil and gas
properties......................... -- -- -- (768) --
-------- ------- -------- -------- -------
Income (loss) from discontinued
operations....................... -- -- -- (772) 51
-------- ------- -------- -------- -------
Income (loss) before income taxes....... 2,976 (1,491) (10,877) (13,447) (2,209)
Income taxes............................ 662 -- 845 -- --
-------- ------- -------- -------- -------
Net income (loss)....................... 2,314 (1,491) (11,722) (13,447) (2,209)
Series A preferred stock redemption
premium............................... (22) -- (13) -- --
Series B preferred stock subscription
dividend requirement.................. -- (150) (402) -- --
-------- ------- -------- -------- -------
Net income (loss) applicable to common
stock................................. $ 2,292 $(1,641) $(12,137) $(13,447) $(2,209)
======== ======= ======== ======== =======
Income (loss) per common share from
continuing operations................. $ .02 $ (.04) $ (.18) $ (.33) $ (.06)
Income (loss) per common share from
discontinued operations............... -- -- -- (.02) --
-------- ------- -------- -------- -------
Net income (loss) per common share...... $ .02 $ (.04) $ (.18) $ (.35) $ (.06)
======== ======= ======== ======== =======
Weighted average common and common
equivalent shares outstanding......... 133,334 38,669 67,495 38,669 38,641
======== ======= ======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 89
DI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES B
PREFERRED COMMON
STOCK STOCK ADDITIONAL CUMULATIVE
$1 PAR $.10 PAR PAID-IN TRANSLATION
VALUE VALUE CAPITAL DEFICIT ADJUSTMENTS TOTAL
--------- -------- ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1994........ $ -- $ 3,842 $ 46,283 $(18,975) $ -- $ 31,150
Issuance of common stock..... -- 25 175 -- -- 200
Net loss..................... -- -- -- (2,209) -- (2,209)
------- ------- -------- -------- -------- --------
Balance, December 31, 1994..... -- 3,867 46,458 (21,184) -- 29,141
Series B preferred stock
subscribed................ 4,000 -- -- -- -- 4,000
Net loss..................... -- -- -- (13,447) -- (13,447)
------- ------- -------- -------- -------- --------
Balance, December 31, 1995..... 4,000... 3,867 46,458 (34,631) -- 19,694
Issuance of shares in Merger
transactions.............. -- 7,885 41,673 -- -- 49,558
Issuance of shares in Mesa
transaction............... -- 550 6,985 -- -- 7,535
Issuance of shares in Wexford
transaction............... -- 175 3,945 -- -- 4,120
Exercise of stock options.... -- 27 253 -- -- 280
Redemption of Series A
preferred stock........... -- -- (13) -- -- (13)
Series B preferred stock
dividend requirement...... 402 -- -- (402) -- --
Rescission of Series B
preferred stock
subscription.............. (4,402) -- -- -- -- (4,402)
Unrealized translation
loss...................... -- -- -- -- (404) (404)
Net loss..................... -- -- -- (11,722) -- (11,722)
------- ------- -------- -------- -------- --------
Balance, December 31, 1996..... -- 12,504 99,301 (46,755) (404) 64,646
Issuance of shares in
Flournoy transaction
(unaudited)............... -- 1,243 29,823 -- -- 31,066
Exercise of stock options
(unaudited)............... -- 5 33 -- -- 38
Redemption of Series A
preferred stock
(unaudited)............... -- -- (22) -- -- (22)
Net income (unaudited)....... -- -- -- 2,314 -- 2,314
------- ------- -------- -------- -------- --------
Balance at March 31, 1997
(unaudited).................. $ -- $13,752 $129,135 $(44,441) $ (404) $ 98,042
======= ======= ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 90
DI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS
MARCH 31, YEAR ENDED YEAR ENDED ENDED
------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1996 1995 1994
-------- -------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................. $ 2,314 $(1,491) $(11,722) $(13,447) $(2,209)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization................... 2,207 1,097 4,689 4,832 2,377
Provision for deferred income taxes............. 424 -- -- -- --
Non-recurring charges........................... -- -- 2,497 -- --
Provision for asset impairment.................. -- -- -- 5,290 --
Gain on sale of assets.......................... (30) (15) (3,078) (466) (277)
Discontinued operations -- Loss from sale of oil
and gas properties........................... -- -- -- 768 --
Provision for doubtful accounts................. -- -- 302 291 122
(Increase) Decrease in restricted cash............ 750 (250) 612 (1,612) --
(Increase) Decrease in accounts and notes
receivable...................................... (9,529) 1,634 3,255 (3,558) (5,334)
(Increase) Decrease in inventory.................. 508 (404) 1,190 1,152 (1,214)
(Increase) Decrease in assets held for sale....... -- -- 1,841 118 --
(Increase) Decrease in other current assets....... (364) 991 116 274 (2,222)
Increase (Decrease) in accounts payable........... 2,224 (2,283) (703) 5,289 3,244
Increase (Decrease) in accrued workers'
compensation.................................... 662 (685) (1,855) 394 (800)
Increase (Decrease) in customer advances.......... (1,689) (56) 2,350 (1,233) 985
Increase (Decrease) in other current
liabilities..................................... (376) 1,115 (1,167) 4,288 503
Increase (Decrease) in minority interest.......... (201) 2 1,047 (131) (17)
Increase (Decrease) in other...................... 1,249 822 (813) (179) 1,799
(Increase) Decrease in discontinued operations.... -- -- -- 419 1,134
------- ------- -------- -------- -------
Cash provided by (used in) operating
activities................................... (1,851) 477 (1,439) 2,489 (1,909)
------- ------- -------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions.................. (7,247) (921) (38,436) (5,657) (9,250)
Proceeds from sales of equipment.................. 42 19 4,917 737 323
Proceeds from sale of discontinued operations..... -- -- -- 4,200 --
------- ------- -------- -------- -------
Cash used in investing activities............... (7,205) (902) (33,519) (720) (8,927)
------- ------- -------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt...................... 6,910 167 31,542 2,066 18,703
Repayments of long-term debt...................... (301) (605) (16,544) (5,490) (8,576)
Repayments of long-term debt-discontinued
operations...................................... -- -- -- (2,114) (321)
Proceeds from issuance of common stock............ -- -- 28,678 -- --
Proceeds from exercise of stock options........... 38 -- 280 -- --
Redemption of Series A Preferred Stock............ (60) -- (149) -- --
Sale (rescission) of preferred stock
subscriptions................................... -- -- (4,402) 4,000 --
------- ------- -------- -------- -------
Cash provided by (used in) financing activities... 6,587 (438) 39,405 (1,538) 9,806
------- ------- -------- -------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH........... -- -- (144) -- --
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS..................................... (2,469) (863) 4,303 231 (1,030)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.... 6,162 1,859 1,859 1,628 2,658
------- ------- -------- -------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD.......... $ 3,693 $ 996 $ 6,162 $ 1,859 $ 1,628
======= ======= ======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 91
DI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR YEAR NINE MONTHS
MARCH 31, ENDED ENDED ENDED
-------------- DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1996 1995 1994
------- ---- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL CASH FLOW DISCLOSURE
CASH PAID FOR INTEREST:.................... $ 672 $262 $ 1,220 $1,472 $ 332
======= ==== ======= ====== ======
CASH PAID FOR TAXES:....................... -- -- -- -- --
======= ==== ======= ====== ======
NON CASH TRANSACTIONS:
Issuance of common stock in Flournoy
Transaction
Change in property and equipment
additions............................. 40,503 -- -- -- --
Change in issuance of common stock....... 31,066 -- -- -- --
Change in deferred tax liability......... 9,437 -- -- -- --
Issuance of common stock for Oliver/Mullen
rigs
Change in property and equipment
additions............................. -- -- 25,000 -- --
Change in issuance of common stock....... -- -- 25,000 -- --
Issuance of common stock for Mesa rigs
Change in property and equipment
additions............................. -- -- 7,783 -- --
Change in issuance of common stock.... -- -- 7,535 -- --
Change in deferred tax liability...... -- -- 248 -- --
An-Son rig acquisition
Change in property and equipment
additions............................. -- -- -- -- 3,800
Change in acquisition note payable....... -- -- -- -- 1,900
Change in Series A Preferred Stock....... -- -- -- -- 1,900
McRae Energy rig acquisition
Change in property and equipment
additions............................. -- -- -- -- 1,300
Change in notes payable.................. -- -- -- -- 1,300
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 92
DI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation. The consolidated
financial statements include the accounts of DI Industries, Inc. and its
majority-owned subsidiaries ("the Company" or "DI"). All significant
intercompany accounts and transactions are eliminated in consolidation.
Accumulated earnings of the minority interest owners are shown as a separate
item in the consolidated financial statements. Prior to June 1994, American
Premier Underwriters, Inc. ("American Premier"), owned 20,690,105 shares
(approximately 54%) of common stock of DI Industries, Inc. In June 1994, Norex
Drilling Ltd. ("Norex Drilling"), a wholly-owned subsidiary of Norex Industries,
Inc. ("Norex Industries"), completed the purchase of all shares of the Company's
common stock owned by American Premier. Shortly thereafter and in accordance
with regulatory filings made at the time of the purchase transaction, Norex
Drilling reduced its ownership to 18,730,105 shares, or less than 50%, of the
outstanding shares of the Company's common stock. As a result of the merger
transactions, effected in 1996 (discussed further in Footnote 2), Norex
Drilling's shares now represent 13.6% of the outstanding ownership of the
Company's common stock and Somerset Drilling Associates owns 29,962,223 shares
or approximately 21.8% of the outstanding ownership of the Company's common
stock.
Effective December 31, 1994, the Company changed its fiscal year end from
March 31 to December 31 to enhance the comparability of the Company's results of
operations with other drilling companies. Accordingly, the accompanying
financial statements include the results of the Company's operations for the
years ended December 31, 1996 and 1995, and the nine months ended December 31,
1994.
Inventory. Inventory consists primarily of drilling and support equipment
and is stated at the lower of specifically identified cost or market.
Assets Held for Sale. Assets held for sale are primarily comprised of
drilling rigs and equipment and is stated at the Company's net book value.
Management believes the carrying value is less than net realizable value on the
basis of purchase offers received in 1995 and 1996 and recent appraisals.
Property and Equipment. Property and equipment is stated at cost.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets between three and twelve years. The Company's
producing oil and gas properties were sold on August 9, 1995. Such properties
were recorded using the full-cost method of accounting. Under this method, all
costs incurred in connection with the exploration for and development of oil and
gas were capitalized. Depreciation, depletion and amortization of oil and gas
properties was computed on the basis of physical units, with oil and gas
converted to a common unit of measure based on the approximate relative energy
content. Unamortized costs were compared to the present value of estimated
future net revenues and any excess was charged to expense during the period in
which the excess occurred.
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
effective for years beginning after December 15, 1995. As the FASB encouraged
earlier application, the Company adopted the provisions of SFAS No. 121 during
the fourth quarter of 1995. This accounting standard requires certain assets be
reviewed for impairment whenever events or circumstances indicate the carrying
amount may not be recoverable. During 1995, the Company provided a provision of
$5.3 million for certain drilling rigs and equipment due to market indications
that the carrying amounts were not fully recoverable. Net realizable value was
determined based upon appraisal, comparable sale data and management estimates.
Revenue Recognition. Revenue from turnkey drilling contracts is recognized
using the percentage-of-completion method based upon costs incurred to date and
estimated total contract costs. Revenue from daywork, footage and hourly
drilling contracts is recognized based upon the provisions of the contract.
Provision is made currently for anticipated losses, if any, on uncompleted
contracts.
F-9
<PAGE> 93
DI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
Foreign Currency Translation. Assets and liabilities of foreign
subsidiaries have been translated into United States dollars at the applicable
rate of exchange in effect at the end of the period reported. Revenues and
expenses have been translated at the applicable weighted average rates of
exchange in effect during the period reported. Translation adjustments are
reflected as a separate component of shareholders' equity. Any transaction gains
and losses are included in net income. During 1996, the Company recorded an
unrealized translation loss of $404,000 as a reduction of shareholders' equity.
Net Income (Loss) per Share. Loss per share of common stock is based upon
the weighted average number of shares of common stock outstanding. The Company's
outstanding stock options and warrants are considered common stock equivalents
but are not included in the computation since their inclusion would be either
insignificant or antidilutive during the periods presented in the accompanying
financial statements.
Income Taxes. The Company accounts for income taxes based upon Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109") which requires recognition of deferred income tax liabilities and assets
for the expected future tax consequences of events that have been recognized in
the Company's financial statements or tax returns. Under this method, deferred
income tax liabilities and assets are determined based on the temporary
differences between the financial statement carrying amounts and the tax bases
of existing assets and liabilities and available tax credit carryforwards.
Fair Value of Financial Instruments. The carrying amount of the Company's
cash and short-term investments approximates fair value because of the short
maturity of those instruments. The carrying amount of the Company's long-term
debt approximates fair value as the interest is indexed to the prime rate or
LIBOR.
Cash Flow Information. Cash flow statements are prepared using the indirect
method. The Company considers all unrestricted highly liquid investments with a
maturity of three months or less at the time of purchase to be cash equivalents.
Restricted Cash. Restricted cash consists of investments in interest
bearing certificates of deposit totaling $250,000, $1.0 million and $1.6 million
at March 31, 1997 (unaudited), December 31, 1996 and 1995, respectively, as
collateral for a letter of credit securing insurance deposits. The carrying
value of the investments approximates the current market value.
Use of Estimates. Management of the Company has made a number of estimates
and assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
(2) SIGNIFICANT PROPERTY TRANSACTIONS
Effective September 1, 1994 as part of the Company's expansion into the
international markets, the Company purchased the Venezuelan drilling operations
of An-Son Drilling Company of Colombia S.A. ("An-Son"). This acquisition
included two oil and gas drilling rigs, two workover rigs, certain other oil
field equipment, operating contracts for each of the rigs and a labor contract
to operate one drilling rig. The purchase price for this transaction was
$4,100,000 consisting of $300,000 in cash, an acquisition note payable of
$1,900,000 (the "Acquisition Note"), of which $1,700,000 was paid during 1995,
and the remainder by issuance during 1995 of the Company's Series A redeemable
preferred stock (the "Series A Preferred") valued at $1,900,000. Pursuant to the
acquisition agreement, the Company conducted a post-closing audit of the
acquired companies in 1995 and settled claims for a purchase price credit from
An-Son in March, 1996 with the Company receiving credits of $1,213,000. During
March 1996, 100,000 shares of Series A Preferred, totaling $1,000,000, were
returned to the Company in settlement of asserted claims. At December 31, 1995,
$200,000 of the Acquisition Note that remained unpaid which was offset against
the settlement with the
F-10
<PAGE> 94
DI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
remaining credit of $1,013,000 recorded as reductions in the appropriate
accounts in the accompanying financial statements.
In September 1994, the Company purchased three drilling rigs from McRae
Energy Corporation for a total purchase price of $1,500,000. The Company paid a
cash down payment of $200,000 with the remaining $1,300,000 to be paid from cash
flow as defined in the purchase agreement. The three rigs were refurbished by
the Company in 1994 with two of the drilling rigs being added to the Company's
drilling fleet in Argentina and one drilling rig being added to the Company's
drilling fleet in Venezuela.
On May 7, 1996, the Company entered into two separate definitive merger
agreements (the "Mergers") to effect a $25.0 million equity infusion and the
acquisition of deep drilling equipment. These Mergers were closed on August 29,
1996.
Under the first agreement, R.T. Oliver, Inc. ("RTO") and Land Rig
Acquisition Corporation ("LRAC") merged with a new subsidiary of the Company
with the capital stock of RTO and LRAC being exchanged for 39,423,978 shares of
the Company's common stock. In addition, warrants were issued to acquire up to
1,720,000 additional shares of DI common stock, the exercise of which is
contingent upon the occurrence of certain events. As result of certain events
which have occurred at March 31, 1997 (unaudited), 581,400 warrants remained
outstanding, and the remainder have been canceled. These Mergers resulted in the
acquisition of 18 inactive, deep capacity land drilling rigs which included five
3,000 horsepower and nine 2,000 horsepower land rigs which are rated for depths
of 25,000 feet or greater. The Company believes that these rigs can be brought
up to operating condition within a reasonable time on an economic basis and that
this group of rigs represents a significant concentration of the relatively
small number of such deep drilling land rigs currently available in the market.
The Company placed one of these rigs in operation during 1996.
Under the second agreement, a subsidiary of Somerset Drilling Associates,
L.L.C. ("Somerset"), a privately-held investment limited liability company, was
merged into the Company. The stock of the subsidiary was exchanged for
39,423,978 shares of DI common stock and warrants to acquire up to 1,720,000
shares of DI common stock, the exercise of which is contingent upon the
occurrence of certain events. As a result of certain events which have occurred
at March 31, 1997 (unaudited), 581,400 warrants remained outstanding, and the
remainder were canceled. This merger transaction resulted in a $25.0 million
equity infusion into the Company.
A definitive proxy statement was mailed to shareholders of record as of
July 15, 1996, and the Mergers were approved by the shareholders at a meeting on
August 27, 1996. These Mergers resulted in an ownership change in the Company as
defined by Section 382 of the Internal Revenue Code which limits the ultimate
utilization of the Company's net operating loss carryforward (see footnote 3).
As part of the Merger agreements, the 1995 subscription by Norex Drilling
for 4,000 shares of Series B Preferred Stock and related Series B Warrants was
rescinded. The $4.0 million subscription plus accrued dividends were repaid to
Norex Drilling by the Company with the proceeds from a term loan that was made
by Norex Drilling to the Company. The Norex Drilling $4.0 million term loan was
paid in full on December 30, 1996 from the proceeds of a private placement of
the Company's common stock (see below). Interest accrued at 12% per annum and
was payable on the last business day of each calendar quarter.
On June 24, 1996, the Company closed a transaction whereby it sold all of
the operational assets of Western Oil Well Service Co. ("Western"), a
wholly-owned subsidiary of the Company, for $3.95 million in cash. Western
provided oil and gas well workover services principally in Montana, Utah and
North Dakota. Pursuant to the sale, the buyer assumed all of Western's existing
leases, primarily for vehicles, which totaled $251,000 at closing. The Company
recorded a gain of $2.8 million in the second quarter of 1996 as a result of
this sale.
F-11
<PAGE> 95
DI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
On October 3, 1996, the Company acquired of all the South Texas operating
assets of Mesa Drilling, Inc. ("Mesa") in exchange for 5,500,000 shares of the
Company's common stock. The assets acquired consisted of six diesel electric SCR
drilling rigs, three of which are currently operating in South Texas. The other
three rigs are currently stacked.
On December 31, 1996, the Company completed the acquisition of all the
South Texas operating assets of Diamond M Onshore, Inc., a wholly owned
subsidiary of Diamond Offshore Drilling, Inc. The assets were acquired for
approximately $26.0 million in cash and consisted of ten land drilling rigs, all
of which are currently operating, 19 hauling trucks, a yard facility in Alice,
Texas and various other equipment and drill pipe. DI hired the majority of the
personnel operating the assets.
Also on December 31, 1996, the Company closed a loan facility (the
"Facility") with Bankers Trust Company, ING (US) Capital Corporation and
NordlandsBanken AS which provided the funds to acquire the assets of Diamond M
Onshore, Inc. The Facility provides for an initial $35.0 million revolving line
of credit which reduces by $5.0 million each year until the December 31, 1999
maturity date. The Facility is secured by substantially all of the Company's
assets and calls for quarterly interest payments on the outstanding balance at
either LIBOR plus 3% or prime plus 2%. The Facility contains customary
affirmative and negative covenants.
In connection with closing the Facility, DI also completed a private
placement of 1,750,000 shares of DI common stock for approximately $4,120,000 to
four funds managed by Wexford Management LLC. The proceeds generated from this
private placement were utilized to repay a $4,000,000 Norex Drilling term note.
DI also agreed to issue more shares to the extent the Wexford funds hold value
less than $4,120,000 on the one-year anniversary date of the issuance. Immediate
shelf registration rights were also granted by DI in connection with the share
issuance. These shares were subsequently registered.
Each of the Company's acquisitions have been accounted for using purchase
accounting. As such all revenues and expenses have been recorded by the Company
beginning at the date of acquisition.
(3) INCOME TAXES
The Company and its domestic subsidiaries file a consolidated U.S. federal
income tax return. The Company's foreign owned subsidiaries file tax returns in
the country where they are domiciled. The Company records current income taxes
based upon its estimated tax liability in the United States and foreign
countries for the year. In 1996, the Company recorded $845,000 of current tax
expense based its estimate of taxes payable in Venezuela. The Company recorded a
current tax provision of $238,000 and a deferred tax provision of $424,000 for
the three months ended March 31, 1997 (unaudited).
The Company follows Statement of Financial Accounting Standard No. 109
("SFAS No. 109") which requires the balance sheet approach of income tax
accounting whereby deferred income taxes are provided at the balance sheet date
for the (a) differences existing in the tax basis of assets and liabilities and
their financial statement carrying amounts plus (b) operating loss and tax
credit carryforwards.
At December 31, 1996, the Company had U.S. net operating loss ("NOL")
carryforwards of approximately $23.0 million and investment tax credit ("ITC")
carryforwards of approximately $2.4 million which expire at various times
through 2010 and 2000, respectively. The NOL and ITC carryforwards are subject
to annual limitations because of the changes in ownership of the Company in
1989, 1994 and 1996.
For financial accounting purposes, approximately $21.0 million of the NOL
carryforwards was utilized to offset the book versus tax basis differential in
the recording of the assets acquired in the Mergers and the Mesa acquisition.
F-12
<PAGE> 96
DI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
Deferred tax liabilities of approximately $5.5 million existed at December
31, 1996, and are comprised of temporary differences between federal income tax
and financial accounting practices for the Company's property and equipment.
Deferred tax benefits of $3.7 million existed at December 31, 1996, attributable
to costs that were expended for financial reporting purposes that will be
deducted in future years for income tax purposes. These items are comprised of
workmens' compensation and bad debt reserves as well as the current year net
operating loss. These items were augmented by the $2.4 million of investment tax
credit carryforwards. A net deferred tax benefit of $.6 million was not
recognized in 1996 as a valuation allowance was provided against it, as the
recognition criteria set forth in SFAS No. 109 for a deferred tax asset, had not
been met. At March 31, 1997, deferred tax assets and deferred tax liabilities
were $8.0 million and $9.6 million respectively and were primarily attributable
to the same items noted above (unaudited). At December 31, 1995, deferred tax
assets and deferred tax liabilities were $14.6 million and $5.3 million
respectively and were also primarily attributable to the same items noted above.
In the Company's Venezuelan subsidiary, no temporary differences exist as
of March 31, 1997 (unaudited) and December 31, 1996. In the Company's other
foreign subsidiaries, the Company's net operating loss carryforwards and other
timing differences will not be recoverable since the Company is exiting these
markets.
The following summarizes the differences between the statutory tax rates
applicable in each year and the Company's effective tax rate (amounts in
thousands):
<TABLE>
<CAPTION>
NINE
YEAR YEAR MONTHS
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Tax at statutory rate.................. $(3,986) $(4,572) $ (751)
Increase (decrease) in taxes resulting
from:
Change in valuation allowance........ 1,169 4,572 751
Loss of foreign deductions........... 3,662 -- --
------- ------- ------
Provision for income taxes............. $ 845 $ -- $ --
======= ======= ======
</TABLE>
F-13
<PAGE> 97
DI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
(4) LONG-TERM DEBT
Long-term debt consists of the following (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -----------------
1997 1996 1995
--------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
$35,000 reducing revolving line of credit between the
Company and Bankers Trust Company, ING(US) Capital
Corporation and NordlandsBanken AS, secured by
substantially all of the Company's assets; bearing
interest at either LIBOR plus 3% or prime plus 2% due
quarterly............................................. $31,500 $25,000 $ --
$10,000 term loan agreement between the Company and
NordlandsBanken AS, secured by most of the Company's
U.S. domestic oil and gas drilling equipment; bearing
interest at prime plus 2 1/8% (fixed at 8% through
June 12, 1996), with 36 equal monthly principal
installments beginning June 12, 1995 (Amended October
1, 1995, bearing interest at LIBOR plus 2 1/8% with 36
equal monthly installments beginning January 1997).
The Company had the option to pay interest quarterly
and/or semi-annually.................................. -- -- 9,444
Note to McRae Energy Corporation, payable from available
cash flow, as defined, matures September 1998......... 1,300 1,300 1,300
$2,500 revolving line of credit, which converted to a
term loan in 1995, with a bank, secured by the
Company's accounts receivable, bearing interest at the
bank's prime rate plus 1% (9.75% at December 31,
1995)................................................. -- -- 575
Capital leases, secured by transportation and other
equipment, bearing interest at 10% to 14%............. 1,185 858 733
Insurance premium financed over 12 months with certain
insurance agencies due in equal monthly
installments.......................................... 61 264 270
Promissory note payable secured by trust deed to certain
land and building, bearing interest at 4%, due in
monthly installments.................................. -- -- 47
Promissory note payable secured by trust deed to certain
land and building, bearing interest at 9.75%, due in
equal monthly installments through September 1,
1997.................................................. 22 37 92
------- ------- -------
34,068 27,459 12,461
------- ------- -------
Less current maturities................................. 1,997 613 1,315
------- ------- -------
Long-term debt.......................................... $32,071 $26,846 $11,146
======= ======= =======
Discontinued Operations:
$3,000 term note with a bank, secured by all the
Company's oil and gas producing properties, bearing
interest at the bank's prime rate plus 1.25% (10% at
December 31, 1995) payable in monthly installments
equal to 75% of the net proceeds from production
subject to minimum semi-annual payments through March
10, 1997. This loan was paid in full during 1995...... $ -- $ -- $ 2,114
======= ======= =======
</TABLE>
F-14
<PAGE> 98
DI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
On December 31, 1996, the Company closed a $35.0 million reducing revolving
line of credit with Bankers Trust Company, ING (US) Capital Corporation and
NordlandsBanken AS. The Facility reduces by $5.0 million each year until the
December 31, 1999 maturity date. The facility is secured by substantially all
the Company's assets and calls for quarterly interest payments on the
outstanding balance at either LIBOR plus 3% or prime plus 2% (8.75% and 8.625%
at March 31, 1997 (unaudited) and December 31, 1996, respectively). The Facility
also contains customary affirmative and negative covenants with which the
Company was in compliance.
On April 30, 1997, the Facility was amended and restated to increase the
line of credit to $50.0 million and to revise certain other terms and covenants,
including the elimination of the mandatory $5.0 million reductions in January
1998 and 1999 and a conversion of the interest rate to a sliding variable rate
based on certain financial ratios of either LIBOR plus 1.75% to 2.5% or prime
plus 0.75% to 1.5% (unaudited).
In connection with entering into the new Facility, the $10.0 million term
loan agreement between the Company and NordlandsBanken was paid in full out of
existing working capital on December 31, 1996.
On August 28, 1996, the Company entered into a $4.0 million term loan with
Norex Drilling. The term loan was due on August 29, 1997 and bore interest at
12% per annum. The loan was paid in full from the proceeds of a private
placement of the Company's common stock on December 31, 1996.
The revolving $2,500,000 bank line of credit was converted to a term loan
in 1995 with the balance of $575,000 at December 31, 1995 being paid in monthly
installments through June 1996. The weighted average outstanding balance for the
year ended December 31, 1995 was $867,000 bearing weighted average interest of
10% per annum.
During 1995, the Company issued 190,000 shares, out of 200,000 authorized,
of Series A Preferred stock valued at $1,900,000. The Series A Preferred is
redeemable in cash at a redemption price payable from available cumulative
Venezuelan positive net cash flows, as defined, commencing the first fiscal
quarter following the original issuance date. The Company may redeem, at any
time, the Series A Preferred upon consent of the holders or upon written notice
commencing five years from the original issuance date. At the election of the
Company, dividends may be declared and payable in common stock equivalent to the
value of the dividends. Each Series A Preferred holder of record has no voting
right on any matters voted on by stockholders of the Company. As referred to in
Note 2, during March 1996, 100,000 shares of Series A Preferred, totaling
$1,000,000, were returned to the Company in settlement of asserted claims
against An-Son. At December 31, 1995, the balance of the Series A Preferred had
been adjusted to reflect this settlement. During 1996, the Company voluntarily
redeemed 13,500 shares of Series A Preferred leaving 76,500 shares outstanding
at December 31, 1996. During the first quarter of 1997, the Company redeemed an
additional 3,825 shares of Series A Preferred leaving 72,675 shares outstanding
at March 31, 1997 (unaudited).
Annual maturities of the debt outstanding at March 31, 1997 are as follows
(unaudited): 1997 -- $1,997,000; 1998 -- $6,671,000; 1999 -- $25,301,000;
2000 -- $96,000; and 2001 -- $3,000.
(5) CAPITAL STOCK AND STOCK OPTION PLANS
During the fourth quarter of 1995, Norex Drilling subscribed to and paid
$4,000,000 for a new Company issue of Series B Preferred Stock (the "Series B
Preferred"), to be issued subsequent to December 31, 1995. This subscription was
in the form of 4,000 shares (10,000 authorized) of Series B 15% Senior
Cumulative Redeemable Preferred, par value $1.00. This stock had annual
dividends of 15% per annum, payable through the issuance of additional preferred
shares for the first three years. On August 28, 1996 the $4,000,000 subscription
price plus accrued dividends was repaid to Norex Drilling by the Company with
the proceeds from a term loan that was made by Norex Drilling to the Company.
F-15
<PAGE> 99
DI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
The Company's 1982 Stock Option and Long-Term Incentive Plan for Key
Employees (the "1982 Plan") reserves 2,500,000 shares of the Company's common
stock for issuance upon the exercise of options. At March 31, 1997 (unaudited)
and December 31, 1996, options to purchase 1,871,800 shares of common stock were
available for grant under the 1982 Plan. The Company's 1987 Stock Option Plan
for Non-Employee Directors (the "1987 Director Plan") reserves 250,000 shares of
common stock for issuance upon the exercise of options and provides for the
automatic grant of options to purchase shares of common stock to any
non-employee who becomes a director of the Company. At March 31, 1997
(unaudited) and December 31, 1996, options under the 1987 Director Plan to
purchase 212,800 shares of common stock were available for grant until June 30,
1997. The Company's 1996 Employee Stock Option Plan (the "1996 Plan") reserves
7,000,000 shares of the Company's common stock for issuance upon the exercise of
options. At March 31, 1997 (unaudited) and December 31, 1996, options under the
1996 Plan to purchase 4,650,000 and 5,205,000, respectively, shares of common
stock were available for grant until July 29, 2006. The exercise price of stock
options under the 1982 Plan, the 1987 Director Plan and the 1996 Plan
approximates the fair market value of the stock at the time the option is
granted. The Company had 2,410,000 shares reserved for other Incentive Stock
Option Agreements between the Company and its executive officers and directors.
Two million of the shares were reserved for the Company's President 50,000 were
reserved for the Company's Chief Financial Officer and the remaining shares are
reserved for non-employee directors. At March 31, 1997, 2,360,000 shares were
reserved for other Incentive Stock Option Agreements as the Chief Financial
Officer exercised options (unaudited). Options become exercisable in varying
increments over four- to five-year periods and the majority of the options
expire on the tenth anniversary of the inception of the plans. Stock option
activity for all plans was as follows (number of shares in thousands):
<TABLE>
<CAPTION>
NUMBER OPTION
OF SHARES PRICE RANGE
--------- -------------
<S> <C> <C>
Outstanding March 31, 1994: 2,035 $0.88 - $2.38
Granted................................................... 103 $0.88 - $0.94
Exercised................................................. (2) $0.88
Canceled.................................................. (148) $0.88 - $1.63
Outstanding December 31, 1994: 1,988 $0.88 - $2.38
Granted................................................... 253 $0.69 - $0.88
Canceled.................................................. (267) $0.94 - $2.38
Outstanding December 31, 1995: 1,974 $0.69 - $1.63
Granted................................................... 50 $0.69 - $1.00
3,700 $1.13 - $1.75
475 $2.56 - $2.88
Exercised................................................. (232) $0.69 - $1.00
(44) $1.25 - $1.75
Canceled.................................................. (1,282) $0.69 - $1.00
(132) $1.25 - $1.75
Outstanding December 31, 1996: 276 $0.69 - $1.00
3,758 $1.13 - $1.63
475 $2.56 - $2.88
Granted (unaudited)....................................... 555 $2.81 - $3.13
Exercised (unaudited)..................................... (55) $ .69 - $ .94
Canceled (unaudited)...................................... (1) $ .69 - $ .94
(20) $2.56
Outstanding March 31, 1997 (unaudited): 220 $ .69 - $1.00
3,758 $1.13 - $1.63
1,010 $2.56 - $3.13
Exercisable at March 31, 1997 (unaudited): 1,114 $0.69 - $1.75
</TABLE>
F-16
<PAGE> 100
DI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
At December 31, 1996, the Company has three stock-based compensation plans,
which were described above. The Company applies APB Opinion 25 and related
interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized. Had compensation cost for the Company's three stock-based
compensation plans been determined on the fair value at the grant dates for
awards under those plans consistent with the method of Statement of Financial
Accounting Standards No. 123, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below (amounts in
thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Net loss
As reported............................................... $(12,124) $(13,447)
Pro forma................................................. $(13,723) $(13,447)
Earnings per share
As reported............................................... $ (.18) $ (.35)
Pro forma................................................. $ (.20) $ (.35)
</TABLE>
For purposes of determining compensation costs using the provisions of SFAS
No. 123, the fair value of option grants were determined using the Black-Scholes
option-valuation model. The key input variables used in valuing the options
were: risk-free interest rate based on the five year Treasury strips of 7.8%;
dividend yield of zero; stock price volatility of 60%; expected option lives of
five years.
(6) GEOGRAPHIC AREA INFORMATION
The following table sets forth the Company's operations based on the
geographic areas in which it operates (amounts in thousands).
<TABLE>
<CAPTION>
YEAR YEAR NINE MONTHS
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Domestic..................................... $ 52,495 $ 44,797 $ 40,515
Mexico....................................... 3,504 12,617 1,706
South America................................ 25,768 37,295 8,766
-------- -------- --------
$ 81,767 $ 94,709 $ 50,987
======== ======== ========
Operating income (loss):
Domestic..................................... $ (4,002) $ (4,093) $ (2,095)
Mexico....................................... (3,818) 238 (77)
South America................................ (5,895) (8,938) (280)
-------- -------- --------
$(13,715) $(12,793) $ (2,452)
======== ======== ========
Identifiable assets:
Domestic..................................... $103,608 $ 39,069 $ 47,524
Mexico....................................... 1,500 4,008 3,470
South America................................ 12,711 14,706 11,866
-------- -------- --------
$117,819 $ 57,783 $ 62,860
======== ======== ========
</TABLE>
F-17
<PAGE> 101
DI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
During the three months ended March 31, 1997, one unaffiliated customer
accounted for approximately 18% of the Company's consolidated revenues
(unaudited). During the three months ended March 31, 1996 (unaudited), the years
ended December 31, 1996 and 1995, and the nine months ended December 31, 1994,
no customer accounted for more than 10% of the Company's consolidated revenues.
(7) RELATED-PARTY TRANSACTIONS
Prior to June 2, 1994, certain of the Company's insurance coverage,
including workers' compensation and excess liability coverage, was arranged by
American Premier as part of a program which American Premier provided to its
subsidiaries. Subsequent to the sale of the Company's common shares by American
Premier, the Company obtained workers' compensation, excess liability coverage
and certain other insurance from other sources. The Company and American Premier
entered into an agreement pursuant to which the Company agreed to reimburse
American Premier for all amounts advanced by American Premier from time to time
on behalf of the Company in connection with American Premier's administration of
the Company's workers' compensation and certain other insurance programs for the
periods between July 20, 1989 and the closing of the common stock transaction.
The amount reimbursable to American Premier at December 31, 1995 relating to
this program was $1,900,000. All amounts outstanding under the program were paid
in full during 1996.
During the year ended March 31, 1994, Thermal Drilling, Inc. ("Thermal"),
the minority interest owner of the Company's majority-owned subsidiary,
DI/Perfensa Inc. ("DI/Perfensa"), borrowed and repaid with interest certain sums
from DI/Perfensa. At March 31, 1997 (unaudited) and December 31, 1996 and 1995,
$60,000 was due to DI/Perfensa from the President of Thermal.
As part of the Merger agreements, the 1995 subscription by Norex Drilling
for 4,000 shares of Series B preferred Stock and related Series B Warrants was
rescinded. The $4,000,000 subscription plus accrued dividends was repaid to
Norex Drilling by the Company with the proceeds from a term loan that was made
by Norex Drilling to the Company. Interest accrued at 12% per annum and was
payable on the last business day of each calendar quarter. The note payable was
paid in full on December 31,1996 using the proceeds from a private placement of
the Company's common stock.
On June 10, 1996, Norex Drilling advanced $1,000,000 to the Company
pursuant to a Promissory Note (the "Norex Note") and Commercial Security
Agreement. The Norex Note provided for interest at 12% per annum, and matured on
the Closing Date of the Merger transactions. The Company's domestic accounts
receivable were pledged under the security agreement. The Company repaid this
loan, plus accrued interest, in early July 1996 with the proceeds from the sale
of the assets discussed in footnote 2.
A consulting fee of $10,000 per month has been paid by the Company under a
consulting arrangement with the Company's Chairman of the Board.
One of the Company's directors is a partner in a law firm that performed
legal services for the Company. During 1996, the Company paid the firm $200,000.
(8) LEASE COMMITMENTS
The Company leases certain office space under noncancellable lease
agreements accounted for as operating leases. At December 31, 1996, lease
commitments under noncancellable operating leases with an initial term of more
than one year are $96,000 for the year ended December 31, 1996. Rental expense
under operating leases was $43,000 and $23,000 for the three months ended March
31, 1997 and 1996 (unaudited), $109,000 and $101,000 for the years ended
December 31, 1996 and 1995, and $77,000 for the nine months ended December 31,
1994. The Company's future lease commitments are approximately $264,000 per year
through 2002.
F-18
<PAGE> 102
DI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
Capital leases for the Company's field trucks and automobiles are included
in long-term debt.
(9) CONTINGENCIES
The Company was proceeding against Charlestown Industries, Inc. (a 50%
"Partner"), who was a co-defendant, along with the Company, in the joint venture
to recover their respective portion ($1,800,000) of the OFS 1987, Mid-Year et.
al. v DI Exploration lawsuit. In 1994, a judgment was rendered in favor of the
Company against the Partner in the state of Oklahoma. The Partner, subsequent to
the judgement, filed for protection under the US Bankruptcy Act and the
Company's claim was ruled on by the bankruptcy court in October of 1996. The
bankruptcy court ruled against the Company. The Company has determined not to
pursue other appeals. Since the future recovery of the amount and term of
recovery was uncertain no amount had been recorded by the Company.
The Company is involved in litigation incidental to the conduct of its
business, none of which management believes is, individually or in the
aggregate, material to the Company's consolidated financial condition or results
of operations.
Substantially all of the Company's contract drilling activities are
conducted with independent and major oil and gas companies in the United States
or with national utility or national petroleum companies in Venezuela.
Historically, the Company has not required collateral or other security for the
related receivables from such customers. However, the Company has required
certain customers to deposit funds in escrow prior to the commencement of
drilling. Actions typically taken by the Company in the event of nonpayment
include filing a lien on the customer's producing properties and filing suit
against the customer.
(10) EMPLOYEE BENEFIT PLAN
The Company has a defined contribution employee benefit plan covering
substantially all of its employees. The Company matches individual employee
contributions up to 2% of the employee's compensation. Employer matching
contributions under the plan totaled $141,000 and $31,000 for the three months
ended March 31, 1997 and 1996 (unaudited), $104,000 and $144,000 for the years
ended December 31, 1996 and 1995, and $55,000 for the nine months ended December
31, 1994. Employer matching contributions vest over a five-year period.
Effective January 1, 1997, the Company increased the matching provisions to
include matching 100% of the first 3% of individual employee contributions and
50% of the next 3% of individual employee contributions. Other provisions of
plans were also amended.
(11) NON-RECURRING CHARGES
During the year ended December 31, 1996, the Company recorded non-recurring
charges of $6.1 million which included $1.1 million in employment severance
costs, $4.6 million in cost to exit the Argentine and Mexican markets and
$400,000 of other non-recurring charges. The employment severance cost includes
$602,000 in contractual severance pay to be paid over a two year period to the
Company's former President and Chief Executive Officer and the transfer to him
of certain drilling equipment with a net book value of $535,000 in settlement of
a dispute over stock options to purchase the Company's common stock. As a result
of the Company's desire to redeploy assets to more profitable markets, the
Company decided to withdraw from both the Argentine and Mexican markets. As a
result, the Company has recorded estimated exit costs of $1.3 million for Mexico
which primarily consists of the forfeiture of a performance bond and other costs
to be incurred to close the office and exit the market and exit costs of
$800,000 for Argentina which primarily consists of costs expected to be incurred
during the period necessary to close the office and exit the market. In
addition, the Company has tentatively agreed to sell three of the six drilling
rigs and certain other assets located in Argentina for $1.5 million. As a
result, the Company recorded a write down of rig equipment and other assets of
$2.5 million. The remaining Argentina rigs will be mobilized to the United
States or possibly
F-19
<PAGE> 103
DI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
Venezuela where they will be refurbished and returned to service. Mobilization
costs will be expensed as they are incurred during 1997.
(12) SUBSEQUENT EVENTS
On January 31, 1997, the Company acquired the operating assets of Flournoy
Drilling Company ("Flournoy") for 12,426,000 shares of DI common stock and
$800,000 in cash. The assets acquired include 13 drilling rigs, 17 rig hauling
trucks, a yard and office facility in Alice, Texas and various other equipment
and drill pipe. With respect to one-half of the shares to be issued in the
transaction, DI agreed to issue additional shares if the shareholders of
Flournoy hold value less than $2 per share one year from closing.
In March 1997, the Company entered into an agreement to acquire by merger
Grey Wolf Drilling Company ("Grey Wolf") for up to $61.6 million in cash and
approximately 14.0 million shares of the Company's common stock. The number of
shares to be issued in the merger is subject to decrease or increase if the
average trading price of DI's common stock ten days prior to the three days
before the merger is greater than $4.00 or less than $3.00 per share.
Additionally, the merger agreement calls for the decrease of the cash
consideration and a corresponding increase in the number of shares issued so
that at least 45% of the value of the merger consideration consists of the
Company's common stock. An escrow will be established for certain post-closing
contingencies with $5 million of the cash consideration. The Merger is subject
to obtaining regulatory and Grey Wolf shareholder's approval and certain other
conditions. The Company expects this merger to close by the end of the second
quarter of 1997. The Company expects to issue $150.0 million of public senior
notes (the "Notes") due in the year 2007 to fund the cash portion of the Grey
Wolf acquisition, to purchase three stacked rigs for $8.9 million to repay
outstanding debt under the Facility and for general corporate purposes,
including the refurbishment of rigs.
The March 31, 1997, (unaudited) consolidated balance sheet includes the
effect of the Mergers, the Diamond M acquisition, the Mesa acquisition, the
private placement, the new credit facility and the Flournoy acquisition. The
unaudited proforma balance sheet assumes the Grey Wolf acquisition and related
common stock issuance occurred on March 31, 1997. The rigs acquired in the
Mergers had no historical operations as they were stacked while owned by RTO and
LRAC. The following unaudited consolidated proforma results of operations assume
the Mergers, the Diamond M acquisition, the Mesa acquisition, the Flournoy
acquisition, the Grey Wolf acquisition, the private placement and the new credit
facility had occurred at January 1, 1996, and do not purport to be indicative of
what would have occurred had the transactions occurred at those dates or of
results which may occur in the future. The unaudited proforma results of
operations shown below include the operations of Diamond M, Mesa, Flournoy, and
Grey Wolf additional expenses for storing the rigs acquired in the Mergers and
the placement of the Notes (in thousands, except per share amounts):
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1997
--------------
<S> <C> <C>
Working capital....................................... $ 37,236
Total assets.......................................... 346,272
Shareholders' equity.................................. 140,042
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE FOR THE
MONTHS ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
<S> <C> <C>
Total revenue......................................... $55,709 $205,316
Net income (loss) applicable to common stock.......... 802 (26,311)
Net income (loss) per share........................... .01 (.17)
</TABLE>
F-20
<PAGE> 104
DI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
Certain of the domestic wholly-owned subsidiaries (the "Guarantors") of the
Company have fully and unconditionally guaranteed, on a joint and several basis,
the Notes. Separate financial statements of each of the Guarantors have not been
included because management has determined that such information would not be
material to investors as on an aggregate basis the assets, liabilities, equity
and earnings of the Guarantors are substantially equal to the consolidated
assets, liabilities, equity and earnings of the Company.
(13) QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for the three months ended March 31,
1997, years ended December 31, 1996 and 1995, and the nine months ended December
31, 1994 are set forth below (amounts in thousands, except per share amounts).
<TABLE>
<CAPTION>
QUARTER
ENDED
MARCH
1997
-------
<S> <C> <C> <C> <C>
Revenues.................................. $35,975
Gross profit(1)........................... 7,183
Operating income.......................... 3,322
Income-continuing operations.............. 2,976
Net income................................ 2,314
Net loss per common share................. .02
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------
MARCH JUNE SEPTEMBER DECEMBER
1996 1996 1996 1996
------- ------- --------- --------
<S> <C> <C> <C> <C>
Revenues.................................. $20,102 $19,183 $22,031 $ 20,451
Gross profit (loss)(1).................... 1,166 (199) 3,144 (2,732)
Operating income (loss)................... (1,253) (2,398) 1,108 (11,172)
Income (loss)-continuing operations....... (1,491) 524 808 (10,718)
Net income (loss)......................... (1,491) 524 808 (11,563)
Net income (loss) per common share........ (.04) .01 .01 (.09)
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------
MARCH JUNE SEPTEMBER DECEMBER
1995 1995 1995 1995
------- ------- --------- --------
<S> <C> <C> <C> <C>
Revenues.................................. $22,344 $23,151 $27,106 $ 22,108
Gross profit (loss)(1).................... (180) 1,075 448 (459)
Operating loss............................ (1,946) (814) (1,565) (8,468)
Loss-continuing operations................ (2,219) (1,122) (1,234) (8,100)
Discontinued operations................... (11) (543) (116) (102)
Net loss.................................. (2,230) (1,665) (1,350) (8,202)
Net loss per common share................. (.06) (.04) (.03) (.22)
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------
JUNE SEPTEMBER DECEMBER
1994 1994 1994
------- --------- --------
<S> <C> <C> <C> <C>
Revenues.................................. $14,331 $17,215 $ 19,441
Gross profit(1)........................... 29 545 1,425
Operating (loss).......................... (1,292) (837) (323)
Loss-continuing operations................ (935) (872) (453)
Discontinued operations................... 14 49 (12)
Net loss.................................. (921) (823) (465)
Net loss per common share................. (.03) (.02) (.01)
</TABLE>
- ---------------
(1) Gross Profit (loss) is computed as consolidated revenues less operating
expenses (which excludes expenses for Depreciation and Amortization, General
and Administrative and Non-Recurring Charges).
F-21
<PAGE> 105
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Grey Wolf Drilling Company:
We have audited the accompanying balance sheets of Grey Wolf Drilling
Company (a Texas corporation) as of October 31, 1996 and 1995, and the related
statements of operations, shareholders' investment and cash flows for each of
the three years in the period ended October 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Grey Wolf Drilling Company
as of October 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended October 31, 1996, in
conformity with generally accepted accounting principles.
As explained in Note 2 to the financial statements, the Company has given
retroactive effect to the change in accounting for turnkey and footage drilling
contracts from the completed-contract method to the percentage-of-completion
method.
ARTHUR ANDERSEN LLP
Houston, Texas
January 13, 1997
F-22
<PAGE> 106
GREY WOLF DRILLING COMPANY
BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
OCTOBER 31,
APRIL 30, ----------------------
1997 1996 1995
----------- -------- ----------
(UNAUDITED) (RESTATED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................... $ 52 $ 482 $ 62
Accounts receivable, net of allowance for uncollectible
accounts of $118, $169, and $134, respectively....... 7,383 7,639 7,371
Contracts in progress................................... 1,127 2,238 437
Prepaid expenses........................................ 1,010 1,089 778
-------- -------- --------
Total current assets............................ 9,572 11,448 8,648
-------- -------- --------
Property and equipment, at cost:
Drilling rigs and equipment............................. 49,408 46,256 43,558
Drill pipe and collars.................................. 6,585 6,141 4,592
Other................................................... 2,149 2,144 1,594
-------- -------- --------
58,142 54,541 49,744
Less: accumulated depreciation and amortization........... (37,939) (36,705) (34,617)
-------- -------- --------
Net property and equipment...................... 20,203 17,836 15,127
-------- -------- --------
Other assets.............................................. 330 345 129
-------- -------- --------
Total assets.................................... $ 30,105 $ 29,629 $ 23,904
======== ======== ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Current maturities of long-term debt.................... $ 8 $ 8 $ 744
Accounts payable and accrued liabilities................ 9,418 10,005 6,192
-------- -------- --------
Total current liabilities....................... 9,426 10,013 6,936
-------- -------- --------
Post-retirement benefits obligation....................... 368 385 --
Long-term debt, net of current maturities................. 457 1,971 4,815
Deferred income taxes..................................... 3,130 2,874 1,181
Commitments and contingencies (Note 7)
Shareholders' investment:
Common stock, no par value; 10,000,000 shares
authorized; 2,987,379 shares issued; and 2,983,579
shares outstanding................................... 6,553 6,553 6,553
Deferred compensation................................... (17) (34) (68)
Treasury stock, 3,800 shares............................ (8) (8) (8)
Retained earnings....................................... 10,196 7,875 4,495
-------- -------- --------
Total shareholders' investment.................. 16,724 14,386 10,972
-------- -------- --------
Total liabilities and shareholders'
investment.................................... $ 30,105 $ 29,629 $ 23,904
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE> 107
GREY WOLF DRILLING COMPANY
STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
----------------- ---------------------------------
1997 1996 1996 1995 1994
------- ------- ------- ---------- ----------
(RESTATED) (RESTATED)
<S> <C> <C> <C> <C> <C>
Revenues:
Contract drilling.............................. $29,001 $28,537 $56,537 $46,463 $50,740
Costs and expenses:
Drilling operations............................ 22,203 22,712 44,518 38,395 42,914
Depreciation and amortization.................. 1,321 1,035 2,163 1,425 745
General and administrative..................... 2,121 1,831 4,036 2,792 2,816
------- ------- ------- ------- -------
Total costs and expenses............... 25,645 25,578 50,717 42,612 46,475
------- ------- ------- ------- -------
Operating income................................. 3,356 2,959 5,820 3,851 4,265
------- ------- ------- ------- -------
Other income (expense):
Gain on disposition of assets.................. 576 254 368 1,223 --
Interest income................................ 20 2 2 43 44
Interest expense............................... (65) (207) (394) (242) (431)
Provision for uncollectible accounts
receivable.................................. (35) (136) (217) (374) (397)
Other, net..................................... 43 49 66 54 397
------- ------- ------- ------- -------
539 (38) (175) 704 (387)
------- ------- ------- ------- -------
Income before income taxes....................... 3,895 2,921 5,645 4,555 3,878
Provision for income taxes....................... 1,574 1,171 2,265 1,669 686
------- ------- ------- ------- -------
Net income....................................... $ 2,321 $ 1,750 $ 3,380 $ 2,886 $ 3,192
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE> 108
GREY WOLF DRILLING COMPANY
STATEMENTS OF SHAREHOLDERS' INVESTMENT
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON RETAINED DEFERRED TREASURY
STOCK EARNINGS COMPENSATION STOCK TOTAL
------ -------- ------------ -------- -------
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1993, as previously
reported................................. $6,553 $(1,686) $(136) $-- $ 4,731
Adjustment for the cumulative effect of
retroactively applying the
percentage-of-completion method of
accounting for turnkey and footage
contracts (Note 2).................... -- 103 -- -- 103
------ ------- ----- --- -------
Balance, October 31, 1993, as restated..... 6,553 (1,583) (136) -- 4,834
Net income, as restated.................. -- 3,192 -- -- 3,192
Acquisition of treasury shares........... -- -- -- (8) (8)
Deferred compensation earned............. -- -- 34 -- 34
------ ------- ----- --- -------
Balance, October 31, 1994.................. 6,553 1,609 (102) (8) 8,052
Net income, as restated.................. -- 2,886 -- -- 2,886
Deferred compensation earned............. -- -- 34 -- 34
------ ------- ----- --- -------
Balance, October 31, 1995.................. 6,553 4,495 (68) (8) 10,972
Net income............................... -- 3,380 -- -- 3,380
Deferred compensation earned............. -- -- 34 -- 34
------ ------- ----- --- -------
Balance, October 31, 1996.................. 6,553 7,875 (34) (8) 14,386
Net income............................... -- 2,321 -- -- 2,321
Deferred compensation earned............. -- -- 17 -- 17
------ ------- ----- --- -------
Balance, April 30, 1997 (unaudited)........ $6,553 $10,196 $ (17) $(8) $16,724
====== ======= ========== ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE> 109
GREY WOLF DRILLING COMPANY
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
APRIL 30, YEAR ENDED OCTOBER 31,
----------------- ---------------------------------
1997 1996 1996 1995 1994
------- ------- ------- ---------- ----------
(UNAUDITED) (RESTATED) (RESTATED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................... $ 2,321 $ 1,750 $ 3,380 $ 2,886 $ 3,192
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization......... 1,321 1,035 2,163 1,425 745
Rig restoration costs recouped through
operations.......................... -- -- -- 633 1,303
Restricted stock compensation
earned.............................. 17 17 34 34 34
Gains on dispositions of assets....... (576) (254) (368) (1,223) --
Deferred income taxes................. 256 891 1,693 1,240 487
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable.......................... 256 (3,430) (334) 181 (1,912)
(Increase) decrease in contracts in
progress............................ 1,111 27 (1,801) 1,469 (738)
(Increase) decrease in prepaid
expenses............................ 79 (303) (311) 1,263 24
Increase (decrease) in accounts
payable and accrued liabilities..... (587) 4,099 3,813 (2,536) (824)
Increase (decrease) in post-retirement
benefits obligation................. (17) -- 345 -- --
(Increase) decrease in long-term
equipment lease collateral.......... -- -- -- 151 (151)
------- ------- ------- ------- -------
Net cash provided by operating
activities..................... 4,181 3,832 8,614 5,523 2,160
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property and
equipment............................. 623 342 467 1,288 --
Property and equipment additions......... (3,735) (2,635) (4,747) (4,222) (1,180)
Advances for rig restoration............. -- -- -- (183) (634)
Other.................................... 15 -- (111) (60) (58)
------- ------- ------- ------- -------
Net cash used in investing
activities..................... (3,097) (2,293) (4,391) (3,177) (1,872)
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt........................ (1,514) (1,461) (3,945) (2,599) --
Accrued interest on capital lease
obligation............................ -- 71 142 -- --
Acquisition of treasury stock............ -- -- -- -- (8)
------- ------- ------- ------- -------
Net cash used in financing
activities..................... (1,514) (1,390) (3,803) (2,599) (8)
------- ------- ------- ------- -------
INCREASE (DECREASE) IN CASH................ (430) 149 420 (253) 280
CASH, beginning of period.................. 482 62 62 315 35
------- ------- ------- ------- -------
CASH, end of period........................ $ 52 $ 211 $ 482 $ 62 $ 315
======= ======= ======= ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for
interest.............................. $ 190 $ 104 $ 245 $ 249 $ 487
======= ======= ======= ======== ========
Cash paid during the period for income
taxes................................. $ 424 $ 280 $ 430 $ 479 $ 79
======= ======= ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE> 110
GREY WOLF DRILLING COMPANY
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION AND NATURE OF OPERATIONS
Grey Wolf Drilling Company (the Company) is a Texas corporation with
offices in Houston, Texas, and Lafayette, Louisiana. The Company operates land
drilling rigs which are used in contract drilling operations primarily in
Louisiana and Texas.
The Company's results of operations and its financial condition have
historically been adversely affected by the depression in the domestic oil and
gas exploration industry which commenced in 1982. This market condition resulted
in depressed rates received for contract drilling services and reduced the
number of active rigs in domestic drilling operations on an industry-wide basis.
The Company had profitable results between 1990 and 1996 (excluding 1993), after
a prolonged period of negative results (1982 - 1989).
Demand for drilling equipment is dependent on the exploration and
development programs of oil and gas companies, which are in turn influenced by
the financial conditions of such companies, by general economic conditions, by
prices of oil and gas and, from time to time, by political considerations and
policies. The Company's business operations are subject to the risks associated
with a business having a limited number of customers for which it can operate at
any given time. A decrease in the drilling programs of customers in the areas
where the Company is employed may adversely affect the Company's revenues. The
contracts under which the Company operates its drilling rigs are obtained either
through individual negotiations with the customer or by submitting proposals in
competition with other drilling contractors and vary in their terms and
conditions. The Company competes with several other drilling contractors, most
of which are substantially larger than the Company and possess appreciably
greater financial and other resources. Price competition is generally the most
important factor in the drilling industry, but the technical capability of
specialized drilling equipment and personnel at the time and place required by
customers is also important. Other competitive factors include work force
experience, rig suitability, efficiency, condition of equipment, reputation and
customer relations. The Company believes that it competes favorably with respect
to these factors.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Data. The financial statements and related information as of April
30, 1997, and for the six-month periods ended April 30, 1997 and 1996, have been
prepared by the Company without audit pursuant to the rules and regulations of
the Securities and Exchange Commission. Such statements reflect all adjustments
(consisting only of normal recurring entries) which are, in the opinion of
management, necessary for a fair presentation of the financial position, results
of operations, cash flows and changes in shareholders' investment at and for
such periods. Interim period results are not necessarily indicative of the
results to be achieved for an entire year.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Property and Equipment. The costs of drilling rigs and equipment, drill
pipe and collars, other property and equipment and major replacements which
extend the useful lives of property and equipment are capitalized. Replaced
units are retired by removing the cost and related accumulated depreciation.
Maintenance and repairs and minor replacements are expensed as incurred. Gains
or losses resulting from sales, dispositions or retirements are included in
other income.
Depreciation is provided for financial reporting purposes using the
straight-line method over estimated useful lives of seven years for drilling
rigs and equipment, three years for drill pipe and collars and from five to 30
years for other property and equipment.
F-27
<PAGE> 111
GREY WOLF DRILLING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Prepaid Expenses. Prepaid expenses primarily consist of insurance deposits
which are held by the carrier and are released at the expiration of the
applicable policy and prepaid premiums which are amortized over the life of the
applicable policy.
Recognition of Operating Revenues and Expenses. Operating revenues and
expenses are recognized on the basis of contract terms as follows:
Turnkey and Footage Contracts -- In 1996, the Company changed its
method of accounting for turnkey and footage contracts from the
completed-contract method to the percentage-of-completion method. The
percentage-of-completion method of accounting, which is generally the
preferred accounting, was adopted to more closely approximate the concept
of accrual-based recognition of revenues and profit as earned. Under the
percentage-of-completion method, revenues, costs and estimated profits for
turnkey and footage contracts are recognized based upon the percentage of
completion of the individual contracts in progress at year-end. All
information available through the date of the financial statements is
considered in determining the estimated costs and profits upon completion
of an in-progress contract. The percentage of completion for an in-progress
contract is based upon the days worked compared to total expected days
under the performance of the contract. Any estimated contract losses are
charged to earnings when identified.
As required for a change in the method of recognizing contract revenues,
all prior years have been restated to reflect the change. The effect of the
accounting change on net income for 1996 and on net income previously reported
in 1995 and 1994 was approximately $600,000, $(199,000) and $169,000,
respectively. The balance of retained earnings as of October 31, 1993, has been
adjusted for the effect (net of income taxes) of applying retroactively the new
method of accounting.
Day work Contracts -- Revenues and expenses are recognized as the work
progresses.
Combination Contracts -- Revenues and expenses are recognized in
accordance with the turnkey, footage or day work terms of the contracts as
described above.
Income Taxes. The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes," whereby deferred income taxes are provided at the balance sheet
date, based upon enacted tax laws, for all differences between the tax basis of
assets and liabilities and their respective carrying amounts for financial
statement purposes. See Note 4 for additional discussion.
Earnings Per Share. The Company is a closely held private company, thus
earnings per share amounts are not meaningful and, accordingly, not presented.
F-28
<PAGE> 112
GREY WOLF DRILLING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) LONG-TERM DEBT
The long-term debt of the Company is as follows (amounts in thousands):
<TABLE>
<CAPTION>
OCTOBER 31
JANUARY 31, ---------------
1997 1996 1995
----------- ------ ------
(UNAUDITED)
<S> <C> <C> <C>
Bank debt, due March 31, 1998, interest at prime plus
1 1/4%................................................ $1,275 $ 300 $2,100
Capital lease obligation, including accrued interest.... -- 1,460 2,715
Property mortgage, due monthly through February 21,
2006, interest at 8 1/2%.............................. 217 219 --
Notes payable, due February 1, 1996, interest at 10%.... -- -- 718
Notes payable to shareholders, due February 1, 1996,
interest at 10%....................................... -- -- 26
------ ------ ------
1,492 1,979 5,559
Less-Current maturities................................. 8 8 744
------ ------ ------
Total long-term debt.......................... $1,484 $1,971 $4,815
====== ====== ======
</TABLE>
Bank Debt. During 1991, the Company secured a $3.0 million revolving credit
facility with a bank (the Bank) which was increased to $4.5 million effective
February 28, 1995. On May 31, 1996, the Company entered into an amended and
restated loan agreement (the Agreement) with the Bank which combined the
existing $4.5 million revolving credit facility and a new $3.0 million capital
credit facility (the Facilities). Under the revolving credit facility, the
maximum amount of borrowings is subject to a borrowing base limitation of up to
75 percent of eligible accounts receivable, as defined. At October 31, 1996, the
borrowing base limitation amount exceeded the $4.5 million maximum line of
credit. The revolving credit facility provides for a maturity date of March 31,
1998. The capital credit facility terminates June 15, 1998, with the entire
principal balance due on March 15, 2001. The Company is required to pay a
commitment fee of 1/2 percent on the unfunded portion of the Facilities. The
outstanding portion of the Facilities bears interest at 1 1/4 percent above the
Bank's prime rate (8.25 percent at October 31, 1996), payable monthly. As any
borrowings under the Facilities bear interest at market-responsive rates, the
carrying value of borrowings outstanding approximates fair value. All of the
Company's property and equipment and accounts receivable are pledged as security
on the loan.
The Agreement contains certain restrictive covenants regarding future
borrowings, capital expenditures and payment of cash dividends. In addition, the
Company must meet certain reporting requirements and maintain the following
financial covenants, as defined by the agreement: (a) a current ratio (as
defined) of 1.0:1.0, (b) a minimum net worth of $10.0 million at the end of any
quarter commencing with the quarter ended October 31, 1995, increasing by the
sum of 50 percent of quarterly net income thereafter, which resulted in a
minimum net worth requirement of approximately $11.7 million at November 1,
1996, and (c) a cash flow (as defined) of $2.5 million for the year ended
October 31, 1995, and $2.5 million for the 12 months ended at each subsequent
fiscal quarter thereafter. As of October 31, 1996, the Company was not in
compliance with certain of these restrictive covenants, for which waivers were
obtained.
Capital Lease Obligation. On March 1, 1995, the Company entered into a
lease agreement with L&GW, Inc., to lease a 50 percent interest in six rigs, a
25 percent interest in a seventh rig and certain other assets. The Company
presently owns the remaining interest in these assets. Reference is made to Note
8 for further discussion of this agreement. The lease payments are contingent
based upon cash flows from the rigs, as defined, and equal from 50 percent to 75
percent of such cash flows. The agreement provides the Company a purchase option
through April 2000. The purchase option at the date of the lease agreement,
March 1, 1995, is $3.0 million, which increases over time based upon a defined
interest factor (12.7 percent per annum which generally accrues in full
beginning April 30, 1997, and defined lesser amounts prior to such time), and
F-29
<PAGE> 113
GREY WOLF DRILLING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
decreases over time by the lease payments made by the Company. The Company
intends to acquire the leased assets through the exercise of the purchase
option.
Property and equipment includes $3.0 million of costs capitalized relating
to the capital lease obligation.
During 1996 and 1995, interest expense accrued on the option price was
$142,000 and $ -- , and lease payments totaling $1,397,000 and $285,000 were
made, thereby reducing the purchase option amount to $1,460,000 at October 31,
1996.
Property Mortgage. During 1996, the Company acquired certain real estate
property in Texas for a purchase price of approximately $300,000. The Company
entered into a note payable with a bank to finance $224,000 of the purchase
price. The note payable bears interest at 8 1/2 percent and is repayable in
equal monthly installments through February 21, 2006. The note is secured by the
real estate purchased. The $224,000 mortgage financing has been excluded from
the statement of cash flows as it is a noncash transaction. As the interest rate
on this note payable approximates the effective market-responsive rate for
borrowings under the Facilities, the carrying value of this note payable
approximates fair value.
Notes Payable and Notes Payable to Shareholders. Notes payable originated
in the purchase of the common stock of a predecessor company in 1978 with
interest at 10 percent. During 1991, a group of shareholders purchased $552,000
of the above-described notes payable from the original noteholders. Under the
amended terms of the notes payable, the Company was required to make annual
repayments of principal equal to 35 percent of excess cash flow (as defined).
Repayments were required to be made 83 percent to the original noteholder and 17
percent to the shareholders. At October 31, 1996, all amounts outstanding under
the notes payable have been repaid.
(4) INCOME TAXES
The components of the Company's income tax provision are as follows
(amounts in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ----
<S> <C> <C> <C>
Current.................................................... $ 572 $ 429 $199
Deferred................................................... 1,693 1,240 487
------ ------ ----
Total $2,265 $1,669 $686
====== ====== ====
</TABLE>
The difference between taxes computed at the U.S. federal statutory rate
and the Company's reported income tax expense is as follows (amounts in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Federal income tax at the statutory rate of 34%.......... $1,919 $1,549 $1,318
Nondeductible costs...................................... 207 174 208
State income tax, less federal benefit................... 107 75 69
Change in valuation allowance............................ -- (279) (834)
Other, net............................................... 32 150 (75)
------ ------ ------
Total income tax provision..................... $2,265 $1,669 $ 686
====== ====== ======
</TABLE>
F-30
<PAGE> 114
GREY WOLF DRILLING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company's deferred tax position is comprised of the following as of
October 31, 1996 and 1995 (amounts in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Deferred tax assets --
Investment tax credit carryforwards....................... $ 101 $ 595
Alternative minimum tax credits........................... 87 296
Accrued liabilities....................................... 225 137
Post-retirement benefits obligation....................... 131 --
Other..................................................... 89 75
------- -------
633 1,103
------- -------
Deferred tax liabilities --
Depreciation of property and equipment.................... (3,044) (2,168)
Contracts in progress..................................... (348) (38)
State taxes, net of loss carryforwards.................... (115) (78)
------- -------
(3,507) (2,284)
------- -------
Valuation allowance......................................... -- --
------- -------
Deferred income tax asset (liability)....................... $(2,874) $(1,181)
======= =======
</TABLE>
The Company has federal investment tax credit (ITC) carryforwards totaling
$101,000 which expire as follows (amounts in thousands):
<TABLE>
<S> <C>
1999........................................................ $ 88
2000........................................................ 7
2001........................................................ 6
----
$101
====
</TABLE>
The alternative minimum tax credits may be carried forward indefinitely. No
valuation allowance has been provided for the ITC carryforwards as management
believes that it is more likely than not that such carryforwards will be
utilized prior to their respective expiration dates.
(5) PROFIT-SHARING PLAN
The Company's profit-sharing plan for the benefit of employees provides for
Company contributions from net income and accumulated retained earnings as
determined by the Company's board of directors, limited to 15 percent of the
participants' annual compensation. No contributions have been made to the plan
since fiscal 1982. Effective October 1, 1996, the Company adopted a 401(k) plan
in which certain Company employees have been named as trustee. As a result of
adopting the 401(k) plan, management currently does not intend to make any
future contributions to the profit-sharing plan.
Under the 401(k) plan, participating employees may elect to contribute up
to $9,500, with the Company matching 50 percent of the employee contributions up
to 6 percent of their salaries for a maximum contribution by the Company of up
to 3 percent of each employee's salary for the year ended December 31, 1996.
Participating employees vest in the Company's contributions over a period of
seven years. Total expense recognized for the Company's contributions to the
401(k) plan in 1996 was approximately $8,000.
(6) GREY WOLF DRILLING COMPANY EMPLOYEE HEALTH PLAN AND TRUST
The Grey Wolf Drilling Company Employee Health Plan and Trust (the Plan) is
a defined contribution plan that provides certain health care benefits to its
active employees. Effective July 15, 1996, the Company
F-31
<PAGE> 115
GREY WOLF DRILLING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
amended the Plan allowing retired employees to continue health care coverage for
themselves and their spouses from the age of 60 to 65. To be eligible for this
health care benefit, the employee must be under the age of 65, but at least age
60, with at least 25 years of service as a full-time employee.
As of October 31, 1996, the accumulated post-retirement benefit obligation
(APBO) totals approximately $40,000, which relates to prior service costs. The
Company has recognized the APBO as of October 31, 1996, and will amortize the
prior service cost over the estimated service life of the remaining active
employees along with the annual benefit costs. Actuarial assumptions include a 6
percent health care cost trend and a 7 1/2 percent discount rate. The Company
does not currently intend to pre-fund these obligations.
(7) COMMITMENTS AND CONTINGENCIES
Minimum Lease Payments. Aggregate minimum rental payments required under
noncancelable operating leases having lease terms greater than one year are as
follows as of October 31, 1996 (amounts in thousands):
<TABLE>
<S> <C>
1997........................................................ $320
1998........................................................ 154
1999........................................................ 72
2000........................................................ 21
2001........................................................ --
</TABLE>
Rent expense for 1996, 1995 and 1994 was approximately $339,000, $340,000
and $289,000, respectively.
Insurance. The Company has commercial insurance coverage for workers'
compensation which contains a deductible of $100,000 per claim ($50,000 per
claim in 1995 and 1994). The Company also provides certain group medical
benefits to its employees for which it is self-insured under a plan in which
certain Company employees have been named as trustee; however, the Company has
acquired a stop-loss policy limiting its exposure to $100,000 per claim ($50,000
per claim in 1995 and 1994) and $783,000 in the aggregate ($699,000 and $687,000
in 1995 and 1994, respectively). See Note 6 for additional discussion of the
plan. As of October 31, 1996, the Company had executed a letter of credit in the
amount of $500,000 to an insurance carrier as security for its obligations under
the insurance fund.
Pending Litigation. The Company is named as defendant in a lawsuit styled
TEPCO, Inc. v. Grey Wolf Drilling Company, Cause No. 96-49194, in the 164th
Judicial District Court of Harris County, Texas. In its petition filed on
September 26, 1996, the plaintiff alleged that the Company breached alleged
contractual obligations to TEPCO, Inc. (TEPCO), by failing to drill an oil or
gas well or wells for TEPCO in the Treasure Isle Field, located in Galveston
County, Texas. The plaintiff also alleges that it lost alleged rights under an
oil and gas lease as a consequence of failure to drill such well or wells,
allegedly causing the plaintiff to suffer money damages asserted in the
plaintiff's petition to amount to "many tens of millions of dollars." The
Company believes that the claims asserted by the plaintiff are unfounded. Prior
to filing of TEPCO's suit, the Company had filed lien claims against two wells
which the Company had drilled for TEPCO, for unpaid statements for services or
materials provided prior to the time when the Company ceased further work for
TEPCO, and the Company has filed a counterclaim in the TEPCO suit seeking
recovery of approximately $154,000 with respect to such statements and interest
and attorneys' fees. Discovery is in progress in the TEPCO suit, and the Company
is vigorously defending the action. It is the opinion of the management that the
ultimate resolution of the suit will not have a material adverse effect on the
Company's financial position.
In the normal course of business, the Company becomes involved in
litigation incident to operations. Management is of the opinion that ultimate
resolution of all matters of litigation and dispute will not have a material
adverse effect on the Company's financial position.
F-32
<PAGE> 116
GREY WOLF DRILLING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(8) DISSOLUTION OF L&GW VENTURE AND LEASE AGREEMENT
In May 1987, the Company entered into the L&GW Venture (the Venture) with
an entity controlled by a major shareholder. The Company's interest in the
Venture was 1 percent until payout, as defined in the Venture agreement. The
entity controlled by this shareholder contributed drilling equipment to the
Venture. The Company acted as co-manager of the Venture and was reimbursed by
the Joint Venture for costs and expenses incurred on behalf of the Joint Venture
(approximately $45,000 was invoiced for the year ended October 31, 1994).
In 1990, an agreement was reached whereby the Company would restore six
drilling rigs owned by the Venture to operating condition and subsequently would
operate the rigs. Pursuant to the agreement, the Company and its joint venture
partner were each entitled to one-half of the net cash receipts from the rigs,
generally defined as cash receipts in excess of operating costs, after the
Company recouped the total cost paid to restore the rigs to production,
including interest. The costs incurred to restore the rigs were deferred and,
prior to recoupment, the Company was entitled to 100 percent of the net cash
flow. The Company's operating revenues and expenses, therefore, included 100
percent of the activity related to these six rigs, and profit was eliminated
until recoupment of restoration costs. As of February 28, 1995, unrecovered
advances for rig restoration totaled $1,995,000, and the gross revenues from the
six rigs recognized by the Company (100 percent) for the four months of 1995 and
for 1994 totaled approximately $4,477,000 and $14,304,000, respectively.
On March 1, 1995, the Venture, owner of 100 percent interest in six rigs
and a 50 percent interest in one rig, was dissolved. As a result of the
dissolution, the Company and L&GW, Inc., each acquired 50 percent of the
Venture's interest in the subject rigs and the Company acquired the Venture's
100 percent interest in certain other assets with no further obligations with
respect thereto. Upon completion of the dissolution, Grey Wolf converted its
advances for rig restoration and settled payables to the Venture into its basis
for the acquired interests ($1,641,000). Such basis is classified as property
and equipment.
Additionally, on March 1, 1995, the Company entered into a lease agreement
with L&GW, Inc., to lease from L&GW, Inc., its interest in the subject rigs. The
lease of the subject rig interests from L&GW, Inc., is being accounted for as a
capital lease (see Note 3). Property and equipment was recorded in the amount of
$3.0 million based on the present purchase option in the lease agreement with an
assumption of $3.0 million of long-term debt to finance such acquisition. The
purchase option at the date of the lease agreement, March 1, 1995, was $3.0
million. Such purchase option increases over time based upon a defined interest
factor (12.7 percent per annum which generally accrues in full beginning April
30, 1997, and defined lesser amounts prior to such time) and decreases over time
by the amounts of any lease payments made by the Company.
The combination of the Venture dissolution and capital lease arrangement
resulted in the Company acquiring a 100 percent interest in the Venture's assets
(seven rigs and certain other related assets). The costs assigned and
consideration given is shown as follows (amounts in thousands):
<TABLE>
<S> <C>
Costs assigned to Venture assets............................ $ 4,641
Capital lease obligation.................................... (3,000)
Unrecovered rig restoration costs........................... (1,995)
Payable to Venture settled.................................. 354
-------
Cash paid......................................... $ --
=======
</TABLE>
The above transaction has been excluded from the statement of cash flows
because it is a noncash transaction.
F-33
<PAGE> 117
GREY WOLF DRILLING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(9) COMPENSATION ARRANGEMENTS
On March 17, 1992, the board of directors passed a resolution to grant Mr.
James K. B. Nelson, president and a shareholder of the Company, 130,769 shares
of restricted common stock. The restricted stock agreement, in general,
prohibits the transfer of these shares to anyone for a period of five years.
This transfer restriction terminates as to 20 percent of the shares (26,153) at
the end of each year on March 17, 1993, through March 17, 1997. The agreement
also provides that, if Mr. Nelson ceases to be employed by the Company within
such five-year period (other than by reason of death or disability or discharge
without good cause), remaining stock subject to such transfer restriction will
be reassigned to the Company.
The deferred compensation related to the restricted stock is deducted from
shareholders' investment and is charged to compensation expense over the vesting
period.
In 1994, the Company entered into a split-dollar life insurance arrangement
with the trustee of the James K. B. Nelson Family Trust (the Trust). Under the
terms of the arrangement, the Company pays the annual premiums on two whole-life
insurance policies owned by the Trust and receives the equivalent premium of
comparable term policies for the year. Under certain events, the Company would
be reimbursed for aggregate premiums paid and, in other events, the cash
surrender value of the policies. Premium payments are recorded in other assets,
limited to the cash surrender value of the policies ($157,000 and $63,000 at
October 31, 1996 and 1995, respectively), or compensation expense ($-, $21,000
and $21,000 for the years ended October 31, 1996, 1995 and 1994, respectively),
as appropriate. As of October 31, 1996 and 1995, a receivable of $8,000 and
$14,000, respectively, is due from the Trust for reimbursement of equivalent
term rates.
During 1996, the Company entered into retirement agreements with two
employees. Under the retirement agreements, the Company will pay a fixed amount
per month for up to 10 years. Additionally, the Company will continue to fund
life insurance policies with benefits payable to the employees. The Company has
accrued the obligation for the estimated net present value of these payments of
approximately $384,000 and has included the related expense in general and
administrative expense.
(10) SIGNIFICANT CUSTOMERS
During the year ended October 31, 1996, Texas Meridian Resources
Exploration, Inc. and Union Pacific Resources Company accounted for
approximately 12 percent and 11 percent, respectively, of the Company's contract
drilling revenues. During the year ended October 31, 1995, Black Stone Oil
Company and Union Pacific Resources Company accounted for approximately 14
percent and 12 percent, respectively, of the Company's contract drilling
revenues. During the year ended October 31, 1994, there were no customers that
accounted for more than 10% of the Company's contract drilling revenues.
(11) EVENTS (UNAUDITED) SUBSEQUENT TO DATE OF AUDITORS' REPORT
On March 7, 1997, the Company entered into a definitive agreement to be
acquired by DI Industries, Inc. (DI), for up to $61.6 million in cash and
approximately 14.0 million shares of DI common stock. The terms of the agreement
call for the Company to merge with and into Drillers, Inc., a subsidiary of DI,
subject to obtaining regulatory and Company shareholder approval and certain
other conditions. The number of shares of DI common stock to be issued in the
merger is subject to decrease or increase if the average trading price of DI
common stock in the 10 trading days prior to the merger is greater than $4.00 or
less than $3.00 per share. Additionally, the merger agreement calls for the
decrease of cash consideration and a corresponding increase in the number of
shares issued so that at least 45 percent of the value of the merger
consideration consists of DI common stock. An escrow will be established for
contingencies relating to the TEPCO litigation with $5.0 million of the cash
consideration. In certain events, if the merger is terminated by the Company, a
$2.0 million termination fee is payable to DI, and if the merger is terminated
by DI, a $2.0 million termination fee is payable to the Company.
F-34
<PAGE> 118
GREY WOLF DRILLING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The merger agreement provides that prior to closing, the Company will
establish an irrevocable trust (the Employee Trust) for the benefit of certain
of the Company's employees. The Company will contribute $2.4 million to the
Employee Trust and Mr. James K. B. Nelson, president of the Company and a
Company shareholder, will contribute $1.65 million to the Employee Trust. The
employees vest in Employee Trust amounts one year from the establishment of the
Employee Trust and earlier in certain events.
F-35
<PAGE> 119
======================================================
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, THE UNDERWRITERS OR ANY OTHER PERSON. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, NOR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES IN ANY JURISDICTION TO OR FROM ANY PERSON TO OR FROM WHOM IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREAFTER
SHALL UNDER ANY CIRCUMSTANCE CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 10
Forward-Looking Statements............. 17
Use of Proceeds........................ 17
Capitalization......................... 18
Unaudited Pro Forma Consolidated
Financial Data....................... 19
Selected Financial Data................ 25
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 27
Business............................... 36
Management............................. 51
Description of Notes................... 53
Description of Bank Credit Facility.... 78
Underwriting........................... 80
Legal Matters.......................... 81
Experts................................ 81
Available Information.................. 81
Incorporation of Certain Documents by
Reference............................ 82
Index to Financial Statements.......... F-1
</TABLE>
======================================================
======================================================
$150,000,000
[LOGO]
DI INDUSTRIES, INC.
% SENIOR NOTES DUE 2007
-------------------------
PROSPECTUS
-------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BT SECURITIES CORPORATION
ING BARINGS
, 1997
======================================================
<PAGE> 120
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses payable by the Company in connection with the
offering of the Notes to be registered and offered hereby are as follows:
<TABLE>
<S> <C>
Commission Registration Fee................................. $ 45,455
NASD Fee.................................................... 13,000
Printing Expenses........................................... 75,000
Legal Fees and Expenses..................................... 200,000
Blue Sky Fees and Expenses.................................. 2,000
Rating Agency Fees.......................................... 80,000
Accounting Fees and Expenses................................ 60,000
Trustee Fees and Expenses................................... 10,000
Miscellaneous............................................... 14,545
--------
Total..................................................... $500,000
========
</TABLE>
All such expenses are estimated except for the Commission registration fee
and the NASD fee.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Article 1302-7.06 of the Texas Miscellaneous Corporation Laws Act,
the articles of incorporation of a Texas corporation may provide that a director
of that corporation shall not be liable, or shall be liable only to the extent
provided in the articles of incorporation, to the corporation or its
shareholders for monetary damages for acts or omissions in the director's
capacity as a director, except that the articles of incorporation cannot provide
for the elimination or limitation of liability of a director to the extent that
the director is found liable for (i) a breach of the director's duty of loyalty
to the corporation or its shareholders, (ii) acts or omissions not in good faith
that constitute a breach of duty of the director to the corporation or an act or
omission that involves intentional misconduct or a knowing violation of the law,
(iii) any transaction from which the director received an improper benefit, or
(iv) an act or omission for which the liability of a director is expressly
provided by an applicable statute. Article XII of the Registrant's Articles of
Incorporation, as amended, states that a director of the Registrant shall not be
liable to the Registrant or its shareholders for monetary damages except to the
extent otherwise expressly provided by the statutes of the State of Texas.
In addition, Article 2.02-1 of the Texas Business Corporation Act (the
"TBCA") authorizes a Texas corporation to indemnify a person who was, is, or is
threatened to be made a named defendant or respondent in a proceeding, including
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, arbitrative, or investigative because the person is or
was a director. The TBCA provides that unless a court of competent jurisdiction
determines otherwise, indemnification is permitted only if it is determined that
the person (1) conducted himself in good faith; (2) reasonably believed (a) in
the case of conduct in his official capacity as a director of the corporation,
that his conduct was in the corporation's best interests; and (b) in all other
cases, that his conduct was at least not opposed to the corporation's best
interests; and (3) in the case of any criminal proceeding, had no reasonable
cause to believe his conduct was unlawful. A person may be indemnified under
Article 2.02-1 of the TBCA against judgments, penalties (including excise and
similar taxes), fines, settlements, and reasonable expenses actually incurred by
the person (including court costs and attorneys' fees), but if the person is
found liable to the corporation or is found liable on the basis that personal
benefit was improperly received by him, the indemnification is limited to
reasonable expenses actually incurred and shall not be made in respect of any
proceeding in which the person has been found liable for willful or intentional
misconduct in the performance of his duty to the corporation. A corporation is
obligated under Article 2.02-1 of the TBCA to indemnify a director or officer
II-1
<PAGE> 121
against reasonable expenses incurred by him in connection with a proceeding in
which he is named defendant or respondent because he is or was a director or
officer if he has been wholly successful, on the merits or otherwise, in the
defense of the proceeding. Under Article 2.02-1 of the TBCA a corporation may
(i) indemnify and advance expenses to an officer, employee, agent or other
persons who are or were serving at the request of the corporation as a director,
officer, partner venturer, proprietor, trustee, employee, agent or similar
functionary of another entity to the same extent that it may indemnify and
advance expenses to its directors, (ii) indemnify and advance expenses to
directors and such other persons identified in (i) to such further extent,
consistent with law, as may be provided in the corporation's articles of
incorporation, bylaws, action of its board of directors, or contract or as
permitted by common law and (iii) purchase and maintain insurance or another
arrangement on behalf of directors and such other persons identified in (i)
against any liability asserted against him and incurred by him in such a
capacity or arising out of his status as such a person.
The Bylaws of the Registrant set forth specific provisions for
indemnification of directors, officers, agents and other persons which are
substantially identical to the provisions of Article 2.02-1 of the TBCA
described above.
The Registrant maintains directors' and officers' insurance.
ITEM 21. EXHIBITS
The exhibits listed in the Exhibit Index below are filed as part of the
Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1* -- Form of Underwriting Agreement among DI Industries, Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation, BT
Securities Corporation and ING Barings.
2.1 -- Agreement and Plan of Merger dated May 7, 1996, among DI
Industries, Inc., DI Merger Sub, Inc., Roy T. Oliver,
Jr., Mike L. Mullen, R.T. Oliver, Inc. and Land Rig
Acquisition Corp. (incorporated herein by reference to
Exhibit 2.1 to Registration Statement No. 333-6077).
2.1.1 -- Amendment to Agreement and Plan of Merger dated May 7,
1996, among DI Industries, Inc., DI Merger Sub, Inc., Roy
T. Oliver, Jr., Mike L. Mullen, R.T. Oliver, Inc. and
Land Rig Acquisition Corp. (incorporated herein by
reference to Exhibit 2.1.1 to Registration Statement No.
333-6077).
2.1.2 -- Second Amendment to Agreement and Plan of Merger dated
July 26, 1996, among DI Industries, Inc., DI Merger Sub,
Inc., Roy T. Oliver, Jr., Mike L. Mullen, R.T. Oliver,
Inc. and Land Rig Acquisition Corp. (incorporated herein
by reference to Exhibit 2.1.2 to Amendment No. 1 to
Registration Statement No. 333-6077).
2.2 -- Agreement and Plan of Merger dated May 7, 1996, among DI
Industries, Inc. and Somerset Investment Corp.
(incorporated herein by reference to Exhibit 2.2 to
Registration Statement No. 333-6077).
2.2.1 -- Amendment to Agreement and Plan of Merger dated May 7,
1996, among DI Industries, Inc. and Somerset Investment
Corp. (incorporated herein by reference to Exhibit 2.2.1
to Registration Statement No. 333-6077).
2.2.2 -- Second Amendment to Agreement and Plan of Merger dated
July 26, 1996, among DI Industries, Inc. and Somerset
Investment Corp. (incorporated herein by reference to
Exhibit 2.2.2 to Amendment No. 1 to Registration
Statement No. 333-6077).
</TABLE>
II-2
<PAGE> 122
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.3 -- Asset Purchase Agreement dated October 3, 1996, by and
between the Registrant and Meritus, Inc., a Texas
corporation, Mesa Rig 4 L.L.C., a Texas limited liability
company, Mesa Venture, a Texas general partnership, and
Mesa Drilling, Inc., a Texas corporation (incorporated
herein by reference to Exhibit 2.1 to Registration
Statement No. 333-14783).
2.4.1 -- Asset Purchase Agreement dated November 12, 1996, between
Diamond M Onshore, Inc. and Drillers, Inc. (incorporated
herein by reference to Exhibit 2.1 to Form 8-K dated
December 30, 1996).
2.4.2 -- Letter Agreement dated December 31, 1996, between Diamond
M Onshore and Drillers, Inc. amending the Asset Purchase
Agreement (incorporated herein by reference to Exhibit
2.2 to Form 8-K dated December 30, 1996).
2.5.1 -- Asset Purchase Agreement dated December 31, 1996, by and
between Flournoy Drilling Company and Drillers, Inc.
(incorporated herein by reference to Exhibit 2.1 to Form
8-K dated January 31, 1996).
2.5.2 -- Form of Shareholder Agreement entered into January 31,
1997, by DI Industries, Inc., Drillers, Inc., and Lucien
Flournoy, Maxine E. Flournoy, Betty Louise Flournoy
Fields, Helen Ruth Flournoy Pope, Mary Anne Flournoy
Guthrie, F.C. West, Gregory M. Guthrie, Byhron W. Fields,
John B. Pope, the Flournoy First, Second and Third Fields
Grandchild Trusts, the Flournoy First, Second and Third
Pope Grandchild Trusts, and the Flournoy First, Second,
Third, Fourth and Fifth Guthrie Grandchild Trusts
(incorporated herein by reference to Exhibit 10.22 to
Registration Statement No. 333-20423).
2.6.1 -- Agreement and Plan of Merger dated March 7, 1997, by and
among DI Industries, Inc., Drillers Inc., and Grey Wolf
Drilling Company including form of Escrow Agreement, form
of Trust Under Grey Wolf Drilling Company Deferred
Corporation Plan, and form of Grey Wolf Drilling Company
Deferred Compensation Plan (incorporated herein by
reference to Exhibit 10.1 to Form 8-K dated March 10,
1997).
2.6.2 -- Voting and Support Agreement dated March 7, 1997, of
Sheldon B. Lubar (incorporated herein by reference to
Exhibit 10.2 to Form 8-K dated March 10, 1997).
2.6.3 -- Voting and Support Agreement dated March 7, 1997, of
Felicity Ventures, Ltd. (incorporated herein by reference
to Exhibit 10.3 to Form 8-K dated March 10, 1997).
2.6.4 -- Voting and Support Agreement dated March 7, 1997, of
James K. B. Nelson (incorporated herein by reference to
Exhibit 10.4 to Form 8-K dated March 10, 1997).
2.6.5 -- Indemnification Agreement dated as of March 6, 1997, by
and between Grey Wolf Drilling Company and James K. B.
Nelson (incorporated herein by reference to Exhibit 10.5
to Form 8-K dated March 10, 1997).
2.6.6 -- Indemnification Agreement dated as of March 6, 1997, by
and between Grey Wolf Drilling Company and Billy G.
Emanis (incorporated herein by reference to Exhibit 10.6
to Form 8-K dated March 10, 1997).
2.6.7 -- Indemnification Agreement dated as of March 6, 1997, by
and between Grey Wolf Drilling Company and Bill Brannon
(incorporated herein by reference to Exhibit 10.7 to Form
8-K dated March 10, 1997).
</TABLE>
II-3
<PAGE> 123
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.6.8 -- Indemnification Agreement dated as of March 6, 1997, by
and between Grey Wolf Drilling Company and Tom L.
Ferguson (incorporated herein by reference to Exhibit
10.8 to Form 8-K dated March 10, 1997).
2.6.9 -- Indemnification Agreement dated as of March 6, 1997, by
and between Grey Wolf Drilling Company and John D.
Peterson (incorporated herein by reference to Exhibit
10.9 to Form 8-K dated March 10, 1997).
2.6.10 -- Indemnification Agreement dated as of March 6, 1997, by
and between Grey Wolf Drilling Company and Janet V.
Campbell (incorporated herein by reference to Exhibit
10.10 to Form 8-K dated March 10, 1997).
2.6.11 -- Indemnification Agreement dated as of March 6, 1997, by
and between Grey Wolf Drilling Company and Sheldon B.
Lubar (incorporated herein by reference to Exhibit 10.11
to Form 8-K dated March 10, 1997).
2.6.12 -- Indemnification Agreement dated as of March 6, 1997, by
and between Grey Wolf Drilling Company and Robert P.
Probst (incorporated herein by reference to Exhibit 10.12
to Form 8-K dated March 10, 1997).
2.6.13 -- Indemnification Agreement dated as of March 6, 1997, by
and between Grey Wolf Drilling Company and Uriel E.
Dutton (incorporated herein by reference to Exhibit 10.13
to Form 8-K dated March 10, 1997).
2.7 -- Agreement between Pool Company and Western Oil Well
Service Co. executed May 31, 996 (incorporated by
reference to Exhibit 2.1 to Form 8-K dated June 24,
1996).
4.1 -- Specimen global certificate for Notes (included as part
of Section of Exhibit 4.2).
4.2* -- Form of Trust Indenture relating to the Notes of DI
Industries, Inc. and Texas Commerce Bank National
Association, as Trustee.
5.1* -- Opinion of Porter & Hedges, L.L.P.
10.1+ -- Amended and Restated Senior Secured Revolving Credit
Agreement dated as of April 30, 1997, among DI
Industries, Inc. and Drillers, Inc. (as borrowers), DI
International, Inc. (as guarantor), Bankers Trust
Company, as Agent, ING (US) Capital Corporation, as
Co-Agent, and various financial institutions, as Lenders
(the "Credit Facility").
10.2+ -- Amendment to the Credit Facility dated June 6, 1997.
11.1 -- Statement regarding computation of per share earnings for
the years ended December 31, 1996 and 1995 and for the
three months ended March 31, 1997 and 1996 (incorporated
herein by reference to Exhibit 11.1 to Form 10-K filed
March 27, 1997 and Exhibit 11 to Form 10-Q filed May 5,
1997, respectively).
12.1* -- Statement regarding computation of historical and pro
forma earnings to fixed charges ratio.
23.1* -- Consent of KPMG Peat Marwick, LLP
23.2* -- Consent of Deloitte & Touche LLP.
23.3* -- Consent of Arthur Andersen LLP.
23.4* -- Consent of Porter & Hedges, L.L.P. (included in their
opinion filed as Exhibit 5.1 hereto.)
</TABLE>
II-4
<PAGE> 124
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
23.5+ -- Consent of James K. B. Nelson to being named as a
director-nominee in this Registration Statement.
23.6+ -- Consent of William T. Donovan to being named as a
director-nominee in this Registration Statement.
24+ -- Power of Attorney.
25* -- Form T-1 Statement of Eligibility and Qualification of
Texas Commerce Bank National Association to act as
Trustee of the Notes.
27 -- Financial Data Schedule (incorporated by reference to
Exhibit 27 to Form 10-K filed March 27, 1997 and Exhibit
27 to Form 10-Q filed May 5, 1997).
</TABLE>
- ---------------
* Filed herewith.
+ Previously filed.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that (1) for purposes of
determining any liability under the Securities Act, the information omitted from
the form of prospectus filed as part of a registration statement in reliance
upon Rule 430A and contained in the form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of the registration statement as of the time it was declared
effective, and (2) for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 125
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, on June 20, 1997.
DI INDUSTRIES, INC.
By: /s/ T. SCOTT O'KEEFE
----------------------------------
T. Scott O'Keefe,
Vice President and Controller
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated
on June 20, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <C>
* /s/ THOMAS P. RICHARDS President and Chief Executive Officer
- -----------------------------------------------------
Thomas P. Richards
* /s/ IVAR SIEM Chairman of the Board and Director
- -----------------------------------------------------
Ivar Siem
/s/ T. SCOTT O'KEEFE Senior Vice President and Chief Financial
- ----------------------------------------------------- Officer
T. Scott O'Keefe
/s/ DAVID W. WEHLMANN Vice President and Controller
- -----------------------------------------------------
David W. Wehlmann
* /s/ LUCIEN FLOURNOY Director
- -----------------------------------------------------
Lucien Flournoy
* /s/ PETER M. HOLT Director
- -----------------------------------------------------
Peter M. Holt
* /s/ ROY T. OLIVER, JR. Director
- -----------------------------------------------------
Roy T. Oliver, Jr.
* /s/ STEVEN A. WEBSTER Director
- -----------------------------------------------------
Steven A. Webster
* /s/ WILLIAM R. ZIEGLER Director
- -----------------------------------------------------
William R. Ziegler
*By: /s/ T. SCOTT O'KEEFE
------------------------------------------------
T. Scott O'Keefe
(Attorney-in-fact for persons indicated)
</TABLE>
II-6
<PAGE> 126
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, on June 20, 1997.
DRILLERS, INC.
By: /s/ DAVID W. WEHLMANN
----------------------------------
David W. Wehlmann,
Vice President and Controller
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated
on June 20, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <C>
* /s/ THOMAS P. RICHARDS President, Chief Executive Officer and Director
- -----------------------------------------------------
Thomas P. Richards
* /s/ T. SCOTT O'KEEFE Senior Vice President, Chief Financial Officer
- ----------------------------------------------------- and Director
T. Scott O'Keefe
/s/ DAVID W. WEHLMANN Vice President and Controller
- -----------------------------------------------------
David W. Wehlmann
* /s/ TERRELL L. SADLER Director
- -----------------------------------------------------
Terrell L. Sadler
* /s/ RONNIE E. MCBRIDE Director
- -----------------------------------------------------
Ronnie E. McBride
*By: /s/ DAVID W. WEHLMANN
------------------------------------------------
David W. Wehlmann
(Attorney-in-fact for persons indicated)
</TABLE>
II-7
<PAGE> 127
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, on June 20, 1997.
DI INTERNATIONAL, INC.
By: /s/ DAVID W. WEHLMANN
----------------------------------
David W. Wehlmann,
Vice President and Controller
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated
on June 20, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <C>
* /s/ THOMAS P. RICHARDS President, Chief Executive Officer and Director
- -----------------------------------------------------
Thomas P. Richards
* /s/ T. SCOTT O'KEEFE Senior Vice President, Chief Financial Officer
- ----------------------------------------------------- and Director
T. Scott O'Keefe
/s/ DAVID W. WEHLMANN Vice President and Controller
- -----------------------------------------------------
David W. Wehlmann
* /s/ FORREST M. CONLEY, JR. Director
- -----------------------------------------------------
Forrest M. Conley, Jr.
*By: /s/ DAVID W. WEHLMANN
------------------------------------------------
David W. Wehlmann,
(Attorney-in-fact for persons indicated)
</TABLE>
II-8
<PAGE> 128
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, on June 20, 1997.
DI ENERGY, INC.
By: /s/ DAVID W. WEHLMANN
----------------------------------
David W. Wehlmann,
Vice President and Controller
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated
on June 20, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <C>
* /s/ THOMAS P. RICHARDS President, Chief Executive Officer and Director
- -----------------------------------------------------
Thomas P. Richards
* /s/ T. SCOTT O'KEEFE Senior Vice President, Chief Financial Officer
- ----------------------------------------------------- and Director
T. Scott O'Keefe
/s/ DAVID W. WEHLMANN Vice President and Controller and Director
- -----------------------------------------------------
David W. Wehlmann
*By: /s/ DAVID W. WEHLMANN
------------------------------------------------
David W. Wehlmann
(Attorney-in-fact for persons indicated)
</TABLE>
II-9
<PAGE> 129
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1* -- Form of Underwriting Agreement among DI Industries, Inc.,
Donaldson, Lufkin & Jenrette Securities Corporation, BT
Securities Corporation and ING Barings.
2.1 -- Agreement and Plan of Merger dated May 7, 1996, among DI
Industries, Inc., DI Merger Sub, Inc., Roy T. Oliver,
Jr., Mike L. Mullen, R.T. Oliver, Inc. and Land Rig
Acquisition Corp. (incorporated herein by reference to
Exhibit 2.1 to Registration Statement No. 333-6077).
2.1.1 -- Amendment to Agreement and Plan of Merger dated May 7,
1996, among DI Industries, Inc., DI Merger Sub, Inc., Roy
T. Oliver, Jr., Mike L. Mullen, R.T. Oliver, Inc. and
Land Rig Acquisition Corp. (incorporated herein by
reference to Exhibit 2.1.1 to Registration Statement No.
333-6077).
2.1.2 -- Second Amendment to Agreement and Plan of Merger dated
July 26, 1996, among DI Industries, Inc., DI Merger Sub,
Inc., Roy T. Oliver, Jr., Mike L. Mullen, R.T. Oliver,
Inc. and Land Rig Acquisition Corp. (incorporated herein
by reference to Exhibit 2.1.2 to Amendment No. 1 to
Registration Statement No. 333-6077).
2.2 -- Agreement and Plan of Merger dated May 7, 1996, among DI
Industries, Inc. and Somerset Investment Corp.
(incorporated herein by reference to Exhibit 2.2 to
Registration Statement No. 333-6077).
2.2.1 -- Amendment to Agreement and Plan of Merger dated May 7,
1996, among DI Industries, Inc. and Somerset Investment
Corp. (incorporated herein by reference to Exhibit 2.2.1
to Registration Statement No. 333-6077).
2.2.2 -- Second Amendment to Agreement and Plan of Merger dated
July 26, 1996, among DI Industries, Inc. and Somerset
Investment Corp. (incorporated herein by reference to
Exhibit 2.2.2 to Amendment No. 1 to Registration
Statement No. 333-6077).
2.3 -- Asset Purchase Agreement dated October 3, 1996, by and
between the Registrant and Meritus, Inc., a Texas
corporation, Mesa Rig 4 L.L.C., a Texas limited liability
company, Mesa Venture, a Texas general partnership, and
Mesa Drilling, Inc., a Texas corporation (incorporated
herein by reference to Exhibit 2.1 to Registration
Statement No. 333-14783).
2.4.1 -- Asset Purchase Agreement dated November 12, 1996, between
Diamond M Onshore, Inc. and Drillers, Inc. (incorporated
herein by reference to Exhibit 2.1 to Form 8-K dated
December 30, 1996).
2.4.2 -- Letter Agreement dated December 31, 1996, between Diamond
M Onshore and Drillers, Inc. amending the Asset Purchase
Agreement (incorporated herein by reference to Exhibit
2.2 to Form 8-K dated December 30, 1996).
2.5.1 -- Asset Purchase Agreement dated December 31, 1996, by and
between Flournoy Drilling Company and Drillers, Inc.
(incorporated herein by reference to Exhibit 2.1 to Form
8-K dated January 31, 1996).
2.5.2 -- Form of Shareholder Agreement entered into January 31,
1997, by DI Industries, Inc., Drillers, Inc., and Lucien
Flournoy, Maxine E. Flournoy, Betty Louise Flournoy
Fields, Helen Ruth Flournoy Pope, Mary Anne Flournoy
Guthrie, F.C. West, Gregory M. Guthrie, Byhron W. Fields,
John B. Pope, the Flournoy First, Second and Third Fields
Grandchild Trusts, the Flournoy First, Second and Third
Pope Grandchild Trusts, and the Flournoy First, Second,
Third, Fourth and Fifth Guthrie Grandchild Trusts
(incorporated herein by reference to Exhibit 10.22 to
Registration Statement No. 333-20423).
</TABLE>
<PAGE> 130
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.6.1 -- Agreement and Plan of Merger dated March 7, 1997, by and
among DI Industries, Inc., Drillers Inc., and Grey Wolf
Drilling Company including form of Escrow Agreement, form
of Trust Under Grey Wolf Drilling Company Deferred
Corporation Plan, and form of Grey Wolf Drilling Company
Deferred Compensation Plan (incorporated herein by
reference to Exhibit 10.1 to Form 8-K dated March 10,
1997).
2.6.2 -- Voting and Support Agreement dated March 7, 1997, of
Sheldon B. Lubar (incorporated herein by reference to
Exhibit 10.2 to Form 8-K dated March 10, 1997).
2.6.3 -- Voting and Support Agreement dated March 7, 1997, of
Felicity Ventures, Ltd. (incorporated herein by reference
to Exhibit 10.3 to Form 8-K dated March 10, 1997).
2.6.4 -- Voting and Support Agreement dated March 7, 1997, of
James K. B. Nelson (incorporated herein by reference to
Exhibit 10.4 to Form 8-K dated March 10, 1997).
2.6.5 -- Indemnification Agreement dated as of March 6, 1997, by
and between Grey Wolf Drilling Company and James K. B.
Nelson (incorporated herein by reference to Exhibit 10.5
to Form 8-K dated March 10, 1997).
2.6.6 -- Indemnification Agreement dated as of March 6, 1997, by
and between Grey Wolf Drilling Company and Billy G.
Emanis (incorporated herein by reference to Exhibit 10.6
to Form 8-K dated March 10, 1997).
2.6.7 -- Indemnification Agreement dated as of March 6, 1997, by
and between Grey Wolf Drilling Company and Bill Brannon
(incorporated herein by reference to Exhibit 10.7 to Form
8-K dated March 10, 1997).
2.6.8 -- Indemnification Agreement dated as of March 6, 1997, by
and between Grey Wolf Drilling Company and Tom L.
Ferguson (incorporated herein by reference to Exhibit
10.8 to Form 8-K dated March 10, 1997).
2.6.9 -- Indemnification Agreement dated as of March 6, 1997, by
and between Grey Wolf Drilling Company and John D.
Peterson (incorporated herein by reference to Exhibit
10.9 to Form 8-K dated March 10, 1997).
2.6.10 -- Indemnification Agreement dated as of March 6, 1997, by
and between Grey Wolf Drilling Company and Janet V.
Campbell (incorporated herein by reference to Exhibit
10.10 to Form 8-K dated March 10, 1997).
2.6.11 -- Indemnification Agreement dated as of March 6, 1997, by
and between Grey Wolf Drilling Company and Sheldon B.
Lubar (incorporated herein by reference to Exhibit 10.11
to Form 8-K dated March 10, 1997).
2.6.12 -- Indemnification Agreement dated as of March 6, 1997, by
and between Grey Wolf Drilling Company and Robert P.
Probst (incorporated herein by reference to Exhibit 10.12
to Form 8-K dated March 10, 1997).
2.6.13 -- Indemnification Agreement dated as of March 6, 1997, by
and between Grey Wolf Drilling Company and Uriel E.
Dutton (incorporated herein by reference to Exhibit 10.13
to Form 8-K dated March 10, 1997).
2.7 -- Agreement between Pool Company and Western Oil Well
Service Co. executed May 31, 996 (incorporated by
reference to Exhibit 2.1 to Form 8-K dated June 24,
1996).
4.1 -- Specimen global certificate for Notes (included as part
of Section of Exhibit 4.2).
</TABLE>
<PAGE> 131
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
4.2* -- Form of Trust Indenture relating to the Senior Notes due
2007 of DI Industries, Inc. and Texas Commerce Bank
National Association, as Trustee.
5.1* -- Opinion of Porter & Hedges, L.L.P.
10.1+ -- Amended and Restated Senior Secured Revolving Credit
Agreement dated as of April 30, 1997, among DI
Industries, Inc. and Drillers, Inc. (as borrowers), DI
International, Inc. (as guarantor), Bankers Trust
Company, as Agent, ING (US) Capital Corporation, as
Co-Agent, and various financial institutions, as Lenders
(the "Credit Facility").
10.2+ -- Amendment to the Credit Facility dated June 6, 1997.
11.1 -- Statement regarding computation of per share earnings for
the years ended December 31, 1996 and 1995 and for the
three months ended March 31, 1997 and 1996 (incorporated
herein by reference to Exhibit 11.1 to Form 10-K filed
March 27, 1997 and Exhibit 11.1 to Form 10-Q filed May 5,
1997, respectively).
12.1* -- Statement regarding computation of historical and pro
forma earnings to fixed charges ratio.
23.1* -- Consent of KPMG Peat Marwick, LLP
23.2* -- Consent of Deloitte & Touche LLP.
23.3* -- Consent of Arthur Andersen LLP.
23.4* -- Consent of Porter & Hedges, L.L.P. (included in their
opinion filed as Exhibit 5.1 hereto.)
23.5+ -- Consent of James K. B. Nelson to being named as a
director-nominee in this Registration Statement.
23.6+ -- Consent of William T. Donovan to being named as a
director-nominee in this Registration Statement.
24+ -- Power of Attorney.
25* -- Form T-1 Statement of Eligibility and Qualification of
Texas Commerce Bank National Association to act as
Trustee of the Notes.
27 -- Financial Data Schedule (incorporated by reference to
Exhibit 27 to Form 10-K filed March 27, 1997 and Exhibit
27 to Form 10-Q filed May 5, 1997).
</TABLE>
- ---------------
* Filed herewith.
+ Previously filed.
<PAGE> 1
$150,000,000
DI INDUSTRIES, INC.
DRILLERS, INC.
DI INTERNATIONAL, INC.
DI ENERGY, INC.
___ % SENIOR NOTES DUE 2007
UNDERWRITING AGREEMENT
June ___, 1997
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BT SECURITIES CORPORATION
ING BARING (U.S.) SECURITIES, INC.
as Underwriters
c/o Donaldson, Lufkin & Jenrette
Securities Corporation
277 Park Avenue
New York, New York 10172
Dear Sirs:
DI Industries, Inc., a Texas corporation (THE "COMPANY"), proposes to
issue and sell $150,000,000 principal amount of its ___ % Senior Notes due 2007
(THE "SECURITIES") to the several underwriters named in Schedule I hereto (THE
"UNDERWRITERS"). The Securities will be unconditionally guaranteed on a
unsecured senior basis by certain subsidiaries of the Company, Drillers, Inc., a
Texas corporation, DI International, Inc., a Texas corporation, and DI Energy,
Inc., a Texas corporation (COLLECTIVELY, THE "GUARANTORS"). The Securities are
to be issued pursuant to the provisions of an Indenture to be dated as of June
__, 1997 (THE "INDENTURE") among the Company, as issuer, the Guarantors, as
guarantors, and Texas Commerce Bank National Association, as Trustee (THE
"TRUSTEE").
SECTION 1. Registration Statement and Prospectus. The Company and the
Guarantors have prepared and filed with the Securities and Exchange Commission
(THE "COMMISSION") in accordance with the provisions of the Securities Act of
1933, as amended, and the rules and regulations of the Commission thereunder
(COLLECTIVELY, THE "ACT"), a registration statement on Form S-3, including a
prospectus, relating to the Securities. The registration statement, as amended
at the time it became effective, including the information (if any) deemed to
be part of the registration statement at the time of effectiveness pursuant to
Rule 430A under the Act, is hereinafter referred to as the "REGISTRATION
STATEMENT"; and the prospectus in the form first used to confirm sales of
Securities is hereinafter referred to as the "PROSPECTUS" (including, in the
case of all references to the Registration Statement or the Prospectus,
documents incorporated therein by reference). If the Company and the Guarantors
have filed or are required pursuant to the terms hereof to file a registration
statement pursuant to Rule 462(b) under the Act registering additional
Securities (a "RULE
<PAGE> 2
462(b) REGISTRATION STATEMENT"), then, unless otherwise specified, any
reference herein to the term "Registration Statement" shall be deemed to
include such Rule 462(b) Registration Statement. The terms "SUPPLEMENT" and
"AMENDMENT" or "AMEND" as used in this Agreement with respect to the
Registration Statement or the Prospectus shall include all documents
subsequently filed by the Company and/or the Guarantors with the Commission
pursuant to the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the Commission thereunder (COLLECTIVELY, THE "EXCHANGE ACT")
that are deemed to be incorporated by reference in the Prospectus.
SECTION 2. Agreements to Sell and Purchase. On the basis of the
representations and warranties contained in this Agreement, and subject to its
terms and conditions, the Company agrees to issue and sell, and each
Underwriter agrees, severally and not jointly, to purchase from the Company the
principal amount of Securities set forth opposite the name of such Underwriter
in Schedule I hereto at 97.25% of the principal amount thereof (THE "PURCHASE
PRICE").
The Company hereby confirms its engagement of Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ") as, and DLJ hereby confirms its
agreement with the Company to render services as, a "qualified independent
underwriter," within the meaning of Section (b)(15) of Rule 2720 of the
National Association of Securities Dealers, Inc. with respect to the offering
and sale of the Securities. DLJ, solely in its capacity as the qualified
independent underwriter and not otherwise, is referred to herein as the "QIU."
As compensation for the services of the QIU hereunder, the Company agrees to
pay the QIU $5,000 on the Closing Date. The yield on the Securities to be sold
to the public shall not be lower than that recommended by the QIU.
SECTION 3. Terms of Public Offering. The Company and the Guarantors
are advised by you that the Underwriters propose (i) to make a public offering
of their respective portions of the Securities as soon after the execution and
delivery of this Agreement as in your judgment is advisable and (ii) initially
to offer the Securities upon the terms set forth in the Prospectus.
SECTION 4. Delivery and Payment. Delivery to the Underwriters of and
payment for the Securities shall be made at 9:00 a.m., New York City time, on
June ______, 1997 (THE "CLOSING DATE") at such place as you shall designate.
The Closing Date and the location of delivery of and payment for the Securities
may be varied by agreement among you and the Company.
Payment of the Purchase Price shall be made to the Company by wire
transfer of immediately available funds to a bank account designated by the
Company against delivery to you for the respective accounts of the several
Underwriters of the Securities with any transfer taxes thereon duly paid by the
Company. The Securities shall be issued in book-entry form through the
facilities of the Depository Trust Company ("DTC"). The Company shall deposit
the global certificate representing the Securities with DTC or its designated
custodian at the Closing Date, and the Company will deliver such global
certificate to the several underwriters by causing DTC to credit the Securities
to the respective accounts of the Underwriters with DTC.
SECTION 5. Agreements of the Company and the Guarantors. The Company
and the Guarantors agree with you:
<PAGE> 3
(a) To advise you promptly and, if requested by you, to confirm such
advice in writing, (i) of any request by the Commission for amendments to the
Registration Statement or amendments or supplements to the Prospectus or for
additional information, (ii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement or of the
suspension of qualification of the Securities for offering or sale in any
jurisdiction, or the initiation of any proceeding for such purposes, (iii) when
any amendment to the Registration Statement becomes effective, (iv) if the
Company and the Guarantors are required to file a Rule 462(b) Registration
Statement after the effectiveness of this Agreement, when the Rule 462(b)
Registration Statement has become effective and (v) of the happening of any
event during the period referred to in Section 5(d) below which makes any
statement of a material fact made in the Registration Statement or the
Prospectus untrue or which requires any additions to or changes in the
Registration Statement or the Prospectus in order to make the statements
therein not misleading. If at any time the Commission shall issue any stop
order suspending the effectiveness of the Registration Statement, the Company
and the Guarantors will use their best efforts to obtain the withdrawal or
lifting of such order at the earliest possible time.
(b) To furnish to you, without charge, four signed copies of the
Registration Statement as first filed with the Commission and of each amendment
to it, including all exhibits and documents incorporated therein by reference,
and to furnish to you and each Underwriter designated by you such number of
conformed copies of the Registration Statement as so filed and of each
amendment to it, without exhibits but including all documents incorporated
therein by reference, as you may reasonably request.
(c) To prepare the Prospectus in a form approved by you and to file
the Prospectus in such form with the Commission within the applicable period
specified in Rule 424(b) under the Act; not to file any further amendment to
the Registration Statement and not to make any amendment or supplement to the
Prospectus of which you shall not previously have been advised or to which you
shall reasonably object after being so advised; and to prepare and file with
the Commission, promptly upon your reasonable request, any amendment to the
Registration Statement or amendment or supplement to the Prospectus which may
be necessary or advisable in connection with the distribution of the Securities
by you, and to use its best efforts to cause any such amendment to the
Registration Statement to become promptly effective.
(d) Prior to 10:00 a.m., New York City time, on the first business
day after the date of this Agreement and from time to time thereafter for such
period as in the opinion of counsel for the Underwriters a prospectus is
required by law to be delivered in connection with sales by an Underwriter or a
dealer, to furnish in New York City to each Underwriter and dealer as many
copies of the Prospectus (and of any amendment or supplement to the Prospectus)
and as such Underwriter or dealer may reasonably request.
(e) If during the period specified in Section 5(d), any event shall
occur as a result of which, in the opinion of counsel for the Underwriters, it
becomes necessary to amend or supplement the Prospectus in order to make the
statements of material facts therein, in the light of the circumstances when
the Prospectus is delivered to a purchaser, not misleading, or if it is
necessary to amend or supplement the Prospectus to comply with applicable law,
forthwith to prepare and file with the Commission an appropriate amendment or
supplement to the Prospectus so that the statements of material facts in the
Prospectus, as so amended or supplemented, will not in the light of the
circumstances when it is so delivered, be misleading, or so that the Prospectus
will comply with applicable law, and to furnish to each Underwriter and to such
dealers as you shall specify, such number of copies thereof as such Underwriter
or dealers may reasonably request.
<PAGE> 4
(f) Prior to any public offering of the Securities, to cooperate with
you and counsel for the Underwriters in connection with the registration or
qualification of the Securities for offer and sale by the several Underwriters
and by dealers under the state securities or Blue Sky laws of such
jurisdictions as you may request, to continue such qualification in effect so
long as required for distribution of the Securities and to file such consents
to service of process or other documents as may be necessary in order to effect
such registration or qualification; provided, however, that neither the Company
nor any Guarantor shall be required to qualify as a foreign corporation in any
jurisdiction in which it is not already required to be so qualified or to take
any action that would subject it to general consent to service of process in
any jurisdiction in which it is not now so subject.
(g) To mail and make generally available to its security holders as
soon as practicable an earnings statement covering the twelve-month period
ending June 30, 1998 that shall satisfy the provisions of Section 11(a) of the
Act, and to advise you in writing when such statement has been so made
available.
(h) So long as the Securities are outstanding, (i) to mail and make
generally available as soon as practicable after the end of each fiscal year to
the record holders of the Securities a financial report of the Company, the
Guarantors and their respective subsidiaries on a consolidated basis (and a
similar financial report of all unconsolidated subsidiaries, if any), all such
financial reports to include a consolidated balance sheet, a consolidated
statement of operations, a consolidated statement of cash flows and a
consolidated statement of shareholders' equity as of the end of and for such
fiscal year, together with comparable information as of the end of and for the
preceding year, certified by independent certified public accountants and (ii)
to mail and make generally available as soon as practicable after the end of
each quarterly period (except for the last quarterly period of each fiscal
year) to such holders, a consolidated balance sheet, a consolidated statement
of operations and a consolidated statement of cash flows (and similar financial
reports of all unconsolidated subsidiaries, if any) as of the end of and for
such period, and for the period from the beginning of such year to the close of
such quarterly period, together with comparable information for the
corresponding periods of the preceding year.
(i) So long as the Securities are outstanding, to furnish to you as
soon as available copies of all reports or other communications furnished to
its security holders or furnished to or filed with the Commission or any
national securities exchange on which any class of securities of the Company or
any Guarantor is listed and such other publicly available information
concerning the Company, the Guarantors and their respective subsidiaries as you
may reasonably request.
(j) Whether or not the transactions contemplated in this Agreement
are consummated or this Agreement is terminated, to pay or cause to be paid all
expenses incident to the performance of its obligations under this Agreement,
including: (i) the fees, disbursements and expenses of the Company's counsel
and the Company's accountants in connection with the registration and delivery
of the Securities under the Act and all other fees or expenses in connection
with the preparation, printing, filing and distribution of the Registration
Statement (including financial statements and exhibits), any preliminary
prospectus, the Prospectus and all amendments and supplements to any of the
foregoing prior to or during the period specified in Section 5(d), including
the mailing and delivering of copies thereof to the Underwriters and dealers in
the quantities specified herein, (ii) all costs and expenses related to the
transfer and delivery of the Securities to the Underwriters, including any
transfer or other taxes payable thereon, (iii) all costs of printing or
producing this Agreement and any other agreements or documents in connection
with the offering, purchase, sale or delivery of the Securities, (iv) the costs
and charges of any
<PAGE> 5
transfer agent, registrar and/or depositary (including the Depository Trust
Company), (v) the filing fees for the Underwriters in connection with the
review and clearance of the offering of the Securities by the National
Association of Securities Dealers, Inc., (vi) any fees charged by rating
agencies for the rating of the Securities, (vii) the fees of the QIU specified
in Section 2 and (viii) and all other costs and expenses incident to the
performance of the obligations of the Company and the Guarantors hereunder for
which provision is not otherwise made in this Section.
(k) During the period beginning on the date hereof and continuing to
and including the Closing Date, not to offer, sell, contract to sell or
otherwise transfer or dispose of any debt securities of the Company or any
Guarantor or any warrants, rights or options to purchase or otherwise acquire
debt securities of the Company or any Guarantor substantially similar to the
Securities (other than (i) the Securities and (ii) commercial paper issued in
the ordinary course of business), without the prior written consent of
Donaldson, Lufkin & Jenrette Securities Corporation.
(l) To use its best efforts to do and perform all things required or
necessary to be done and performed under this Agreement by the Company and the
Guarantors prior to the Closing Date and to satisfy all conditions precedent to
the delivery of the Securities.
(m) If the Registration Statement at the time of the effectiveness of
this Agreement does not cover all of the Securities, to file a Rule 462(b)
Registration Statement with the Commission registering the Securities not so
covered in compliance with Rule 462(b) by 10:00 p.m., New York City time, on
the date of this Agreement and to pay to the Commission the filing fee for such
Rule 462(b) Registration Statement at the time of the filing thereof or to give
irrevocable instructions for the payment of such fee pursuant to Rule 111(b)
under the Act.
SECTION 6. Representations and Warranties of the Company and the
Guarantors. The Company and the Guarantors, jointly and severally, represent and
warrant to each Underwriter that:
(a) The Registration Statement has become effective (other than any
Rule 462(b) Registration Statement to be filed by the Company and the
Guarantors after the effectiveness of this Agreement); any Rule 462(b)
Registration Statement filed after the effectiveness of this Agreement will
become effective no later than 10:00 p.m., New York City time, on the date of
this Agreement; and no stop order suspending the effectiveness of the
Registration Statement is in effect, and no proceedings for such purpose are
pending before or threatened by the Commission.
(b) (i) Each document, if any, filed or to be filed pursuant to the
Exchange Act and incorporated by reference in the Prospectus complied or will
comply when so filed in all material respects with the Exchange Act; (ii) the
Registration Statement (other than any Rule 462(b) Registration Statement to be
filed by the Company and the Guarantors after the effectiveness of this
Agreement), when it became effective, did not contain and, as amended, if
applicable, will not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading, the (iii) Registration Statement (other
than any Rule 462(b) Registration Statement to be filed by the Company and the
Guarantors after the effectiveness of this Agreement) and the Prospectus comply
and, as amended or supplemented, if applicable, will comply in all material
respects with the Act, (iv) if the Company and the Guarantors are required to
file a Rule 462(b) Registration
<PAGE> 6
Statement after the effectiveness of this Agreement, such Rule 462(b)
Registration Statement and any amendments thereto, when they become effective
(A) will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading and (B) will comply in all material respects with the
Act and (viv) the Prospectus does not contain and, as amended or supplemented,
if applicable, will not contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, except that
the representations and warranties set forth in this paragraph do not apply to
statements or omissions in the Registration Statement or the Prospectus based
upon information relating to any Underwriter furnished to the Company or any
Guarantor in writing by such Underwriter through you expressly for use therein.
(c) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Act, complied when so filed in all material
respects with the Act, and did not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading, except that the representations and
warranties set forth in this paragraph do not apply to statements or omissions
in any preliminary prospectus based upon information relating to any
Underwriter furnished to the Company or any Guarantor in writing by such
Underwriter through you expressly for use therein.
(d) Each of the Company, the Guarantors and their respective
subsidiaries has been duly formed or incorporated, is validly existing in good
standing under the laws of its jurisdiction of formation or incorporation and
has the power and authority to carry on its business as described in the
Prospectus and to own, lease and operate its properties, and each is duly
qualified and is in good standing as a foreign entity authorized to do business
in each jurisdiction in which the nature of its business or its ownership or
leasing of property requires such qualification, except where the failure to be
so qualified or in good standing would not have a material adverse effect on
the business, prospects, financial condition or results of operations of the
Company, the Guarantors and their respective subsidiaries, taken as a whole (A
"MATERIAL ADVERSE EFFECT").
(e) All the outstanding shares of capital stock of the Company have
been duly authorized and validly issued and are fully paid and non-assessable.
(f) All of the outstanding shares of capital stock or other equity
interests of each of the Guarantors and the other subsidiaries of the Company
have been duly authorized and validly issued and are fully paid and
non-assessable, and, except for INDRILLERS, L.L.C. which is a 65%-owned
subsidiary of the Company, are owned by the Company or a subsidiary, as
applicable, free and clear of any security interest, claim, lien, encumbrance
or adverse interest of any nature, other than such as may arise out of or in
connection with the Bank Credit Facility) (as defined in the Prospectus) and
would not have a Material Adverse Effect.
(g) The Indenture has been duly qualified under the Trust Indenture
Act of 1939, as amended (THE "TRUST INDENTURE ACT"), and has been duly
authorized, executed and delivered by the Company and the Guarantors and is a
valid and binding agreement of the Company and the Guarantors, enforceable in
accordance with its terms except as (A) the enforceability thereof may be
limited by bankruptcy, insolvency, fraudulent conveyance, moratorium or similar
laws, now or hereafter in effect, relating to or affecting creditors' rights
generally and (B) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability
(regardless of whether such rights and remedies are sought to be enforced at
law or in equity).
<PAGE> 7
(h) The Securities have been duly authorized by all necessary
corporate action on the part of the Company and Guarantors and, when executed
and authenticated in accordance with the provisions of the Indenture and
delivered to and paid for by the Underwriters in accordance with the terms of
this Agreement, will be entitled to the benefits of the Indenture and will be
valid and binding obligations of the Company and the Guarantors, enforceable in
accordance with their terms except as (A) the enforceability thereof may be
limited by bankruptcy, insolvency, fraudulent conveyance, moratorium or similar
laws, now or hereafter in effect, relating to or affecting creditors' rights
generally and (B) rights of acceleration and the availability of equitable
remedies may be limited by equitable principles of general applicability
(regardless of whether such rights and remedies are sought to be enforced at
law or in equity).
(i) The Securities conform, in all material respects, as to legal
matters to the description thereof contained in the Prospectus.
(j) None of the Company, the Guarantors or any of their respective
subsidiaries is in violation of its respective charter or by-laws or in default
in the performance of any obligation, agreement, covenant or condition
contained in any indenture, loan agreement, mortgage, lease or other agreement
or instrument that, the violation or default of which would have a Material
Adverse Effect, to which the Company, the Guarantors or any of their respective
subsidiaries is a party or by which the Company, the Guarantors or any of their
respective subsidiaries or their respective property is bound.
(k) The execution, delivery and performance of this Agreement, the
Indenture and the Securities by the Company and the Guarantors, compliance by
the Company and the Guarantors with all the provisions hereof and thereof and
the consummation of the transactions contemplated hereby and thereby will not
require any consent, approval, authorization or other order of, or
qualification with, any court or governmental body or agency (except such as
may be required under the securities or Blue Sky laws of the various states)
and will not conflict with or constitute a breach of any of the terms or
provisions of, or a default under, the charter or by-laws of the Company, the
Guarantors or any of their respective subsidiaries or any indenture, loan
agreement, mortgage, lease or other agreement or instrument to which the
Company, the Guarantors or any of their respective subsidiaries is a party or
by which the Company, the Guarantors or any of their respective subsidiaries or
their respective property is bound, except for any such matters of
non-compliance, conflict, breaches or defaults that would not have a Material
Adverse Effect or violate or conflict with any applicable law or any rule,
regulation, judgment, order or decree of any court or any governmental body
or agency having jurisdiction over the Company, the Guarantors, any of their
respective subsidiaries or their respective property, except for such
violations or conflicts, if any, as would not have a Material Adverse Effect.
(l) There are no legal or governmental proceedings pending or
threatened to which the Company, the Guarantors or any of their respective
subsidiaries is or could be a party or to which any of their respective
property is or could be subject that are required to be described in the
Registration Statement or the Prospectus and are not so described; nor are
there any statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the Prospectus
or to be filed as exhibits to the Registration Statement that are not
so described or filed as required.
(m) None of the Company, the Guarantors or any of their respective
subsidiaries has violated any foreign, federal, state or local law or
regulation relating to the
<PAGE> 8
protection of human health and safety, the environment or hazardous or toxic
substances or wastes, pollutants or contaminants ("ENVIRONMENTAL LAWS") or any
provisions of the Employee Retirement Income Security Act of 1974, as amended,
or the rules and regulations promulgated thereunder, except for such violations
which, singly or in the aggregate, would not have a Material Adverse Effect.
(n) Each of the Company, the Guarantors and their respective
subsidiaries has such permits, licenses, franchises and authorizations of
governmental or regulatory authorities ("PERMITS"), including, without
limitation, under any applicable Environmental Laws, as are necessary to own,
lease and operate its respective properties and to conduct its business and is
in compliance with all terms and conditions thereof; and no event has occurred
which allows or, after notice or lapse of time or both, would allow, revocation
or termination of such permits or results or, after notice or lapse of time or
both, would result in any other impairment of the rights of the holder of any
such permit; and such permits contain no restrictions that are burdensome to
the Company, the Guarantors or any of their respective subsidiaries; except
where such failure to have, or comply with the terms or conditions of, such
permits, the occurrence of any such event or the presence of any such
restriction would not, singly or in the aggregate, have a Material Adverse
Effect.
(o) There are no costs or liabilities associated with Environmental
Laws (including, without limitation, any capital or operating expenditures
required for clean-up, closure of properties or compliance with Environmental
Laws or any permit, license or approval, any related constraints on operating
activities and any potential liabilities to third parties) that would, singly
or in the aggregate, have a Material Adverse Effect.
(p) This Agreement has been duly authorized by all necessary
corporate action, executed and delivered by the Company and the Guarantors.
(q) KPMG Peat Marwick LLP are and for the years ended December 31,
1994 and 1995, Deloitte & Touche LLP were independent public accountants with
respect to the Company, the Guarantors and their respective subsidiaries as
required by the Act.
(r) The consolidated financial statements, together with related
schedules and notes forming part of the Registration Statement and the
Prospectus (and any amendment or supplement thereto), present fairly the
consolidated financial position, results of operations and changes in financial
position of the Company, the Guarantors and their respective subsidiaries on
the basis stated in the Registration Statement at the respective dates or for
the respective periods to which they apply; such statements and related
schedules and notes have been prepared in accordance with generally accepted
accounting principles consistently applied throughout the periods involved,
except as disclosed therein; and the other financial and statistical
information and data set forth in the Registration Statement and the Prospectus
(and any amendment or supplement thereto) is, in all material respects,
accurately presented and prepared on a basis consistent with such financial
statements and the books and records of the Company.
(s) Neither the Company nor any of the Guarantors is not and, after
giving effect to the offering and sale of the Securities and the application of
the proceeds thereof as described in the Prospectus, will not be, an
"investment company" as such term is defined in the Investment Company Act of
1940, as amended.
(t) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the Company to
include such securities with the Securities registered pursuant to the
Registration Statement.
<PAGE> 9
(u) Since the date of the most recent balance sheet included in the
Prospectus, other than as set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of this Agreement),
(i) there has not occurred any change having a Material Adverse Effect or any
development that could reasonably be expected to have a Material Adverse
Effect, (ii) there has not been any material adverse change or any development
that could reasonably be expected to have a prospective material adverse change
in the capital stock or in the long-term debt of the Company, the Guarantors or
any of their respective subsidiaries and (iii) none of Company, the Guarantors
or any of its subsidiaries has incurred any material liability or obligation,
direct or contingent.
(v) The Company and the Guarantors have complied with all provisions
of Section 517.075, Florida Statutes (Chapter 92-198, Laws of Florida).
(w) The Company, the Guarantors and their respective subsidiaries
have good and indefeasible title in fee simple to all real property and good
and indefeasible title to all personal property owned by them which is material
to the business of the Company and its subsidiaries, in each case free and
clear of all liens, encumbrances and defects except such as are described in
the Prospectus or such as do not materially affect the value of such property
and do not interfere with the use made and proposed to be made of such property
by the Company and its subsidiaries; and any real property and building held
under lease by the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not material and
do not interfere with the use made and proposed to be made of such property and
building by the Company and its subsidiaries, in each case except as described
in the Prospectus.
(x) The Company, the Guarantors and each of their respective
subsidiaries are insured by insurers of recognized financial responsibility
against such losses and risks and in such amount as are prudent and customary
in the businesses in which they are engaged; and none of the Company, the
Guarantors or any of their respective subsidiaries has any reason to believe
that it will not be able to renew its existing insurance coverage as and when
such coverage expires to obtain similar coverage from similar insurers at a
cost that would not have a Material Adverse Effect.
(y) The pro forma financial statements of the Company and its
subsidiaries and the related notes thereto set forth in the Registration
Statement and the Prospectus present fairly the information shown therein, have
been prepared in accordance with the applicable requirements of Rule 11-02 of
Regulation S-X promulgated by the Commission and have been compiled on the pro
forma basis described therein; and the assumptions used in the preparation
thereof are reasonable and the adjustments used therein are appropriate to give
effect to the transactions and circumstances referred to therein.
SECTION 7. Indemification. (a)(i) Each of the Company and the
Guarantors, jointly and severally, agrees to indemnify and hold harmless each
Underwriter, its directors, its officers and each person, if any, who controls
any Underwriter within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act (THE "EXCHANGE ACT"), from and against any and all losses, claims,
damages, liabilities and judgments (including, without limitation, any legal or
other expenses incurred in connection with defending or investigating any
matter, including any action, that could give rise to any such losses, claims,
damages, liabilities or judgments) caused by any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement (or
any amendment thereto), the Prospectus (or any amendment or supplement thereto)
or any preliminary prospectus, or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, except insofar as such losses, claims,
damages,
<PAGE> 10
liabilities or judgments are caused by any such untrue statement or omission or
alleged untrue statement or omission based upon information relating to any
Underwriter furnished in writing to the Company and the Guarantors by such
Underwriter through you expressly for use therein and (ii) each of the Company
and the Guarantors, jointly and severally, agrees to indemnify and hold
harmless the QIU, its directors, its officers and each person, if any, who
controls the QIU within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act (A "QIU INDEMNIFIED PARTY"), from and against any and all
losses, claims, damages, liabilities and judgments (including, without
limitation, any legal or other expenses incurred in connection with defending
or investigating any matter, including any action, that could give rise to any
such losses, claims, damages, liabilities or judgments) related to, based upon
or arising out of (i) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement (or any amendment
thereto), the Prospectus (or any amendment or supplement thereto) or any
preliminary prospectus, or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading or (ii) the QIU's activities as QIU under its engagement
pursuant to Section 2 hereof, except in the case of this clause (ii) insofar as
any such losses, claims, damages, liabilities or judgments are found in a final
judgment by a court of competent jurisdiction, not subject to further appeal,
to have resulted solely from the willful misconduct or gross negligence of the
QIU.
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, the Guarantors and their respective directors
and officers who sign the Registration Statement and any person controlling the
Company or any Guarantor within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, to the same extent as the foregoing indemnity from the
Company and the Guarantors to such Underwriter but only with reference to
information relating to such Underwriter furnished in writing to the Company by
such Underwriter through you expressly for use in the Registration Statement
(or any amendment thereto), the Prospectus (or any amendment or supplement
thereto) or any preliminary prospectus.
(c) In case any action shall be commenced involving any person in
respect of which indemnity may be sought pursuant to Section 7(a) or 7(b) (the
"INDEMNIFIED PARTY"), the indemnified party shall promptly notify the person
against whom such indemnity may be sought (the "INDEMNIFYING PARTY") in writing
and the indemnifying party shall assume the defense of such action, including
the employment of counsel reasonably satisfactory to the indemnified party and
the payment of all fees and expenses of such counsel, as incurred (except that
in the case of any action in respect of which indemnity may be sought pursuant
to both Sections 7(a) and 7(b), the Underwriter shall not be required to assume
the defense of such action pursuant to this Section 7(c), but may employ
separate counsel and participate in the defense thereof, but the fees and
expenses of such counsel, except as provided below, shall be at the expense of
such Underwriter). Any indemnified party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of the
indemnified party unless (i) the employment of such counsel shall have been
specifically authorized in writing by the indemnifying party, (ii) the
indemnifying party shall have failed to assume the defense of such action or
employ counsel reasonably satisfactory to the indemnified party or (iii) the
named parties to any such action (including any impleaded parties) include both
the indemnified party and the indemnifying party, and the indemnified party
shall have been advised by counsel selected by the indemnifying party that
there may be one or more legal defenses available to it which are different
from or additional to those available to the indemnifying party and that, as a
matter of professional responsibility, such counsel is unable to represent both
the indemnifying and indemnified party (in which case the indemnifying party
shall not have the right to assume the defense of such action on behalf of
<PAGE> 11
the indemnified party). In any such case, the indemnifying party shall not, in
connection with any one action or separate but substantially similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one separate
firm of attorneys (in addition to any local counsel) for all indemnified
parties and all such fees and expenses shall be reimbursed as they are
incurred. Such firm shall be designated in writing by Donaldson, Lufkin &
Jenrette Securities Corporation, in the case of parties indemnified pursuant to
Section 7(a), and by the Company, in the case of parties indemnified pursuant
to Section 7(b). The indemnifying party shall indemnify and hold harmless the
indemnified party from and against any and all losses, claims, damages,
liabilities and judgments by reason of any settlement of any action only if
such settlement is (i) effected with its written consent or (ii) effected in
good faith without its written consent if the settlement is entered into more
than 30 days after the indemnifying party shall have received a request from
the indemnified party for reimbursement for the fees and expenses of counsel
(in any case where such fees and expenses are at the expense of the
indemnifying party) and, prior to the date of such settlement, the indemnifying
party shall have failed to comply with such reimbursement request unless within
30 days after such reimbursement request is received, the indemnifying party
shall have made a good faith written challenge to the reasonableness of the
amount or nature of the reimbursement requested or the sufficiency of the
documentation supporting the reimbursement requested (which challenge shall set
forth the amount or nature of the requested reimbursement which the
indemnifying party in good faith believes to be reasonable or the basis for the
good faith claim as to the insufficiency of any supporting documentation), in
which event this clause (ii) shall apply only if, and to the extent that, such
indemnifying party shall not have reimbursed the indemnified party for the
amount which is not being so challenged. No indemnifying party shall, without
the prior written consent of the indemnified party, effect any settlement or
compromise of, or consent to the entry of judgment with respect to, any pending
or threatened action in respect of which the indemnified party is or could have
been a party and indemnity or contribution may be or could have been sought
hereunder by the indemnified party, unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party from
all liability on claims that are or could have been the subject matter of such
action and (ii) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of the indemnified party.
(d) To the extent the indemnification provided for in this Section 7
is unavailable to an indemnified party or insufficient in respect of any
losses, claims, damages, liabilities or judgments referred to therein, then
each indemnifying party, in lieu of indemnifying such indemnified party, shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages, liabilities and judgments (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Guarantors on the one hand and the Underwriters on the other
hand from the offering of the Securities or (ii) if the allocation provided by
clause 7(d)(i) above is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
7(d)(i) above but also the relative fault of the Company and the Guarantors and
the Underwriters in connection with the statements or omissions which resulted
in such losses, claims, damages, liabilities or judgments, as well as any other
relevant equitable considerations. The relative benefits received by the
Company and the Guarantors and the Underwriters shall be deemed to be in the
same proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company and the Guarantors, and the total
underwriting discounts and commissions received by the Underwriters, bear to
the total price to the public of the Securities, in each case as set forth in
the table on the cover page of the Prospectus. The relative fault of the
Company and the Guarantors and the Underwriters shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the
<PAGE> 12
omission or alleged omission to state a material fact relates to information
supplied by the Company and the Guarantors or the Underwriters and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
The Company, the Guarantors and the Underwriters agree that it would
not be just and equitable if contribution pursuant to this Section 7(d) were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages, liabilities or judgments referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses incurred by such
indemnified party in connection with investigating or defending any matter that
could have given rise to such losses, claims, damages, liabilities or
judgments. Notwithstanding the provisions of this Section 7, no Underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Securities underwritten by it and distributed to the
public were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. The Underwriters' obligations to contribute
pursuant to this Section 7(d) are several in proportion to the respective
principal amount of Securities purchased by each of the Underwriters hereunder
and not joint.
(e) The remedies provided for in this Section 7 are not exclusive and
shall not limit any rights or remedies which may otherwise be available to any
indemnified party, including a QIU Indemnified Party, at law or in equity.
SECTION 8. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters to purchase the Securities under this Agreement
are subject to the satisfaction of each of the following conditions:
(a) All the representations and warranties of the Company and the
Guarantors contained in this Agreement shall be true and correct on the Closing
Date with the same force and effect as if made on and as of the Closing Date.
(b) If the Company is required to file a Rule 462(b) Registration
Statement after the effectiveness of this Agreement, such Rule 462(b)
Registration Statement shall have become effective by 10:00 p.m., New York City
time, on the date of this Agreement; and no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been commenced or shall be pending
before or contemplated by the Commission.
(c) On or after the date hereof there shall not have occurred any
downgrading, nor shall any notice have been given of any intended or potential
downgrading or of any review for a possible change that does not indicate the
direction of the possible change, in the rating of any of the Company's
securities (including, without limitation, the placing of any securities on
negative or developing watch or negative or developing outlook) by any
"nationally recognized statistical rating organization" as such term is defined
for purposes of Rule 436(g)(2) under the Act.
<PAGE> 13
(d) You shall have received on the Closing Date a certificate dated
the Closing Date, signed by Thomas P. Richards and T. Scott O'Keefe, in their
capacities as the Chief Executive Officer and Chief Financial Officer,
respectively, of each of the Company and the Guarantors, confirming the matters
set forth in Sections 8(a), 8(b) and 8(c).
(e) Since the date of the most recent balance sheet in the Prospectus
other than as set forth in the Prospectus (exclusive of any amendments or
supplements thereto subsequent to the date of this Agreement), (i) there shall
not have occurred any change having a Material Adverse Effect or any
development that could reasonably be expected to have a Material Adverse
Effect, (ii) there shall not have been any material adverse change or any
development involving a prospective change in the capital stock or in the
long-term debt of the Company, the Guarantors or any of their respective
subsidiaries and (iii) none of the Company, the Guarantors or any of its
subsidiaries shall have incurred any liability or obligation, direct or
contingent the effect of which, in any case described in Clause 8(e)(i), (ii)
or (iii), in your judgment, is matured and adverse and, in your judgment, makes
it impractical to market the Securities on the terms and in the manner
contemplated by the Prospectus.
(f) You shall have received on the Closing Date an opinion
(satisfactory to you and counsel for the Underwriters), dated the Closing Date,
of Porter & Hedges L.L.P., counsel for the Company and the Guarantors in
substantially the form set forth in Schedule II.
(g) You shall have received on the Closing Date an opinion, dated the
Closing Date, of Akin, Gump, Strauss, Hauer & Feld, L.L.P., counsel for the
Underwriters, as to certain matters agreed between you and such counsel.
(h) You shall have received, on each of the date hereof and the
Closing Date, a letter dated the date hereof or the Closing Date, as the case
may be, in form and substance satisfactory to you, from KPMG Peat Marwick LLP,
and Deloitte & Touche LLP, independent public accountants, containing the
information and statements of the type ordinarily included in accountants'
"comfort letters" to Underwriters with respect to the financial statements
and certain financial information contained in the Registration Statement
and the Prospectus.
(i) The Securities are rated "____" by Standard & Poor's Corporation
and "_____" by Moody's Investors Service, Inc.
(j) The Company or any Guarantor shall not have failed at or prior to
the Closing Date to perform or comply with any of the agreements herein
contained and required to be performed or complied with by the Company or any
Guarantor at or prior to the Closing Date.
(k) You shall have received an opinion of Venezuelan counsel to the
Company substantially in the form attached as Schedule III hereto.
(l) All conditions precedent to the closing of the Grey Wolf
Acquisition (as defined in the Prospectus) shall have been satisfied or waived,
except for the payment of the purchase price by the Company, which shall be
paid contemporaneously with the Closing.
SECTION 9. Effectiveness of Agreement and Termination. This Agreement
shall become effective upon the execution and delivery of this Agreement by the
parties hereto.
<PAGE> 14
This Agreement may be terminated at any time prior to the Closing Date
by you by written notice to the Company and the Guarantors if any of the
following has occurred: (i) any outbreak or escalation of hostilities or other
national or international calamity or crisis or change in economic conditions
or in the financial markets of the United States or elsewhere that, in your
judgment, is material and adverse and would, in your judgment, make it
impracticable to market the Securities on the terms and in the manner
contemplated in the Prospectus, (ii) the suspension or material limitation of
trading in securities on the New York Stock Exchange, the American Stock
Exchange, the Chicago Board of Options Exchange, the Chicago Mercantile
Exchange, the Chicago Board of Trade or the Nasdaq National Market or
limitation on prices for securities on any such exchange or the Nasdaq National
Market, (iii) the suspension of trading of any securities of the Company on any
exchange or in the over-the-counter market, (iv) the enactment, publication,
decree or other promulgation of any federal or state statute, regulation, rule
or order of any court or other governmental authority which in your opinion
materially and adversely affects, or will materially and adversely affect, the
business, prospects, financial condition or results of operations of the
Company, the Guarantors and their respective subsidiaries, taken as a whole,
(v) the declaration of a banking moratorium by either federal or New York State
authorities or (vi) the taking of any action by any federal, state or local
government or agency in respect of its monetary or fiscal affairs which in your
opinion has a material adverse effect on the financial markets in the United
States and would, in your opinion, make it impracticable or inadvisable to
market the Securities.
If on the Closing Date any one or more of the Underwriters shall fail
or refuse to purchase the Securities which it or they have agreed to purchase
hereunder on such date and the aggregate principal amount of Securities which
such defaulting Underwriter or Underwriters, as the case may be, agreed but
failed or refused to purchase is not more than one-tenth of the aggregate
principal amount of Securities to be purchased on such date by all
Underwriters, each non-defaulting Underwriter shall be obligated severally, in
the proportion which the principal amount of Securities set forth opposite its
name in Schedule I bears to the aggregate principal amount of Securities which
all the non-defaulting Underwriters, as the case may be, have agreed to
purchase, or in such other proportion as you may specify, to purchase the
Securities which such defaulting Underwriter or Underwriters, as the case may
be, agreed but failed or refused to purchase on such date; provided that in no
event shall the aggregate principal amount of Securities which any Underwriter
has agreed to purchase pursuant to Section 2 hereof be increased pursuant to
this Section 10 by an amount in excess of one-ninth of such principal amount of
Securities without the written consent of such Underwriter. If on the Closing
Date any Underwriter or Underwriters shall fail or refuse to purchase
Securities and the aggregate principal amount of Securities with respect to
which such default occurs is more than one-tenth of the aggregate principal
amount of Securities to be purchased by all Underwriters and arrangements
satisfactory to you and the Company for purchase of such Securities are not
made within 48 hours after such default, this Agreement will terminate without
liability on the part of any non-defaulting Underwriter and the Company. In any
such case which does not result in termination of this Agreement, either you or
the Company shall have the right to postpone the Closing Date, but in no event
for longer than seven days, in order that the required changes, if any, in the
Registration Statement and the Prospectus or any other documents or
arrangements may be effected. Any action taken under this paragraph shall not
relieve any defaulting Underwriter from liability in respect of any default of
any such Underwriter under this Agreement.
SECTION 10. Miscellaneous. Notices given pursuant to any provision of
this Agreement shall be addressed as follows: (i) if to the Company to, or the
Guarantors c/o, DI Industries, Inc., 10370 Richmond Avenue, Suite 600, Houston,
Texas 77042, Attn: Chief Financial Officer, and (ii) if to any Underwriter or
to you, to you c/o Donaldson, Lufkin & Jenrette Securities Corporation, 277
Park Avenue, New York, New York
<PAGE> 15
10172, Attention: Syndicate Department, or in any case to such other address as
the person to be notified may have requested in writing.
The respective indemnities, contribution agreements, representations,
warranties and other statements of the Company, the Guarantors and the several
Underwriters set forth in or made pursuant to this Agreement shall remain
operative and in full force and effect, and will survive delivery of and
payment for the Securities, regardless of (i) any investigation, or statement
as to the results thereof, made by or on behalf of any Underwriter, any QIU
Indemnified Party, the officers or directors of any Underwriter, any person
controlling any Underwriter, the Company, the Guarantors, the officers or
directors of the Company and the Guarantors or any person controlling the
Company and the Guarantors, (ii) acceptance of the Securities and payment for
them hereunder and (iii) termination of this Agreement.
If for any reason the Securities are not delivered by or on behalf of
the Company as provided herein (other than as a result of any termination of
this Agreement pursuant to Section 10), the Company agrees to reimburse the
several Underwriters for all out-of-pocket expenses (including the fees and
disbursements of counsel) reasonably incurred by them.
Except as otherwise provided, this Agreement has been and is made
solely for the benefit of and shall be binding upon the Company, the
Guarantors, the Underwriters, the Underwriters' directors and officers, any
controlling persons referred to herein, QUI Indemnified Parties, the directors
and officers of the Company and the Guarantors who sign the Registration
Statement and their respective successors and assigns, all as and to the extent
provided in this Agreement, and no other person shall acquire or have any right
under or by virtue of this Agreement. The term "successors and assigns" shall
not include a purchaser of any of the Securities from any of the several
Underwriters merely because of such purchase.
This Agreement shall be governed and construed in accordance with the
laws of the State of New York.
This Agreement may be signed in various counterparts which together
shall constitute one and the same instrument.
<PAGE> 16
Please confirm that the foregoing correctly sets forth the agreement
between the Company, the Guarantors, the several Underwriters and the QIU.
Very truly yours,
DI INDUSTRIES, INC.
By:
Name:
Title:
DRILLERS, INC.
By:
Name:
Title:
DI INTERNATIONAL, INC.
By:
Name:
Title:
DI ENERGY, INC.
By:
Name:
Title:
1
<PAGE> 17
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BT SECURITIES CORPORATION
ING BARING (U.S.) SECURITIES, INC.
as Underwriters
By: DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By:
Name:
Title:
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
as Qualified Independent Underwriter
By:
Name:
Title:
Signature Page
2
<PAGE> 18
SCHEDULE I
- -------------------------------------------------------- Principal Amount of
Securities
to be Purchased
Underwriters
- --------------------------------------------------------
Donaldson, Lufkin & Jenrette Securities Corporation
- --------------------------------------------------------
BT Securities Corporation
ING Baring (U.S.) Securities, Inc.
- --------------------------------------------------------
- --------------------------------------------------------
Total $150,000,000
- --------------------------------------------------------
3
Signature Page
<PAGE> 1
DI INDUSTRIES, INC.
AND
GUARANTORS
$150,000,000
______% Senior Notes due 2007
--------------------
INDENTURE
Dated as of June ____, 1997
--------------------
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
Trustee
<PAGE> 2
CROSS-REFERENCE TABLE
Reconciliation and tie between the Trust Indenture Act, as amended,
and the Indenture dated as of _________, 1997.
<TABLE>
<CAPTION>
TIA Indenture
Section Section
------- -------
<S> <C>
310(a)(1) ......................................... 7.10
(a)(2) ......................................... 7.10
(a)(3) ......................................... N.A.
(a)(4) ......................................... N.A.
(a)(5) ......................................... 7.10
(b) ......................................... 7.08; 7.10
(c) ......................................... N.A.
311(a) ......................................... 7.11
(b) ......................................... 7.11
(c) ......................................... N.A.
312(a) ......................................... 2.07
(b) ......................................... 12.06
(c) ......................................... 12.06
313(a) ......................................... 7.06
(b)(1) ......................................... N.A.
(b)(2) ......................................... 7.06
(c) ......................................... 7.06, 12.05
(d) ......................................... 7.06
314(a) ......................................... 4.02; 4.20
(b) ......................................... N.A.
(c)(1) ......................................... 12.01, 12.02
(c)(2) ........................................ 12.01; 12.02
(c)(3) ......................................... N.A.
(d) ......................................... N.A.
(e) ......................................... 12.01
(f) ......................................... N.A.
315(a) ......................................... 7.01
(b) ......................................... 7.05
(c) ......................................... 7.01
(d) ......................................... 7.01
(e) ......................................... 6.11
316(a)(last sentence) ......................................... 2.09
(a)(1)(A) ......................................... 6.05
(a)(1)(B) ......................................... 6.04
(a)(2) ......................................... N.A.
(b) ......................................... 6.07
(c) ......................................... 10.05
317(a)(1) ......................................... 6.03; 6.08
(a)(2) ......................................... 6.09
(b) ......................................... 2.04
318(a) ......................................... 12.04
</TABLE>
N.A. Means Not Applicable.
- ------------------
Note: This Cross-Reference Table shall not, for any purposes, be deemed to be
part of this Indenture.
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ARTICLE 1 Definitions and Incorporation by Reference..................................................1
SECTION 1.01. Definitions............................................................................1
SECTION 1.02. Incorporation by Reference of Trust Indenture Act.....................................19
SECTION 1.03. Rules of Construction.................................................................19
ARTICLE 2 The Securities.............................................................................20
SECTION 2.01. Form and Dating.......................................................................20
SECTION 2.02. Execution and Authentication..........................................................20
SECTION 2.03. Registrar and Paying Agent............................................................21
SECTION 2.04. Paying Agent To Hold Money in Trust...................................................22
SECTION 2.05. Global Securities.....................................................................22
SECTION 2.06. Transfer and Exchange.................................................................23
SECTION 2.07. Holder Lists..........................................................................24
SECTION 2.08. Replacement Securities................................................................24
SECTION 2.09. Outstanding Securities................................................................24
SECTION 2.10. Temporary Securities..................................................................25
SECTION 2.11. Cancellation..........................................................................25
</TABLE>
<PAGE> 4
<TABLE>
<S> <C> <C>
SECTION 2.12. Payment of Interest: Interest Rights Preserved.......................................25
SECTION 2.13. Authorized Denominations..............................................................26
SECTION 2.14. CUSIP Numbers.........................................................................26
ARTICLE 3 Redemption.................................................................................26
SECTION 3.01. Notices to Trustee....................................................................26
SECTION 3.02. Selection of Securities To Be Redeemed................................................26
SECTION 3.03. Notice of Redemption..................................................................27
SECTION 3.04. Effect of Notice of Redemption........................................................28
SECTION 3.05. Deposit of Redemption Price...........................................................28
SECTION 3.06. Securities Redeemed in Part...........................................................28
SECTION 3.07. Optional Redemption...................................................................28
ARTICLE 4 Covenants..................................................................................29
SECTION 4.01. Payment of Securities.................................................................29
SECTION 4.02. Commission Reports....................................................................29
SECTION 4.03. Limitation on Indebtedness............................................................29
SECTION 4.04. Limitation on Subsidiary Indebtedness and Preferred Stock.............................30
SECTION 4.05. Limitation on Restricted Payments.....................................................30
SECTION 4.06. Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries..............................................................32
</TABLE>
2
<PAGE> 5
<TABLE>
<S> <C> <C>
SECTION 4.07. Limitation on Asset Sales.............................................................33
SECTION 4.08. Limitation on Transactions with Affiliates............................................36
SECTION 4.09. Change of Control.....................................................................36
SECTION 4.10. Limitation on Liens...................................................................38
SECTION 4.11. Limitation on Guarantees by Guarantors................................................38
SECTION 4.12. Unrestricted Subsidiaries.............................................................38
SECTION 4.13. Limitation on Sale and Lease-Back Transactions........................................39
SECTION 4.14. Limitation on Line of Business........................................................39
SECTION 4.15. Maintenance of Office or Agency.......................................................39
SECTION 4.16. Money for the Security Payments to be Held in Trust...................................39
SECTION 4.17. Corporate Existence...................................................................40
SECTION 4.18. Maintenance of Property...............................................................40
SECTION 4.19. Payment of Taxes and Other Claims.....................................................40
SECTION 4.20. Compliance Certificate; Notice of Default or Event of Default.........................40
SECTION 4.21. Further Instruments and Acts..........................................................41
SECTION 4.22. Prohibition on Company and Guarantors Becoming Investment Companies...................41
SECTION 4.23. Stay, Extension and Usury Laws........................................................41
</TABLE>
3
<PAGE> 6
<TABLE>
<S> <C> <C>
ARTICLE 5 Consolidation, Merger, Conveyance, Lease or Transfer.......................................41
SECTION 5.01. Consolidation, Merger, Conveyance, Lease or Transfer..................................41
SECTION 5.02. Officers' Certificate and Opinion of Counsel..........................................42
SECTION 5.03. Substitution of Surviving Entity......................................................42
ARTICLE 6 Defaults and Remedies......................................................................43
SECTION 6.01. Events of Default.....................................................................43
SECTION 6.02. Acceleration..........................................................................44
SECTION 6.03. Other Remedies........................................................................45
SECTION 6.04. Waiver of Past Defaults...............................................................46
SECTION 6.05. Control by Majority...................................................................46
SECTION 6.06. Limitation on Suits...................................................................46
SECTION 6.07. Rights of Holders to Receive Payment..................................................46
SECTION 6.08. Collection Suit by Trustee............................................................46
SECTION 6.09. Trustee May File Proofs of Claim......................................................47
SECTION 6.10. Priorities............................................................................47
SECTION 6.11. Undertaking for Costs.................................................................48
SECTION 6.12. Restoration of Rights and Remedies....................................................48
SECTION 6.13. Rights and Remedies Cumulative........................................................48
SECTION 6.14. Delay or Omission Not Waiver..........................................................48
</TABLE>
4
<PAGE> 7
<TABLE>
<S> <C> <C>
ARTICLE 7 Trustee....................................................................................48
SECTION 7.01. Duties of Trustee.....................................................................48
SECTION 7.02. Rights of Trustee.....................................................................49
SECTION 7.03. Individual Rights of Trustee..........................................................50
SECTION 7.04. Trustee's Disclaimer..................................................................50
SECTION 7.05. Notice of Defaults....................................................................51
SECTION 7.06. Reports by Trustee to Holders.........................................................51
SECTION 7.07. Compensation and Indemnity............................................................51
SECTION 7.08. Replacement of Trustee................................................................51
SECTION 7.09. Successor Trustee by Merger...........................................................53
SECTION 7.10. Eligibility; Disqualification.........................................................53
SECTION 7.11. Preferential Collection of Claims Against Company.....................................53
ARTICLE 8 Satisfaction and Discharge.................................................................53
SECTION 8.01. Satisfaction and Discharge............................................................53
SECTION 8.02. Application of Trust Money............................................................54
SECTION 8.03. Repayment to the Company..............................................................54
SECTION 8.04. Reinstatement.........................................................................55
ARTICLE 9 Defeasance.................................................................................55
</TABLE>
5
<PAGE> 8
<TABLE>
<S> <C> <C>
SECTION 9.01. Company's Option to Effect Defeasance or Covenant Defeasance.........................55
SECTION 9.02. Defeasance and Discharge.............................................................55
SECTION 9.03. Covenant Defeasance..................................................................56
SECTION 9.04. Conditions to Defeasance or Covenant Defeasance......................................56
SECTION 9.05. Deposited Money and U.S. Government Obligations to be Held in Trust;
Miscellaneous Provisions...........................................................57
SECTION 9.06. Repayment to Company.................................................................57
SECTION 9.07. Reinstatement........................................................................58
ARTICLE 10 Amendments................................................................................58
SECTION 10.01. Without Consent of Holders...........................................................58
SECTION 10.02. With Consent of Holders..............................................................59
SECTION 10.03. Effect of Supplemental Indentures....................................................59
SECTION 10.04. Compliance with Trust Indenture Act..................................................60
SECTION 10.05. Revocation and Effect of Consents and Waivers........................................60
SECTION 10.06. Notation on or Exchange of Securities................................................60
SECTION 10.07. Trustee To Execute Supplemental Indentures...........................................60
SECTION 10.08. Payment for Consent..................................................................61
ARTICLE 11 Guarantees................................................................................61
SECTION 11.01. Guarantees...........................................................................61
SECTION 11.02. Limitation on Liability..............................................................63
SECTION 11.03. Execution and Delivery of Guarantees.................................................63
</TABLE>
6
<PAGE> 9
<TABLE>
<S> <C> <C>
SECTION 11.04. When a Guarantor May Merge, etc. ....................................................64
SECTION 11.05. No Waiver............................................................................64
SECTION 11.06. Modification.........................................................................64
SECTION 11.07. Release of Guarantor.................................................................64
SECTION 11.08. Execution of Supplemental Indentures for Future Guarantors...........................64
ARTICLE 12 Miscellaneous.............................................................................65
SECTION 12.01. Compliance Certificates and Opinions.................................................65
SECTION 12.02. Form of Documents Delivered to Trustee...............................................65
SECTION 12.03. Acts of Holders......................................................................66
SECTION 12.04. Trust Indenture Act Controls.........................................................67
SECTION 12.05. Notices..............................................................................67
SECTION 12.06. Communication by Holders with Other Holders..........................................68
SECTION 12.07. Rules by Trustee, Paying Agent and Registrar.........................................68
SECTION 12.08. Payments on Business Days............................................................68
SECTION 12.09. GOVERNING LAW........................................................................68
SECTION 12.10. No Recourse Against Others...........................................................68
SECTION 12.11. Submission to Jurisdiction; Appointment of Agent for Service of Process; Waiver
of Immunities......................................................................68
SECTION 12.12. Successors...........................................................................69
SECTION 12.13. Multiple Originals...................................................................69
SECTION 12.14. Table of Contents; Headings..........................................................69
</TABLE>
7
<PAGE> 10
EXHIBIT A Form of Global Security
EXHIBIT B Form of Certificated Security
EXHIBIT C Form of Supplemental Indenture
Schedule 1.01(a) Indebtedness Existing on the Issue Date
Schedule 1.01(b) Investments Existing on the Issue Date
Schedule 1.01(c) Liens Existing on the Issue Date
Schedule 4.04(b) Subsidiary Indebtedness and Preferred Stock Existing on the
Issue Date
8
<PAGE> 11
INDENTURE dated as of June ___, 1997, among DI Industries, Inc., a
Texas corporation (the "Company"), certain of the Company's subsidiaries
signatory hereto (each, a "Guarantor", collectively, the "Guarantors") and
Texas Commerce Bank National Association, a national banking association, as
trustee (the "Trustee").
The Company, each Guarantor, jointly and severally, and the Trustee
agree as follows for the benefit of the other parties and for the equal and
ratable benefit of the Holders of the Company's _____% Senior Notes Due 2007
(the "Securities"):
ARTICLE 1
Definitions and Incorporation by Reference
SECTION 1.01. Definitions.
"Acquired Indebtedness" means, with respect to any specified Person,
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a subsidiary of such specified Person, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a subsidiary of such specified Person,
but excluding Indebtedness which is extinguished, retired or repaid in
connection with such other Person merging with or into or becoming a subsidiary
of such specified Person.
"Act", when used with respect to any Holder, has the meaning set forth
in Section 12.03.
"Adjusted Net Assets" of a Guarantor at any date means the amount by
which the fair value of the assets and Property of such Guarantor exceeds the
total amount of liabilities, including, without limitation, contingent
liabilities (after giving effect to all other fixed and contingent liabilities
incurred or assumed on such date), but excluding liabilities under its
Guarantee, of such Guarantor at such date.
"Affiliate" of any specified Person means another Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall
mean the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that beneficial ownership of 10% or more of the Voting Stock of a Person shall
be deemed to be control.
"Agent Member" has the meaning specified in Section 2.05(a).
"Asset Sale" means any direct or indirect sale, conveyance, transfer,
lease or other disposition (including, without limitation, by way of merger or
consolidation or by means of a Sale and Lease-Back Transaction) by the Company
or any Subsidiary to any Person other than the Company, a Guarantor or a Wholly
Owned Subsidiary, in one transaction, or a series of related transactions, of
(i) any Capital Stock of any Subsidiary (except for directors' qualifying
shares or certain minority interests sold to other Persons solely due to local
1
<PAGE> 12
law requirements that there be more than one stockholder, but which are not in
excess of what is required for such purpose), or (ii) any other Property or
assets of the Company or any Subsidiary, other than (A) sales of drill-string
components and obsolete or worn out equipment in the ordinary course of
business or other assets that, in the Company's reasonable judgment, are no
longer used or useful in the conduct of the business of the Company and its
Subsidiaries), (B) any drilling contract, charter or other lease of Property or
other assets entered into by the Company or any Subsidiary in the ordinary
course of business, other than any Bargain Purchase Contract, (C) a Restricted
Payment or Restricted Investment permitted under the provisions of Section 4.05
of this Indenture, (D) a Change of Control, (E) a consolidation, merger,
continuance or the disposition of all or substantially all of the assets of the
Company and the Subsidiaries, taken as a whole, in compliance with the
provisions of Section 5.01 of this Indenture, (F) any trade or exchange by the
Company or any Subsidiary of one or more drilling rigs for one or more other
drilling rigs of like kind owned or held by another Person, provided that (x)
the Fair Value of the rig or rigs traded or exchanged by the Company or such
Subsidiary (including cash or cash equivalents to be delivered by the Company
or such Subsidiary) is reasonably equivalent to the Fair Value of the drilling
rig or rigs (together with cash or cash equivalents to be received by the
Company or such Subsidiary) or other assets as determined by written appraisal
by a nationally (or industry) recognized investment banking firm or appraisal
firm and (y) such exchange is approved by a majority of the disinterested
directors of the Company. An Asset Sale shall include the requisition of title
to, seizure of or forfeiture of any Property or assets, or any actual or
constructive total loss or an agreed or compromised total loss of any Property
or assets.
"Asset Sale Offer" has the meaning specified in Section 4.07(b).
"Asset Sale Offer Price" has the meaning specified in Section 4.07(b).
"Asset Sale Offer Purchase Date" has the meaning specified in
Section 4.07(c).
"Asset Sale Offer Purchase Price" has the meaning specified in
Section 4.07(b).
"Attributable Indebtedness" in respect of a Sale and Lease-Back
Transaction means, at any date of determination, the present value (discounted
at the interest rate borne by the Securities, compounded annually) of the total
obligations of the lessee for rental payments during the remaining term of the
lease (or to the first date on which the lessee is permitted to terminate such
lease without the payment of a penalty) included in such Sale and Lease-Back
Transaction (including any period for which such lease has been extended).
"Average Life" means, as of any date, with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of (x)
the number of years from such date to the date of each scheduled principal
payment (including any sinking fund or mandatory redemption payment
requirements) of such debt security multiplied in each case by (y) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Bank Credit Facility" means the $50,000,000 Amended and Restated
Senior Secured Revolving Credit Agreement dated December 31, 1996, as amended
and restated as of April 30, 1997, among the Company
2
<PAGE> 13
and Drillers, Inc., as co-borrowers, DI International, Inc., as guarantor, the
lending institutions party thereto, Bankers Trust Company, as agent and
administrative agent, and ING (US) Capital Corporation, as co-agent and
documentation agent, as from time to time amended.
"Bargain Purchase Contract" means a drilling contract, charter or
lease that provides for acquisition of Property by the other party to such
agreement during or at the end of the term thereof for less than Fair Market
Value thereof at the time such right to acquire such Property is granted.
"Board of Directors" means the Board of Directors of the Company or
any Subsidiary, as applicable, or any committee thereof duly authorized to act
on behalf of such Board.
"Board Resolutions" means a copy of a resolution certified by the
Secretary or an Assistant Secretary of the Company or any Subsidiary, as
applicable, to have been duly adopted by the Board of Directors and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday which is not a day on which banking institutions are authorized or
obligated by law or executive order or regulation to close in The City of New
York and Houston, Texas and, with respect to any payment of cash or delivery of
securities, the place of such payment or delivery.
"Capital Lease Obligation" means, at any time as to any Person with
respect to any Property leased by such Person as lessee, the amount of the
liability with respect to such lease that would be required at such time to be
capitalized and accounted for as a capital lease on the balance sheet of such
Person prepared in accordance with GAAP.
"Capital Stock" in any Person means any and all shares, interests,
partnership interests, participations or other equivalents in the equity
interest (however designated) in such Person and any rights (other than debt
securities convertible into an equity interest), warrants or options to acquire
any equity interest in such Person.
"Cash Proceeds" means, with respect to any Asset Sale by any Person,
the aggregate consideration received for such Asset Sale by such Person in the
form of cash or cash equivalents (including any amounts of insurance or other
proceeds received in connection with an Asset Sale of the type described in the
last sentence of the definition thereof), including payments in respect of
deferred payment obligations when received in the form of cash or cash
equivalents (except to the extent that such obligations are financed or sold
with recourse to such Person or any subsidiary thereof).
"Certificated Security" has the meaning specified in Section 2.01(b).
"Change of Control" means (i) a determination by the Company that any
Person or group (as defined in Section 13(d)(3) or 14(d)(2) of the Exchange
Act) has become the direct or beneficial owner (as defined in Rule 13d-3 under
the Exchange Act) of more than 50% of the Voting Stock of the Company other
than
3
<PAGE> 14
Permitted Holders; (ii) the Company is merged with or into or consolidated
with another corporation and, immediately after giving effect to the merger or
consolidation, less than 50% of the outstanding voting securities entitled to
vote generally in the election of directors or persons who serve similar
functions of the surviving or resulting entity are then beneficially owned
(within the meaning of Rule 13d-3 of the Exchange Act) in the aggregate by (x)
the stockholders of the Company immediately prior to such merger or
consolidation, or (y) if the record date has been set to determine the
stockholders of the Company entitled to vote on such merger or consolidation,
the stockholders of the Company as of such a record date; (iii) the Company,
either individually or in conjunction with one or more Subsidiaries, sells,
conveys, transfers or leases, or the Subsidiaries sell, convey, transfer or
lease, all or substantially all of the assets of the Company or the Company and
the Subsidiaries, taken as a whole (either in one transaction or a series of
related transactions), including Capital Stock of the Subsidiaries, to any
Person (other than a Wholly Owned Subsidiary); (iv) the liquidation or
dissolution of the Company; or (v) the first day on which a majority of the
individuals who constitute the Board of Directors of the Company are not
Continuing Directors.
"Change of Control Offer" has the meaning specified in Section 4.09(a).
"Change of Control Payment Date" has the meaning specified in
Section 4.09(b)(ii).
"Change of Control Purchase Price" has the meaning specified in
Section 4.09(a).
"Commission" means the United States Securities and Exchange
Commission, as from time to time constituted, created under the Exchange Act,
or if at any time after the execution of this instrument, such Commission is
not existing and performing the duties now assigned to it under the Trust
Indenture Act, then the body performing such duties at such time.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Consolidated Interest Coverage Ratio" means as of the date of the
transaction giving rise to the need to calculate the Consolidated Interest
Coverage Ratio (the "Transaction Date"), the ratio of (i) the aggregate amount
of EBITDA of the Company and its consolidated Subsidiaries for the four fiscal
quarters for which financial information in respect thereof is available
immediately prior to the applicable Transaction Date (the "Determination
Period") to (ii) the aggregate Consolidated Interest Expense of the Company and
its consolidated Subsidiaries that is anticipated to accrue during a period
consisting of the fiscal quarter in which the Transaction Date occurs and the
three fiscal quarters immediately subsequent thereto (based upon the pro forma
amount and maturity of, and interest payments in respect of, Indebtedness of
the Company and its consolidated Subsidiaries expected by the Company to be
outstanding on the Transaction Date), assuming for the purposes of this
measurement the continuation of market interest rates prevailing on the
Transaction Date and base interest rates in respect of floating interest rate
obligations equal to the base interest rates on such obligations in effect as
of the Transaction Date, provided that if the Company or any of its
consolidated Subsidiaries is a party to any Interest Swap Obligation that would
have the effect of changing the interest rate on any Indebtedness of the
Company or any of its consolidated Subsidiaries for such four-quarter period
(or a portion thereof), the resulting rate shall be used for such four-quarter
period or portion thereof; provided, further, that any Consolidated Interest
Expense of the Company with respect
4
<PAGE> 15
to Indebtedness incurred or retired by the Company or any of its Subsidiaries
during the fiscal quarter in which the Transaction Date occurs shall be
calculated as if such debt was incurred or retired on the first day of the
fiscal quarter in which the Transaction Date occurs; provided, further, that if
the transaction giving rise to the need to calculate the Consolidated Interest
Coverage Ratio would have the effect of increasing or decreasing EBITDA in the
future and if such increase or decrease is readily quantifiable and is
attributable to such transaction, EBITDA shall be calculated on a pro forma
basis as if such transaction had occurred on the first day of the four fiscal
quarters referred to in clause (i) of this definition, and if, during the same
four fiscal quarters, (x) the Company or any of its consolidated Subsidiaries
shall have engaged in any Asset Sale, EBITDA for such period shall be reduced
by an amount equal to the EBITDA (if positive), or increased by an amount equal
to the EBITDA (if negative), directly attributable to the assets which are the
subject of such Asset Sale for such period calculated on a pro forma basis as
if such Asset Sale and any related retirement of Indebtedness had occurred on
the first day of such period or (y) after the Issue Date, the Company or any of
its consolidated Subsidiaries shall have acquired any material assets other
than in the ordinary course of business, EBITDA and Consolidated Interest
Expense shall be calculated on a pro forma basis as if such acquisition had
occurred on the first day of such period.
"Consolidated Interest Expense" means, with respect to any Person for
any period, without duplication (A) the sum of (i) the aggregate amount of cash
and noncash interest expense (including capitalized interest) of such Person
and its subsidiaries for such period as determined on a consolidated basis in
accordance with GAAP in respect of Indebtedness (including, without limitation,
(v) any amortization of debt discount, (w) net costs associated with Interest
Swap Obligations (including any amortization of discounts), (x) the interest
portion of any deferred payment obligation calculated in accordance with the
effective interest method, (y) all accrued interest and (z) all commissions,
discounts and other fees and charges owed with respect to letters of credit,
bankers acceptances or similar facilities) paid or accrued, or scheduled to be
paid or accrued, during such period; (ii) dividends on Preferred Stock or
Redeemable Stock of such Person (and Preferred Stock or Redeemable Stock of
its subsidiaries if paid to a Person other than such Person or its
subsidiaries) declared and payable in cash; (iii) the portion of any rental
obligation of such Person or its subsidiaries in respect of any Capital Lease
Obligation allocable to interest expense in accordance with GAAP; (iv) the
portion of any rental obligation of such Person or its subsidiaries in respect
of any Sale and Lease-Back Transaction allocable to interest expense
(determined as if such were treated as a Capital Lease Obligation); and (v) to
the extent any debt of any other Person is guaranteed by such Person or any of
its subsidiaries, the aggregate amount of interest paid, accrued or scheduled
to be paid or accrued, by such other Person during such period attributable to
any such debt, less (B) to the extent included in (A) above, amortization or
write-off of deferred financing costs of such Person and its subsidiaries
during such period and any charge related or any premium or penalty paid in
connection with redeeming or retiring any Indebtedness of such Person and its
subsidiaries prior to its stated maturity; in the case of both (A) and (B)
above, after elimination of intercompany accounts among such Person and its
subsidiaries and as determined in accordance with GAAP. For purposes of clause
(ii) above, dividend requirements attributable to any Preferred Stock or
Redeemable Stock shall be deemed to be an amount equal to the amount of
dividend requirements on such Preferred Stock or Redeemable Stock times a
fraction, the numerator of which is the amount of such dividend requirements,
and the denominator of which is one minus the applicable combined federal,
state, local and foreign income tax rate of the Company and its Subsidiaries
(expressed as a decimal), on a consolidated basis, for the fiscal year
immediately preceding the date of the transaction giving rise to the need to
calculate Consolidated Interest Expense.
"Consolidated Net Income" of any Person means, for any period, the
aggregate net income (or net loss, as the case may be) of such Person and its
subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP, provided that there shall be excluded therefrom, without
duplication, (i) any net income of any Unrestricted Subsidiary, except that the
Company's or any Subsidiary's interest in the net
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<PAGE> 16
income of such Unrestricted Subsidiary for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash or cash
equivalents actually distributed by such Unrestricted Subsidiary during such
period to the Company or a Subsidiary as a dividend or other distribution, (ii)
gains and losses, net of taxes, from Asset Sales or reserves relating thereto,
(iii) the net income of any Person that is not a subsidiary or that is
accounted for by the equity method of accounting which shall be included only
to the extent of the amount of dividends or distributions paid to such Person
or its subsidiaries, (iv) items (but not loss items) classified as
extraordinary, unusual or nonrecurring (other than the tax benefit, if any, of
the utilization of net operating loss carryforwards or alternative minimum tax
credits), (v) the net income (but not net loss) of any Person acquired by such
specified Person or any of its subsidiaries in a pooling-of-interests
transaction for any period prior to the date of such acquisition, (vi) any gain
or loss, net of taxes, realized on the termination of any employee pension
benefit plan, (vii) the net income (but not net loss) of any subsidiary of such
specified Person to the extent that the transfer to that Person of that income
is not at the time permitted, directly or indirectly, by any means (including
by dividend, distribution, advance or loan or otherwise), by operation of the
terms of its charter or any agreement with a Person other than with such
specified Person, instrument held by a Person other than by such specified
Person, judgment, decree, order, statute, law, rule or governmental regulations
applicable to such subsidiary or its stockholders, except for any dividends or
distributions actually paid by such subsidiary to such Person, and (viii) with
regard to a non-Wholly Owned Subsidiary, any aggregate net income (or loss) in
excess of such Person's or such subsidiary's pro rata share of such non-Wholly
Owned Subsidiary's net income (or loss).
"Consolidated Net Worth" of any Person means, as of any date, the sum
of the Capital Stock and additional paid-in capital plus retained earnings (or
minus accumulated deficit) of such Person and its subsidiaries on a
consolidated basis at such date, each item determined in accordance with GAAP,
less amounts attributable to Redeemable Stock of such Person or any of its
subsidiaries.
"Continuing Director" means an individual who (i) is a member of the
Board of Directors of the Company and (ii) either (A) was a member of the Board
of Directors of the Company on the Issue Date or (B) whose nomination for
election or election to the Board of Directors of the Company was approved by
vote of at least a majority of the directors then still in office who were
either directors on the Issue Date or whose election or nomination for election
was previously so approved.
"Corporate Trust Office" means the office of the Trustee at which at
any particular time its corporate trust business shall be principally
administered, which office at the date of execution of this Indenture is
located at 600 Travis Street, Suite 1150, Houston, Texas 77002.
"Covenant Defeasance" has the meaning specified in Section 9.03.
"Currency Hedge Obligations" means, at any time as to any Person, the
obligations of such Person at such time which were incurred in the ordinary
course of business pursuant to any foreign currency exchange agreement, option
or future contract or other similar agreement or arrangement designed to
protect against or manage such Person's or any of its subsidiaries' exposure to
fluctuations in foreign currency exchange rates.
"Default" means any event, act or condition the occurrence of which
is, or after notice or the passage time or both would be, an Event of Default.
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<PAGE> 17
"Defaulted Interest" has the meaning specified in Section 2.12.
"Defeasance" has the meaning specified in Section 9.02.
"Depository" means The Depository Trust Company, its nominees and
their respective successors.
"Determination Period" has the meaning specified under clause (i)
of the definition of "Consolidated Interest Coverage Ratio."
"EBITDA" means, with respect to any Person for any period, the
Consolidated Net Income of such Person for such period, plus to the extent
reflected in the income statement of such Person for such period from which
Consolidated Net Income is determined, without duplication, (i) Consolidated
Interest Expense, (ii) income tax expense, (iii) depreciation expense, (iv)
amortization expense, (v) any charge related to any premium or penalty paid in
connection with redeeming or retiring any Indebtedness prior to its Stated
Maturity, (vi) any other non-cash charges and (vii) to the extent not otherwise
covered by the adjustments contained in the proviso to this definition,
non-recurring charges of approximately $6.1 million incurred during 1996 in
employment severance costs, exit costs attributable to its exiting Argentina
and Mexico and other non-recurring charges, all as described in the Company's
Form 10-K for the year ended December 31, 1996 and minus, to the extent
reflected in such income statement, any noncash credits that had the effect of
increasing Consolidated Net Income of such Person for such period; provided
that for purposes of determining EBITDA with respect to the Company,
Consolidated Net Income shall exclude any net income or loss for the year ended
December 31, 1996 associated with the Company's Argentine and Mexican
divisions.
"Event of Default" has the meaning specified in Section 6.01.
"Excess Proceeds" has the meaning specified in Section 4.07(a).
"Exchange Act" means the Securities and Exchange Act of 1934, as
amended.
"Fair Market Value" means, with respect to consideration received or
to be received pursuant to any transaction by any Person, the fair market value
of such consideration as determined in good faith by the Board of Directors of
the Company.
"Fair Value" means, with respect to any asset or Property, the price
which could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction.
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"GAAP" means, at any date, United States generally accepted accounting
principles, consistently applied, as set forth in the opinions of the
Accounting Principles Board of the American Institute of Certified Public
Accountants ("AICPA") and statements of the Financial Accounting Standards
Board, or in such other statements by such other entity as may be designated by
the AICPA, that are applicable to the circumstances as of the date of
determination; provided, however, that all calculations made for purposes of
determining compliance with the provisions set forth in the Indenture shall
utilize GAAP in effect at the Issue Date.
"Global Security" has the meaning specified in Section 2.01(b).
"Grey Wolf" means Grey Wolf Drilling Company, a _______ corporation.
"Grey Wolf Acquisition" means the agreement to merge Grey Wolf
into Drillers, Inc. pursuant to an Agreement and Plan of Merger dated March 7,
1997, by and among the Company, Drillers, Inc. and Grey Wolf, as such may be
amended to the Issue Date.
"Guarantee" means an unconditional guaranty of the Securities given by
any Subsidiary pursuant to the provisions of Article 11 of this Indenture.
"Guarantor" means Drillers, Inc., DI International Inc. and DI Energy
Inc., each a Texas corporation and a Subsidiary, and each other Subsidiary of
the Company that is required to guarantee the Company's Obligations under the
Securities and this Indenture pursuant to the provisions of Article 11 of this
Indenture and any other Subsidiary of the Company that executes a supplemental
indenture in which such Subsidiary agrees to guarantee the Company's
Obligations under the Securities and this Indenture.
"Holder" means the Person in whose name a Security is registered on the
Registrar's books.
"incur" means, with respect to any Indebtedness or other obligation of
any Person, to create, issue, suffer to exist, incur (by conversion, exchange
or otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or obligation on the balance sheet of
such Person (and "incurrence," "incurred," "incurrable" and "incurring" shall
have meanings correlative to the foregoing); provided that a change in GAAP
that results in an obligation of such Person that exists at such time becoming
Indebtedness shall not be deemed an incurrence of such Indebtedness.
Indebtedness otherwise incurred by a Person before it becomes a Subsidiary
shall be deemed to have been incurred at the time at which it becomes a
Subsidiary.
"Indebtedness" as applied to any Person means, at any time, without
duplication, whether recourse is to all or a portion of the assets of such
Person, and whether or not contingent, (i) any obligation of such Person for
borrowed money; (ii) any obligation of such Person evidenced by bonds,
debentures, notes or other similar instruments, including, without limitation,
any such obligations incurred in connection with acquisition of Property,
assets or businesses, excluding accounts payable made in the ordinary course of
business which are not more than 90 days overdue or which are being contested
in good faith and by appropriate proceedings; (iii) any obligation of such
Person for all or any part of the purchase price of Property or for
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<PAGE> 19
the cost of Property constructed or of improvements thereto (including any
obligation under or in connection with any letter of credit related thereto),
other than accounts payable incurred in respect of Property and services
purchased in the ordinary course of business which are no more than 90 days
overdue or which are being contested in good faith and by appropriate
proceedings; (iv) any obligation of such Person upon which interest charges are
customarily paid (other than accounts payable incurred in the ordinary course
of business); (v) any obligation of such Person under conditional sale or other
title retention agreements relating to purchased Property; (vi) any obligation
of such Person issued or assumed as the deferred purchase price of Property
(other than accounts payable incurred in the ordinary course of business which
are no more than 90 days overdue or which are being contested in good faith and
by appropriate proceedings); (vii) any Capital Lease Obligation or Attributable
Indebtedness pursuant to any Sale and Lease-Back Transaction of such Person;
(viii) any obligation of any other Person secured by (or for which the obligee
thereof has an existing right, contingent or otherwise, to be secured by) any
Lien on Property owned or acquired, whether or not any obligation secured
thereby has been assumed, by such Person; (ix) any obligation of such Person in
respect of any letter of credit supporting any obligation of any other Person;
(x) the maximum fixed repurchase price of any Redeemable Stock of such Person
(or if such Person is a subsidiary, any Preferred Stock of such Person); (xi)
the notional amount of any Interest Swap Obligation or Currency Hedge
Obligation of such Person at the time of determination; and (xii) any
obligation which is in economic effect a guarantee, regardless of its
characterization (other than an endorsement in the ordinary course of
business), with respect to any Indebtedness of another Person, to the extent
guaranteed. For purposes of the preceding sentence, the maximum fixed
repurchase price of any Redeemable Stock or subsidiary Preferred Stock that
does not have a fixed repurchase price shall be calculated in accordance with
the terms of such Redeemable Stock or subsidiary Preferred Stock as if such
Redeemable Stock or subsidiary Preferred Stock were repurchased on any date on
which Indebtedness shall be required to be determined pursuant to the Indenture
Supplement; provided, however, that if such Redeemable Stock or subsidiary
Preferred Stock is not then permitted to be repurchased, the repurchase price
shall be the book value of such Redeemable Stock or subsidiary Preferred Stock.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and
the maximum liability of any guarantees at such date; provided that for
purposes of calculating the amount of any non-interest bearing or other
discount security, such Indebtedness shall be deemed to be the principal amount
thereof that would be shown on the balance sheet of the issuer dated such date
prepared in accordance with GAAP but that such security shall be deemed to have
been incurred only on the date of the original issuance thereof.
"Indenture" means this Indenture as originally executed or as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof,
including, for all purposes of this Indenture and any such supplemental
indenture, the provisions of the Trust Indenture Act that are deemed to be a
part of and govern this Indenture, and any such supplemental indenture,
respectively.
"Indrillers" means INDRILLERS, L.L.C., a Michigan limited liability
company of which the Company is a member.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities, which date shall be ____________ and ___________ of
each year.
"Interest Swap Obligation" means, with respect to any Person, the
obligation of such Person pursuant to any interest rate swap agreement,
interest rate cap, collar or floor agreement or other similar agreement or
arrangement designed to protect against or manage such Person's or any of its
subsidiaries' exposure to fluctuations in interest rates.
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<PAGE> 20
"Investment" means, with respect to any Person, any direct, indirect
or contingent investment in another Person, whether by means of a share
purchase, capital contribution, loan, advance (other than advances to employees
for moving and travel expenses, drawing accounts and similar expenditures in
the ordinary course of business) or similar credit extension constituting
Indebtedness of such other Person, and any guarantee of Indebtedness of any
other Person; provided that the term "Investment" shall not include any
transaction involving the purchase or other acquisition (including by way of
merger) of Property (including Capital Stock) by the Company or any Subsidiary
in exchange for Capital Stock (other than Redeemable Stock) of the Company. The
amount of any Person's Investment shall be the original cost of such Investment
to such Person, plus the cost of all additions thereto paid by such Person, and
minus the amount of any portion of such Investment repaid to such Person in
cash as a repayment of principal or a return of capital, as the case may be,
but without any other adjustments for increases or decreases in value, or
write-ups, writedowns, or write-offs with respect to such Investment. In
determining the amount of any Investment involving a transfer of any Property
or assets other than cash, such Property or assets shall be valued at its Fair
Value at the time of such transfer as determined in good faith by the board of
directors (or comparable body) of the Person making such transfer. The Company
shall be deemed to make an "Investment" in the amount of the Fair Value of the
Assets of a Subsidiary at the time such Subsidiary is designated an
Unrestricted Subsidiary.
"Issue Date" means the date on which the Securities are first
authenticated and delivered under this Indenture.
"Joint Venture" means any Person (other than a Guarantor) designated
as such by a resolution of the Board of Directors of the Company and as to
which (i) the Company, any Guarantor or any Joint Venture owns less than 50% of
the Capital Stock of such Person; (ii) no more than 10 unaffiliated Persons own
of record any Capital Stock of such Person; (iii) at all times, each such
Person owns the same proportion of each class of Capital Stock of such Person
outstanding at such time; (iv) no Indebtedness of such Person is or becomes
outstanding other than Non-Recourse Indebtedness; (v) there exist no consensual
encumbrances or restrictions on the ability of such Person to (x) pay, directly
or indirectly, dividends or make any other distributions in respect of its
Capital Stock to the holders of its Capital Stock or (y) pay any Indebtedness
or other obligation owed to the holders of its Capital Stock or (z) make any
Investment in the holders of its Capital Stock, in each case other than the
types of consensual encumbrances or restrictions that would be permitted under
the provisions of Section 4.06 of this Indenture if such Person were a
Subsidiary; and (vi) the business engaged in by such Person is a Related
Business.
"Lien" means any mortgage, pledge, hypothecation, charge, assignment,
deposit arrangement, encumbrance, security interest, lien (statutory or other),
or preference, priority or other security or similar agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation,
any agreement to give or grant a Lien or any lease, conditional sale or other
title retention agreement having substantially the same economic effect as any
of the foregoing).
"Maturity" means the date on which the principal of a Security becomes
due and payable as provided therein or in this Indenture, whether at the Stated
Maturity or the Change of Control Payment Date or purchase date established
pursuant to the terms of this Indenture for an Asset Sale Offer or by
declaration of acceleration, call for redemption or otherwise.
"Moody's" means Moody's Investor Service, Inc., or, if Moody's
Investors Service, Inc. shall cease rating the specified debt securities and
such ratings business with respect thereto shall have been transferred to a
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<PAGE> 21
successor Person, such successor person.
"Net Available Proceeds" means, (a) as to any Asset Sale (other than a
Bargain Purchase Contract), the Cash Proceeds therefrom, net of all legal and
title expenses, commissions and other fees and expenses incurred, and all
Federal, state, foreign, recording and local taxes payable as a consequence of
such Asset Sale, net of all payments made to any Person other than the Company
or a Subsidiary on any Indebtedness which is secured by such assets, in
accordance with the terms of any Lien upon or with respect to such assets, or
which must by its terms, or in order to obtain a necessary consent to such
Asset Sale, or by applicable law, be repaid out of the proceeds from such Asset
Sale and, as for any Asset Sale by a Subsidiary, net of the equity interest in
such Cash Proceeds of any holder of Capital Stock of such Subsidiary (other
than the Company, any other Subsidiary or any Affiliate of the Company or any
such other Subsidiary) and (b) as to any Bargain Purchase Contract, an amount
equal to (i) that portion of the rental or other payment stream arising under a
Bargain Purchase Contract that represents an amount in excess of the Fair
Market Value of the rental or other payments with respect to the pertinent
Property or other asset and (ii) the Cash Proceeds from the sale of such
Property or other asset, net of the amount set forth in clause (a) above, in
each case as and when received.
"Non-Recourse Indebtedness" means Indebtedness or that portion of
Indebtedness of an Unrestricted Subsidiary or a foreign Subsidiary not
constituting a Guarantor as to which (a) neither the Company nor any other
Subsidiary (other than an Unrestricted Subsidiary or a Subsidiary of such
foreign Subsidiary) (i) provides credit support including any undertaking,
agreement or instrument which would constitute Indebtedness or (ii) is directly
or indirectly liable for such Indebtedness and (b) no default with respect to
such Indebtedness (including any rights which the holders thereof may have to
take enforcement action against an Unrestricted Subsidiary or such foreign
Subsidiary) would permit (upon notice, lapse of time or both) any holder of any
other Indebtedness of the Company or its other Subsidiaries to declare a
default on such other Indebtedness or cause the payment thereof to be
accelerated or payable prior to its stated maturity.
"Obligations" means, with respect to any Indebtedness, any obligation
thereunder, including, without limitation, principal, premium and interest
(including post petition interest thereon), penalties, fees, costs, expenses,
indemnifications, reimbursements, damages and other liabilities.
"Obligors" means the Company and the Guarantors, collectively;
"Obligor" means the Company or any Guarantor.
"Officers' Certificate" means a certificate signed by the Chairman of
the Board, a Vice Chairman of the Board, the President, the Chief Executive
Officer, the Chief Operating Officer or a Vice President, and by the Chief
Financial Officer, the Chief Accounting Officer, the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary of the Company or a
Subsidiary and delivered to the Trustee, which shall comply with this
Indenture.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company, a Guarantor or the Trustee.
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<PAGE> 22
"Order" means a written order signed in the name of the Company by an
officer and delivered to the Trustee.
"Paying Agent" has the meaning specified in Section 2.03.
"Permitted Holders" means Norex Industries, Inc., Somerset Capital
Partners, Mike L. Mullen and Roy T. Oliver, Jr. and their respective Affiliates.
"Permitted Indebtedness" means (a) Indebtedness of the Company under
the Securities; (b) Indebtedness (and any guarantee thereof) under one or more
credit or revolving credit facilities with a bank or syndicate of banks or
financial institutions or other Lenders, including, without limitation, the Bank
Credit Facility, as such may be amended, modified, revised, extended, replaced,
or refunded from time to time, in an aggregate principal amount at any one time
outstanding not to exceed $100,000,000, less any amounts derived from Asset
Sales and applied to the required permanent reduction of Senior Debt (and a
permanent reduction of the related commitment to lend or amount available to be
reborrowed in the case of a revolving credit facility) under such credit
facilities as contemplated by the provisions of Section 4.07 of this Indenture;
(c) Indebtedness of the Company or any Subsidiary under Interest Swap
Obligations, provided that (i) such Interest Swap Obligations are related to
payment obligations on Indebtedness otherwise permitted under the provisions of
Section 4.03 of this Indenture and (ii) the notional principal amount of such
Interest Swap Obligations does not exceed the principal amount of the
Indebtedness to which such Interest Swap Obligations relate; (d) Indebtedness of
the Company or any Subsidiary under Currency Hedge Obligations, provided that
(i) such Currency Hedge Obligations are related to payment obligations on
Indebtedness otherwise permitted under the provisions of Section 4.03 of this
Indenture or to the foreign currency cash flows reasonably expected to be
generated by the Company and the Subsidiaries and (ii) the notional principal
amount of such Currency Hedge Obligations does not exceed the principal amount
of the Indebtedness and the amount of the foreign currency cash flows to which
such Currency Hedge Obligations relate; (e) Indebtedness of the Company or any
Subsidiary outstanding on the Issue Date [and listed on Schedule 1.01(a)
attached hereto]; (f) the Guarantees of the Securities (and any assumption of
the Obligations guaranteed thereby); (g) Indebtedness of the Company or any
Subsidiary in respect of bid performance bonds, surety bonds, appeal bonds and
letters of credit or similar arrangements issued for the account of the Company
or any Subsidiary, in each case in the ordinary course of business and other
than for an obligation for money borrowed; (h) Indebtedness of the Company to a
Guarantor or other Wholly Owned Subsidiary and Indebtedness of a Guarantor or
other Wholly Owned Subsidiary to the Company or another Guarantor or other
Wholly Owned Subsidiary; provided that upon any subsequent issuance or transfer
of any Capital Stock or any other event which results in any such Guarantor
ceasing to be a Guarantor or such Wholly Owned Subsidiary ceasing to be a Wholly
Owned Subsidiary, as the case may be, or any other subsequent transfer of any
such Indebtedness (except to the Company or a Guarantor or other Wholly Owned
Subsidiary), such Indebtedness shall be deemed, in each case, to be incurred and
shall be treated as an incurrence for purposes of Section 4.03 of this Indenture
at the time the Guarantor in question ceased to be a Guarantor or the Wholly
Owned Subsidiary in question ceased to be a Wholly Owned Subsidiary; (i)
Subordinated Indebtedness of the Company to an Unrestricted Subsidiary for money
borrowed; (j) Indebtedness of the Company in connection with a purchase of the
Securities pursuant to a Change of Control Offer, provided that the aggregate
principal amount of such Indebtedness does not exceed 101% of the aggregate
principal amount at Stated Maturity of the Securities purchased pursuant to such
Change of Control Offer; provided, further, that such Indebtedness (A) has an
Average Life equal to or greater than the
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<PAGE> 23
remaining Average Life of the Securities and (B) does not mature prior
to one year following the Stated Maturity of the Securities; (k) Permitted
Refinancing Indebtedness; (l) Permitted Subsidiary Refinancing Indebtedness;
and (m) additional Indebtedness in an aggregate principal amount not in excess
of $2,500,000 at any one time outstanding. So as to avoid duplication in
determining the amount of Permitted Indebtedness under any clause of this
definition, guarantees permitted to be incurred pursuant to this Indenture of,
or Obligations permitted to be incurred pursuant to this Indenture in respect
of letters of credit supporting, Indebtedness otherwise included in the
determination of such amount shall not also be included.
"Permitted Investments" means (a) certificates of deposit, bankers
acceptances, time deposits, Eurocurrency deposits and similar types of
Investments routinely offered by commercial banks organized in the United States
with final maturities of one year or less issued by commercial banks organized
in the United States having capital and surplus in excess of $300,000,000; (b)
commercial paper issued by any corporation, if such commercial paper has credit
ratings of at least "A-1" or its equivalent by S&P and at least "P-I" or its
equivalent by Moody's ; (c) U.S. Government Obligations with a maturity of four
years or less; (d) repurchase obligations for instruments of the type described
in clause (c) with any bank meeting the qualifications specified in clause (a)
above; (e) shares of money market mutual or similar funds having assets in
excess of $100 million; (f) payroll advances in the ordinary course of business;
(g) other advances and loans to officers and employees of the Company or any
Subsidiary, so long as the aggregate principal amount of such advances and loans
does not exceed $500,000 at any one time outstanding; (h) Investments
represented by that portion of the proceeds from Asset Sales that is not
required to be Cash Proceeds by the covenant described in "- Certain Covenants -
Limitations on Asset Sales"; (i) Investments made by the Company in Guarantors
or in its other Wholly Owned Subsidiaries (or any Person that will be a Wholly
Owned Subsidiary as a result of such Investment) or by a Subsidiary in the
Company or in one or more Guarantors or other Wholly Owned Subsidiaries (or any
Person that will be a Wholly Owned Subsidiary as a result of such Investment);
(j) Investments in stock, obligations or securities received in settlement of
debts owing to the Company or any Subsidiary as a result of bankruptcy or
insolvency proceedings or upon the foreclosure, perfection or enforcement of any
Lien in favor of the Company or any Subsidiary, in each case as to debt owing to
the Company or any Subsidiary that arose in the ordinary course of business of
the Company or any such Subsidiary; (k) certificates of deposit, bankers
acceptances, time deposits, Eurocurrency deposits and similar types of
Investments routinely offered by commercial banks organized in the United States
with final maturities of one year or less and in an aggregate amount not to
exceed $5,000,000 at any one time outstanding with a commercial bank organized
in the United States having capital and surplus in excess of $75,000,000; (l)
Venezuelan and other foreign bank deposits and cash equivalents in jurisdictions
in which the Company or a Subsidiary is then actively conducting business; (m)
Investments in Grey Wolf pursuant to the Grey Wolf Acquisition agreement; (n)
Interest Swap Obligations with respect to any floating rate Indebtedness that is
permitted by the terms of this Indenture to be outstanding; (o) Currency Hedge
Obligations, provided that such Currency Hedge Obligations constitute Permitted
Indebtedness permitted by clause (d) of the definition thereof; (p) Investments
in prepaid expenses, negotiable instruments held for collection and lease,
utility, worker's compensation and performance and other similar deposits in the
ordinary course of business; and (q) Investments pursuant to any agreement or
obligation of the Company or any Subsidiary in effect on the Issue Date and
listed on a Schedule 1.01(b) attached hereto.
"Permitted Liens" means (a) Liens in existence on the Issue Date [and
listed on Schedule 1.01(c) attached hereto]; (b) Liens created for the benefit
of the Securities and/or the Guarantees; (c) Liens on Property of a Person
existing at the time such Person is merged or consolidated with or into the
Company or a Subsidiary (and not incurred as a result of, or in anticipation
of, such transaction), provided that any such Lien relates solely to such
Property; (d) Liens on Property existing at the time of the acquisition thereof
(and not incurred as a result of, or in anticipation of such transaction),
provided that any such Lien relates solely to such
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Property; (e) Liens incurred or pledges and deposits made in connection with
worker's compensation, unemployment insurance and other social security
benefits, statutory obligations, bid, surety or appeal bonds, performance bonds
or other obligations of a like nature incurred in the ordinary course of
business; (f) Liens, imposed by law or arising by operation of law, including
without limitation, landlords', mechanics', carriers', warehousemen's,
materialmen's, suppliers' and vendors Liens and Liens for master's and crew's
wages and other similar maritime Liens, and incurred in the ordinary course of
business for sums not delinquent or being contested in good faith, if such
reserves or other appropriate provisions, if any, as shall be required by GAAP
shall have been made with respect thereof; (g) zoning restrictions, easements,
licenses, covenants, reservations, restrictions on the use of real property and
defects, irregularities and deficiencies in title to real property that do not,
individually or in the aggregate, materially affect the ability of the Company
or any Subsidiary to conduct its business presently conducted; (h) Liens for
taxes or assessments or other governmental charges or levies not yet due and
payable, or the validity of which is being contested by the Company or a
Subsidiary in good faith and by appropriate proceedings upon stay of execution
or the enforcement thereof and for which adequate reserves in accordance with
GAAP or other appropriate provision has been made; (i) Liens to secure
Indebtedness incurred for the purpose of financing all or a part of the purchase
price or construction cost of Property acquired or constructed after the Issue
Date, provided that (l) the principal amount of Indebtedness secured by such
Liens shall not exceed 100% of the lesser of cost or Fair Market Value of the
Property so acquired, upgraded or constructed plus transaction costs related
thereto, (2) such Liens shall not encumber any other assets or Property of the
Company or any Subsidiary (other than the proceeds thereof and accessions and
upgrades thereto) and (3) such Liens shall attach to such Property within 120
days of the date of the completion of the construction or acquisition of such
Property; (j) Liens securing Capital Lease Obligations, provided, further, that
such Liens secure Capital Lease Obligations which, when combined with (l) the
outstanding secured Indebtedness of the Company and its Subsidiaries (other than
Indebtedness secured by Liens described under clauses (b) and (i) hereof) and
(2) the aggregate principal amount of all other Capital Lease Obligations of the
Company and Subsidiaries, does not exceed $5,000,000 at any one time
outstanding; (k) Liens to secure any extension, renewal, refinancing or
refunding (or successive extensions, renewals, refinancings or refundings), in
whole or in part, of any Indebtedness secured by Liens referred to in the
foregoing clauses (a), (c) and (d), provided, further, that such Lien does not
extend to any other Property of the Company or any Subsidiary and the principal
amount of the Indebtedness secured by such Lien is not increased; (l) any
charter or lease; (m) leases or subleases of real property to other Persons; (n)
Liens securing Permitted Indebtedness described in clause (b) of the definition
thereof; (o) judgment liens not giving rise to an Event of Default so long as
any appropriate legal proceedings which may have been initiated for the review
of such judgment shall not have been finally terminated or the period within
which such proceeding may be initiated shall not have expired; (p) rights of
off-set of banks and other Persons; and (q) liens in favor of the Company.
"Permitted Refinancing Indebtedness" means Indebtedness of the
Company, incurred in exchange for, or the net proceeds of which are used to
renew, extend, refinance, refund or repurchase, outstanding Indebtedness of the
Company which outstanding Indebtedness was incurred in accordance with, or is
otherwise permitted by, the terms of clauses (a) and (e) of the definition of
"Permitted Indebtedness," provided that (i) if the Indebtedness being renewed,
extended, refinanced, refunded or repurchased is pari passu with or
subordinated in right of payment (without regard to its being secured) to the
Securities, then such new Indebtedness is pari passu with or subordinated in
right of payment (without regard to its being secured) to, as the case may be,
the Securities at least to the same extent as the Indebtedness being renewed,
extended, refinanced, refunded or repurchased, (ii) such new Indebtedness is
scheduled to mature later than the Indebtedness being renewed, extended,
refinanced, refunded or repurchased, (iii) such new Indebtedness has an Average
Life at the time such Indebtedness is incurred that is greater than the Average
Life of the Indebtedness being renewed, extended, refinanced, refunded or
repurchased, and (iv) such new Indebtedness is in aggregate principal amount
(or, if such Indebtedness is issued at a price less than the
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<PAGE> 25
principal amount thereof, the aggregate amount of gross proceeds therefrom is)
not in excess of the aggregate principal amount then outstanding of the
Indebtedness being renewed, extended, refinanced, refunded or repurchased (or
if the Indebtedness being renewed, extended, refinanced, refunded or
repurchased was issued at a price less than the principal amount thereof, then
not in excess of the amount of liability in respect thereof determined in
accordance with GAAP) plus the amount of reasonable fees, expenses and premium,
if any, incurred by the Company or such Subsidiary in connection therewith.
"Permitted Subsidiary Refinancing Indebtedness" means Indebtedness of
any Subsidiary, incurred in exchange for, or the net proceeds of which are used
to renew, extend, refinance, refund or repurchase, outstanding Indebtedness of
such Subsidiary which outstanding Indebtedness was incurred in accordance with,
or is otherwise permitted by, the terms of clauses (e) and (f) of the
definition of "Permitted Indebtedness," provided that (i) if the Indebtedness
being renewed, extended, refinanced, refunded or repurchased is pari passu with
or subordinated in right of payment (without regard to its being secured) to
the Guarantee of such Subsidiary, then such new Indebtedness is pari passu with
or subordinated in right of payment (without regard to its being secured) to,
as the case may be, the Guarantee of such Subsidiary at least to the same
extent as the Indebtedness being renewed, extended, refinanced refunded or
repurchased, (ii) such new Indebtedness is scheduled to mature later than the
Indebtedness being renewed, extended, refinanced, refunded or repurchased,
(iii) such new Indebtedness has an Average Life at the time such Indebtedness
is incurred that is greater than the Average Life of the Indebtedness being
renewed, extended, refinanced, refunded or repurchased, and (iv) such new
Indebtedness is in an aggregate principal amount (or, if such Indebtedness is
issued at a price less than the principal amount thereof, the aggregate amount
of gross proceeds therefrom is) not in excess of the aggregate principal amount
then outstanding of the Indebtedness being renewed, extended, refinanced,
refunded or repurchased (or if the Indebtedness being renewed, extended,
refinanced, refunded or repurchased was issued at a price less than the
principal amount thereof, then not in excess of the amount of liability in
respect thereof determined in accordance with GAAP) plus the amount of
reasonable fees, expenses and premium, if any, incurred by the Company or such
Subsidiary in connection therewith.
"Person" means any individual, corporation, partnership, joint
venture, incorporated or unincorporated association, joint stock company,
trust, unincorporated organization or government or other agency or political
subdivision thereof or other entity of any kind.
"Preferred Stock" of any Person means Capital Stock of such Person of
any class or classes (however designated) that ranks prior, as to the payment
of dividends and/or as to the distribution of assets upon any voluntary or
involuntary liquidation, dissolution or winding up of such Person, to shares of
Capital Stock of at least one other class of such Person.
"Proceeding" has the meaning specified in Section 12.11(a).
"Process Agent" has the meaning specified in Section 12.11(a).
"Property" means, with respect to any Person, any interest of such
Person in any kind of property or asset, whether real, personal or mixed, or
tangible or intangible, excluding Capital Stock in any other Person.
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"Qualified Equity Offering" means an offering of Capital Stock (other
than Redeemable Stock) of the Company for cash, whether pursuant to an
effective registration statement under the Securities Act or pursuant to an
available exemption from registration under the Securities Act.
"Record Date" means, for the interest payable on any Interest Payment
Date, the date specified in Section 2.12.
"Redeemable Stock" means, with respect to any Person, any equity
security that by its terms or otherwise is required to be redeemed, or is
redeemable at the option of the holder thereof, at any time prior to one year
following the Stated Maturity of the Securities or is exchangeable into
Indebtedness of such Person or any of its subsidiaries.
"Redemption Date" means, when used with respect to any Security or
part thereof to be redeemed hereunder, the date fixed for redemption of such
Securities pursuant to the terms of the Securities and this Indenture.
"Redemption Price" means, when used with respect to any Security or
part thereof to be redeemed hereunder, the price fixed for redemption of such
Security pursuant to the terms of the Securities and this Indenture, plus
accrued and unpaid interest thereon, if any to the Redemption Date.
"Registrar" has the meaning specified in Section 2.03.
"Related Business" means the land drilling business and activities
incidental thereto and any business related or ancillary thereto.
"Replacement Asset" means a Property or asset that, as determined by
the Board of Directors of the Company as evidenced by a Board Resolution, is
used or is useful in a Related Business.
"Responsible Officer" means, when used with respect to the Trustee,
any officer assigned to the Corporate Trust Office, including any vice
president, assistant vice president, assistant secretary or any other officer
of the Trustee to whom any corporate trust matter is referred because of his or
her knowledge of and familiarity with the particular subject.
"Restricted Investment" means any Investment in any Person, including
an Unrestricted Subsidiary or the designation of a Subsidiary as an
Unrestricted Subsidiary, other than a Permitted Investment.
"Restricted Payment" means to (i) declare or pay any dividend on, or
make any distribution in respect of, or purchase, redeem, retire or otherwise
acquire for value, any Capital Stock of the Company or any Affiliate of the
Company, or warrants, rights or options to acquire such Capital Stock, other
than (x) dividends payable solely in the Capital Stock (other than Redeemable
Stock) of the Company or such Affiliate, as the case may be, or in warrants,
rights or options to acquire such Capital Stock and (y) dividends or
distributions by a Subsidiary to the Company or to a Wholly Owned Subsidiary;
(ii) make any principal
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payment on, or redeem, repurchase, defease (including an in-substance or legal
defeasance) or otherwise acquire or retire for value (including pursuant to
mandatory repurchase covenants), prior to any scheduled principal payment,
scheduled sinking fund payment or other stated maturity, Indebtedness of the
Company or any Subsidiary which is subordinated (whether pursuant to its terms
or by operation of law) in right of payment to the Securities or the
Guarantees, as applicable; or (iii) make any Restricted Investment in any
"Retired Indebtedness or Stock" has the meaning specified in Section
4.04.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw-Hill,
Inc., or if Standard & Poor's Ratings Group shall cease rating the specified
debt securities and such ratings ceases with respect thereto shall have been
transferred to a successor Person, such successor Person.
"Sale and Lease-Back Transaction" means, with respect to any Person,
any direct or indirect arrangement pursuant to which Property is sold or
transferred by such Person or a subsidiary of such Person and is thereafter
leased back from the purchaser or transferee thereof by such Person or one of
its subsidiaries.
"Security" has the meaning stated in the first paragraph of this
Indenture and more particularly means any Security authenticated and delivered
under this Indenture.
"Security Register" has the meaning specified in Section 2.03.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Debt" means any Indebtedness incurred by the Company, unless
the instrument under which such Indebtedness is incurred expressly provides
that it is subordinated in right of payment to the Securities, provided that
Senior Debt will not include (a) any liability for federal, state, local or
other taxes owed or owing, (b) any Indebtedness owing to any Subsidiaries of
the Company, (c) any trade payables or (d) any Indebtedness that is incurred in
violation of this Indenture.
"Significant Subsidiary" means a Subsidiary that is a "significant
subsidiary" as defined in Rule 1-02(w) of Regulation S-X under the Securities
Act and the Exchange Act.
"Special Record Date" means a date fixed by the Trustee pursuant to
Section 2.12 for the payment of Defaulted Interest.
"Stated Maturity" when used with respect to a Security or any
installment of interest thereon, means the date specified in such Security as
the fixed date on which the principal of such Security or such installment of
interest is due and payable.
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"Subordinated Indebtedness" means any Indebtedness of the Company or
any Guarantor that is subordinated in right of payment to the Securities or the
Guarantees, as the case may be, and does not mature prior to one year following
the Stated Maturity of the Securities.
"subsidiary" means, with respect to any Person, (i) any corporation
more than 50% of the outstanding Voting Stock of which is owned, directly or
indirectly, by such Person, or by one or more other subsidiaries of such
Person, or by such Person and one or more other subsidiaries of such Person,
(ii) any general partnership, joint venture or similar entity, more than 50% of
the outstanding partnership or similar interest of which is owned, directly or
indirectly, by such Person, or by one or more other subsidiaries of such
Person, or by such Person and one or more other subsidiaries of such Person and
(iii) any limited partnership of which such Person or any subsidiary of such
Person is a general partner.
"Subsidiary" means a subsidiary of the Company other than an
Unrestricted Subsidiary; provided that Indrillers shall not be considered a
Subsidiary for purposes of the Indenture.
"Surviving Entity" has the meaning specified in Section 5.01.
"Transaction Date" has the meaning specified within the definition of
"Consolidated Interest Coverage Ratio."
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939,
as amended, as in force at the date as of which this Indenture was executed.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provision of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged; (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America, which, in either case
under clauses (i) or (ii) above, are not callable or redeemable at the option
of the issuers thereof; or (iii) depository receipts issued by a bank or trust
company as custodian with respect to any such U.S. Government Obligations or a
specific payment of interest on or principal of any such U.S. Government
Obligation held by such custodian for the account of the holder of a Depository
receipt, provided that (except as required by law) such custodian is not
authorized to make any deduction from the amount payable to the holder of such
Depository receipt from any amount received by the custodian in respect of the
U.S. Government Obligation evidenced by such Depository receipt.
"Uniform Commercial Code" means the New York Uniform Commercial Code
as in effect from time to time.
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"Unrestricted Subsidiary" means any subsidiary of the Company that the
Company has classified as an Unrestricted Subsidiary and that has not been
reclassified as a Subsidiary pursuant to the terms of this Indenture.
"Voting Stock" means with respect to any Person, securities of any
class or classes of Capital Stock in such Person entitling the holder thereof
(whether at all times or at the times that such class of Capital Stock has
voting power by reason of the happening of any contingency) to vote in the
election of members of the board of directors or comparable body of such
Person.
"Wholly Owned Subsidiary" means any Subsidiary to the extent (i) all
of the Capital Stock or other ownership interests in such Subsidiary, other
than any directors' qualifying shares mandated by applicable law, is owned
directly or indirectly by the Company or (ii) such Subsidiary is organized in a
foreign jurisdiction and is required by the applicable laws and regulations of
such foreign jurisdiction to be partially owned by the government of such
foreign jurisdiction or individual or corporate citizens of such foreign
jurisdiction in order for such Subsidiary to transact business in such foreign
jurisdiction, provided that the Company, directly or indirectly, owns the
remaining Capital Stock or ownership interest in such Subsidiary and, by
contract or otherwise, controls the management and business of such Subsidiary
and derives the economic benefits of ownership of such Subsidiary to
substantially the same extent as if such Subsidiary were a wholly owned
Subsidiary.
SECTION 1.02. Incorporation by Reference of Trust Indenture Act. This
Indenture is subject to the mandatory provisions of the TIA which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"indenture securities" means the Securities.
"indenture security holder" means a Holder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on the indenture securities means the Company and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by Commission rule
have the meanings assigned to them by such definitions.
SECTION 1.03. Rules of Construction. Unless the context otherwise
requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
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(4) "including" means including without limitation;
(5) words in the singular include the plural and words in the
plural include the singular;
(6) the words "herein", "hereof" and "hereunder" and other words
of similar import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision;
(7) provisions apply to successive events and transactions;
(8) references to agreements and other instruments include
subsequent amendments and waivers but only to the extent not prohibited by this
Indenture; and
(9) unless otherwise expressly provided herein, the principal
amount of any Preferred Stock shall be the greater of (i) the maximum
liquidation value of such Preferred Stock or (ii) the maximum mandatory
redemption or mandatory repurchase price with respect to such Preferred Stock.
ARTICLE 2
The Securities
SECTION 2.01. Form and Dating.
(a) The Securities, with the notation of the Guarantees endorsed
thereon and the Trustee's certificate of authentication thereon, shall be
substantially in the form of Exhibit A and Exhibit B, each which is hereby
incorporated in and expressly made a part of this Indenture. The Securities may
have such notations, legends or endorsements stamped, printed, lithographed or
engraved thereon as required by law, stock exchange rule, agreements to which
the Company is subject, if any, or usage (provided that any such notation,
legend or endorsement is in a form acceptable to the Company). Each Security
shall be dated the date of its authentication. The terms of the Securities set
forth in Exhibit A and Exhibit B are part of the terms of this Indenture.
(b) The Securities shall be issued initially in the form of one or
more permanent global notes in definitive, fully registered form, without
coupons, substantially in the form set forth in Exhibit A hereto (each a
"Global Security"), each such Security containing the legend relating to Global
Securities set forth on the face of the Security as set forth on Exhibit A
hereto. Upon issuance, each such Global Security shall be duly executed by the
Company, with the endorsement of Guarantees therein executed by the Guarantors,
and authenticated by the Trustee as hereinafter provided and deposited with the
Trustee as custodian for the Depositary. Any Certificated Security that may be
issued pursuant to Section 2.06(a) shall be issued in the form of a note in
definitive, fully registered form, without coupons, substantially in the form
set forth in Exhibit B hereto (each a "Certificated Security"). Upon issuance,
any such Certificated Security shall be duly executed by the Company, with the
endorsement of Guarantees thereon executed by the Guarantors, and authenticated
by the Trustee as hereinafter provided.
SECTION 2.02. Execution and Authentication. The aggregate principal
amount at Stated Maturity of Securities outstanding at any time shall not
exceed $125,000,000 except as provided in Section 2.08 hereof. Two executive
officers of the Company shall sign the Securities for the Company by manual or
facsimile signature. The Company's seal shall be impressed, affixed, imprinted
or reproduced on the Securities and may be in facsimile form. The Securities
shall have the notation relating to the Guarantees executed by each
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Guarantor in the manner provided for in Section 11.03 hereof and endorsed
thereon.
If an executive officer of the Company whose signature is on a
Security no longer holds that office at the time the Trustee authenticates the
Security, the Security shall be valid nevertheless.
Notwithstanding any other provision hereof, the Trustee shall
authenticate and deliver Notes only upon receipt by the Trustee of an Officers'
Certificate and Opinion of Counsel complying with Sections 12.01 and 12.02
hereof with respect to satisfaction of all conditions precedent contained in
this Indenture to authentication and delivery of such Notes.
Upon compliance by the Company with the provisions of the previous
paragraph, the Trustee shall, upon receipt of an Order requesting such action,
authenticate Securities for original issuance in an aggregate principal amount
at Stated Maturity not to exceed $125,000,000 in the form of the Global
Security. Such Order shall specify in the amount of Securities to be
authenticated and the date on which the Securities are to be authenticated and
shall further provide instructions concerning registration, amounts for each
Holder and delivery.
Upon the occurrence of any event specified in Section 2.6(a) hereof and
compliance by the Company with the provisions of the paragraph preceding the
immediately preceding paragraph, the Company shall execute and the Trustee
shall authenticate and deliver to each beneficial owner identified by the
Depositary, in exchange for such beneficial owner's interest in the Global
Security, Certificated Securities representing Securities theretofore
represented by the Global Security.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence, and the only evidence, that the
Security has been authenticated under this Indenture.
The Trustee may appoint an authenticating agent reasonably acceptable
to the Company to authenticate the Securities. Unless limited by the terms of
such appointment, an authenticating agent may authenticate Securities whenever
the Trustee may do so. Each reference in this Indenture to authentication by
the Trustee includes authentication by such agent. An authenticating agent has
the same rights as any Registrar, Paying Agent or agent for service of notices
and demands.
SECTION 2.03. Registrar and Paying Agent. The Company shall maintain an
office or agency where Securities may be presented for registration of transfer
or for exchange (the "Registrar") and an office or agency where Securities may
be presented for payment (the "Paying Agent"). The Registrar shall keep a
register of the Securities (the "Security Register") and of their transfer and
exchange. The Company may have one or more co-registrars and one or more
additional paying agents; provided, however, that so long as Texas Commerce
Bank National Association shall be the Trustee, without the consent of the
Trustee, there shall be no more than one Registrar or Paying Agent. The term
"Paying Agent" includes any additional paying agent.
The Company shall enter into an appropriate agency agreement with any
Registrar, Paying Agent or co-registrar not a party to this Indenture, which
shall incorporate the terms of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such agent. The Company shall
notify the Trustee of the name and address of any such agent. If the Company
fails to maintain a Registrar or Paying Agent, the Trustee shall act as such
and shall be entitled to appropriate compensation therefor pursuant to Section
7.07.
The Company initially appoints the Trustee as Registrar and Paying
Agent in connection with the Securities. The Company may, upon written notice
to the Trustee, change the designation of the Trustee
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as Registrar or Paying Agent and appoint another Person to act as Registrar for
purposes of this Indenture except that, for the purposes of Article 3, Article
12 and Sections 4.07 and 4.09, none of the Company, any Guarantor, any
Restricted Subsidiary or any Affiliate of the Company or of any Guarantor shall
act as Paying Agent. If any Person other than the Trustee acts as Registrar,
the Trustee shall have the right at any time, upon reasonable notice, to
inspect or examine the Security Register and to make such inquiries of the
Registrar as the Trustee shall in its discretion deem necessary or desirable in
performing its duties hereunder.
Upon surrender for registration of transfer of any Security at an
office or agency of the Company designated for such purpose, the Company shall
execute, and the Trustee shall authenticate and deliver, in the name of the
designated transferee or transferees, one or more new Securities of any
authorized denomination or denominations, of like tenor and aggregate principal
amount, all as requested by the transferor.
Every Security presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company, the Trustee or the
(Registrar) be duly endorsed, or be accompanied by a duly executed instrument
of transfer in form satisfactory to the Company, the Trustee and the Registrar,
by the Holder thereof or such Holder's attorney duly authorized in writing.
SECTION 2.04. Paying Agent To Hold Money in Trust. Prior to each due
date of the principal, premium, if any, and interest on any Security, the
Company shall deposit with the Paying Agent a sum sufficient to pay such
principal, premium, if any, and interest when so becoming due. The Company
shall require each Paying Agent (other than the Trustee) to agree in writing
that the Paying Agent shall hold in trust for the benefit of Holders or the
Trustee all money held by the Paying Agent for the payment of principal,
premium, if any, of or interest on the Securities and shall notify the Trustee
of any default by the Company in making any such payment. If the Company or a
Subsidiary acts as Paying Agent, it shall segregate the money held by it as
Paying Agent and hold it as a separate trust fund. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee and to
account for any funds disbursed by the Paying Agent. Upon complying with this
Section, the Paying Agent shall have no further liability for the money
delivered to the Trustee.
SECTION 2.05. Global Securities.
(a) So long as a Global Security is registered in the name of the
Depositary or its nominee, beneficial owners, members of, or participants in,
the Depositary ("Agent Members") shall have no rights under this Indenture with
respect to the Global Note held on their behalf by the Depositary or the
Trustee as its custodian, and the Depositary may be treated by the Company, the
Guarantors, the Trustee and any agent of the Company or the Trustee as the
absolute owner of such Global Security for all purposes. Notwithstanding the
foregoing, nothing herein shall (i) prevent the Company, the Guarantors, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other authorization furnished by the Depositary
or (ii) impair, as between the Depositary and its Agent Members, the operation
of customary practices governing the exercise of the rights of a Holder of
Securities.
(b) The Holder of a Global Security may grant proxies and otherwise
authorize any Person, including Agent Members and Persons that may hold
interests in such Global Securities through Agent Members, to take any action
which a Holder of Notes is entitled to take under this Indenture or the Notes.
(c) Whenever, as a result of an optional redemption of Securities by
the Company, a Change of Control Offer, an Asset Sale Offer, or an exchange
pursuant to the second sentence of Section 2.06(a) hereof, a Global Security is
redeemed, repurchased or exchanged in part, such Global Security shall be
surrendered
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<PAGE> 33
by the Holder thereof to the Trustee who shall cause an adjustment to be made
to a Schedule A attached thereto so that the principal amount at Stated
Maturity of such Global Security will be equal to the portion of such Global
Security not redeemed, repurchased or exchanged and shall thereafter return
such Global Security to such Holder, provided that each such Global Security
shall be in a principal amount at Stated Maturity of $1,000 or an integral
multiple thereof.
SECTION 2.06. Transfer and Exchange
(a) Any Global Security shall be exchanged by the Company for one or
more Certificated Securities, if (x) the Depositary (i) has notified the
Company that it is unwilling or unable to continue as, or ceases to be, a
"Clearing Agency" registered under Section 17A of the Exchange Act and (ii) a
successor to the Depositary registered as a "Clearing Agency" under Section 17A
of the Exchange Act is not able to be appointed by the Company within 90 days
or (y) the Depositary is at any time unwilling or unable to continue as
Depositary and a successor to the Depositary is not able to be appointed by the
Company within 90 days. If an Event of Default occurs and is continuing, the
Company shall, at the request of the Holder thereof, exchange all or part of
any Global Security, for one or more Certificated Notes, as the case may be;
provided that the principal amount at Stated Maturity of each such Certificated
Security shall be $1,000 or an integral multiple thereof. Whenever a Global
Security is exchanged as a whole for one or more Certificated Securities, it
shall be surrendered by the Holder thereof to the Trustee for cancellation.
Whenever a Global Security is exchanged in part for one or more Certificated
Securities it shall be surrendered by the Holder thereof to the Trustee and the
Trustee shall make the appropriate notations to Schedule A thereof pursuant to
Section 2.05(c) hereof. All Certificated Securities issued in exchange for a
Global Security or any portion thereof shall be registered in such names, and
delivered, as the Depositary shall instruct the Trustee.
(b) A Holder may transfer a Security only upon the surrender of such
Security for registration of transfer. No such transfer shall be effected
until, and the transferee shall succeed to the rights of a Holder only upon,
final acceptance and registration of the transfer in the Security Register by
the Registrar. When Securities are presented to the Registrar with a request to
register the transfer of, or to exchange, such Securities, the Registrar shall
register the transfer or make such exchange as requested if its requirements
for such transactions and any applicable requirements hereunder are satisfied.
To permit registrations of transfers and exchanges, the Company shall execute
and the Trustee shall authenticate Certificated Securities at the Registrar's
request.
(c) The Company shall not be required to make and the Registrar need
not register transfers or exchanges of (a) Certificated Securities selected for
redemption (except, in the case of Certificated Securities to be redeemed in
part, the portion thereof not to be redeemed), or (b) any Certificated Security
for a period of 15 days before a selection of Certificated Securities to be
redeemed or the mailing of a notice of a Change of Control Offer pursuant to
Section 4.09 hereof or an Asset Sale Offer pursuant to Section 4.07 hereof and
ending on the close of business on the day of such mailing.
(d) No service charge shall be made for any registration of transfer
or exchange of Securities, but the Company may require payment of a sum
sufficient to cover any tax or other governmental charge that may be imposed in
connection with any registration of transfer of Securities (other than in
respect of exchanges or transfers pursuant to Sections 2.09, 3.06, 4.07, 4.09
and 10.06).
(e) All Securities issued upon any registration of transfer, exchange
or substitution pursuant to the terms of this Indenture will evidence the same
debt and will be entitled to the same benefits under this Indenture as the
Securities surrendered for such registration of transfer, exchange or
substitution.
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<PAGE> 34
(f) Any Holder of a Global Security shall, by acceptance of such
Global Security, agree that transfers of beneficial interests in such Global
Security may be effected only through a book entry system maintained by the
Holder of such Global Security (or its agent), and that ownership of a
beneficial interest in the Securities represented hereby shall be required to
be reflected in book entry form. Transfers of a Global Security shall be
limited to transfers in whole and not in part, to the Depositary, its
successors, and their respective nominees. Interests of beneficial owners in a
Global Security may be transferred in accordance with the rules and procedures
of the Depositary (or its successors).
SECTION 2.07. Holder Lists. The Trustee shall preserve in as current
a form as is reasonably practicable the most recent list available to it of the
names and addresses of Holders. If the Trustee is not the Registrar, the
Company shall furnish to the Trustee, in writing at least five Business Days
before each Interest Payment Date and at such other times as the Trustee may
request in writing, a list in such form and as of such date as the Trustee may
reasonably require of the names and addresses of Holders.
SECTION 2.08. Replacement Securities. If a mutilated Security is
surrendered to the Registrar or if the Holder of a Security claims that the
Security has been lost, destroyed or wrongfully taken, the Company shall issue
and the Trustee shall authenticate a replacement Security if the requirements
of Section 8-405 of the Uniform Commercial Code are met and the Holder
satisfies any other reasonable requirements of the Trustee. If required by the
Trustee or the Company, such Holder shall furnish an indemnity bond sufficient
in the judgment of the Company and the Trustee to protect the Company, the
Trustee, the Paying Agent, the Registrar and any co-registrar from any loss
which any of them may suffer if a Security is replaced. In case any such
mutilated, destroyed, lost or stolen Security has become or is about to become
due and payable, the Company, in its discretion may, instead of issuing a new
Security, pay such Security.
Upon the issuance of any new Security under this Section 2.08, the
Company may require the payment by the Holder of a sum sufficient to cover any
tax or other governmental charge that may be imposed in relation thereto and
any other expenses (including the fees and expenses of the Trustee) connected
therewith.
Every new Security issued pursuant to this Section 2.08 in lieu of any
destroyed, lost or stolen Security shall constitute an original additional
contractual obligation of the Company, whether or not the destroyed, lost or
stolen Security shall be at any time enforceable by anyone, and shall be
entitled to all the benefits of this Indenture equally and proportionately with
any and all other Securities duly issued hereunder.
The provisions of this Section 2.08 are exclusive and shall preclude
(to the extent lawful) all other rights and remedies with respect to the
replacement or payment of mutilated, destroyed, lost or stolen Securities.
SECTION 2.09. Outstanding Securities. Securities outstanding at any
time are all Securities authenticated by the Trustee except for those canceled
by it, those delivered to it for cancellation and those described in this
Section as not outstanding. A Security does not cease to be outstanding because
the Company or an Affiliate of the Company holds the Security.
If a Security is replaced pursuant to Section 2.08, it ceases
to be outstanding unless the Trustee and the Company receive proof satisfactory
to them that the replaced Security is held by a bona fide purchaser, in which
event the replacement Security shall cease to be outstanding, subject to the
provisions of Section 8-405 of the Uniform Commercial Code. A mutilated
Security ceases to be outstanding upon surrender of such Security and
replacement thereof pursuant to Section 2.08.
If the Paying Agent (other than the Company, a Guarantor or
an Affiliate of the Company or a Guarantor) segregates and holds in trust, in
accordance with this Indenture, on a Redemption Date or Maturity date money
sufficient to pay all principal, premium, if any, interest and any other
amounts payable on that date with respect to the Securities (or portions
thereof) to be redeemed or maturing, as the case may be, then on and after that
date such Securities (or such portions thereof) shall cease to be outstanding
and interest on them shall cease to accrue.
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<PAGE> 35
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver or consent or any amendment,
modification or other change to this Indenture, Securities held or beneficially
owned by the Company or Guarantor or an Affiliate of the Company or a Guarantor
of the Company or by agents of any of the foregoing shall be disregarded,
except that for the purposes of determining whether the Trustee shall be
protected in relying on any such direction, waiver or consent or any
amendments, modification or other change to this Indenture, only Securities
which a Responsible Officer knows are so owned shall be so disregarded.
Securities so owned which have been pledged in good faith shall not be
disregarded if the pledgee establishes to the satisfaction of the Trustee such
pledgee's right so to act with respect to the Securities and that the pledgee
is not the Company, a Guarantor or an Affiliate of the Company or of a
Guarantor or any of their agents.
SECTION 2.10. Temporary Securities. Until definitive Securities are
ready for delivery, the Company may prepare and the Trustee shall authenticate
temporary Securities. Temporary Securities shall be substantially in the form
of definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate definitive Securities and
deliver them in exchange for temporary Securities.
SECTION 2.11. Cancellation. The Company at any time may deliver
Securities to the Trustee for cancellation. The Registrar and the Paying Agent
shall forward to the Trustee any Securities surrendered to them for
registration of transfer, exchange or payment. The Trustee and no one else
shall cancel and destroy (subject to the record retention requirements of the
Exchange Act) all Securities surrendered for registration of transfer,
exchange, payment or cancellation and deliver a certificate of such destruction
to the Company. The Company may not issue new Securities to replace Securities
it has redeemed, paid or delivered to the Trustee for cancellation.
SECTION 2.12. Payment of Interest: Interest Rights Preserved.
Interest on any Security which is payable, and is punctually paid or duly
provided for, on any Interest Payment Date, shall be paid to the Person in
whose name such Security is registered at the close of business on the Record
Date for such interest payment, which shall be the _______ or ________ (whether
or not a Business Day) immediately preceding such Interest Payment Date.
Any interest on any Security which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date (herein
called "Defaulted Interest") shall forthwith cease to be payable to the
registered Holder on the relevant Record Date, and, except as hereinafter
provided, such Defaulted Interest and any interest payable on such Defaulted
Interest may be paid by the Company, at its election, as provided in clause (a)
or (b) below:
(a) The Company may elect to make payment of any Defaulted Interest,
and any interest payable on such Defaulted Interest, to the Persons in whose
names the Securities are registered at the close of business on a Special
Record Date for the payment of such Defaulted Interest, which shall be fixed in
the following manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on the Securities and the date
of the proposed payment, and at the same time the Company shall deposit with
the Trustee an amount of money equal to the aggregate amount proposed to be
paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the proposed
payment, such money when deposited to be held in trust for the benefit of the
Persons entitled to such Defaulted Interest as provided in this clause (a).
Thereupon the Trustee shall fix a Special Record Date for the payment of such
Default Interest which shall be not more than 15 days and not less than 10 days
prior to the date of the proposed payment and not less than 10 days after the
receipt by the Trustee of the notice of the proposed payment. The Trustee shall
promptly notify the Company of such Special
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<PAGE> 36
Record Date and, in the name and at the expense of the Company, shall cause
notice of the proposed payment of such Defaulted Interest and the Special
Record Date therefor to be sent, first class mail, postage prepaid, to each
Holder at such Holder's address as it appears in the Security Register, not
less than 10 days prior to such Special Record Date. Notice of the proposed
payment of such Defaulted Interest and the Special Record Date therefor having
been mailed as aforesaid, such Defaulted Interest shall be paid to the Persons
in whose names the Securities are registered at the close of business on such
Special Record Date and shall no longer be payable pursuant to the following
clause (b).
(b) The Company may make payment of any Defaulted Interest, and any
interest payable on such Defaulted Interest, on the Securities in any other
lawful manner not inconsistent with the requirements of any securities exchange
on which the Securities may be listed, and upon such notice as may be required
by such exchange, if, after notice given by the Company to the Trustee of the
proposed payment pursuant to this clause, such manner of payment shall be
deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of, or in exchange
for, or in lieu of, or in substitution for, any other Security, shall carry the
rights to interest accrued and unpaid, and to accrue, which were carried by
such other Security.
SECTION 2.13. Authorized Denominations. The Securities shall be
issuable in denominations of $1,000 and any integral multiple thereof.
SECTION 2.14. CUSIP Numbers. The Company in issuing the Securities may
use "CUSIP" numbers (if then generally in use) and, if so, the Trustee shall
use "CUSIP" numbers in notices of redemption as a convenience to Holders;
provided, however, that any such notice may state that no representation is
made as to the correctness of such numbers either as printed on the Securities
or as contained in any notice of a redemption and that reliance may be placed
only on the other identification numbers printed on the Securities, and any
such redemption shall not be affected by any defect in or omission of such
numbers.
ARTICLE 3
Redemption
SECTION 3.01. Notices to Trustee. If the Company elects to redeem
Securities pursuant to Section 3.07 and paragraph 4 of the Securities, it shall
notify the Trustee in writing of the Redemption Date, the principal amount of
Securities to be redeemed, the Redemption Price and the Section of this
Indenture and the paragraph of the Securities pursuant to which the redemption
will occur.
The Company shall give each notice to the Trustee provided for in this
Section at least 60 days before the Redemption Date unless the Trustee consents
to a shorter period. Such notice shall be accompanied by an Officers'
Certificate and an Opinion of Counsel from the Company to the effect that such
redemption will comply with the conditions herein and in the Securities.
SECTION 3.02. Selection of Securities To Be Redeemed. If less than all
the Securities are to be redeemed at any time, the Trustee shall select the
Securities to be redeemed on a pro rata basis, or by any other method which the
Trustee shall determine to be fair and appropriate and which complies with any
securities exchange and other applicable requirements, provided that the
Trustee may select for redemption in part only Securities in denominations
larger than $1,000. In selecting Securities to be redeemed pursuant to this
Section 3.02, the Trustee shall make such adjustments, reallocations and
eliminations as it shall deem proper so that the principal amount at Stated
Maturity of each Security to be redeemed shall be $1,000 or an integral
multiple thereof, by increasing, decreasing or eliminating any amount less than
$1,000 which
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<PAGE> 37
would be allocable to any Holder. If the Notes to be redeemed are Certificated
Securities, the Certificated Securities to be redeemed shall be selected by the
Trustee by prorating, as nearly as may be, or by any other method which the
Trustee shall determine to be fair and appropriate and which complies with any
securities exchange and other applicable requirements, the principal amount of
Certificated Securities to be redeemed among the Holders of Certificated
Securities registered in their respective names. The Trustee in its discretion
may determine the particular Securities (if there are more than one) registered
in the name of any Holder which are to be redeemed, in whole or in part.
Provisions of this Indenture that apply to Securities called for redemption
also apply to portions of Securities called for redemption. The Trustee shall
notify the Company promptly of the Securities or portions of Securities to be
redeemed.
SECTION 3.03. Notice of Redemption. At least 30 days but not more than
60 days before a date for redemption of Securities, the Company shall mail a
notice of redemption by first-class mail to each Holder of Securities to be
redeemed.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the Redemption Date;
(2) the Redemption Price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to
the Paying Agent to collect the redemption price;
(5) if any Global Security is being redeemed in part, the portion
of the principal amount of such Security to be redeemed and that, after the
Redemption Date, the Global Security, with a notation on Schedule A thereof
adjusting the principal amount thereof to be equal to the unredeemed portion,
will be returned to the Holder thereof;
(6) if any Certificated Security is being redeemed in part, the
portion of the principal amount of such Security to be redeemed and that, after
the Redemption Date, a new Certificated Security or Certificated Securities in
principal amount equal to the unredeemed portion will be issued;
(7) if fewer than all the outstanding Securities are to be
redeemed, the identification and principal amounts of the particular Securities
to be redeemed;
(8) that, unless the Company defaults in making such redemption
payment or the Paying Agent is prohibited from making such payment pursuant to
the terms of this Indenture, interest on Securities (or portion thereof) called
for redemption ceases to accrue on and after the redemption date;
(9) that no representation is made as to the correctness or
accuracy of the CUSIP number, if any, listed in such notice or printed on the
Securities;
(10) the paragraph of the Securities and the Section of the
Indenture pursuant to which the Securities are being called for redemption; and
(11) any other information necessary to enable Holders to comply
with the notice of redemption.
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At the Company's request, the Trustee shall give the notice
of redemption in the Company's name and at the Company's expense. In such
event, the Company shall provide the Trustee with the information required by
this Section at least 45 days (or such shorter time that is acceptable to the
Trustee) before the redemption date.
SECTION 3.04. Effect of Notice of Redemption. Once notice of
redemption is mailed, Securities called for redemption become due and payable
on the Redemption Date and at the Redemption Price stated in the notice. Upon
surrender to the Paying Agent, such Securities shall be paid at the Redemption
Price stated in the notice, plus accrued interest to the redemption date.
Failure to give notice or any defect in the notice to any Holder shall not
affect the validity of the notice to any other Holder.
SECTION 3.05. Deposit of Redemption Price. Prior to the Redemption
Date, the Company shall deposit with the Paying Agent (or, if the Company or a
Subsidiary is the Paying Agent, shall segregate and hold in trust) money
sufficient to pay the Redemption Price of and accrued interest on all
Securities to be redeemed on that date other than Securities or portions of
Securities called for redemption which have been delivered by the Company to
the Trustee for cancellation.
So long as the Company complies with the preceding paragraph and the
other provisions of this Article 3, interest on the Securities to be redeemed
on the applicable Redemption Date shall cease to accrue from and after such
date and such Securities or portions thereof shall be deemed not to be entitled
to any benefit under this Indenture except to receive payment of the Redemption
Price on the Redemption Date. If any Security called for redemption shall not
be so paid upon surrender for redemption, then, from Redemption Date until such
principal is paid, interest shall be paid on the unpaid principal and, to the
extent permitted by law, on any accrued but unpaid interest thereon, in each
case at the rate prescribed therefor by this Indenture and such Securities.
SECTION 3.06. Securities Redeemed in Part. Upon surrender
and cancellation of a Certificated Security that is redeemed in part, the
Company shall issue and the Trustee shall authenticate and deliver to the
surrendering Holder (at the Company's expense) a new Certificated Security
equal in principal amount to the unredeemed portion of the Certificated
Security surrendered and canceled, provided that each such Certificated
Security shall be in a principal amount at Stated Maturity of $1,000 or an
integral multiple thereof.
Upon surrender of a Global Security that is redeemed in part, the
Paying Agent shall forward such Global Security to the Trustee who shall make a
notation on Schedule A thereof to reduce the principal amount of such Global
Security to an amount equal to the unredeemed portion of such Global Note, as
provided in Section 2.05 hereof.
SECTION 3.07. Optional Redemption.
(a) Except as set forth in subsection (b) of this Section 3.07,
the Company shall not have the option to redeem the Securities pursuant to this
Section 3.07 prior to ____, 2002. On or after such date, the Company shall have
the option to redeem the Securities , in whole or in part upon not less than 30
days' nor more than 60 days' notice, at the Redemption Prices (expressed as
percentages of principal amount at Stated Maturity), if redeemed during the
twelve month period beginning ____________________ of the years indicated
below, in each case, together with any interest accrued and unpaid to the
Redemption Date:
<TABLE>
<CAPTION>
Year Percentage
---- ----------
<S> <C>
2002 %
2003 %
2004 %
2005 and thereafter 100.0000%
</TABLE>
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<PAGE> 39
(b) Notwithstanding the foregoing, at any time during the first 36
months after the Issue Date, the Company may, at its option, redeem up to a
maximum of 30% of the aggregate principal amount at Stated Maturity of the
Securities with the net cash proceeds of one or more Qualified Equity Offerings
at a Redemption Price equal to ____% of the principal amount thereof, plus
accrued and unpaid interest thereon to the Redemption Date; provided that at
least $100,000,000 aggregate principal amount at Stated Maturity of the
Securities shall remain outstanding immediately after the occurrence of any
such redemption; and provided, further, that each such redemption shall occur
within 90 days of the closing of such Qualified Equity Offering.
ARTICLE 4
Covenant
SECTION 4.01. Payment of Securities. The Company shall promptly pay
the principal of, premium, if any, on and interest on the Securities on the
dates and in the manner provided in the Securities and in this Indenture.
Principal, premium and interest shall be considered paid on the date due if on
or before 10:00 a.m., Houston, Texas time, on such date the Trustee or a Paying
Agent, other than the Company or a Guarantor, or an Affiliate of the Company or
a Guarantor, holds in accordance with this Indenture money sufficient to pay all
principal, premium and interest then due and the Trustee or the Paying Agent, as
the case may be, is not prohibited from paying such money to the Holders on that
date pursuant to the terms of this Indenture.
The Company shall pay interest on overdue principal at the rate
specified therefor in the Securities plus 1% per annum (the "default rate"), and
it shall pay interest on overdue installments of interest (without regard to any
applicable grace period) at the default rate to the extent lawful.
SECTION 4.02. Commission Reports. So long as any Securities are
outstanding, whether or not the Company is subject to Section 13(a) or 15(d) of
the Exchange Act, or any successor provision thereto, the Company shall file
with the Commission the annual reports, quarterly reports and other documents
which the Company would have been required to file with the Commission pursuant
to such Section 13(a) or 15(d) or any successor provision thereto if the
Company were subject thereto, such documents to be filed with the Commission on
or prior to the respective dates (the "Required Filing Dates") by which the
Company would have been required to file them. The Company shall also (whether
or not it is required to file reports with the Commission), within 30 days of
each Required Filing Date, (i) transmit by mail to all holders of Notes, as
their names and addresses appear in the Security Register, without cost to such
holders or Persons, and (ii) file with the Trustee, copies of the annual
reports, quarterly reports and other documents (without exhibits) which the
Company has filed or would have filed with the Commission pursuant to Section
13(a) or 15(d) of the Exchange Act, any successor provisions thereto or this
Section 4.02. The Company shall not be required to file any report, document or
other information with the Commission if the Commission does not permit such
filing.
SECTION 4.03. Limitation on Indebtedness. The Company will not, and
will not permit any of its Subsidiaries to, directly or indirectly, incur any
Indebtedness (including Acquired Indebtedness) unless, after giving pro forma
effect to the incurrence of such Indebtedness, the Consolidated Interest
Coverage Ratio for the Determination Period would be at least 2.0 to 1.0 if
such Indebtedness is incurred prior to ___________, 1998 and at least 2.25 to
1.0 if such Indebtedness is incurred thereafter. Notwithstanding the foregoing,
the Company or any Subsidiary may incur Permitted Indebtedness. Any
Indebtedness of a Person existing at the time at which such Person becomes a
Subsidiary (whether by merger, consolidation, acquisition or otherwise) shall
be deemed incurred by such Subsidiary at the time at which it becomes a
Subsidiary.
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SECTION 4.04. Limitation on Subsidiary Indebtedness and Preferred
Stock. The Company will not permit any Subsidiary to, directly or indirectly,
incur any Indebtedness or issue any Preferred Stock except:
(i) Indebtedness or Preferred Stock issued to and held by the Company,
a Guarantor or a Wholly Owned Subsidiary, so long as any transfer of such
Indebtedness or Preferred Stock to a Person other than the Company, Guarantor
or a Wholly Owned Subsidiary will be deemed to constitute an incurrence of such
Indebtedness or Preferred Stock by the issuer thereof as of the date of such
transfer;
(ii) Acquired Indebtedness or Preferred Stock of a Subsidiary issued
and outstanding prior to the date on which such Subsidiary was acquired by the
Company (other than Indebtedness or Preferred Stock issued in connection with
or in anticipation of such acquisition);
(iii) Indebtedness or Preferred Stock outstanding on the Issue Date and
listed on Schedule 4.04 attached hereto;
(iv) Indebtedness described in clauses (b), (c), (d), (e), (f), (g)
and (h) under the definition of "Permitted Indebtedness";
(v) Permitted Subsidiary Refinancing Indebtedness of such Subsidiary;
(vi) Indebtedness or Preferred Stock issued in exchange for, or the
proceeds of which are used to refinance, repurchase or redeem, Indebtedness or
Preferred Stock described in clauses (i) and (iii) of this Section (the
"Retired Indebtedness or Stock"), provided that the Indebtedness or the
Preferred Stock so issued has (A) a principal amount or liquidation value, as
the case may be, not in excess of the principal amount or liquidation value of
the Retired Indebtedness or Stock plus related expenses for redemption and
issuance, (B) a final redemption date later than the Stated Maturity or final
redemption date (if any) of the Retired Indebtedness or Stock and (C) an
Average Life at the time of issuance of such Indebtedness or Preferred Stock
that is greater than the Average Life of the Retired Indebtedness or Stock;
(vii) Indebtedness of a Subsidiary which represents the assumption by
such Subsidiary of Indebtedness of another Subsidiary in connection with a
merger of such Subsidiaries, provided that no Subsidiary or any successor (by
way of merger) thereto existing on the Issue Date shall assume or otherwise
become responsible for any Indebtedness of an entity which is not a Subsidiary
on the Issue Date, except to the extent that a Subsidiary would be permitted to
incur such Indebtedness under this Section; and
(viii) Non-Recourse Indebtedness incurred by a foreign Subsidiary not
constituting a Guarantor.
SECTION 4.05. Limitation on Restricted Payments.
(a) The Company will not, and will not permit any of its Subsidiaries
to, make any Restricted Payment, unless at the time of and after giving effect
to the proposed Restricted Payment, (i) no Default shall have occurred and be
continuing (or would result therefrom), (ii) the Company could incur at least
$1.00 of additional indebtedness under the tests described in the first
sentence of Section 4.03 of this Indenture and (iii) the aggregate amount of
all Restricted Payments declared or made on or after the Issue Date by the
Company or any Subsidiary shall not exceed the sum of (A) 50% (or if such
Consolidated Net Income shall be a deficit, minus 100% of such deficit) of the
aggregate Consolidated Net Income accrued during the period beginning on the
first day of the fiscal quarter in which the Issue Date falls and ending on the
last day of the fiscal quarter ending immediately prior to the date of such
proposed Restricted Payment, minus 100% of the amount of any writedowns,
write-offs and other negative extraordinary charges not otherwise reflected in
Consolidated Net Income during such period, plus (B) an amount equal to the
aggregate net cash proceeds received by the Company, subsequent to the Issue
Date, from the issuance or sale (other than to a Subsidiary) of shares of its
Capital Stock (excluding Redeemable Stock, but including Capital Stock issued
upon the exercise of options, warrants or rights to purchase Capital Stock
(other than Redeemable Stock) of the Company) and the liability (expressed as a
positive number) as expressed on the face of a balance sheet in accordance with
GAAP in respect of any Indebtedness of the Company or any of its Subsidiaries,
or the carrying value of Redeemable Stock, which has been converted into,
exchanged for or satisfied by the issuance of shares of Capital Stock (other
than Redeemable Stock) of the Company, subsequent to the Issue Date, plus (C)
100% of the net reduction in Restricted Investments, subsequent to the Issue
Date, in any Person, resulting from payments of interest on Indebtedness,
dividends, repayments of loans or advances, or other transfers of Property (but
only to the extent such interest, dividends, repayments or other transfers of
Property are not included in the calculation of Consolidated Net Income), in
each case to the Company or any Subsidiary from any Person (including, without
limitation, from Unrestricted Subsidiaries) or from redesignations of
Unrestricted Subsidiaries as Subsidiaries (valued in each case as provided in
the definition of "Investments"), not to exceed
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<PAGE> 41
in the case of any Person the amount of Restricted Investments previously made
by the Company or any Subsidiary in such Person and in each such case which was
treated as a Restricted Payment.
(b) The foregoing provisions will not prevent (i) the payment of
any dividend on Capital Stock of any class within 60 days after the date of its
declaration if at the date of declaration such payment would be permitted by
this Indenture; (ii) any repurchase or redemption of Capital Stock or
Subordinated Indebtedness of the Company or a Subsidiary made by exchange for
Capital Stock of the Company (other than Redeemable Stock), or out of the net
cash proceeds from the substantially concurrent issuance or sale (other than to
a Subsidiary) of Capital Stock of the Company (other than Redeemable Stock),
provided that the net cash proceeds from such sale are excluded from
computations under Section 4.05(a)(iii)(B) above to the extent that such
proceeds are applied to purchase or redeem such Capital Stock or Subordinated
Indebtedness; (iii) so long as no Default shall have occurred and be continuing
or should occur as a consequence thereof, any repurchase or redemption of
Subordinated Indebtedness of the Company or a Subsidiary solely in exchange
for, or out of the net cash proceeds from the substantially concurrent sale of,
new Subordinated Indebtedness of the Company or a Subsidiary, so long as such
Subordinated Indebtedness is permitted under Section 4.03 of this Indenture and
(1) is subordinated to the Securities at least to the same extent as the
Subordinated Indebtedness so exchanged, purchased or redeemed, (2) has a stated
maturity later than the stated maturity of the Subordinated Indebtedness so
exchanged, purchased or redeemed and (3) has an Average Life at the time
incurred that is greater than the remaining Average Life of the Subordinated
Indebtedness so exchanged, purchased or redeemed; (iv) Investments in any Joint
Ventures and foreign Subsidiaries not constituting Guarantors in an aggregate
amount not to exceed $10,000,000 and (v) redemptions of the Company's Series A
Preferred Stock issued and outstanding on the Issue Date for an aggregate
redemption price of not more than $1,000,000. Notwithstanding the foregoing,
the amount available for Investments in Joint Ventures and foreign Subsidiaries
pursuant to clause (iv) of the preceding sentence may be increased by the
aggregate amount received by the Company and its Subsidiaries from a Joint
Venture or a foreign Subsidiary on or before such date resulting from payments
of interest on Indebtedness, dividends, repayments of loans or advances or
other transfers of Property made to such Joint Venture or foreign Subsidiary
(but only to the extent such interest dividends, repayments or other transfers
of Property are not included in the calculation of Consolidated Net Income).
Restricted Payments permitted to be made as described in the first sentence of
this Section 4.05(b) will be excluded in calculating the amount of Restricted
Payments thereafter, except that any such Restricted Payments to be permitted
made pursuant to clause (iv) will be included in calculating the amount of
Restricted Payments made pursuant to such clause (iv) thereafter.
(c) For purposes of this Section 4.05, if a particular Restricted
Payment involves a non-cash payment, including a distribution of assets, then
such Restricted Payment shall be deemed to be an amount equal to the cash
portion of such Restricted Payment, if any, plus an amount equal to the Fair
Market Value of the non-cash portion of such Restricted Payment.
SECTION 4.06. Limitation on Dividends and Other Payment Restrictions
Affecting Subsidiaries. The Company will not, and will not permit any
Subsidiary, directly or indirectly, to create, enter into any agreement with
any Person or otherwise cause or suffer to exist or become effective any
consensual encumbrance or restriction of any kind which by its terms restricts
the ability of any Subsidiary to (a) pay dividends, in cash or otherwise, or
make any other distributions on its Capital Stock to the Company or any
Subsidiary, (b) pay any Indebtedness owed to the Company or any Subsidiary, (c)
make loans or advances to the Company or any Subsidiary or (d) transfer any of
its Property or assets to the Company or any Subsidiary except any encumbrance
or restriction contained in any agreement or instrument:
(i) existing on the Issue Date;
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(ii) relating to any Property or assets acquired after the Issue Date,
so long as such encumbrance or restriction relates only to the Property or
assets so acquired and is not and was not created in anticipation of such
acquisition;
(iii) relating to any Acquired Indebtedness of any Subsidiary at the
date on which such Subsidiary was acquired by the Company or any Subsidiary
(other than Indebtedness incurred in anticipation of such acquisition);
(iv) effecting a refinancing of Indebtedness incurred pursuant to an
agreement referred to in the foregoing clauses (i) through (iii), so long as
the encumbrances and restrictions contained in any such refinancing agreement
are no more restrictive than the encumbrances and restrictions contained in
such agreements;
(v) constituting customary provisions restricting subletting or
assignment of any lease of the Company or any Subsidiary or provisions in
license agreements or similar agreements that restrict the assignment of such
agreement or any rights thereunder;
(vi) constituting restrictions on the sale or other disposition of any
Property securing Indebtedness as a result of a Permitted Lien on such
Property; or
(vii) constituting any temporary encumbrance or restriction with
respect to a Subsidiary pursuant to an agreement that has been entered into for
the sale or disposition of all or substantially all of the Capital Stock of, or
Property and assets of, such Subsidiary.
SECTION 4.07. Limitation on Asset Sales.
(a) The Company will not engage in, and will not permit any
Subsidiary to engage in, any Asset Sale unless (a) except in the case of (i) an
Asset Sale resulting from the requisition of title to, seizure or forfeiture of
any Property or assets or any actual or constructive total loss or an agreed or
compromised total loss or (ii) a Bargain Purchase Contract, the Company or such
Subsidiary, as the case may be, receives consideration at the time of such
Asset Sale at least equal to the Fair Market Value of the Property; (b) at
least 75% of such consideration consists of Cash Proceeds (or the assumption of
Indebtedness of the Company or such Subsidiary relating to the Capital Stock or
Property or asset that was the subject of such Asset Sale and the unconditional
release of the Company or such Subsidiary from such Indebtedness); (c) after
giving effect to such Asset Sale, the total non-cash consideration held by the
Company from all such Asset Sales does not exceed $10,000,000; and (d) the
Company delivers to the Trustee an Officers' Certificate certifying that such
Asset Sale complies with clauses (a), (b) and (c). The Company or such
Subsidiary, as the case may be, may apply the Net Available Proceeds from each
Asset Sale (x) to the acquisition of one or more Replacement Assets, or (y) to
repurchase or repay Senior Debt (with a permanent reduction of availability in
the case of revolving credit borrowings); provided that such acquisition or
such repurchase or repayment shall be made within 365 days after the
consummation of the relevant Asset Sale. Any Net Available Proceeds from any
Asset Sale that are not used to so acquire Replacement Assets or to repurchase
or repay Senior Debt within 365 days after consummation of the relevant Asset
Sale constitute "Excess Proceeds."
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(b) When the aggregate amount of Excess Proceeds exceeds
$15,000,000, the Company shall within 30 days thereafter, or at any time after
receipt of Excess Proceeds but prior to there being $15,000,000 of Excess
Proceeds, the Company may, at its option, make a pro rata offer (an "Asset Sale
Offer") to purchase from all holders an aggregate principal amount of
Securities equal to the Excess Proceeds, at a price in cash (the "Asset Sale
Offer Purchase Price") equal to 100% of the outstanding principal amount at
Stated Maturity thereof plus accrued interest, if any, to the Asset Sale
Purchase Date, in accordance with the procedures set forth in Section 4.07(c).
(c) Within 30 days of the date that the amount of Excess
Proceeds exceeds $15,000,000, the Company, or the Trustee at the request and
expense of the Company, shall send to each Holder by first class mail, postage
prepaid, a notice prepared by the Company stating:
(i) that an Asset Sale Offer is being made pursuant
to this Section 4.07 and that all Securities properly tendered will be
accepted for payment, subject to proration in the event that the
amount of Excess Proceeds is less than the aggregate Asset Sale Offer
Purchase Price of all Securities properly tendered pursuant to the
Asset Sale Offer;
(ii) the Asset Sale Offer Purchase Price, the amount
of Excess Proceeds that are available to be applied to purchase
tendered Securities, and the date Securities are to be purchased
pursuant to the Asset Sale Offer (the "Asset Sale Offer Purchase
Date"), which date shall be a date no earlier than 30 days and not
later than 40 days subsequent to the date such notice is mailed;
(iii) that any Securities or portions thereof not
properly tendered or accepted for payment will continue to accrue
interest;
(iv) that, unless the Company defaults in the
payment of the Asset Sale Offer Purchase Price with respect thereto,
all Securities or portions thereof accepted for payment pursuant to
the Asset Sale Offer shall cease to accrue interest from and after the
Asset Sale Offer Purchase Date;
(v) that any Holder electing to have any Securities
or portions thereof purchased pursuant to the Asset Sale Offer will be
required to surrender such Securities, with the form entitled "Option
of Holder to Elect Purchase" on the reverse of such Securities
completed, to the Paying Agent at the address specified in the notice,
prior to the close of business on the third Business Day preceding
the Asset Sale Offer Purchase Date;
(vi) that any Holder shall be entitled to withdraw
such election if the Paying Agent receives, not later than the close
of business on the second Business Day preceding the Asset Sale
Purchase Date, a telegram, telex, facsimile transmission or letter,
setting forth the name of the Holder, the principal amount of
Securities delivered for purchase, and a statement that such Holder is
withdrawing such Holder's election to have such Securities or portions
thereof purchased pursuant to the Asset Sale Offer;
(vii) that any Holder electing to have Securities
purchased pursuant to the Asset Sale Offer must specify the principal
amount at Stated Maturity that is being tendered for purchase, which
principal amount must be $1,000 or an integral multiple thereof;
(viii) if Certificated Securities have been issued
pursuant to Section 2.06(a), that any Holder of Certificated
Securities whose Certificated Securities are being purchased only in
part will be issued new Certificated Securities equal in principal
amount at Stated Maturity to the unpurchased portion of the
Certificated Security or Securities surrendered, which unpurchased
portion will be equal in principal amount at Stated Maturity to $1,000
or an integral multiple thereof;
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(ix) that the Trustee will return to the Holder of
of a Global Security that is being purchased in part, such Global
Security with a notation on Schedule A thereof adjusting the
principal amount at Stated Maturity thereof to be equal to the
unpurchased portion of such Global Security; and
(x) the instructions and any other information
necessary to enable any Holder to tender Securities and to have such
Securities purchased, or to withdraw such tender, pursuant to this
Section 4.07.
(d) If the aggregate Asset Sale Offer Purchase Price of the
Securities surrendered by Holders exceeds the amount of Excess Proceeds as
indicated in the notice required by Section 4.07(c) hereof, the Trustee shall
select the Securities to be purchased on a pro rata basis based on the
principal amount of the Securities tendered, with such adjustments as may be
deemed appropriate by the Trustee and to comply with any securities exchange
and other applicable requirements, so that only Securities in denominations of
$1,000 or integral multiples thereof shall be purchased.
(e) On or before the Asset Sale Offer Purchase Date, the
Company shall (i) accept for payment any Securities or portions thereof
properly tendered and selected for purchase pursuant to the Asset Sale and
Section 4.07(d) hereof; (ii) irrevocably deposit with the Paying Agent, by
10:00 a.m., New York City time, on such date, in immediately available funds,
an amount equal to the Asset Sale Offer Purchase Price in respect of all
Securities or portions thereof so accepted; and (iii) deliver, or cause to be
delivered, to the Trustee the Securities so accepted together with an Officers'
Certificate listing the Securities or portions thereof tendered to the Company
and accepted for payment. The Paying Agent shall promptly send by first class
mail, postage prepaid, to each Holder of Notes or portions thereof so accepted
for payment, payment in an amount equal to the Asset Sale Offer Purchase Price
for such Securities or portions thereof. The Company shall publicly announce
the results of the Asset Sale Offer on or as soon as practicable after the
Asset Sale Offer Purchase Date. For purposes of this Section 4.07, the Trustee
shall act as the Paying Agent.
(f) Upon surrender and cancellation of a Certificated
Security that is purchased in part, the Company shall promptly issue and the
Trustee shall authenticate and deliver to the surrendering Holder of such
Certificated Security a new Certificated Security equal in principal amount to
the unpurchased portion of such surrendered Certificated Security; provided
that each such new Certificated Security shall be in a principal amount at
Stated Maturity of $1,000 or an integral multiple thereof.
Upon surrender of a Global Security that is purchased in part
pursuant to an Asset Sale Offer, the Paying Agent shall forward such Global
Security to the Trustee who shall make a notation on Schedule A thereof to
reduce the principal amount of such Global Security to an amount equal to the
unpurchased portion of such Global Security, as provided in Section 2.05
hereof.
(g) Upon completion of an Asset Sale Offer (including payment
of the Asset Sale Offer Purchase Price for accepted Securities), any surplus
Excess Proceeds that were subject to such offer shall cease to be Excess
Proceeds, the amount of Excess Proceeds shall be reset to zero and the Company
may use any remaining amount for general corporate purposes.
(h) The Company shall comply with any applicable tender offer
rules (including, without limitation, any applicable requirements of Rule 14e-1
under the Exchange Act) in the event that an Asset Sale Offer is required under
the circumstances described herein.
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SECTION 4.08. Limitation on Transactions with Affiliates.
(a) Subsequent to the Issue Date, the Company will not, and will not
permit any Subsidiary to, directly or indirectly, enter into or permit to exist
any transaction or series of related transaction (including, but limited to,
the purchase, sale or exchange of Property, the making of any Investment, the
giving of any guarantee or the rendering of any service with any Affiliate of
the Company, other than transactions among the Company and any Guarantor or any
Wholly Owned Subsidiaries) unless (i) such transaction or series of related
transactions is on terms no less favorable to the Company or such Subsidiary
than those that could be obtained in a comparable arm's length transaction with
a Person that is not such an Affiliate and (ii) (A) with respect to a
transaction or series of related transactions that has a Fair Market Value in
excess of $2,000,000 but less than $5,000,000, the Company delivers an
Officers' Certificate to the Trustee certifying that such transaction or series
of related transactions complies with clause (i) above; or (B) with respect to a
transaction or series of related transactions that has a Fair Market Value
equal to or in excess of $5,000,000, the transaction or series of related
transactions is approved by a majority of the Board of Directors of the Company
(including a majority of the disinterested directors), which approval is set
forth in a Board Resolution certifying that such transaction or series of
transactions comply with clause (i) above.
(b) The foregoing provisions shall not be applicable to (i) reasonable
and customary compensation, indemnification and other benefits paid or made
available to an officer, director or employee of the Company or a Subsidiary
for services rendered in such person's capacity as an officer, director or
employee (including reimbursement or advancement of reasonable out-of-pocket
expenses and provisions of directors' and officers' liability insurance) or
(ii) the making of any Restricted Payment otherwise permitted by this
Indenture.
SECTION 4.09. Change of Control.
(a) Upon the occurrence of a Change of Control, each Holder will have
the right to require the Company to repurchase all of such Holder's Securities
in whole or in part (the "Change of Control Offer") at a purchase price (the
"Change of Control Purchase Price") in cash equal to 101% of the aggregate
principal amount at Stated Maturity thereof, plus accrued and unpaid interest
thereon, if any, to the Change of Control Payment Date on the terms described
below.
(b) Within 30 days following any Change of Control, the Company or the
Trustee (at the expense of the Company) will mail a notice to each Holder and
to the Trustee stating,
(i) that a Change of Control has occurred and a Change of
Control Offer is being made pursuant to this Section 4.09, and that,
although holders are not required to tender their Securities, all
Securities that are timely tendered will be accepted for payment;
(ii) the Change of Control Purchase Price and the repurchase
date, which will be no earlier than 30 days and no later than 60 days
after the date such notice is mailed (the "Change of Control Payment
Date");
(iii) that any Security or portion thereof accepted for
payment pursuant to the Change of Control Offer (and duly paid for on
the Change of Control Payment Date) will cease to accrue interest
after the Change of Control Payment Date;
(iv) that any Security or portion thereof not properly
tendered will continue to accrue interest;
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(v) that any Holder electing to have any Securities or
portions thereof purchased pursuant to a Change of Control Offer will
be required to surrender such Securities, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of such
Securities completed, to the Paying Agent at the address specified in
the notice, prior to the close of business on the third Business day
preceding the Change of Control Date;
(vi) that any Holder shall be entitled to withdraw such
election if the Paying Agent receives, not later than the close of
business on the second Business Day preceding the Change of Control
Payment Date, a telegram, telex, facsimile transmission or letter,
setting forth the name of the Holder, the principal amount of
Securities delivered for purchase, and a statement that such Holder
is withdrawing such Holder's election to have such Securities or
portions thereof purchased pursuant to the Change of Control Offer.
(vii) that any Holder electing to have Securities purchased
pursuant to the Change of Control Offer must specify the principal
amount that is being tendered for purchase, which principal amount
must be $1,000 at Stated Maturity or an integral multiple thereof;
(viii) if Certificated Securities have been issued pursuant
to Section 2.06(a), that any Holder of Certificated Securities whose
Certificated Notes are being purchased only in part will be issued
new Certificated Securities equal in principal amount at Stated
Maturity to the unpurchased portion of the Certificated Security or
Securities surrendered, which unpurchased portion will be equal in
principal amount at Stated Maturity to $1,000 or an integral multiple
thereof;
(ix) that the Trustee will return to the Holder of a
Global Security that is being purchased in part, such Security with a
notation on Schedule A thereof adjusting the principal amount thereof
to be equal to the unpurchased portion of such Global Security;
(x) the instructions and any other information
necessary to enable any Holder to accept a Change of Control Offer or
effect withdrawal of such acceptance; and
(xi) the instructions and any other information
necessary to enable Holders to tender their Securities and have such
Securities purchased pursuant to the Change of Control Offer.
(c) On or before the Change of Control Payment Date, the Company shall
(i) accept for payment any Securities or portions thereof
properly tendered pursuant to the Change of Control Offer; (ii) irrevocably
deposit with the Paying Agent, by 10:00 a.m., New York City time, on such date,
in immediately available funds, an amount equal to the Change of Control
Purchase Price in respect of all Securities or portions thereof so accepted,
including interest, if applicable; and (iii) deliver, or cause to be delivered,
to the Trustee the Securities so accepted together with an Officers'
Certificate listing the Securities or portions thereof tendered to the Company
and accepted for payment. The Paying Agent shall promptly send by first class
mail, postage prepaid, to each Holder of Securities or portions thereof so
accepted for payment, payment in an amount equal to the Change of Control
Purchase Price for such Securities or portions thereof. The Company shall
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date. For purposes of this
Section 4.09, the Trustee shall act as the Paying Agent.
(d) Upon surrender and cancellation of a Certificated Security that is
purchased in part pursuant to the Change of Control Offer, the Company shall
promptly issue and the Trustee shall authenticate and deliver to the
surrendering Holder of such Certificated Security, a new Certificated Note
equal in principal amount at Stated Maturity to the unpurchased portion of such
surrendered
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Certificated Note; provided that each such new Certificated Security shall be
in a principal amount of $1,000 at Stated Maturity or an integral multiple
thereof.
Upon surrender of a Global Security that is purchased in part
pursuant to a Change of Control Offer, the Paying Agent shall forward such
Global Security to the Trustee who shall make a notation on Schedule A thereof
to reduce the principal amount at Stated Maturity of such Global Note to an
amount equal to the unpurchased portion of such Global Security, as provided in
Section 2.05 hereof.
(e) The Company will not be required to make a
Change of Control Offer upon a Change of Control if a third party makes the
Change of Control Offer in the manner, at the times and otherwise in compliance
with the requirements set forth in this Indenture applicable to a Change of
Control Offer made by the Company and repurchases all Securities validly
tendered and not withdrawn under such Change of Control Offer.
(f) The Company will comply with any applicable
tender offer rules (including, without limitation, any applicable requirements
of Rule 14e-1 under the Exchange Act) in the event that the Change of Control
Offer is triggered under the circumstances described herein.
SECTION 4.10. Limitation on Liens. The Company will not, and will
not permit any Subsidiary to, directly or indirectly, create, affirm, incur,
assume or suffer to exist any Liens of any kind other than Permitted Liens on
or with respect to any Property or assets of the Company or such Subsidiary or
any interest therein or any income or profits therefrom, whether owned at the
Issue Date or thereafter acquired, without effectively providing that the
Securities shall be secured equally and ratably with (or prior to) the
Indebtedness so secured for so long as such obligations are so secured.
SECTION 4.11. Limitation on Guarantees by Guarantors. The Company
will not permit any Guarantor to guarantee the payment of any Subordinated
Indebtedness of the Company unless such guarantee shall be subordinated to such
Guarantor's Guarantee at least to the same extent as such Subordinated
Indebtedness is subordinated to the Securities; provided that this covenant
will not be applicable to any guarantee of any Guarantor that (i) existed at
the time at which such Person became a Subsidiary of the Company and (ii) was
not incurred in connection with, or in contemplation of, such Person becoming a
Subsidiary of the Company.
SECTION 4.12. Unrestricted Subsidiaries.
(a) The Company may designate a subsidiary (including a newly
formed or newly acquired subsidiary) of the Company or any of its Subsidiaries
as an Unrestricted Subsidiary; provided that (i) immediately after giving
effect to the transaction, the Company could incur $1.00 of additional
Indebtedness pursuant to the first sentence of Section 4.03(a) and (ii) such
designation is at the time permitted under Section 4.05. Notwithstanding any
provisions of this covenant all subsidiaries of an Unrestricted Subsidiary will
be Unrestricted Subsidiaries.
(b) The Company will not, and will not permit any of its
Subsidiaries to, take any action or enter into any transaction or series of
transactions that would result in a Person (other than a newly formed
subsidiary having no outstanding Indebtedness (other than Indebtedness to the
Company or a Subsidiary) at the date of determination) becoming a Subsidiary
(whether through an acquisition, the redesignation of an Unrestricted
Subsidiary or otherwise) unless, after giving effect to such action,
transaction or series of transactions on a pro forma basis, (i) the Company
could incur at least $1.00 of additional Indebtedness pursuant to the first
sentence of Section 4.03(a) and (ii) no Default or Event of Default would
occur.
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(c) Subject to Sections 4.12(a) and (b), an Unrestricted Subsidiary
may be redesignated as a Subsidiary. The designation of a subsidiary as an
Unrestricted Subsidiary or the designation of an Unrestricted Subsidiary as a
Subsidiary in compliance with this Section 4.12 shall be made by the Board of
Directors pursuant to a Board Resolution delivered to the Trustee and shall be
effective as of the date specified in such Board Resolution, which shall not be
prior to the date such Board Resolution is delivered to the Trustee. Any
Unrestricted Subsidiary shall become a Subsidiary if it incurs any Indebtedness
other than Non-Recourse Indebtedness. If at any time Indebtedness of an
Unrestricted Subsidiary which was Non-Recourse Indebtedness no longer so
qualifies, such Indebtedness shall be deemed to have been incurred when such
Non-Recourse Indebtedness becomes Indebtedness.
SECTION 4.13. Limitation on Sale and Lease-Back Transactions. The
Company will not, and will not permit any Subsidiary to, directly or
indirectly, enter into, assume, guarantee or otherwise become liable with
respect to any Sale and Lease-Back Transaction unless (i) the proceeds from
such Sale and Lease-Back Transaction are at least equal to the Fair Market
Value of such Property being transferred and (ii) the Company or such
Subsidiary would have been permitted to enter into such transaction under the
provisions of Sections 4.03, 4.04 and 4.10.
SECTION 4.14. Limitation on Line of Business. None of the Company or
any of its Subsidiaries will directly or indirectly engage to any substantial
extent in any line or lines of business activity other than a Related Business.
SECTION 4.15. Maintenance of Office or Agency. The Company shall
maintain in The City of New York, an office or agency where Securities may be
presented or surrendered for payment, where Securities may be surrendered for
registration of transfer or exchange and where notices and demands to or upon
the Company in respect of the Securities and this Indenture may be served.
Unless otherwise designated by the Company by written notice to the Trustee,
such office or agency shall be the office of the Trustee's agent, Texas
Commerce Trust Company of New York, which is located at 55 Water Street, North
Building, Room 234, Windows 20 and 21, New York, New York 10041, Attention:
Vice President, Global Trust Services. The Company shall give prompt written
notice to the Trustee of the location, and any change in the location, of such
office or agency. If at any time the Company shall fail to maintain any such
required office or agency or shall fail to furnish the Trustee with the address
thereof, such presentations, surrenders, notices and demands may be made or
served at the Corporate Trust Office of the Trustee, and the Company hereby
appoints the Trustee its agent to receive all presentations, surrenders, notices
and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the
Securities may be presented or surrendered for any or all of such purposes, and
may from time to time rescind such designations; provided that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in The City of New York, for such
purposes. The Company shall give prompt written notice to the Trustee of any
such designation and any change in the location of any such other office or
agency.
SECTION 4.16. Money for the Security Payments to be Held in Trust. If
the Company, any Subsidiary of the Company or any of their respective
Affiliates shall at any time act as Paying Agent with respect to the
Securities, such Paying Agent shall, on or before each due date of the
principal of (and premium, if any) or interest on any of the Securities,
segregate and hold in trust for the benefit of the Persons entitled thereto
money sufficient to pay the principal (and premium, if any) or interest so
becoming due until such money shall be paid to such Persons or otherwise
disposed of as herein provided, and shall promptly notify the Trustee of its
action or failure so to act.
Whenever the Company shall have one or more Paying Agents with respect
to the Securities, it shall, prior to or on each due date of the principal of
(and premium, if any) or interest on any of the Securities, deposit with a
Paying Agent a sum sufficient to pay the principal (and premium, if any) or
interest so becoming due,
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such sum to be held in trust for the benefit of the Persons entitled to such
principal, premium or interest, and (unless such Paying Agent is the Trustee)
the Paying Agent shall promptly notify the Trustee of the Company's action or
failure so to act.
SECTION 4.17. Corporate Existence. The Company will, and will cause
each of its Subsidiaries to, preserve and keep in full force and effect its
corporate existence in accordance with applicable law, except as permitted in
Sections 5.01 and 5.02; provided, however, that the Company may terminate the
corporate existence of any Subsidiary if, in the good faith judgment of the
Board of Directors of the Company, such termination is desirable in the conduct
of the business of the Company and its Subsidiaries and is not disadvantageous
in any material respect to the Holders of the Securities.
SECTION 4.18. Maintenance of Property. The Company shall cause all
Property used in the conduct of its business or the business of any of its
Subsidiaries to be maintained and kept in good condition, repair and working
order (reasonable wear and tear excepted) and supplied with all necessary
equipment and shall cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as, in the judgment of
the Company, may be necessary so that the business carried on in connection
therewith may be properly and advantageously conducted at all times; provided
that nothing in this Section 4.18 shall prevent the Company from discontinuing
the operation or maintenance of any of such Property if such discontinuance is,
in the judgment of the Company, desirable in the conduct of its business or the
business of any of its Subsidiaries and not disadvantageous in any material
respect to the Holders of the Securities.
SECTION 4.19. Payment of Taxes and Other Claims. The Company shall pay
or discharge or cause to be paid or discharged, before the same shall become
delinquent, (a) all material taxes, assessments and governmental charges levied
or imposed upon the Company or any of its Subsidiaries or upon the income,
profits or property of the Company or any of its Subsidiaries and (b) all
material lawful claims for labor, materials and supplies which, if unpaid,
might by law become a Lien upon the property of the Company or any of its
Subsidiaries; provided that the Company shall not be required to pay or
discharge or cause to be paid or discharged any such tax, assessment, charge or
claim whose amount, applicability or validity is being contested in good faith
by appropriate proceedings and for which adequate reserves in accordance with
GAAP or other appropriate provision has been made.
SECTION 4.20 Compliance Certificate; Notice of Default or Event of
Default.
(a) The Company shall deliver to the Trustee within 120 days after the
end of each fiscal year of the Company ending after the date hereof, an
Officers' Certificate (which shall be signed by officers satisfying the
requirements of Section 314 of the Trust Indenture Act) stating whether or not,
to the best knowledge of such officers, the Company has complied with all
conditions and covenants under this Indenture, and, if the Company shall be in
Default, specifying all such Defaults and the nature thereof of which such
officer may have knowledge.
(b) The year-end financial statements delivered pursuant to Section
4.02 above shall be accompanied by a written statement of the Company's
independent public accountants (who shall be a firm of established national
reputation reasonably satisfactory to the Trustee) that in making the
examination necessary for certification of such financial statements nothing
has come to their attention which would lead them to believe that the Company
or any of its Subsidiaries has violated the provisions of Section 4.01, 4.03,
4.04, 4.05, 4.07, 4.09 or 4.17 hereof or of Article 5 of this Indenture or, if
any such violation has occurred, specifying the nature and period of existence
thereof, it being understood that such accountants shall not be liable directly
or indirectly to any person for any failure to obtain knowledge of any such
violation, and it being further understood that such statement may not be
provided to the extent contrary to the then current recommendations of the
accountants' governing body.
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(c) The Company will, so long as any of the Securities are
outstanding, deliver to the Trustee, within 5 days of any Officer becoming
aware of (i) any Default or Event of Default or (ii) any event of default under
any other mortgage, indenture or instrument referred to in Section 6.01(e), an
Officers' Certificate specifying such Default, Event of Default or other event
of default and what action the Company or applicable Subsidiary is taking or
proposes to take with respect thereto.
SECTION 4.21. Further Instruments and Acts. Upon request of the
Trustee, the Company will execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
SECTION 4.22. Prohibition on Company and Guarantors Becoming
Investment Companies. None of the Company or the Guarantors shall become an
"investment company" as defined in the Investment Company Act of 1940, as
amended.
SECTION 4.23. Stay, Extension and Usury Laws. The Company and each of
the Guarantors covenant (to the extent that it may lawfully do so) that it
shall not at any time insist upon, plead, or in any manner whatsoever claim or
take the benefit of advantage of, any stay, extension or usury law wherever
enacted, now or at any time hereafter in force, that may affect the covenants
or the performance of this Indenture; and the Company and each of the
Guarantors (to the extent that it may lawfully do so) hereby expressly waive
all benefit or advantage of any such law, and covenants that it shall not, by
resort to any such law, hinder, delay or impede the execution of any power
herein granted to the Trustee, but shall suffer and permit the execution of
every such power as though no such law has been enacted.
ARTICLE 5
Consolidation, Merger, Conveyance, Lease or Transfer
SECTION 5.01. Consolidation, Merger, Conveyance, Lease or Transfer.
(a) The Company will not, in any transaction or series of
transactions, consolidate with or merge into any other Person (other than a
merger of a Subsidiary into the Company in which the Company is the continuing
corporation), or continue in any new jurisdiction, or sell, convey, assign,
transfer, lease or otherwise dispose of all or substantially all of the
Property and assets of the Company and the Subsidiaries, taken as a whole, to
any Person, unless
(i) either (A) the Company shall be the continuing
corporation or (B) the corporation (if other than the Company) formed
by such consolidation or into which the Company is merged, or the
Person which acquires, by sale, assignment, conveyance, transfer,
lease or disposition, all or substantially all of the Property and
assets of the Company and the Subsidiaries, taken as a whole (such
corporation or Person, the "Surviving Entity"), shall be a
corporation organized and validly existing under the laws of the
United States of America, any political subdivision thereof or any
state thereof or the District of Columbia, and shall expressly
assume, by a supplemental indenture, the due and punctual payment of
the principal of (and premium, if any) and interest on all the
Securities and the performance of the Company's covenants and
obligations under this Indenture;
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(ii) immediately before and after giving effect to such
transaction or series of transactions on a pro forma basis
(including, without limitation, any Indebtedness incurred or
anticipated to be incurred in connection with or in respect of such
transaction or series of transactions), no Event of Default or
Default shall have occurred and be continuing or would result
therefrom;
(iii) immediately after giving effect to such transaction or
series of transactions on a pro forma basis (including, without
limitation, any Indebtedness incurred or anticipated to be incurred
in connection with or in respect of such transaction or series of
transactions), the Company (or the Surviving Entity if the Company is
not continuing) shall have a Consolidated Net Worth equal to or
greater than the Consolidated Net Worth of the Company immediately
prior to such transactions; and
(iv) immediately after giving effect to any such transaction
or series of transactions on a pro forma basis as if such transaction
or series of transactions had occurred on the first day of the
Determination Period, the Company (or the Surviving Entity if the
Company is not continuing) would be permitted to incur $1.00 of
additional Indebtedness pursuant to the provisions of the first
sentence of Section 4.03.
(b) The provision of Section 5.01(a)(iv) above shall not apply to any
merger or consolidation into or with, or any such transfer of all or
substantially all of the Property and assets of the Company and the
Subsidiaries taken as a whole into, the Company.
SECTION 5.02. Officers' Certificate and Opinion of Counsel. In
connection with any consolidation, merger, continuation, transfer of assets or
other transactions contemplated by Section 5.01, the Company shall deliver,
or cause to be delivered, to the Trustee, in form and substance reasonably
satisfactory to the Trustee, an Officers' Certificate and an Opinion of
Counsel, each stating that such consolidation, merger, continuation, sale,
assignment, conveyance or transfer and the supplemental indenture in respect
thereto comply with the provisions of this Indenture and that all conditions
precedent in this Indenture relating to such transactions have been complied
with.
SECTION 5.03. Substitution of Surviving Entity. Upon any transaction
or series of transactions that are of the type described in, and are effected
in accordance with, this Article 5, the Surviving Entity shall succeed to, and
be substituted for, and may exercise every right and power of, the Company
under this Indenture and the Securities with the same effect as if such
Surviving Entity had been named as the Company in this Indenture; and when a
Surviving Person duly assumes all of the obligations and covenants of the
Company pursuant to this Indenture and the Securities, except in the case of a
lease, the predecessor Person shall be relieved of all such obligations.
If such Surviving Entity shall have succeeded to and been substituted
for the Company, such Surviving Entity may cause to be signed,, and may issue
either in its own name or in the name of the Company prior to such succession
any or all of the Securities delivered to the Trustee; and, upon the order of
such Surviving Entity, instead of the Company, and subject to all the terms,
conditions and limitations in this Indenture prescribed, the Trustee shall
authenticate and shall deliver any Securities which previously shall have been
signed and delivered by the officers of the Company to the Trustee for
authentication, and any Securities which such Surviving Entity thereafter shall
cause to be signed and delivered to the Trustee for that purpose (in each
instance with endorsements of Guarantees thereon by the Guarantors). All of the
Securities so issued and so endorsed shall in all respects have the same legal
rank and benefit under this Indenture as
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the Securities theretofore or thereafter issued and endorsed in accordance with
the terms of this Indenture and the Guarantee as though all of such Securities
had been issued and endorsed at the date of the execution hereof.
In case of any such consolidation, merger, sale, transfer, conveyance
or other disposal, such changes in phraseology and form (but not in substance)
may be made in the Securities thereafter to be issued or the Guarantees to be
endorsed thereon as may be appropriate.
For all purposes of this Indenture and the Securities, Subsidiaries of
any Surviving Entity will, upon such transaction or series of transactions,
become Subsidiaries or Unrestricted Subsidiaries as provided pursuant to this
Indenture and all Indebtedness, and all Liens on Property or assets, of the
Surviving Entity and its Subsidiaries immediately prior to such transaction or
series of transactions shall be deemed to have been incurred upon such
transaction or series of transactions.
ARTICLE 6
Defaults and Remedies
SECTION 6.01. Events of Default. Whenever used herein, an "Event of
Default" means any one of the following events (whatever the reason for such
Event of Default and whether it shall be voluntary or involuntary or be
effected by operation of law or pursuant to any judgment, decree or order of
any court or any order, rule or regulation of any administrative or
governmental body):
(a) default in the payment of interest on any Security pursuant to
this Indenture when the same becomes due and payable, and the continuance
of such Default for a period of 30 days;
(b) default in the payment of principal of (or premium, if any, on)
any Security when the same becomes due and payable, whether upon Maturity,
upon optional redemption, required repurchase (including pursuant to a
Change of Control Offer or an Asset Sale Offer) or otherwise or the
failure to make an offer to purchase any such Security as required
pursuant to the provisions of the Securities and this Indenture;
(c) the Company fails to comply with any of its covenants or
agreements contained in Sections 4.03, 4.04, 4.05, 4.07, 4.09, 4.13 and
5.01 of this Indenture;
(d) the Company defaults in the performance, or breach, of any
covenant or warranty of the Company in this Indenture (other than a
covenant or warranty addressed in clause (a), (b) or (c) above) and
continuance of such Default or breach for a period of 30 days after
written notice thereof has been given to the Company by the Trustee or to
the Company and the Trustee by holders of at least 25% of the aggregate
principal amount at Stated Maturity of the outstanding Securities;
(e) Indebtedness of the Company or any Subsidiary is not paid when due
within the applicable grace period, if any, or is accelerated by the
holders thereof and, in either case, the principal amount of such unpaid
or accelerated Indebtedness exceeds $10,000,000;
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(f) the entry by a court of competent jurisdiction of one or more
final judgments against the Company or any Subsidiary in an uninsured or
unindemnified aggregate amount in excess of $5,000,000 which is not
discharged, waived, appealed, stayed, bonded or satisfied for a period of
60 consecutive days;
(g) the entry by a court having jurisdiction in the premises of (i) a
decree or order for relief in respect of the Company or any Significant
Subsidiary in an involuntary case or proceeding under U.S. bankruptcy
laws, as now or hereafter constituted, or any other applicable Federal,
state, or foreign bankruptcy, insolvency, or other similar law or (ii) a
decree or order adjudging the Company or any Significant Subsidiary a
bankrupt or insolvent, or approving as properly filed a petition seeking
reorganization, arrangement, adjustment or composition of or in respect of
the Company or any Significant Subsidiary under U.S. bankruptcy laws, as
now or hereafter constituted, or any other applicable Federal, state or
foreign bankruptcy, insolvency, or similar law, or appointing a custodian,
receiver, liquidator, assignee, trustee, sequestrator or other similar
official of the Company or any Significant Subsidiary or of any
substantial part of the Property or assets of the Company or any
Significant Subsidiary, or ordering the winding up or liquidation of the
affairs of the Company or any Significant Subsidiary, and the continuance
of any such decree or order for relief or any such other decree or order
unstayed and in effect for a period of 60 consecutive days;
(h) (i) the commencement by the Company or any Significant Subsidiary
of a voluntary case or proceeding under U.S. bankruptcy laws, as now or
hereafter constituted, or any other applicable Federal, state or foreign
bankruptcy, insolvency or other similar law or of any other case or
proceeding to be adjudicated a bankrupt or insolvent; or (ii) the consent
by the Company or any Significant Subsidiary to the entry of a decree or
order for relief in respect of the Company or any Significant Subsidiary
in an involuntary case or proceeding under U.S. bankruptcy laws, as now or
hereafter constituted, or any other applicable Federal, state, or foreign
bankruptcy, insolvency or other similar law or to the commencement of any
bankruptcy or insolvency case or proceeding against the Company or any
Significant Subsidiary; or (iii) the filing by the Company or any
Significant Subsidiary of a petition or answer or consent seeking
reorganization or relief under U.S. bankruptcy laws, as now or hereafter
constituted, or any other applicable Federal, state or foreign bankruptcy,
insolvency or other similar law; or (iv) the consent by the Company or any
Significant Subsidiary to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or of any substantial part of the Property or
assets of the Company or any Significant Subsidiary or of any substantial
part of the Property or assets of the Company or any Significant
Subsidiary, or the making by the Company or any Significant Subsidiary of
an assignment for the benefit of creditors; or (v) the admission by the
Company or any Significant Subsidiary in writing of its inability to pay
its debts generally as they become due; or (vi) the taking of corporate
action by the Company or any Significant Subsidiary in furtherance of any
such action; or
(i) any Guarantee shall for any reason cease to be, or be asserted by
the Company or any Guarantor, as applicable, not to be, in full force and
effect (except pursuant to the release of any such Guarantee in accordance
with the provisions of this Indenture).
SECTION 6.02. Acceleration. If an Event of Default (other than an
Event of Default described in clause (g) or (h) of Section 6.01) occurs
and shall be continuing, then in each and every case the Trustee or the
Holders of not less than 25% of the outstanding aggregate principal amount
at Stated Maturity of the Securities may declare the principal amount at
Stated Maturity of the Securities to be due and payable
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immediately by a notice in writing to the Company (and to the Trustee if given
by Holders of such Securities), and upon any such declaration the principal
amount at Stated Maturity of, premium, if any, on any accrued and unpaid
interest on, and any other amounts payable in respect of, the Securities then
outstanding will become and be immediately due and payable. If any Event of
Default specified in clause (g) or (h) of Section 6.01 occurs, the principal
amount at Stated Maturity of, premium, if any, and any accrued and unpaid
interest on, and any other amount payable in respect of, the Securities then
outstanding shall become immediately due and payable without any declaration or
other act on the part of the Trustee or any Holder of such Securities. In the
event of a declaration of acceleration because an Event of Default set forth in
Section 6.01(e) above has occurred and is continuing, such declaration of
acceleration shall be automatically rescinded and annulled if the event of
default triggering such Event of Default pursuant to Section 6.01(e) shall be
remedied, or cured or waived by the holders of the relevant Indebtedness within
30 days after such event of default; provided that no judgment or decree for
the payment of the money due on the Securities has been obtained by the Trustee
as provided in this Indenture.
After any such acceleration, but before a judgment or decree based on
acceleration, the Holders of a majority in aggregate principal amount at Stated
Maturity of the Securities at the time outstanding may rescind and annul such
acceleration if
(a) the Company or any Guarantor has paid or deposited with the
Trustee a sum sufficient to pay
(i) all money paid or advanced by the Trustee hereunder and
the reasonable compensation, expenses, disbursement and advances of
the Trustee, its agents and counsel,
(ii) all overdue installments of interest on any other
amounts due in respect of all Securities;
(iii) the principal of (and premium, if any, on ) any
Securities that have become due otherwise than by such declaration of
acceleration and interest thereon at the rate or rates prescribed
therefor in the Securities and this Indenture, and
(iv) to the extent that payment of such interest is lawful,
interest upon Defaulted Interest at the rate or rates prescribed
therefor in the Securities and this Indenture;
(b) all Events of Default, other than the nonpayment of principal
of Securities which have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 6.04;
(c) the annulment of such acceleration would not conflict with any
judgment or decree of a court of competent jurisdiction; and
(d) the Company has delivered an Officers' Certificate to the
Trustee to the effect of clauses (b) and (c) of this sentence.
No such rescission shall affect any subsequent Default or impair any
right consequent thereto.
SECTION 6.03. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of principal (and premium, if any) of or interest on, and any other amounts
then due in respect of, the Securities or to enforce the performance of any
provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Holder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
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SECTION 6.04. Waiver of Past Defaults. The Holders of a majority in
principal amount at Stated Maturity of the Securities then outstanding by
notice to the Trustee may waive an existing Default and its consequences except
(i) a Default in the payment of the principal of or interest on a Security or
(ii) a Default in respect of a provision that under Section 9.02 cannot be
amended without the consent of each Holder affected. When a Default is waived,
it is deemed cured, but no such waiver shall extend to any subsequent or other
Default or impair any consequent right.
SECTION 6.05. Control by Majority. The Holders of a majority in
principal amount at Stated Maturity of the Securities then outstanding may
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee or of exercising any trust or power conferred on the
Trustee. However, the Trustee may refuse to follow any direction that conflicts
with law or this Indenture or, subject to Section 7.01, that the Trustee
determines is unduly prejudicial to the rights of other Holders, it being
understood that the Trustee shall have no duty to ascertain whether or not such
actions or forbearances are unduly prejudiced to such Holders, or would involve
the Trustee in personal liability; provided that the Trustee may take any other
action deemed proper by the Trustee that is not inconsistent with such
direction. Prior to taking any action hereunder, the Trustee shall be entitled
to indemnification satisfactory to it in its sole discretion against all losses
and expenses caused by taking or not taking such action.
SECTION 6.06. Limitation on Suits. No Holder of any Securities shall
have any right to institute any proceeding, judicial or otherwise, with respect
to this Indenture, or for the appointment of a receiver or a trustee, or for
any other remedy hereunder, unless:
(i) such Holder has previously given to the Trustee written
notice of a continuing Event of Default with respect to the Securities;
(ii) the Holders of at least 25% in aggregate principal amount at
Stated Maturity of the Securities then outstanding have made written
request, and such Holder or Holders have offered reasonable indemnity, to
the Trustee to institute such proceeding as trustee; and
(iii) the Trustee has failed to institute such proceeding, and has
not received from the Holders of a majority in aggregate principal amount
at Stated Maturity of the Securities then outstanding a direction
inconsistent with such request, within 60 days after such notice, request
and offer.
A Holder may not use this Indenture to prejudice the rights of
another Holder or to obtain a preference or priority over another Holder.
SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding
any other provision of this Indenture, the right of any Holder to receive
payment of principal of and interest on the Securities held by such Holder, on
or after the respective due dates expressed in the Securities, or to bring suit
for the enforcement of any such payment on or after such respective dates,
shall not be impaired or affected without the consent of such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of Default
specified in Section 6.01(a) or (b) occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company for the whole amount then due and owing (together with interest on any
unpaid interest to the extent lawful) and the amounts provided for in Section
7.07.
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SECTION 6.09. Trustee May File Proofs of Claim. The Trustee shall be
entitled and empowered, without regard to whether the Trustee or any Holder
shall have made any demand or performed any other act pursuant to the
provisions of this Article and without regard to whether the principal of the
Securities shall then be due and payable as therein expressed or by declaration
or otherwise, by intervention in any proceedings relative to the Company or any
Obligor upon the Securities, or to the creditors or Property of the Company,
any Guarantor or any other Obligor or otherwise, to take any and all actions
authorized under the Trust Indenture Act in order to have claims of the Holders
and the Trustee allowed in any such proceeding. In particular, the Trustee
shall be entitled and empowered in such instances:
(a) to file and prove a claim or claims for the whole amount of
principal (and premium, if any), interest and any other amounts owing and
unpaid in respect of the Securities, and to file such other papers or documents
as may be necessary or advisable in order to have the claims of the Trustee
(including all amounts owing to the Trustee and each predecessor Trustee
pursuant to Section 7.07 hereof) and of the Holders allowed in any judicial
proceedings relative to the Company or other obligor upon the Securities, or to
the creditors or property of the Company, any Guarantor, or any such other
Obligor,
(b) unless prohibited by applicable law and regulations, to vote on
behalf of the Holders of the Securities in any election of a trustee or a
standby trustee in arrangement, reorganization, liquidation or other bankruptcy
or insolvency proceedings or Person performing similar functions in comparable
proceedings, and
(c) to collect and receive any moneys or other Property or assets
payable or deliverable on any such claims, and to distribute all amounts
received with respect to the claims of the Holders and of the Trustee on their
behalf; and any trustee, receiver, or liquidator, custodian or other similar
official is hereby authorized by each of the Holders to make payments to the
Trustee, and, in the event that the Trustee shall consent to the making of
payments directly to the Holders, to pay to the Trustee such amounts as shall
be sufficient to cover all amounts owing to the Trustee and each predecessor
Trustee pursuant to Section 7.07.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or vote for or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement, adjustment or composition affecting
the Securities or the rights of any Holder thereof, or to authorize the Trustee
to vote in respect of the claim of any Holder in any such proceeding except, as
aforesaid, to vote for the election of a trustee in bankruptcy or similar
person.
In any proceedings brought by the Trustee (and also any proceedings
involving the interpretation of any provision of this Indenture to which the
Trustee shall be a party), the Trustee shall be held to represent all the
Holders of the Securities, and it shall not be necessary to make any Holders of
the Securities parties to any such proceedings.
SECTION 6.10. Priorities. If the Trustee collects any money or
property pursuant to this Article 6, it shall pay out the money or property in
the following order:
FIRST: to the Trustee for amounts due under Section 7.07;
SECOND: to Holders for amounts due and unpaid on the Securities for
principal and interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Securities for
principal (premium, if any) and interest, respectively; and
THIRD: to the Company or the Guarantors or to such other party as a
court of competent jurisdiction shall direct.
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The Trustee may fix a record date and payment date for any payment to
Holders pursuant to this Section. At least 15 days before such record date, the
Company shall mail to each Holder and the Trustee a notice that states the
record date, the payment date and amount to be paid. The Trustee may mail such
notice in the name and at the expense of the Company.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees, against any party litigant in the
suit, having due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section does not apply to a suit by the
Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by Holders of
more than 10% in principal amount at Stated Maturity of the Securities.
SECTION 6.12. Restoration of Rights and Remedies. If the Trustee or
any Holder of Securities has instituted any proceeding to enforce any right or
remedy under this Indenture and such proceeding has been discontinued or
abandoned for any reason, or has been determined adversely to the Trustee or to
such Holder, then and in every such case the Company, the Trustee and the
Holders shall, subject to any determination in such proceeding, be restored
severally and respectively to their former positions hereunder, and thereafter
all rights and remedies of the Trustee and the Holders shall continue as though
no such proceeding has been instituted.
SECTION 6.13. Rights and Remedies Cumulative. Except as otherwise
provided in Section 2.08 hereof, no right or remedy conferred herein, upon or
reserved to the Trustee or to the Holders is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent
permitted by law, be cumulative and in addition to every other right and remedy
given hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder, or otherwise,
shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
SECTION 6.14. Delay or Omission Not Waiver. No delay or omission of
the Trustee or of any Holder of any Security to exercise any right or remedy
accruing upon any Event of Default shall impair any such right or remedy or
constitute a waiver of any such Event of Default or an acquiescence therein.
Every right and remedy given by this Article 6 or by law to the Trustee or to
the Holders may be exercised from time to time, and as often as may be deemed
expedient, by the Trustee or by the Holders, as the case may be.
ARTICLE 7
Trustee
SECTION 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee
shall exercise the rights and powers vested in it by this Indenture and use the
same degree of care and skill in their exercise as a prudent Person would
exercise or use under the circumstances in the conduct of such Person's own
affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only such
duties as are specifically set forth in this Indenture and no implied
covenants or obligations shall be read into this Indenture against the
Trustee; and
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(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness
of the opinions expressed therein, upon certificates or opinions furnished
to the Trustee and conforming to the requirements of this Indenture.
However, the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own willful
misconduct, except that:
(1) this subsection does not limit the effect of subsection (b) of
this Section;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to subsections (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money received
by it except as the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee to expend
or risk its own funds or otherwise incur financial liability in the performance
of any of its duties hereunder or in the exercise of any of its rights or
powers, if it shall have reasonable grounds to believe that repayment of such
funds or adequate indemnity against such risk or liability is not reasonably
assured to it.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the Trust
Indenture Act.
SECTION 7.02. Rights of Trustee.
(a) Subject to the provisions of Section 7.01(a) hereof, the
Trustee may rely on any document believed by it to be genuine and to have been
signed or presented by the proper Person. The Trustee need not investigate any
fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel. The Trustee shall
not be liable for any action it takes or omits to take in good faith in
reliance on the Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes
or omits to take in good faith which it believes to be authorized or within its
rights or powers; provided, however, that the Trustee's conduct does not
constitute willful misconduct or negligence.
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(e) The Trustee may consult with counsel, and the advice or
opinion of counsel with respect to legal matters relating to this Indenture and
the Securities shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder
in good faith and in accordance with the advice or opinion of such counsel.
(f) Prior to the occurrence of an Event of Default hereunder
and after the curing or waiving of all Events of Default, the Trustee shall not
be bound to make any investigation into the facts or matters stated in any
resolution, Officer's Certificate, or other certificate, statement, instrument,
opinion, report, notice, request, consent, order, approval, appraisal, bond,
debenture, note, coupon, security, or other paper or document unless requested
in writing to do so by the Holders of not less than a majority in aggregate
principal amount of the Securities then outstanding; provided, that if the
payment within a reasonable time to the Trustee of the costs, expenses or
liabilities likely to be incurred by it in the making of such investigation is,
in the opinion of the Trustee, not reasonably assured to the Trustee by the
security afforded to it by the terms of this Indenture, the Trustee may require
reasonable indemnity against such expenses or liabilities as a condition to
proceeding; the reasonable expenses of every such examination shall be paid by
the Company or, if advanced by the Trustee, shall be repaid by the Company upon
demand.
(g) The Trustee shall not be required to give any bond or surety
in respect of the performance of its powers and duties hereunder.
(h) The Trustee shall not be bound to ascertain or inquire as
to the performance or observance of any covenants, conditions, or agreements on
the part of the Company, except as otherwise set forth herein, but the Trustee
may require of the Company full information and advice as to the performance of
the covenants, conditions and agreements contained herein and shall be entitled
in connection herewith to examine the books, records and premises of the
Company.
(i) The permissive rights of the Trustee to do things enumerated
in this Indenture shall not be construed as a duty.
(j) Except for (i) a default under Section 6.01(a) or (b), or
(ii) any other event of which the Trustee has "actual knowledge" and which
event, with the giving of notice or the passage of time or both, would
constitute an Event of Default under this Indenture, the Trustee shall not be
deemed to have notice of any Default or Event of Default unless specifically
notified in writing of such event by the Company or the Holders of not less
than 25% in aggregate principal amount at Stated Maturity of the Securities
then outstanding; provided that the Trustee shall comply with the "automatic
stay" provisions contained in the U.S. bankruptcy laws, if applicable; and as
used herein, the term "actual knowledge" means the actual fact or statement of
knowing by a Responsible Officer, without any duty to make any investigation
with regard thereto.
SECTION 7.03. Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or its Affiliates with the same rights
it would have if it were not Trustee. Any Paying Agent, Registrar, co-registrar
or co-paying agent may do the same with like rights. However, the Trustee must
comply with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the Company's
use of the proceeds from the Securities, and it shall not be responsible for
any statement of the Company in this Indenture or in any document issued in
connection with the sale of the Securities or in the Securities other than the
Trustee's certificate of authentication.
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SECTION 7.05. Notice of Defaults. If a Default occurs and is
continuing and if it is known to the Trustee, the Trustee shall mail to each
Holder notice of the Default within 90 days after it occurs. Except in the case
of a Default in payment of principal of (or premium, if any) or interest on any
Security (including payments pursuant to the mandatory repurchase provisions of
such Security, if any), the Trustee may withhold the notice if and so long as
the Trustee in good faith determines that withholding the notice is in the
interests of Holders.
SECTION 7.06. Reports by Trustee to Holders. As promptly as
practicable after May 15 beginning with the May 15 following the date of this
Indenture, and in any event prior to August 15 in each year, the Trustee shall
mail to each Holder a brief report dated as of such date that complies with TIA
Section 313(a) if and to the extent required by TIA Section 313(a). The Trustee
also shall comply with TIA Sections 313(b) and 313(c).
A copy of each report at the time of its mailing to Holders shall be
filed with the Commission and each stock exchange (if any) on which the
Securities are listed. The Company agrees to notify promptly the Trustee
whenever the Securities become listed on any stock exchange and of any
delisting thereof.
SECTION 7.07. Compensation and Indemnity. The Company shall pay to the
Trustee promptly upon request from time to time the compensation for its
services as agreed to by the Trustee and the Company. The Trustee's
compensation shall not be limited by any law on compensation of a trustee of an
express trust. The Company shall reimburse the Trustee promptly upon request
for all reasonable out-of-pocket expenses incurred or made by it, including
costs of collection, in addition to the compensation for its services. Such
expenses shall include the reasonable compensation and expenses, disbursements
and advances of the Trustee's agents, counsel, accountants and experts. The
Company shall indemnify the Trustee against any and all loss, liability or
reasonable expense (including reasonable attorneys' fees) incurred by it in
connection with the acceptance and administration of this trust and the
performance of its duties hereunder. The Trustee shall notify the Company
promptly of any claim for which it may seek indemnity. Failure by the Trustee
to so notify the Company shall not relieve the Company of its obligations
hereunder. The Company shall defend the claim and the Trustee may have separate
counsel and the Company shall pay the fees and expenses of such counsel. The
Company need not reimburse any expense or indemnify against any loss, liability
or expense incurred by the Trustee through the Trustee's own willful
misconduct, negligence or bad faith. The Company need not pay for any
settlement made by the Trustee without the Company's consent, such consent not
to be unreasonably withheld.
To secure the Company's payment obligations in this Section, the
Trustee shall have a Lien prior to the Securities on all money or property held
or collected by the Trustee other than money or property held in trust to pay
principal of and interest on particular Securities.
The Company's payment obligations pursuant to this Section shall
survive the discharge of this Indenture. When the Trustee incurs expenses after
the occurrence of a Default specified in Section 6.01(g) or (h) with respect to
the Company, the expenses are intended to constitute expenses of administration
under any applicable bankruptcy laws.
SECTION 7.08. Replacement of Trustee. The Trustee may resign at any
time by so notifying the Company. The Holders of a majority in principal amount
at Stated Maturity of the Securities may remove the Trustee by so notifying the
Trustee and may appoint a successor Trustee. If at any time:
(i) the Trustee shall fail to comply with Section 310(b) of the
Trust Indenture Act after written request thereof by the Company or by any
Holder who has been a bona fide Holder of a Security for at least six
months, unless the Trustee's duty to resign is stayed in accordance with
the provisions of TIA Section 310(b); or
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(ii) the Trustee shall cease to be eligible under Section 7.10
hereof and shall fail to resign after written request therefor by the
Company or by any Holder; or
(iii) the Trustee shall become incapable of acting or a decree or
order for relief by a court having jurisdiction in the premises shall have
been entered in respect of the Trustee in an involuntary case under the
United States bankruptcy laws, as now or hereafter constituted, or any
other applicable federal or state bankruptcy, insolvency or similar law,
or a decree or order by a court having jurisdiction in the premises shall
have been entered for the appointment of a receiver, custodian,
liquidator, assignee, trustee, sequestrator (or other similar official) of
the Trustee or of its Property and assets or affairs, or any public
officer shall take charge or control of the Trustee or of its Property and
assets or affairs for the purpose of rehabilitation, conservation,
winding-up or liquidation; or
(iv) the Trustee shall commence a voluntary case under the
United States bankruptcy laws, as now or hereafter constituted, or any
other applicable federal or state bankruptcy, insolvency or similar law or
shall consent to the appointment of or taking possession by a receiver,
custodian, liquidator, assignee, trustee, sequestrator (or other similar
official) of the Trustee or of its Property and assets or affairs, or
shall make an assignment for the benefit of creditors, or shall admit in
writing its inability to pay its debts generally as they become due, or
shall take corporate action in furtherance of any such action,
then, in any such case, (i) the Company by a Board Resolution may remove the
Trustee with respect to the Securities, or (ii) subject to Section 6.11 hereof,
any Holder who has been a bona fide Holder of a Note for at least six months
may, on behalf of such Holder and all others similarly situated, petition any
court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor Trustee for the Securities.
If the Trustee resigns, is removed by the Company or by the Holders of
a majority in principal amount at Stated Maturity of the Securities and such
Holders do not reasonably promptly appoint a successor Trustee, or if a vacancy
exists in the office of Trustee for any reason (the Trustee in such event being
referred to herein as the retiring Trustee), the Company shall promptly appoint
a successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Holders. The retiring Trustee shall promptly transfer all
property held by it as Trustee to the successor Trustee, subject to the Lien
provided for in Section 7.07.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee or the Holders of
10% in principal amount at Stated Maturity of the Securities may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Holder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this
Section, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
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SECTION 7.09. Successor Trustee by Merger. If the Trustee consolidates
with, merges or converts into, or transfers all or substantially all its
corporate trust business or assets to, another corporation or banking
association, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.
In case at the time such successor or successors by merger, conversion
or consolidation to the Trustee shall succeed to the trusts created by this
Indenture any of the Securities shall have been authenticated but not
delivered, any such successor to the Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such Securities so
authenticated; and in case at that time any of the Securities shall not have
been authenticated, any successor to the Trustee may authenticate such
Securities either in the name of any predecessor hereunder or in the name of
the successor to the Trustee; and in all such cases such certificates shall
have the full force which it is anywhere in the Securities or in this Indenture
provided that the certificate of the Trustee shall have.
SECTION 7.10. Eligibility; Disqualification. The Trustee shall at all
times satisfy the requirements of TIA Section 310(a). The Trustee shall have a
combined capital and surplus of at least $100,000,000 as set forth in its most
recent published annual report of condition. The Trustee shall comply with TIA
Section 310(b); provided, however, that there shall be excluded from the
operation of TIA Section 310(b)(1) any indenture or indentures under which
other securities or certificates of interest or participation in other
securities of the Company are outstanding if the requirements for such
exclusion set forth in TIA Section 310(b)(1) are met.
SECTION 7.11. Preferential Collection of Claims Against Company. The
Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated therein.
ARTICLE 8
Satisfaction and Discharge
SECTION 8.01. Satisfaction and Discharge. This Indenture
shall upon the request of the Company cease to be of further effect (except as
to surviving rights of registration of transfer or exchange of Securities
herein expressly provided for, the Company's obligations under Sections 7.07
and 8.04 hereof, and the Company's, the Trustee's and the Paying Agent's
obligations under Section 8.03 hereof) and the Trustee, at the expense of the
Company, shall execute proper instruments acknowledging satisfaction and
discharge of this Indenture when
(a) either
(i) all Securities therefore authenticated and
delivered (other than (A) Securities which have been destroyed,
lost or stolen and which have been replaced or paid as provided
in Section 2.08 and (B) Securities for whose payment money has
been deposited in trust with the Trustee or any Paying Agent and
thereafter paid to the Company or discharged from such trust)
have been delivered to the Trustee for cancellation; or
(ii) all such Securities not theretofore
delivered to the Trustee for cancellation
(A) have become due and payable; or
(B) will become due and payable at their Stated
Maturity within one year, or
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(C) are to be called for redemption within one
year under arrangements satisfactory to the Trustee for the
giving of notice of redemption by the Trustee in the name, and
at the expense, of the Company,
and the Company, in the case of clause (A), (B) or (C) above, has
irrevocably deposited or caused to be deposited with the Trustee as
trust funds in trust for such purpose money or U.S. Government
Obligations in an amount sufficient (as certified by an independent
public accountant designated by the Company) to pay and discharge the
entire indebtedness of such Securities not theretofore delivered to
the Trustee for cancellation, for principal (and premium, if any) and
interest, if any, to the date of such deposit (in the case of
Securities which have become due and payable) or the Stated Maturity
or Redemption Date, as the case may be;
(b) the Company has paid or caused to be paid all other
sums then due and payable hereunder by the Company;
(c) no Default or Event of Default with respect to the
Securities shall have occurred and be continuing on the date of such deposit
and after giving effect to such deposit; and
(d) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and discharge of
this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this
Indenture, the Company's obligations in Sections 2.03, 2.04, 2.06, 2.08, 2.11,
7.07, 7.08, 8.02, 8.03 and 8.04, and the Trustee's and Paying Agent's
obligations in Section 8.03 shall survive until the Securities are no longer
outstanding. Thereafter, only the Company's obligations in Sections 7.07, 8.03
and 8.04 and the Trustee's and Paying Agent's obligations in Section 8.03 shall
survive.
In order to have money available on a payment date to pay
principal (and premium, if any, on) or interest on the Securities, the U.S.
Government Obligations shall be payable as to principal (and premium, if any)
or interest at least one Business Day before such payment date in such amounts
as will provide the necessary money. U.S. Government Obligations shall not be
callable at the issuer's option.
SECTION 8.02. Application of Trust. All money deposited with
the Trustee pursuant to Section 8.01 shall be held in trust and, at the written
direction of the Company, be invested prior to maturity in U.S. Government
Obligations, and applied by the Trustee in accordance with the provisions of
the Securities and this Indenture, to the payment, either directly or through
any Paying Agent as the Trustee may determine, to the Persons entitled thereto,
of the principal (and premium, if any) and interest for the payment of which
money has been deposited with the Trustee; but such money need not be
segregated from other funds except to the extent required by law.
SECTION 8.03. Repayment to the Company.
The Trustee and the Paying Agent shall promptly pay to the
Company upon written request any excess money or securities held by them at any
time.
The Trustee and the Paying Agent shall pay to the Company
upon written request any money held by them for the payment of principal or
interest that remains unclaimed for two years after the date upon which such
payment shall have become due; provided that the Company shall have either
caused notice of such payment to be mailed to each Securityholder entitled
thereto no less than 30 days prior to such repayment or within such period
shall have published such notice in a financial newspaper of widespread
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circulation published in The City of New York, including, without limitation,
The Wall Street Journal. After payment to the Company, Holders entitled to the
money must look to the Company for payment as general creditors unless an
applicable abandoned property law designates another Person, and all liability
of the Trustee and such Paying Agent with respect to such money shall cease.
SECTION 8.04. Reinstatement.
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with Section 8.01 by reason of any legal
proceeding or by reason of any order or judgment of any court of governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Company's and Guarantors' obligations under this Indenture, the Securities and
the Guarantees shall be revived and reinstated as though no deposit has
occurred pursuant to Section 8.01 until such time as the Trustee or Paying
Agent is permitted to apply all such money or U.S. Government Obligations in
accordance with Section 8.02; provided, however, that if the Company or the
Guarantors have made any payment of interest on or principal of any Securities
because of the reinstatement of their Obligations, the Company or such
Guarantors shall be subrogated to the rights of the Holders of such Securities
to receive such payment from the money or U.S. Government Obligations held by
the Trustee or Paying Agent.
ARTICLE 9
Defeasance
SECTION 9.01. Company's Option to Effect Defeasance or Covenant
Defeasance. The Company may elect, at its option, at any time, to have Section
9.02 or Section 9.03 hereof applied to the outstanding Securities (in whole and
not in part) upon compliance with the conditions set forth below in this
Article 9, such election to be evidenced by a Board Resolution delivered to the
Trustee.
SECTION 9.02. Defeasance and Discharge. Upon the Company's
exercise of its option to have this Section 9.02 applied to the outstanding
Securities (in whole and not in part), the Company shall be deemed to have been
discharged from its Obligations with respect to such Securities as provided in
this Section 9.02 on and after the date on which the conditions set forth in
Section 9.04 hereof are satisfied (hereinafter called "Defeasance"). For this
purpose, Defeasance means that the Company shall be deemed to have paid and
discharged the entire indebtedness represented by such Securities and the
Company and the Guarantors shall be deemed to have satisfied all of their other
obligations under such Securities, this Indenture and the Guarantees (and the
Trustee, at the expense of the Company, shall execute proper instruments
acknowledging the same), subject to the following which shall survive until
otherwise terminated or discharged hereunder:
(a) the rights of Holders of such Securities to receive, solely
from the trust fund described in Section 9.04 hereof and as more fully set
forth in Section 9.04, payments in respect of the principal of and any premium
and interest on such Securities when payments are due,
(b) the Company's obligations with respect to such Securities
under Sections 2.06, 2.08, 2.10, 4.15, 4.16 and 4.17 hereof,
(c) the rights, powers, trusts, duties and immunities of the
Trustee under this Indenture,
(d) Article 3 hereof, and
(e) this Article 9.
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Subject to compliance with this Article 9, the Company may
exercise its option to have this Section 9.02 applied to the outstanding
Securities notwithstanding the prior exercise of its option to have Section
9.03 hereof applied to such Securities.
SECTION 9.03. Covenant Defeasance. Upon the Company's exercise of its
option to have this Section 9.03 applied to the outstanding Securities (in
whole and not in part), (i) the Company and the Guarantors shall be released
from their respective obligations under Sections 5.01 and 5.02, Sections 4.02
through 4.14, inclusive, Sections 4.18, 4.19 and 4.21 and any covenant added to
this Indenture subsequent to the Issue Date pursuant to Section 10.01 hereof,
and (ii) the occurrence of any event specified in Section 6.01(c) or 6.01(d)
hereof, with respect to any of Sections 5.01 and 5.02, Sections 4.03 through
4.14, inclusive, Sections 4.18, 4.19 and 4.21, and any covenant added to this
Indenture subsequent to the Issue Date pursuant to Section 10.01 hereof, shall
be deemed not to be or result in an Event of Default, in each case with respect
to such Securities as provided in this Section 9.03 on and after the date on
which the conditions set forth in Section 9.04 hereof are satisfied
(hereinafter called "Covenant Defeasance"). For this purpose, Covenant
Defeasance means that, with respect to such Securities, the Company and the
Guarantors may omit to comply with and shall have no liability in respect of
any term, condition or limitation set forth in any such specified Section (to
the extent so specified in the case of Section 6.01(c) and 6.01(d) hereof),
whether directly or indirectly by reason of any reference elsewhere herein to
any such Section or by reason of any reference in any such Section to any other
provisions herein or in any other document; but the remainder of this
Indenture, the Guarantees and such Securities shall be unaffected thereby.
SECTION 9.04. Conditions to Defeasance or Covenant Defeasance. The
following shall be the conditions to the application of Section 9.03 or Section
9.04 hereof to the outstanding Securities:
(a) The Company shall irrevocably have deposited or caused to be
deposited with the Trustee as trust funds in trust for the purpose of making
the following payments, specifically pledged as security for, and dedicated
solely to the benefits of the Holders of such Securities, (i) money in an
amount, or (ii) U.S. Government Obligations which through the scheduled payment
of principal and interest in respect thereof in accordance with their terms
will provide, not later than one Business Day before the due date of any
payment, money in an amount, or (iii) a combination thereof, in each case
sufficient, in the opinion of a nationally recognized firm of independent public
accountants expressed in a written certification thereof delivered to the
Trustee, to pay and discharge the principal of (premium, if any on) and any
installment of interest on such Securities on the Stated Maturity thereof, in
accordance with the terms of this Indenture and such Securities.
(b) In the event of an election to have Section 9.02 hereof apply to
the outstanding Securities, the Company shall have delivered to the Trustee an
Opinion of Counsel stating that (i) the Company has received from, or there has
been published by, the Internal Revenue Service a ruling or (ii) since the date
of this Indenture, there has been a change in the applicable United States
federal income tax law, in either case (i) or (ii) to the effect that, and
based thereon such opinion shall confirm that, the Holders of such Securities
will not recognize gain or loss for United States federal income tax purposes
as a result of the deposit, Defeasance and discharge to be effected with
respect to such Securities and will be subject to United States federal income
tax in the same amount, in the same manner and at the same times as would be
the case if such deposit, Defeasance and discharge were not to occur.
(c) In the event of an election to have Section 9.03 hereof apply to
the outstanding Securities, the Company shall have delivered to the Trustee an
Opinion of Counsel to the effect that the Holders of such Securities will not
recognize gain or loss for United States federal income tax purposes as a
result of the deposit and Covenant Defeasance to be effected with respect to
such Securities and will be subject to United States federal income tax in the
same amount, in the same manner and at the same times as would be the case if
such deposit, Covenant Defeasance and discharge were not to occur.
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(d) No Default or Event of Default with respect to the outstanding
Securities shall have occurred and be continuing at the time of such deposit
after giving effect thereto or and no Default or Event of Default under Section
6.01(g) or 6.01(h) shall have occurred at any time on or prior to the 91st day
after the date of such deposit and be continuing on such 91st day (it being
understood that this condition shall not be deemed satisfied until after such
91st day).
(e) Such Defeasance or Covenant Defeasance shall not cause the Trustee
to have a conflicting interest within the meaning of the Trust Indenture Act
(assuming for the purpose of this clause (e) that all Securities are in default
within the meaning of such Act).
(f) Such Defeasance or Covenant Defeasance shall not result in a
breach or violation of, or constitute a default under, any other agreement or
instrument to which the Company or the Guarantor is a party or by which it is
bound.
(g) Such Defeasance or Covenant Defeasance shall not result in the
trust arising from such deposit constituting an investment company within the
meaning of the Investment Company Act of 1940, as amended, unless such trust
shall be registered under such Act or exempt from registration thereunder.
(h) The Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent with respect to such Defeasance or Covenant Defeasance have been
complied with.
SECTION 9.05. Deposited Money and U.S. Government Obligations to be
Held in Trust; Miscellaneous Provisions. Subject to Section 9.06 hereof, all
money and U.S. Government Obligations (including the proceeds thereof)
deposited with the Trustee pursuant to Section 9.04 hereof in respect of the
outstanding Securities shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any such Paying Agent as the Trustee may
determine, to the Holders of such Securities, of all sums due and to become due
thereon in respect of principal and any premium and interest, but money so held
in trust need not be segregated upon other funds except to the extent required
by law. The Company shall pay and indemnity the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Government Obligations
deposited pursuant to Section 9.04 hereof or the principal and interest
received in respect thereof other than such tax, fee or other charge imposed on
or assessed against the U.S. Government Obligations deposited pursuant to
Section 9.04 hereof or the principal and interest received in respect thereof
other than any such tax, fee or other charge which by law is for the account of
the Holders of outstanding Securities.
Anything in this Article 9 to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Order any money or U.S. Government Obligations held by it as provided in
Section 9.04 hereof which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof that would then
be required to be deposited to effect the Defeasance or Covenant Defeasance, as
the case may be, with respect to the outstanding Securities.
SECTION 9.06. Repayment to Company. Any money deposited with the
Trustee or any Paying Agent, or then held by the Company, in trust for the
payment of the principal of, premium, if any, or interest, if any, on any
Security and remaining unclaimed for two years after such principal, premium,
if any, or interest, if any, have become due and payable shall be paid to the
Company on its request or (if then held by the Company) shall be discharged
from such trust; and the Holder of such Security shall thereafter, as an
unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Company
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as trustee thereof, shall thereupon cease; provided that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published once, in the New York Times and
The Wall Street Journal (national edition), notice that such money remains
unclaimed and that, after a date specified therein, which shall not be less
than 30 days from the date of such notification or publication, any unclaimed
balance of such money then remaining will be repaid to the Company.
SECTION 9.07. Reinstatement. If the Trustee or Paying Agent is unable
to apply any money in accordance with this Article 9 with respect to any Notes
by reason of any order or judgment of any court or governmental authority
enjoining, restraining or otherwise prohibiting such application, then the
obligations under this Indenture, the Guarantees and such Securities from which
the Company or the Guarantors have been discharged or released pursuant to
Section 9.02 or 9.03 hereof shall be revived and reinstated as though no
deposit had occurred pursuant to this Article 9 with respect to such
Securities, until such time as the Trustee or Paying Agent is permitted to
apply all money held in trust pursuant to Section 9.05 hereof with respect to
such Securities in accordance with this Article 9; provided that if the Company
or any Guarantor makes any payment of principal of, premium, if any, or
interest on any such Security following such reinstatement of its obligations,
the Company or such Guarantor, as the case may be, shall be subrogated to the
Holders of such Securities to receive such payment from the money so held in
trust.
ARTICLE 10
Amendments
SECTION 10.01. Without Consent of Holders.
(a) The Company, the Guarantors and the Trustee may at any time and
from time to time, without notice to or consent of any Holder, enter into one
or more indentures supplemental hereto, in form satisfactory to the Trustee,
for any of the following purposes:
(i) to evidence the succession of another Person to the
Company and the Guarantors and the assumption by such successor of
the covenants and Obligations of the Company under this Indenture and
contained in the Securities and the Guarantors contained in this
Indenture and the Guarantees;
(ii) to add to the covenants of the Company, for the benefit of
the Holders, or to surrender any right or power conferred upon the
Company or the Guarantors by this Indenture;
(iii) to add any additional Events of Default;
(iv) to provide for uncertificated Securities in addition to or
in place of certificated Securities;
(v) to evidence and provide for the acceptance of appointment
under this Indenture by the successor Trustee;
(vi) to secure the Securities and/or the Guarantees;
(vii) to cure any ambiguity, to correct or supplement any
provision in this Indenture which may be inconsistent with any other
provision therein or to add any other provisions
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with respect to matters or questions arising under the Indenture,
provided that such actions will not adversely affect the interests of
the holders in any material respect; or
(viii) to add or release any Guarantor pursuant to the terms of
this Indenture.
SECTION 10.02. With Consent of Holders. With the consent of the
Holders of at least a majority of the principal amount at Stated Maturity of
the outstanding Securities (including consents obtained in connection with a
tender offer or an exchange offer for the Securities), by Act delivered to the
Company, the Guarantors and the Trustee, the Company, the Guarantors and the
Trustee may enter into one or more indentures supplemental hereto for the
purpose of adding any provisions to or changing or eliminating any of the
provisions of this Indenture or modifying the rights of the Holders of the
Securities, provided that no such supplemental indenture, without the consent
of the holder of each outstanding security affected thereby, will:
(a) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, or reduce the principal amount thereof
(or any premium, if any), or the interest thereon, that would be due and
payable upon Maturity thereof, or change the place of payment where, or in the
coin or currency in which, any Security or any premium or interest thereon is
payable, or impair the right to institute suit for the enforcement of any such
payment on or after the Maturity thereof; or
(b) reduce the percentage in principal amount of the outstanding
Securities, the consent of whose Holders is required for any such supplemental
indenture or required for any waiver of compliance with the provisions of this
Indenture; or
(c) modify any of the provisions of Section 6.04 hereof, except
to increase the percentage set forth therein or to provide that certain other
provisions of this Indenture cannot be amended or waived without the consent of
the Holder of each outstanding Security affected thereby; or
(d) subordinate in right of payment, or otherwise subordinate,
the Securities or the Guarantees to any other Indebtedness; or
(e) modify any provision of this Indenture relating to the
obligations of the Company to make offers to purchase Securities upon a Change
of Control or from the proceeds of an Asset Sale; or
(f) modify any of the provisions of this Section 10.02 except to
increase any percentage set forth herein or to provide that certain other
provisions of this Indenture cannot be modified or waived without the consent
of the Holders of each outstanding Security affected thereby; or
(g) amend, supplement or otherwise modify the provisions of the
Indenture relating to the Guarantees.
It shall not be necessary for any Act of Holders under this Section
10.02 to approve the particular form of any proposed supplemental indenture,
but it shall be sufficient if such Act shall approve the substance thereof.
SECTION 10.03. Effect of Supplemental Indentures. Upon the execution
of any supplemental indenture under this Article 10, this Indenture shall be
modified in accordance therewith, and such supplemental indenture shall form a
part of this Indenture for all purposes; and every Holder of Securities
theretofore or thereafter authenticated and delivered hereunder shall be bound
thereby. After a Supplemental Indenture becomes effective, the Company shall
mail to Holders a notice briefly describing such amendment. The failure to give
such notice to all Holders, or any defect therein, shall not impair or affect
the validity of an amendment under this Section.
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SECTION 10.04. Compliance with Trust Indenture Act. Every amendment to
this Indenture or the Securities shall comply with the Trust Indenture Act as
then in effect.
SECTION 10.05. Revocation and Effect of Consents and Waivers.
(a) A consent to an amendment or a waiver by a Holder of a Security
shall bind the Holder and every subsequent Holder of that Security or
portion of the Security that evidences the same debt as the consenting Holder's
Security, even if notation of the consent or waiver is not made on the
Security. However, any such Holder or subsequent Holder may revoke the consent
or waiver as to such Holder's Security or portion of the Security if the
Trustee receives the notice of revocation before the date the amendment or
waiver becomes effective. After an amendment or waiver becomes effective, it
shall bind every Holder. An amendment or waiver becomes effective upon the
execution of a supplemental indenture containing such amendment or waiver by
the Trustee.
(b) The Company may, but shall not be obligated to, fix a record date
for the purpose of determining the Holders entitled to give their consent or
take any other action described above or required or permitted to be taken
pursuant to this Indenture. If a record date is fixed, then notwithstanding the
immediately preceding subsection, those Persons who were Holders at such record
date (or their duly designated proxies), and only those Persons, shall be
entitled to give such consent or to revoke any consent previously given or to
take any such action, whether or not such Persons continue to be Holders after
such record date. No such consent shall be valid or effective for more than 120
days after such record date.
SECTION 10.06. Notation on or Exchange of Securities. If an amendment
changes the terms of a Security, the Trustee may require the Holder of the
Security to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Security regarding the changed terms and return it to the
Holder. Alternatively, if the Company or the Trustee so determines, the Company
in exchange for the Security shall issue and the Trustee shall authenticate a
new Security that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Security shall not affect the validity of such
amendment.
SECTION 10.07. Trustee To Execute Supplemental Indentures. The
Trustee shall execute any supplemental indenture authorized pursuant to this
Article 10 if such supplemental indenture does not adversely affect the rights,
duties, liabilities or immunities of the Trustee. If it does, the Trustee may,
but shall not be required to, execute such supplemental indenture. In executing
any supplemental indenture, the Trustee shall be entitled to receive indemnity
reasonably satisfactory to it and to receive, and (subject to Section 7.01
hereof) shall be fully protected in relying upon, an Officers' Certificate
(which need only cover the matters set forth in clause (a) below) and an
Opinion of Counsel provided by the Company stating that:
(a) such supplemental indenture is authorized or permitted by this
Indenture and that all conditions precedent to the execution, delivery and
performance of such supplemental indenture have been satisfied:
(b) the Company and the Guarantors have all necessary corporate power
and authority to execute and deliver the supplemental indenture and that the
execution, delivery and performance of such supplemental indenture has been
duly authorized by all necessary corporate action of the Company and the
Guarantors;
(c) the execution, delivery and performance of the supplemental
indenture do not conflict with, or result in the breach of or constitute a
default under any of the terms, conditions or provisions of (i) this Indenture,
(ii) the charter documents and by-laws of the Company or any Guarantor, or
(iii) any material agreement or instrument to which the Company or any
Guarantor is subject and of which such counsel is aware;
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(d) to the knowledge of legal counsel writing such Opinion of
Counsel, the execution, delivery and performance of the supplemental indenture
do not conflict with, or result in the breach of any of the terms, conditions
or provisions of (i) any law or regulation applicable to the company or any
Guarantor, or (ii) any material order, writ, injunction or decree of any court
or governmental instrumentality applicable to the Company or any Guarantor;
(e) such supplemental indenture has been duly and validly executed
and delivered by the Company and the Guarantors, and the Indenture together
with such supplemental indenture constitutes a legal, valid and binding
obligations of the Company and the Guarantors enforceable against the Company
and the Guarantors, as applicable, in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency, or similar
laws affecting the enforcement of creditors' rights generally and general
equitable principles; and
(f) the Indenture together with such amendment or supplement
complies with the Trust Indenture Act.
SECTION 10.08. Payment for Consent. Neither the Company nor any
Affiliate of the Company shall, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any Holder
for or as an inducement to any consent, waiver or amendment of any of the terms
or provisions of this Indenture or the Securities unless such consideration is
offered to be paid to all Holders that so consent, waive or agree to amend in
the time frame set forth in solicitation documents relating to such consent,
waiver or agreement.
ARTICLE 11
Guarantees
SECTION 11.01. Guarantees.
(a) For good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, each of the Guarantors, together with each
Subsidiary of the Company which in accordance with Section 11.07 is required in
the future to guarantee the Obligations of the Company and the Guarantors under
the Securities, the Guarantees and this Indenture upon execution of a
supplemental indenture, hereby jointly and severally and irrevocably and
unconditionally guarantees to the Trustee and to each Holder of a Security
authenticated and delivered by the Trustee irrespective of the validity or
enforceability of this Indenture or the Securities or the Obligations of the
Company and the Guarantors under this Indenture, that: (i) the principal of,
premium, if any, and any interest, on the Securities (including, without
limitation, any interest that accrues after the filing of a proceeding of the
type described in Sections 6.01(g) and (h)) and any fees, expenses and other
amounts owing under this Indenture will be duly and punctually paid in full
when due, whether at Stated Maturity, by acceleration, call for redemption,
upon a Change of Control Offer, Asset Sale Offer, purchase or otherwise, and
interest on the overdue principal and (to the extent permitted by law)
interest, if any, on the Securities and any other amounts due in respect of the
Securities, and all other Obligations of the Company and the Guarantors to the
Holders of the Securities under this Indenture and the Securities, whether now
or hereafter existing, will be promptly paid in full or performed, all strictly
in accordance with the terms hereof, and of the Securities; and (ii) in case of
any extension of time of payment or renewal of any Securities or any of such
other Obligations, the same will be promptly paid in full when due or performed
in accordance with the terms of the extension or renewal, whether at Stated
Maturity, by acceleration, call for redemption, upon Change of Control Offer,
Asset Sale Offer, purchase or otherwise. If payment is not made when due of any
amount so guaranteed for whatever reason, each Guarantor shall be jointly and
severally obligated to pay the same individually whether or not such failure to
pay has become an
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Event of Default which could cause acceleration pursuant to Section 6.02. Each
Guarantor agrees that this is a guarantee of payment and not a guarantee of
collection. An Event of Default under this Indenture or the Securities shall
constitute an Event of Default under this Guarantee, and shall entitle the
Holders to accelerate the Obligations of each Guarantor hereunder in the same
manner and to the same extent as the Obligations of the Company. This Guarantee
is intended to be superior to or pari passu in right of payment with all
Indebtedness of the Guarantors and each Guarantor's Obligations are independent
of any Obligation of the Company or any other Guarantor.
(b) Each Guarantor waives presentation to, demand of, payment from and
protest to the Company of any of the Obligations under this Indenture or the
Securities and also waives notice of protest for nonpayment. Each Guarantor
waives notice of any default under the Securities or the Obligations. The
Obligations of each Guarantor hereunder shall not be affected by (a) the
failure of any Holder or the Trustee to assert any claim or demand or to
enforce any right or remedy against the Company or any other Person under this
Indenture, the Securities or any other agreement or otherwise; (b) any
extension or renewal of any thereof; (c) any rescission, waiver, amendment or
modification of any of the terms or provisions of this Indenture, the
Securities or any other agreement; (d) the release of any security held by any
Holder or the Trustee for the Obligations or any of them; (e) the failure of
any Holder or the Trustee to exercise any right or remedy against any other
guarantor of the Obligations; or (f) any change in the ownership of such
Guarantor.
(c) The Obligations of each Guarantor hereunder shall not be subject
to any reduction, limitation, impairment or termination for any reason,
including any claim of waiver, release, surrender, alteration or compromise,
and shall not be subject to any defense of setoff, counterclaim, recoupment or
termination whatsoever or by reason of the invalidity, illegality or
unenforceability of the Obligations of the Company or otherwise. Without
limiting the generality of the foregoing, the Obligations of each Guarantor
herein shall not be discharged or impaired or otherwise affected by the failure
of any Holder or the Trustee to assert any claim or demand or to enforce any
remedy under this Indenture, the Securities or any other agreement, by any
waiver or modification of any thereof, by any default, failure or delay,
willful or otherwise, in the performance of the Obligations of the Company, or
by any other act or thing or omission or delay to do any other act or thing
which may or might in any manner or to any extent vary the risk of such
Guarantor or would otherwise operate as a discharge of such Guarantor as a
matter of law or equity.
(d) Each Guarantor further agrees that its Guarantee herein shall
continue to be effective or be reinstated, as the case may be, if at any time
payment, or any part thereof, of principal of, premium, if any, or interest on
any Obligation of the Company is rescinded or must otherwise be restored by any
Holder or the Trustee upon the bankruptcy or reorganization of the Company or
otherwise.
(e) In furtherance of the foregoing and not in limitation of any other
right which any Holder or the Trustee has at law or in equity against any
Guarantor by virtue hereof, upon the failure of the Company to pay the
principal of, premium, if any, or interest on any Obligation when and as the
same shall become due, whether at maturity, by acceleration, by redemption or
otherwise, or to perform or comply with any other Obligation, each Guarantor
hereby promises to and will, upon receipt of written demand by the Trustee,
forthwith pay, or cause to be paid, in cash, to the Holders or the Trustee an
amount equal to the sum of (i) the unpaid amount of such Obligations, (ii)
accrued and unpaid interest on such Obligations (but only to the extent not
prohibited by law) and (iii) all other monetary Obligations of the Company to
the Holders and the Trustee.
(f) Until such time as the Securities and the other Obligations of the
Company guaranteed hereby have been satisfied in full, each Guarantor hereby
irrevocably waives any claim or other rights that it may now or hereafter
acquire against the Company or any other Guarantor that arise from the
existence, payment, performance or enforcement of such Guarantor's Obligations
under this Guarantee, including, without limitation, any right of subrogation,
reimbursement, exoneration, contribution or indemnification and
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any right to participate in any claim or remedy of the Holders or the Trustee
against the Company or any other Guarantor or any security, whether or not such
claim, remedy or right arises in equity or under contract, statute or common
law, including, without limitation, the right to take or receive from the
Company or any other Guarantor, directly or indirectly, in cash or other
property or by set-off or in any other manner, payment or security on account
of such claim, remedy or right. If any amount shall be paid to such Guarantor
in violation of the preceding sentence at any time prior to the later of the
payments in full of the Securities and all other amounts payable under this
Indenture, this Guarantee and the Stated Maturity of the Notes, such amount
shall be held in trust for the benefit of the Holders and the Trustee and shall
forthwith be paid to the Trustee to be credited and applied to the Notes and
all other amounts payable under this Guarantee, whether matured or unmatured,
in accordance with the terms of this Indenture, or to be held as security for
any Obligations or other amounts payable under this Guarantee thereafter
arising.
(g) Each Guarantor acknowledges that it will receive direct and
indirect benefits from the financing arrangements contemplated by this
Indenture and that the waiver set forth in this Section 11.01 is knowingly made
in contemplation of such benefits. Each Guarantor further agrees that, as
between it, on the one hand, and the Holders and the Trustee, on the other
hand, (x) subject to this Article 11, the maturity of the Obligations
guaranteed hereby may be accelerated as provided in Article 6 for the purposes
of this Guarantee, notwithstanding any stay, injunction or other prohibition
preventing such acceleration in respect of the Obligations guaranteed hereby,
and (y) in the event of any acceleration of such Obligations guaranteed hereby
as provided in Article 6, such Obligations (whether or not due and payable)
shall further then become due and payable by the Guarantors for the purposes of
this Guarantee.
(h) A Guarantor that makes a distribution or payment under a Guarantee
shall be entitled to contribution from each other Guarantor in a pro rata
amount based on the Adjusted Net Assets of each such other Guarantor for all
payments, damages and expenses incurred by that Guarantor in discharging the
Company's obligations with respect to the Securities and this Indenture or any
other Guarantor with respect to its Guarantee, so long as the exercise of such
right does not impair the rights of the Holders of the Securities under the
Guarantees.
(i) Each Guarantor also agrees to pay any and all costs and expenses
(including reasonable attorneys' fees) incurred by the Trustee or any Holder in
enforcing any rights under this Section.
SECTION 11.02. Limitation on Liability. Any term or provision of this
Indenture to the contrary notwithstanding, the maximum aggregate amount of the
Obligations guaranteed hereunder by any Guarantor shall not exceed the maximum
amount that can be hereby guaranteed without rendering this Indenture, as it
relates to such Guarantor, voidable under applicable law relating to fraudulent
conveyance or fraudulent transfer or similar laws affecting the rights of
creditors generally. To effectuate the foregoing intention, the Obligations of
each Guarantor shall be limited to the maximum amount as will, after giving
effect to all other contingent and fixed liabilities of such Guarantor and
after giving effect to any collections from or payments made by or on behalf of
any other Guarantor in respect of the Obligations of such other Guarantor under
its Guarantee or pursuant to its contribution Obligations hereunder, result in
the obligations of such Guarantor under its Guarantee not constituting a
fraudulent conveyance or fraudulent transfer under federal, state or foreign
law. Each Guarantor that makes a payment or distribution under a Guarantee
shall be entitled to a contribution from each other Guarantor in a pro rata
amount based on the Adjusted Net Assets of each Guarantor.
SECTION 11.03. Execution and Delivery of Guarantees. To further
evidence its Guarantee set forth in Section 11.01 hereof, each Guarantor hereby
agrees that notation of such Guarantee shall be endorsed on each Security
authenticated and delivered by the Trustee and executed by either manual or
facsimile signature of an authorized officer of such Guarantor. Each Guarantor
hereby agrees that its Guarantee set forth in Section 11.01 hereof shall remain
in full force and effect notwithstanding any failure to endorse on each Note a
notation of such Guarantee. If an officer of a Guarantor whose signature is on
this
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Indenture or a Security no longer holds that office at the time the Trustee
authenticates such Security or at any time thereafter, such Guarantor's
Guarantee of such Security shall be valid nevertheless. The delivery of any
Security by the Trustee, after the authentication thereof hereunder, shall
constitute due delivery of any Guarantee set forth in this Indenture on behalf
of the Guarantor.
SECTION 11.04. When a Guarantor May Merge, etc. No Guarantor shall
consolidate with or merge with or into (whether or not such Guarantor is the
surviving person) another corporation, Person or entity whether or not
affiliated with such Guarantor (but excluding any consolidation, amalgamation
or merger if the surviving corporation is no longer a Subsidiary) unless (i)
subject to the provisions of Section 11.07 hereof, the Person formed by or
surviving any such consolidation or merger (if other than such Guarantor)
assumes all the Obligations of such Guarantor pursuant to a supplemental
indenture in form reasonably satisfactory to the Trustee under the Securities
and this Indenture and (ii) immediately after giving effect to such
transaction, no Default or Event of Default exists. In connection with any such
consolidation or merger, the Trustee shall be entitled to receive an Officers'
Certificate and an Opinion of Counsel stating that such consolidation or merger
is permitted by this Section 11.04.
SECTION 11.05. No Waiver. Neither a failure nor a delay on the part of
either the Trustee or the Holders in exercising any right, power or privilege
under this Article 11 shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further exercise of any right,
power or privilege. The rights, remedies and benefits of the Trustee and the
Holders herein expressly specified are cumulative and not exclusive of any
other rights, remedies or benefits which either may have under this Article 11
at law, in equity, by statute or otherwise.
SECTION 11.06. Modification. No modification, amendment or waiver of
any provision of this Article 11, nor the consent to any departure by any
Guarantor therefrom, shall in any event be effective unless the same shall be
in writing and signed by the Trustee, and then such waiver or consent shall be
effective only in the specific instance and for the purpose for which given. No
notice to or demand on any Guarantor in any case shall entitle such Guarantor
to any other or further notice or demand in the same, similar or other
circumstances.
SECTION 11.07. Release of Guarantor. Upon the sale or other transfer
of all of the Capital Stock of a Guarantor to any Person that is not an
Affiliate of the Company in compliance with the terms of this Indenture
(including, without limitation, Section 4.07 hereof), such Guarantor shall be
deemed automatically and unconditionally released and discharged from all
obligations under this Indenture without any further action required on the
part of the Trustee or any Holder; provided that the Net Available Proceeds of
such sale or other disposition are applied in accordance with Section 4.07 of
this Indenture as if such sale or disposition were an Asset Sale and in
accordance with the applicable provisions of this Indenture. The Trustee shall
at the direction and expense of the Company deliver an appropriate instrument or
instruments evidencing such release upon receipt of a request of the Company
accompanied by an Officers' Certificate and Opinion of Counsel certifying as to
the compliance with this Section 11.07 and the other applicable provisions of
this Indenture.
SECTION 11.08. Execution of Supplemental Indenture for Future
Guarantors. Any Wholly Owned Subsidiary that is a domestic Subsidiary or any
other Subsidiary that guarantees any Indebtedness of an Obligor is required to
become a Guarantor and the Company shall cause each such Subsidiary to promptly
execute and deliver to the Trustee a supplemental indenture in the form of
Exhibit C hereto pursuant to which such Subsidiary shall become a Guarantor
under this Article 11 and shall guarantee the Obligations of the Company under
the Securities and this Indenture. Concurrently with the execution and delivery
of such supplemental indenture, the Company shall deliver to the Trustee an
Opinion of Counsel to the effect that such supplemental indenture has been duly
authorized, executed and delivered by such Subsidiary and that, subject to the
application of bankruptcy, insolvency, moratorium, fraudulent conveyance or
transfer and other similar laws relating to creditors' rights generally and to
the principles of equity, whether considered in a proceeding at
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law or in equity, the Guarantee of such Guarantor is a legal, valid and binding
obligation of such Guarantor, enforceable against such Guarantor in accordance
with its terms, and as to any such other matters as the Trustee may reasonably
request.
ARTICLE 12
Miscellaneous
SECTION 12.01. Compliance Certificates and Opinions. Upon any
application or request by the Company or the Guarantors to the Trustee to take
any action under any provision of this Indenture, the Company and the
Guarantors, as applicable, shall furnish to the Trustee, to the extent required
by the TIA or this Indenture, (i) an Officers' Certificate stating that all
conditions precedent, if any, provided for in this Indenture (including any
covenant, compliance with which constitutes a condition precedent) relating to
the proposed action have been complied with and (ii) an Opinion of Counsel
stating that in the opinion of such counsel all such conditions precedent, if
any, have been complied with, except that in the case of any such application
or request as to which the furnishing of such documents is specifically
required by any provision of this Indenture relating to such particular
application or request, no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture shall include:
(1) a statement that each individual signing such certificate or
opinion has read such covenant or condition and the definitions herein relating
thereto;
(2) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions contained in
such certificate or opinion are based;
(3) a statement that, in the opinion of each such individual, he
has made such examination or investigation as is necessary to enable him to
express an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether or not, in the opinion of each such
individual, such condition or covenant has been complied with.
SECTION 12.02. Form of Documents Delivered to Trustee. In any case
where several matters are required to be certified by, or covered by an opinion
of, any specified Person, it is not necessary that all such matters be
certified by, or covered by the opinion of, only one such Person, or that they
be so certified or covered by only one document, but one such Person may
certify or give an opinion with respect to some matters and one or more other
such Persons as to other matters, and any such Person may certify or give an
opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company or any
Guarantor may be based, insofar as it relates to legal matters, upon a
certificate or opinion of, or representations by, counsel, unless such officer
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such certificate or opinion
of counsel may be based, and may state that it is so based, insofar as it
relates to factual matters, upon a certificate or opinion of, or
representations by, an officer or officers of the Company or such Guarantor
stating that the information with respect to such factual matters is in the
possession of the Company or such Guarantor, unless such counsel knows, or in
the exercise of reasonable care should know, that the certificate of opinion or
representations with respect to such matters are erroneous.
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Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 12.03. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by a
specified percentage of Holders may be embodied in and evidenced by one or more
instruments of substantially similar tenor signed by such specified percentage
of Holders in person or by agents duly appointed in writing; and, except as
herein otherwise expressly provided, such action shall become effective when
such instrument or instruments are received by the Trustee and, where it is
hereby expressly required, to the Company and the Guarantors. Such instrument
or instruments (and the action embodied therein and evidenced thereby) are
herein sometimes referred to as the "Act" of the Holders signing such
instrument or instruments. Proof of execution of any such instrument or of a
writing appointing any such agent shall be sufficient for any purpose of this
Indenture and (subject to Sections 7.01 and 7.02) conclusive in favor of the
Trustee, the Company and the Guarantors, if made in the manner provided in this
Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where
such execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner which the Trustee deems sufficient, including the execution
of such instrument or writing without more.
(c) The ownership, principal amount and serial numbers of Securities
held by any Person, and the date of holding the same, shall be proved by the
Security Register.
(d) If the Company shall solicit from the Holders of Securities any
request, demand, authorization, direction, notice, consent, waiver or other
Act, the Company may, at its option, by or pursuant to Board Resolution, fix in
advance a record date for the determination of Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other
Act, but the Company shall have no obligation to do so. Such record date shall
be the record date specified in or pursuant to such Board Resolution, which
shall be a date not earlier than the date 30 days prior to the first
solicitation is completed. If such a record date is fixed, such request,
demand, authorization, direction, notice, consent, waiver or other Act may be
given before or after such record date, but only the Holders of record at the
close of business on such record date shall be deemed to be Holders for the
purposes of determining whether Holders of the requisite proportion of
outstanding Securities have authorized or agreed or consented to such request,
demand, authorization, direction, notice, consent, waiver or other Act, and for
that purpose the outstanding Securities shall be computed as of such record
date; provided that no such authorization, agreement or consent by the Holders
on such record date shall be deemed effective unless it shall become effective
pursuant to the provisions of this Indenture not later than eleven months after
the record date.
(e) Except to the extent otherwise expressly provided in this
Indenture, any request, demand, authorization, direction, notice, consent,
waiver or other Act of the Holder of any Security shall bind every future
Holder of the same Security and the Holder of every Security issued upon the
registration of transfer thereof or in exchange therefor or in lieu thereof in
respect of anything done, omitted or suffered to be done by the
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Trustee or the Company in reliance thereon, whether or not notation of such
action is made upon such Security.
(f) Without limiting the foregoing, a Holder entitled hereunder to
give or take any action with regard to any particular Security may do so with
regard to all or any part of the principal amount of such Security or by one or
more duly appointed agents each of which may do so pursuant to such appointment
with regard to all or any different part of such principal amount.
SECTION 12.04. Trust Indenture Act Controls. If any provision of this
Indenture limits, qualifies or conflicts with another provision which is
required to be included in this Indenture by Sections 310 to 318, inclusive, of
the Trust Indenture Act, the required provision shall control. If any provision
of this Indenture modifies or excludes any provision of the TIA that may be so
modified or excluded, the latter provision shall be deemed to apply to this
Indenture as so modified or excluded, as the case may be.
SECTION 12.05. Notices. Any notice or communication shall be in
writing and delivered in person, or sent by registered or certified mail, by
air courier guaranteeing overnight delivery or by fax (promptly confirmed by
telephone) and addressed as follows:
if to the Company or any Guarantor:
DI Industries, Inc.
10370 Richmond Avenue
Suite 600
Houston, Texas 77042
Attn: Chief Financial Officer
Phone: (281) 435-6100
Fax: (281) 435-6171
if to the Trustee:
Texas Commerce Bank National Association
600 Travis Street, Suite 1150
Houston, Texas 77002
Attention: Corporate Trust Division
Phone: (713) 216-5811
Fax: (713) 216-5476
Dallas payment office address:
Texas Commerce Bank National Association
1201 Main Street
Dallas, Texas 75202
Attention: Corporate Trust Services
The Company, the Guarantors or the Trustee by notice to the
others may designate additional or different addresses for subsequent notices
or communications.
Any notice or communication mailed to a Holder shall be sent
to the Holder by first class mail, postage prepaid, at the Holder's address as
it appears in the Security Register and shall be given if so sent within the
time prescribed. Failure to mail a notice or communications to a Holder or any
default in it shall not affect its sufficiency with respect to other Holders.
If a notice or communication is mailed or faxed to the Company, the Guarantors,
the Trustee or a Holder in the manner provided above, it is duly given, whether
or not the addressee receives it but shall not be effective unless in the case
of the Company, the Guarantors or the Trustee actually received. In case by
reason of the suspension of regular mail service or by reason or any other
cause it shall be impracticable to give notice by mail to Holders, then such
notification as shall be made with the approval of the Trustee shall constitute
a sufficient notification for every purpose hereunder.
66
<PAGE> 77
SECTION 12.06. Communication by Holders with Other Holders. Holders
may communicate pursuant to TIA Section 312(b) with other Holders with respect
to their rights under this Indenture or the Securities. The Company, the
Guarantors, the Trustee, the Registrar and anyone else shall have the
protection of TIA Section 312(c).
SECTION 12.07. Rules by Trustee, Paying Agent and Registrar. The
Trustee may make reasonable rules for action by or a meeting of Holders. The
Registrar and the Paying Agent may make reasonable rules for their functions.
SECTION 12.08. Payments on Business Days. If a payment hereunder is
scheduled to be made on a date that is not a Business Day, payment shall be made
on the next succeeding day that is a Business Day, and no interest shall accrue
with respect to that payment during the intervening period. If a regular Record
Date is not a Business Day, such Record Date shall not be affected.
SECTION 12.09. GOVERNING LAW. THIS INDENTURE AND THE SECURITIES SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO
THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE
REQUIRED THEREBY.
SECTION 12.10. No Recourse Against Others. A director, officer,
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under the Securities or this Indenture or
for any claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Holder shall waive and release all such
liability. The waiver and release shall be part of the consideration for the
issue of the Securities.
SECTION 12.11. Submission to Jurisdiction; Appointment of Agent for
Service of Process; Waiver Immunities.
(a) The Company and each Guarantor hereby irrevocably, to the
fullest extent it may do so under applicable law, submits to the jurisdiction
of any New York State or federal court sitting in the Borough of Manhattan, The
City of New York and to the courts of its own corporate domicile with respect
to all actions brought against it as a defendant in respect of any suit, action
or proceeding or arbitral award arising out or relating to this Indenture, the
Securities or any transaction contemplated hereby or thereby (a "Proceeding"),
and irrevocably accepts for itself and in respect of its property, generally
and unconditionally, the jurisdiction of the aforesaid courts, to the fullest
extent it may do so under applicable law. The Company and each Guarantor
irrevocably waives, to the fullest extent it may do so under applicable law,
trial by jury and any objection which it may now or hereafter have to the
laying of the venue of any such Proceeding brought in any such court and any
claim that any such Proceeding brought in any such court has been brought in an
inconvenient forum. The Company and each Guarantor acknowledges that it has, by
separate written instrument, irrevocably appointed CT Corporation System (the
"Process Agent"), with an office at 1633 Broadway, New York, New York 10019, as
its authorized agent to receive on behalf of the Company and each Guarantor and
its property service of copies of the summons and complaint and any other
process which may be served in any Proceeding, and that the Process Agent has
accepted such appointment. If for any reason such Process Agent shall cease to
be such agent for service of process, the Company and each Guarantor shall
forthwith appoint a new agent of recognized standing for service of process in
the State of New York, United States and deliver to the Trustee a copy of the
new agent's acceptance of that appointment within 30 days. Nothing herein shall
affect the right of the Trustee, any Paying Agent or any Holder to serve
process in any other manner permitted by law or to commence legal proceedings
or otherwise proceed against the Company or the Guarantors in any other court
of competent jurisdiction.
67
<PAGE> 78
(b) Service may be made by delivering by hand a copy of such
process to the Company or the Guarantors, as the case may be, in care of the
Process Agent at the address specified above. The Company and the Guarantors
hereby irrevocably authorize and direct the Process Agent to accept such
service on their behalf. Failure of the Process Agent to give notice to the
Company or the Guarantors or failure of the Company or the Guarantors to
receive notice of such service of process shall not affect in any way the
validity of such service on the Process Agent or the Company or the Guarantors.
As an alternative method of service, the Company and the Guarantors also
irrevocably consent to the service of any and all process in any such
proceeding by the delivery by hand of copies of such process to the Company or
the Guarantors, as the case may be, at the applicable address specified in
Section 11.05 hereof or at the address most recently furnished in writing by
the Company or the Guarantors to the Trustee. The Company and the Guarantors
covenant and agree that they shall take any and all reasonable action,
including the execution and filing of any and all documents, that may be
necessary to continue the designation of the Process Agent specified above in
full force and effect during the term of the Securities, and to cause the
Process Agent to continue to act as such.
(c) The Company and the Guarantors irrevocably agree that, in any
Proceedings anywhere (whether for an injunction, specific performance or
otherwise), no immunity (to the extent that it may at any time exist, whether
on the grounds of sovereignty or otherwise) from such Proceedings, from
attachment (whether in aid of execution, before judgment or otherwise) of their
assets or from execution of judgment shall be claimed by them or on their
behalf or with respect to their assets, except to the extent required by
applicable law, any such immunity being irrevocably waived, to the fullest
extent permitted by applicable law. The Company and the Guarantors irrevocably
agree that, where permitted by applicable law, they and their assets are, and
shall be, subject to such Proceedings, attachment or execution in respect of
their obligations under this Indenture or the Securities.
SECTION 12.12. Successors. All agreements of the Company in this
Indenture and the Securities shall bind its successors. All agreements of the
Trustee in this Indenture shall bind its successors.
SECTION 12.13. Multiple Originals. The parties may sign any number of
copies of this Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement. One signed copy is enough to prove
this Indenture. This Indenture may be executed in any number of counterparts,
each of which shall be deemed an original, but all such counterparts shall
together constitute but one and the same instrument.
SECTION 12.14. Table of Contents; Headings. The table of contents,
cross-reference sheet and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not
intended to be considered a part hereof and shall not modify or restrict any of
the terms or provisions hereof.
68
<PAGE> 79
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed as of the date first above written.
COMPANY:
DI INDUSTRIES, INC.
By:
Name:
Title:
GUARANTORS:
DRILLERS, INC.
By:
Name:
Title:
DI INTERNATIONAL, INC.
By:
Name:
Title:
DI ENERGY, INC.
By:
Name:
Title:
TRUSTEE:
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
By:
Name:
Title:
69
<PAGE> 80
EXHIBIT A
[FORM OF FACE OF GLOBAL SECURITY]
DI INDUSTRIES, INC.
No._____ ____% SENIOR NOTE DUE 2007
CUSIP No. 232909 AA 9
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
REFERRED TO ON THE REVERSE THEREOF
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW
YORK, TO DI INDUSTRIES, INC. (THE "COMPANY") OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER,
PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTION 2.06 OF THE INDENTURE REFERRED TO ON THE REVERSE HEREOF.
THIS GLOBAL SECURITY IS EXCHANGEABLE FOR SECURITIES IN DEFINITIVE,
FULLY REGISTERED FORM, WITHOUT INTEREST COUPONS, IF (A) DTC NOTIFIES THE
COMPANY THAT IT IS UNWILLING OR UNABLE TO CONTINUE AS DEPOSITORY FOR THIS
GLOBAL SECURITY OR IF AT ANY TIME DTC CEASES TO BE A "CLEARING AGENCY"
REGISTERED UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED, AND A
SUCCESSOR DEPOSITORY IS NOT APPOINTED BY THE COMPANY WITHIN 90 DAYS OF SUCH
NOTICE, (B) THE COMPANY EXECUTES AND DELIVERS TO THE TRUSTEE A NOTICE THAT THIS
GLOBAL SECURITY SHALL BE TRANSFERABLE, REGISTRABLE AND EXCHANGEABLE, AND SUCH
TRANSFER SHALL BE REGISTRABLE, OR (C) AN EVENT OF DEFAULT (AS HEREINAFTER
DEFINED) HAS OCCURRED AND IS CONTINUING WITH RESPECT TO THE SECURITIES.
<PAGE> 81
DI INDUSTRIES, INC., a Texas corporation, hereby promises to pay to
CEDE & CO., or registered assigns, the principal sum indicated on Schedule A
hereof, on ___ ___, 2007.
Interest Payment Dates: _______ and ________, commencing ______, 1997.
Record Dates: _________ and __________.
Reference is hereby made to the further provisions of this
Security set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth in this place.
Unless the certificate of authentication hereon has been duly
executed by the Trustee referred to on the reverse hereof by manual signature,
this Security shall not be entitled to any benefit under the Indenture or be
valid or obligatory for any purposes.
IN WITNESS WHEREOF, DI INDUSTRIES, INC. has caused this instrument to
be duly executed under its corporate seal.
Dated:
DI INDUSTRIES, INC.
By:
Name:
Title:
[Corporate Seal]
By:
Name:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
as Trustee, certifies that this is
one of the Securities referred to
in the Indenture.
By:
Authorized Signatory
<PAGE> 82
[FORM OF REVERSE SIDE OF SECURITY]
_____% Senior Note Due 2007
1. Interest
DI Industries, Inc., a Texas corporation (such corporation, and its
successors and assigns under the Indenture hereinafter referred to, being
herein called the "Company"), promises to pay interest on the principal amount
of this Security at the rate per annum shown above. The Company will pay
interest semiannually on _______ and __________ of each year (an "Interest
Payment Date") commencing on ________, 1997, until the principal amount is paid
or made available for payment. Interest on the Securities will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from the Issue Date. Interest will be computed on the basis of a 360-day
year of twelve 30-day months.
2. Method of Payment
The Company will pay interest on the Securities (except Defaulted
Interest) to the Persons who are registered Holders of Securities at the close
of business on the ________ or ________ immediately preceding the Interest
Payment Date even if Securities are canceled after the Record Date and on or
before the Interest Payment Date. Holders must surrender Securities to a Paying
Agent to collect principal payments. The Company will pay principal, premium,
if any, and interest in money of the United States that at the time of payment
is legal tender for payment of public and private debts. Payments in respect of
the Securities represented by a Global Security (including principal, premium,
if any, and interest) will be made by wire transfer of immediately available
funds to the accounts specified by The Depository Trust Company, but, at the
option of the Company, interest may be paid by check mailed to the registered
Holders at their registered addresses.
3. Paying Agent and Registrar
Initially, Texas Commerce Bank National Association, a national
banking association (the "Trustee"), will act as Paying Agent and Registrar.
The Company may appoint and change any Paying Agent, Registrar or co-registrar
without notice. In certain situations, the Company or any of its Subsidiaries
may act as Paying Agent, Registrar or co-registrar.
4. Indenture
The Company issued the Securities under an Indenture dated as of June
___, 1997 (as such may be amended from time to time, the "Indenture"), among
the Company, the corporations acting as guarantors and named therein (the
"Guarantors") and the Texas Commerce Bank National Association, as trustee (the
"Trustee", which term includes any successor trustee under the Indenture), to
which Indenture reference is hereby made for a statement of the respective
rights, duties and immunities thereunder of the Company, the Guarantors, the
Trustee and each Holder of the Securities and the terms upon which the
Securities are, and are to be, authenticated and delivered. The terms of the
Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date of the Indenture (the "Act"). Terms
defined in the Indenture and not defined herein have the meanings ascribed
thereto in the Indenture. The Securities are subject to all such terms, and
Holders are referred to the Indenture and the Act for a statement of those
terms.
<PAGE> 83
The Securities are limited to $125,000,000 aggregate principal amount
at any one time outstanding (subject to Section 2.08 of the Indenture). This
Security is one of the Securities referred to in the Indenture. The Indenture
imposes certain limitations on the incurrence of additional Indebtedness by the
Company and its Subsidiaries; the payment of dividends on, and redemption of,
Capital Stock of the Company and its Subsidiaries and the redemption of
Subordinated Indebtedness of the Company and its Subsidiaries; Investments;
sales of assets and Subsidiary Capital Stock; certain transactions with
Affiliates of the Company and the right of the Company and its Subsidiaries to
engage in unrelated lines of business.
5. Optional Redemption
Except as provided in the next paragraph, the Securities are not
redeemable prior to _______, 2002. At any time on or after ___________, 2002,
the Securities are redeemable at the option of the Company, in whole or in
part, on not less than 30 nor more than 60 days' notice, at the following
Redemption Prices (expressed as percentages of principal amount at Stated
Maturity), if redeemed during the 12 months beginning _______ of the years
indicated below, plus accrued and unpaid interest (if any) thereon to the
Redemption Date:
<TABLE>
<CAPTION>
Redemption
Year Price
---- -----
<S> <C>
2002 %
2003 %
2004 %
2005 and thereafter 100.000%
</TABLE>
Notwithstanding the foregoing, on and prior to ________, 2000, the
Company may redeem up to 30% of the aggregate principal amount of the
Securities originally outstanding at a redemption price of ______% of the
principal amount thereof, plus accrued and unpaid interest (if any) thereon to
the Redemption Date, with the net proceeds of one or more Qualified Equity
Offerings of the Company; provided that at least $100.0 million aggregate
principal amount of the Securities shall remain outstanding immediately after
the occurrence of any such redemption; and provided, further, that such
redemption shall occur not later than 90 days after the date of the closing of
any such Qualified Equity Offering. The redemption shall be made in accordance
with procedures set forth in the Indenture.
6. Notice of Redemption
Notice of redemption will be mailed by first-class mail, postage
prepaid, at least 30 days but not more than 60 days before the Redemption Date
to each Holder of Securities to be redeemed at his address as it appears in the
Security Register. Securities in denominations larger than $1,000 may be
redeemed in part but only in whole multiples of $1,000. If less than all of the
Securities are to be redeemed at any time, the Securities to be redeemed will
be chosen by the Trustee in accordance with the Indenture. If any Security is
redeemed subsequent to a Record Date with respect to any Interest Payment Date
specified above and on or prior to such Interest Payment Date, then any accrued
interest will be paid on such Interest Payment Date to the Holder of the
Security at the close of business on such Record Date. If money sufficient to
pay the Redemption Price of and accrued interest on all Securities (or portions
thereof) to be redeemed on the Redemption Date is deposited with the Paying
Agent on or before the Redemption Date and certain other conditions are
satisfied, on and after such date interest ceases to accrue on such Securities
(or such portions thereof) called for redemption.
<PAGE> 84
7. Change of Control
Upon the occurrence of a Change of Control, each Holder of Securities
shall have the right to require the Company to purchase such Holder's
Securities, in whole or in part in a principal amount at Stated Maturity that
is an integral multiple of $1,000, pursuant to a Change of Control Offer, at a
purchase price in cash equal to 101% of the principal amount thereof on any
Change of Control Payment Date, plus accrued and unpaid interest, if any, to
the Change of Control Payment Date.
Within 30 calendar days following any Change of Control, the Company
shall send, or cause to be sent, by first class mail, postage prepaid, a notice
regarding the Change of Control Offer to each Holder of Securities. The Holder
of this Security may elect to have this Security or a portion hereof in an
authorized denomination purchased by completing the form entitled "Option of
Holder to Require Purchase" appearing below and tendering this Security
pursuant to the Change of Control Offer. Unless the Company defaults in the
payment of the Change of Control Purchase Price with respect thereto, all
Securities or portions thereof accepted for payment pursuant to the Change of
Control Offer will cease to accrue interest from and after the Change of
Control Payment Date.
8. Repurchase at the Option of Holders upon Asset Sale.
Subject to the limitations set forth in the next following paragraph,
if at any time the Company or any Subsidiary engages in any Asset Sale, as a
result of which the aggregate amount of Excess Proceeds exceeds $15,000,000,
the Company shall, within 30 calendar days of the date the amount of Excess
Proceeds exceeds $5,000,000, or at any time after receipt of Excess Proceeds
but prior to there being $15,000,000 of Excess Proceeds may, at its option, use
the then-existing Excess Proceeds to make an offer to purchase from all
Holders, on a pro rata basis, Securities in an aggregate principal amount equal
to the maximum principal amount that may be purchased out of the then-existing
Excess Proceeds, at a purchase price in cash equal to 100% of the principal
amount at Stated Maturity thereof, plus accrued and unpaid interest, if any, to
the Asset Sale Offer Purchase Date. Upon completion of an Asset Sale Offer
(including payment of the Asset Sale Offer Purchase Price for accepted
Securities), any surplus Excess Proceeds that were the subject of such offer
shall cease to be Excess Proceeds, and the Company may then use such amounts
for general corporate purposes.
Within 30 calendar years of the date the amount of Excess Proceeds
exceeds $15,000,000, the Company shall send, or cause to be sent, by first
class mail, postage prepaid, a notice regarding the Asset Sale Offer to each
Holder of Securities. The Holder of this Security may elect to have this
Security or a portion hereof in an authorized denomination purchased by
completing the form entitled "Option of Holder to Require Purchase" appearing
below and tendering this Security pursuant to the Asset Sale Offer. Unless the
Company defaults in the payment of the Asset Sale Offer Purchase Price with
respect thereto, all Securities or portions thereof selected for payment
pursuant to the Asset Sale Offer will cease to accrue interest from and after
the Asset Sale Offer Purchase Date.
<PAGE> 85
9. The Global Security.
So long as this Global Security is registered in the name of the
Depositary or its nominee, members of, or participants in, the Depositary
("Agent Members") shall have no rights under the Indenture with respect to this
Global Security held on their behalf by the Depositary or the Trustee as its
custodian, and the Depositary may be treated by the Company, the Guarantors,
the Trustee and any agent of the Company, the Guarantors or the Trustee as the
absolute owner of this Global Security for all purposes. Notwithstanding the
foregoing, nothing herein shall (i) prevent the Company, the Guarantors, the
Trustee or any agent of the Company, the Guarantors or the Trustee from giving
effect to any written certification, proxy or other authorization furnished by
the Depositary or (ii) impair, as between the Depositary and its Agent Members,
the operation of customary practices governing the exercise of the rights of a
Holder of Securities.
The Holder of this Global Security may grant proxies and otherwise
authorize any Person, including Agent Members and Persons that may hold
interests in this Global Note through Agent Members, to take any action which a
Holder of Securities is entitled to take under the Indenture or the Securities.
Whenever, as a result of an optional redemption of Securities by the
Company, a Change of Control Offer, an Asset Sale Offer or an exchange for
Certificated Securities, this Global Note is redeemed, repurchased or exchanged
or substituted in part, this Global Security shall be surrendered by the Holder
thereof to the Trustee who shall cause an adjustment to be made to Schedule A
hereof so that the principal amount of this Global Security will be equal to
the portion not redeemed, repurchased or exchanged and shall thereafter return
this Global Security to such Holder; provided that this Global Security shall
be in a principal amount at Stated Maturity of $1,000 or an integral multiple
of $1,000.
10. Transfer and Exchange.
The Holder of this Global Security shall, by its acceptance of this
Global Security, agree that transfers of beneficial interests in this Global
Security may be effected only through a book entry system maintained by such
Holder (or its agent), and that ownership of a beneficial interest in the
Securities represented thereby shall be required to be reflected in book entry
form.
Transfers of this Global Security shall be limited to transfers in
whole, and not in part, to the Depositary, its successors and their respective
nominees. Interests of beneficial owners in this Global Security may be
transferred in accordance with the rules and procedures of the Depositary (or
its successors).
This Global Security will be exchanged by the Company for one or more
Certificated Securities if (a) the Depositary (i) has notified the Company for
one or more Certificated Securities if (a) the Depositary (i) has notified the
Company that it is unwilling or unable to continue as, or ceases to be, a
"Clearing Agency" registered under Section 17A of the Exchange Act and (ii) a
successor to the Depositary registered as a "Clearing Agency" under Section 17A
of the Exchange Act is not appointed by the Company within 90 calendar days or
(b) the Depositary is at any time unwilling or unable to continue as Depositary
and a successor to the Depositary is not able to be appointed by the Company
within 90 calendar days. If an Event of Default occurs and is continuing, the
Company shall, at the request of the Holder hereof, exchange all or a part of
this Global Security for one or more Certificated Securities; provided that the
principal amount at Stated Maturity of each of such Certificated Securities and
this Global Security, after such exchange, shall be $1,000 or an integral
multiple thereof. Whenever this Global Security is exchanged as a whole for one
or more Certificated Securities, it shall be surrendered by the Holder to the
Trustee for cancellation. Whenever this Global Security is exchanged in part
for one or more Certificated Securities, it shall be surrendered by the Holder
to the Trustee and the Trustee shall make the appropriate notations thereon
pursuant to Section 2.05 of the Indenture. Interests in this Global Security
may not be exchanged for Certificated Securities other than as provided in this
paragraph.
<PAGE> 86
11. Persons Deemed Owners
The registered Holder of this Security may be treated as the owner of
it for all purposes.
12. Unclaimed Money
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its written request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the money must look
only to the Company and not to the Trustee for payment.
13. Discharge and Defeasance
Subject to certain conditions, the Company at any time may terminate
some or all of its Obligations and the Guarantors' Obligations under the
Securities, the Guarantees and the Indenture if the Company deposits with the
Trustee money or U.S. Government Obligations for the payment of principal,
premium and interest on the Securities to redemption or maturity, as the case
may be.
14. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in outstanding principal amount at stated
Maturity of the Securities and (ii) any default or noncompliance with any
provision may be waived with the written consent of the Holders of a majority
in outstanding principal amount at Stated Maturity outstanding of the
Securities. Subject to certain exceptions set forth in the Indenture, without
the consent of any Holder, the Company, the Guarantors and the Trustee may
amend the Indenture or the Securities (a) to evidence the succession of another
Person to the Company and the Guarantors and the assumption by such successor
of the covenants and Obligations of the Company under the Indenture and
contained in the Securities and of the Guarantors contained in the Indenture
and the Guarantees, (b) to add to the covenants of the Company, for the benefit
of the Holders, or to surrender any right or power conferred upon the Company
or the Guarantors by the Indenture, (c) to add any additional Events of
Default, (d) to provide for uncertificated Securities in addition to or in
place of Certificated Securities, (e) to evidence and provide for the
acceptance of appointment under the Indenture by the successor Trustee, (f) to
secure the Securities and/or the Guarantees, (g) to cure any ambiguity, to
correct or supplement any provision in the Indenture which may be inconsistent
with any other provision therein or to add any other provision with respect to
matters or questions arising under the Indenture, provided that such actions
will not adversely affect the interests of the Holders in any material respect
or (h) to add or release any Guarantor pursuant to the terms of the Indenture.
Certain provisions of the Securities and the Indenture may not be amended or
waived without the consent of each Holder affected thereby.
15. Defaults and Remedies
Under the Indenture, Events of Default include in summary form (i)
default in the payment of interest on the Securities when due, continued for 30
days; (ii) default in the payment of principal of (or premium, if any, on) the
Securities when due; (iii) failure to comply with certain of the covenants in
the Indenture, including the Change of Control covenant, the Asset Sale
covenant and the Restrictive Payments covenant; (iv) failure to perform any
other covenant of the Company or any Guarantor in the Indenture, continued for
30 days after written notice as provided in the Indenture; (v) Indebtedness of
the Company or any Subsidiary is not paid when due within the applicable grace
period, or is accelerated and, in either case, the principal amount of such
unpaid Indebtedness exceeds $5,000,000; (vi) one or more final judgments or
orders by a court of competent jurisdiction are entered against the Company or
any Subsidiary in an uninsured or
<PAGE> 87
unindemnified aggregate amount in excess of $5,000,000 and such judgments or
orders are not discharged, waived, appealed, stayed, satisfied or bonded for a
period of 60 consecutive days; (vii) certain events of bankruptcy, insolvency
or reorganization; or (viii) a Guarantee ceases to be in full force and effect
(other than in accordance with the terms of the Indenture and such Guarantee)
or a Guarantor denies or disaffirms its obligations under its Guarantee.
Holders may not enforce the Indenture or the Securities except as
provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Securities unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in principal amount at Stated
Maturity of the Securities may direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Holders notice of any continuing
Default (except a Default in payment of principal or interest) if it determines
that withholding notice is in the interest of the Holders. The Holders of a
majority in principal amount at Stated Maturity of the outstanding Securities,
by written notice to the Company and the Trustee, may rescind any declaration
of acceleration and its consequences if the rescission would not conflict with
any judgment or decree, and if all Events of Default have been cured or waived
except nonpayment of principal and interest that has become due solely because
of the acceleration.
16. Trustee Dealings with the Company
Subject to certain limitations imposed by the Trust Indenture Act, the
Trustee under the Indenture, in its individual or any other capacity, may
become the owner or pledgee of Securities and may otherwise deal with and
collect obligations owed to it by the Company or its Affiliates and may
otherwise deal with the Company or its Affiliates with the same rights it would
have if it were not Trustee.
17. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the Company
or any Guarantor shall not have any liability for any obligations of the
Company or a Guarantor under the Securities, the Guarantees or the Indenture or
for any claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Holder waives and releases all such
liability. The waiver and release are part of the consideration for the issue
of the Securities.
18. Governing Law
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS
OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
19. Abbreviations
Customary abbreviations may be used in the name of a Holder or an
assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
20. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Holders. No representation is made as
to the accuracy of such numbers either as printed on the Securities or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and
without charge to the Holder a copy of the Indenture which has in it the text
of this Security.
<PAGE> 88
SECURITY GUARANTEE
Subject to the limitations set forth in the Indenture, the Guarantors
(as defined in the Indenture referred to in this Security and each hereinafter
referred to as a "Guarantor," which term includes any successor or additional
Guarantor under the Indenture) have jointly and severally, irrevocably and
unconditionally guaranteed (a) the due and punctual payment of the principal
(and premium, if any) of and interest on the Securities, whether at Stated
Maturity, by acceleration, call for redemption, upon a Change of Control Offer,
Asset Sale Offer, purchase or otherwise, (b) the due and punctual payment of
interest on the overdue principal of and interest on the Securities, if any, to
the extent lawful, (c) the due and punctual performance of all other
Obligations of the Company and the Guarantors to the Holders under the
Indenture and the Notes and (d) in case of any extension of time of payment or
renewal of any Securities or any of such other Obligations, the same will be
promptly paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at Stated Maturity, by acceleration, call for
redemption, upon a Change of Control Offer, Asset Sale Offer, purchase or
otherwise. Capitalized terms used herein shall have the same meanings assigned
to them in the Indenture unless otherwise indicated.
Payment on each Security is guaranteed jointly and severally, by the
Guarantors pursuant to Article 11 of the Indenture and reference is made to
such Indenture for the precise terms of the Guarantees.
The Obligations of each Guarantor are limited to the lesser of (a) an
amount equal to such Guarantor's Adjusted Net Assets as of the date of the
Guarantee and (b) the maximum amount as well, after giving effect to such
maximum amount and all other contingent and fixed liabilities of such
Guarantor, and after giving effect to any collections from or payments made by
or on behalf of any other Guarantor in respect of the Obligations of such other
Guarantor under its Guarantee or pursuant to its contribution Obligations under
the Indenture, result in the Obligations of such Guarantor under the Guarantee
not constituting a fraudulent conveyance or fraudulent conveyance or fraudulent
transfer under federal or state law or not otherwise being void, voidable or
unenforceable under any similar other bankruptcy, receivership, insolvency,
liquidation or other similar legislation or legal principles under applicable
foreign law. Each Guarantor that makes a payment or distribution under a
Guarantee shall be entitled to a contribution from each other Company in a pro
rata amount based on the Adjusted Net Assets of each Guarantor.
Certain of the Guarantors may be released from their Guarantors upon
the terms and subject to the conditions provided in the Indenture.
The Guarantee shall be binding upon each Guarantor and its successors
and assigns and shall inure to the benefit of the Trustee and the Holders and,
in the event of any transfer or assignment of rights by any Holder or the
Trustee, the rights and privileges herein conferred upon that party shall
automatically extend to and be vested in such transferee or assignee, all
subject to the terms and conditions hereof and in the Indenture.
DRILLERS, INC.
By:
DI INTERNATIONAL, INC.
By:
DI ENERGY, INC.
By:
<PAGE> 89
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's social security or tax I.D. No.)
and irrevocably appoint agent to transfer this
Security on the books of the Company. The agent may substitute another to act
for him.
Dated: ________________ Your Signature:
Sign exactly as your name appears on the other side of this Security.
Signature Guarantee:
Signature must be guaranteed
Notice: Signature(s) must be guaranteed by an institution which is a
participant in the Securities Transfer Agent Medallion Program ("STAMP") or
similar program.
<PAGE> 90
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to Section 4.07 or Section 4.09 of the Indenture, check the
appropriate box:
Section 4.07 [ ]
Section 4.09 [ ]
If you want to elect to have only part of this Security
purchased by the Company pursuant to Section 4.07 or Section 4.09 of the
Indenture, state the amount in principal amount (must be an integral of
$1,000): $_______________
Dated: _______________ Your Signature:
(Sign exactly as your name
appears on the other side of
this Security.)
Signature Guarantee:
(Signature must be guaranteed)
Notice: Signature(s) must be guaranteed by an institution which is a
participant in the Securities Transfer Agent Medallion Program
("STAMP") or similar program.
<PAGE> 91
SCHEDULE A
SCHEDULE OF INCREASES OR DECREASES IN PRINCIPAL AMOUNT
The initial principal amount at Maturity of this Global Security shall
be $125,000,000. The following increases or decreases in this Global Security
have been made:
<TABLE>
<CAPTION>
Total Principal Signature of
Amount of Amount of amount of this authorized
Date of decrease in increase in Global Security signatory of
Increase/ Principal Amount Principal Amount following such Trustee or
Decrease at Maturity at Maturity Decrease/Increase Securities Custodian
- -------- ---------------- ---------------- ----------------- --------------------
<S> <C> <C> <C> <C>
- -------- ---------------- ---------------- ----------------- --------------------
- -------- ---------------- ---------------- ----------------- --------------------
- -------- ---------------- ---------------- ----------------- --------------------
- -------- ---------------- ---------------- ----------------- --------------------
- -------- ---------------- ---------------- ----------------- --------------------
- -------- ---------------- ---------------- ----------------- --------------------
- -------- ---------------- ---------------- ----------------- --------------------
- -------- ---------------- ---------------- ----------------- --------------------
- -------- ---------------- ---------------- ----------------- --------------------
- -------- ---------------- ---------------- ----------------- --------------------
- -------- ---------------- ---------------- ----------------- --------------------
- -------- ---------------- ---------------- ----------------- --------------------
- -------- ---------------- ---------------- ----------------- --------------------
- -------- ---------------- ---------------- ----------------- --------------------
</TABLE>
<PAGE> 92
EXHIBIT B
[FORM OF FACE OF CERTIFICATED SECURITY]
DI INDUSTRIES, INC.
No._________ ____% SENIOR NOTE DUE 2007
CUSIP No.__________
DI INDUSTRIES, INC., a Texas corporation, hereby promises to pay to
_________________, or registered assigns, the principal sum of _______________
on _______, 2007.
Interest Payment Dates: _______ and ________, commencing ______, 1997.
Record Dates: _________ and __________.
Reference is hereby made to the further provisions of this Security
set forth on the reverse hereof, which further provisions shall for all
purposes have the same effect as if set forth in this place.
IN WITNESS WHEREOF, DI INDUSTRIES, INC. has caused this instrument to
be duly executed under its corporate seal.
Dated:
DI INDUSTRIES, INC.
By:
Name:
Title:
[Corporate Seal]
By:
Name:
Title:
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
TEXAS COMMERCE BANK NATIONAL ASSOCIATION,
as Trustee, certifies that this is one of
the Securities referred to in the Indenture.
By:
Authorized Signatory
<PAGE> 93
[FORM OF REVERSE SIDE OF SECURITY]
_____% Senior Note Due 2007
1. Interest
DI Industries, Inc., a Texas corporation (such corporation, and its
successors and assigns under the Indenture hereinafter referred to, being
herein called the "Company"), promises to pay interest on the principal amount
of this Security at the rate per annum shown above. The Company will pay
interest semiannually on _______ and __________ of each year (an "Interest
Payment Date") commencing on ________, 1997, until the principal amount is paid
or made available for payment. Interest on the Securities will accrue from the
most recent date to which interest has been paid or, if no interest has been
paid, from the Issue Date. Interest will be computed on the basis of a 360-day
year of twelve 30-day months.
2. Method of Payment
The Company will pay interest on the Securities (except Defaulted
Interest) to the Persons who are registered Holders of Securities at the close
of business on the ________ or ________ immediately preceding the Interest
Payment Date even if Securities are canceled after the Record Date and on or
before the Interest Payment Date. Holders must surrender Securities to a Paying
Agent to collect principal payments. The Company will pay principal, premium,
if any, and interest in money of the United States that at the time of payment
is legal tender for payment of public and private debts. Payments in respect of
the Securities represented by a Global Security (including principal, premium,
if any, and interest) will be made by wire transfer of immediately available
funds to the accounts specified by The Depository Trust Company, but, at the
option of the Company, interest may be paid by check mailed to the registered
Holders at their registered addresses.
3. Paying Agent and Registrar
Initially, Texas Commerce Bank National Association, a national
banking association (the "Trustee"), will act as Paying Agent and Registrar.
The Company may appoint and change any Paying Agent, Registrar or co-registrar
without notice. In certain circumstances, the Company or any of its
Subsidiaries may act as Paying Agent, Registrar or co-registrar.
4. Indenture
The Company issued the Securities under an Indenture dated as of June
___, 1997 (as such may be amended from time to time, the "Indenture"), among
the Company, the corporations acting as guarantors and named therein (the
"Guarantors") and the Texas Commerce Bank National Association, as trustee (the
"Trustee", which term includes any successor trustee under the Indenture), to
which Indenture reference is hereby made for a statement of the respective
rights, duties and immunities thereunder of the Company, the Guarantors, the
Trustee and each Holder of the Securities and the terms upon which the
Securities are, and are to be, authenticated and delivered. The terms of the
Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. ss.ss.
77aaa-77bbbb) as in effect on the date of the Indenture (the "Act"). Terms
defined in the Indenture and not defined herein have the meanings ascribed
thereto in the Indenture. The Securities are subject to all such terms, and
Holders are referred to the Indenture and the Act for a statement of those
terms.
<PAGE> 94
The Securities are limited to $125,000,000 aggregate principal amount
at any one time outstanding (subject to Section 2.08 of the Indenture). This
Security is one of the Securities referred to in the Indenture. The Indenture
imposes certain limitations on the incurrence of additional Indebtedness by the
Company and its Subsidiaries; the payment of dividends on, and redemption of,
Capital Stock of the Company and its Subsidiaries and the redemption of
Subordinated Indebtedness of the Company and its Subsidiaries; Investments;
sales of assets and Subsidiary Capital Stock; certain transactions with
Affiliates of the Company and the right of the Company and its Subsidiaries to
engage in unrelated lines of business.
5. Optional Redemption
Except as provided in the next paragraph, the Securities are not
redeemable prior to _______, 2002. At any time on or after ___________, 2002,
the Securities are redeemable at the option of the Company, in whole or in
part, on not less than 30 nor more than 60 days' notice, at the following
Redemption Prices (expressed as percentages of principal amount at Stated
Maturity), if redeemed during the 12 months beginning _______ of the years
indicated below, plus accrued and unpaid interest (if any) thereon to the
Redemption Date:
<TABLE>
<CAPTION>
Redemption
Year Price
---- -----
<S> <C>
2002 %
2003 %
2004 %
2005 and thereafter 100.000%
</TABLE>
Notwithstanding the foregoing, on and prior to ________, 2000, the
Company may redeem up to 30% of the aggregate principal amount of the
Securities originally outstanding at a redemption price of _____ _% of the
principal amount thereof, plus accrued and unpaid interest (if any) thereon to
the Redemption Date, with the net proceeds of one or more Qualified Equity
Offerings of the Company; provided that at least $100.0 million aggregate
principal amount of the Securities shall remain outstanding immediately after
the occurrence of any such redemption; and provided, further, that such
redemption shall occur not later than 90 days after the date of the closing of
any such Qualified Equity Offering. The redemption shall be made in accordance
with procedures set forth in the Indenture.
6. Notice of Redemption
Notice of redemption will be mailed by first-class mail, postage
prepaid, at least 30 days but not more than 60 days before the Redemption Date
to each Holder of Securities to be redeemed at his address as it appears in the
Security Register. Securities in denominations larger than $1,000 may be
redeemed in part but only in whole multiples of $1,000. If less than all of the
Securities are to be redeemed at any time, the Securities to be redeemed will
be chosen by the Trustee in accordance with the Indenture. If any Security is
redeemed subsequent to a Record Date with respect to any Interest Payment Date
specified above and on or prior to such Interest Payment Date, then any accrued
interest will be paid on such Interest Payment Date to the Holder of the
Security at the close of business on such Record Date. If money sufficient to
pay the Redemption Price of and accrued interest on all Securities (or portions
thereof) to be redeemed on the Redemption Date is deposited with the Paying
Agent on or before the Redemption Date and certain other conditions are
satisfied, on and after such date interest ceases to accrue on such Securities
(or such portions thereof) called for redemption.
<PAGE> 95
7. Change of Control
Upon the occurrence of a Change of Control, each Holder of Securities
shall have the right to require the Company to purchase such Holder's
Securities, in whole or in part in a principal amount at Stated Maturity that
is an integral multiple of $1,000, pursuant to a Change of Control Offer, at a
purchase price in cash equal to 101% of the principal amount thereof on any
Change of Control Payment Date, plus accrued and unpaid interest, if any, to
the Change of Control Payment Date.
Within 30 calendar days following any Change of Control, the Company
shall send, or cause to be sent, by first class mail, postage prepaid, a notice
regarding the Change of Control Offer to each Holder of Securities. The Holder
of this Security may elect to have this Security or a portion hereof in an
authorized denomination purchased by completing the form entitled "Option of
Holder to Require Purchase" appearing below and tendering this Security
pursuant to the Change of Control Offer. Unless the Company defaults in the
payment of the Change of Control Purchase Price with respect thereto, all
Securities or portions thereof accepted for payment pursuant to the Change of
Control Offer will cease to accrue interest from and after the Change of
Control Payment Date.
8. Repurchase at the Option of Holders upon Asset Sale
Subject to the limitations set forth in the next following paragraph,
if at any time the Company or any Subsidiary engages in any Asset Sale, as a
result of which the aggregate amount of Excess Proceeds exceeds $15,000,000,
the Company shall, within 30 calendar days of the date the amount of Excess
Proceeds exceeds $5,000,000, or at any time after receipt of Excess Proceeds
but prior to there being $15,000,000 of Excess Proceeds, the Company may, at
its option, use the then-existing Excess Proceeds to make an offer to purchase
from all Holders, on a pro rata basis, Securities in an aggregate principal
amount equal to the maximum principal amount that may be purchased out of the
then-existing Excess Proceeds, at a purchase price in cash equal to 100% of the
principal amount at Stated Maturity thereof, plus accrued and unpaid interest,
if any, to the Asset Sale Offer Purchase Date. Upon completion of an Asset Sale
Offer (including payment of the Asset Sale Offer Purchase Price for accepted
Securities), any surplus Excess Proceeds that were the subject of such offer
shall cease to be Excess Proceeds, and the Company may then use such amounts
for general corporate purposes.
Within 30 calendar years of the date the amount of Excess Proceeds
exceeds $15,000,000, the Company shall send, or cause to be sent, by first
class mail, postage prepaid, a notice regarding the Asset Sale Offer to each
Holder of Securities. The Holder of this Security may elect to have this
Security or a portion hereof in an authorized denomination purchased by
completing the form entitled "Option of Holder to Require Purchase" appearing
below and tendering this Security pursuant to the Asset Sale Offer. Unless the
Company defaults in the payment of the Asset Sale Offer Purchase Price with
respect thereto, all Securities or portions thereof selected for payment
pursuant to the Asset Sale Offer will cease to accrue interest from and after
the Asset Sale Offer Purchase Date.
9. Transfer and Exchange
A Holder may transfer a Security only upon the surrender of such
Security for registration of transfer. No such transfer shall be effected
until, and such transferee shall succeed to the rights of a Holder only upon,
final acceptance and registration of the transfer in the Security Register by
the Registrar. When Securities are presented to the Registrar with a request to
register the transfer of, or to exchange, such Securities, the Registrar shall
register the transfer or make such exchange as requested if its requirements
for such transactions and any applicable requirements hereunder are satisfied.
No service charge shall be made for any registration of transfer or
exchange of Securities, but the Company may require payment of a sum sufficient
to cover any tax or other governmental charge that may be imposed in connection
with any registration of transfer of Securities.
<PAGE> 96
11. Persons Deemed Owners
The registered Holder of this Security may be treated as the owner of
it for all purposes.
12. Unclaimed Money
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its written request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the money must look
only to the Company and not to the Trustee for payment.
13. Discharge and Defeasance
Subject to certain conditions, the Company at any time may terminate
some or all of its Obligations and the Guarantors' Obligations under the
Securities, the Guarantees and the Indenture if the Company deposits with the
Trustee money or U.S. Government Obligations for the payment of principal,
premium and interest on the Securities to redemption or maturity, as the case
may be.
14. Amendment, Waiver
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in outstanding principal amount at Stated
Maturity of the Securities and (ii) any default or noncompliance with any
provision may be waived with the written consent of the Holders of a majority
in outstanding principal amount at Stated Maturity outstanding of the
Securities. Subject to certain exceptions set forth in the Indenture, without
the consent of any Holder, the Company, the Guarantors and the Trustee may
amend the Indenture or the Securities (a) to evidence the succession of another
Person to the Company and the Guarantors and the assumption by such successor
of the covenants and Obligations of the Company under the Indenture and
contained in the Securities and of the Guarantors contained in the Indenture
and the Guarantees, (b) to add to the covenants of the Company, for the benefit
of the Holders, or to surrender any right or power conferred upon the Company
or the Guarantors by the Indenture, (c) to add any additional Events of
Default, (d) to provide for uncertificated Securities in addition to or in
place of certificated Securities, (e) to evidence and provide for the
acceptance of appointment under the Indenture by the successor Trustee, (f) to
secure the Securities and/or the Guarantees, (g) to cure any ambiguity, to
correct or supplement any provision in the Indenture which may be inconsistent
with any other provision therein or to add any other provision with respect to
matters or questions arising under the Indenture, provided that such actions
will not adversely affect the interests of the Holders in any material respect
or (h) to add or release any Guarantor pursuant to the terms of the Indenture.
Certain provisions of the Securities and the Indenture may not be amended or
waived without the consent of each Holder affected thereby.
15. Defaults and Remedies
Under the Indenture, Events of Default include in summary form (i)
default in the payment of interest on the Securities when due, continued for 30
days; (ii) default in the payment of principal of (or premium, if any, on) the
Securities when due; (iii) failure to comply with certain of the covenants in
the Indenture, including the Change of Control covenant, the Asset Sale
covenant and the Restrictive Payments covenant; (iv) failure to perform any
other covenant of the Company or any Guarantor in the Indenture, continued for
30 days after written notice as provided in the Indenture; (v) Indebtedness of
the Company or
<PAGE> 97
any Subsidiary is not paid when due within the applicable grace period, or is
accelerated and, in either case, the principal amount of such unpaid
Indebtedness exceeds $5,000,000; (vi) one or more final judgments or orders by
a court of competent jurisdiction are entered against the Company or any
Subsidiary in an uninsured or unindemnified aggregate amount in excess of
$5,000,000 and such judgments or orders are not discharged, waived, appealed,
stayed, satisfied or bonded for a period of 60 consecutive days; (vii) certain
events of bankruptcy, insolvency or reorganization; or (viii) a Guarantee
ceases to be in full force and effect (other than in accordance with the terms
of the Indenture and such Guarantee) or a Guarantor denies or disaffirms its
obligations under its Guarantee.
Holders may not enforce the Indenture or the Securities except as
provided in the Indenture. The Trustee may refuse to enforce the Indenture or
the Securities unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in principal amount at Stated
Maturity of the Securities may direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Holders notice of any continuing
Default (except a Default in payment of principal or interest) if it determines
that withholding notice is in the interest of the Holders. The Holders of a
majority in principal amount at Stated Maturity of the outstanding Securities,
by written notice to the Company and the Trustee, may rescind any declaration
of acceleration and its consequences if the rescission would not conflict with
any judgment or decree, and if all Events of Default have been cured or waived
except nonpayment of principal and interest that has become due solely because
of the acceleration.
16. Trustee Dealings with the Company
Subject to certain limitations imposed by the Trust Indenture Act, the
Trustee under the Indenture, in its individual or any other capacity, may
become the owner or pledgee of Securities and may otherwise deal with and
collect obligations owed to it by the Company or its Affiliates and may
otherwise deal with the Company or its Affiliates with the same rights it would
have if it were not Trustee.
17. No Recourse Against Others
A director, officer, employee or stockholder, as such, of the Company
or any Guarantor shall not have any liability for any obligations of the
Company or a Guarantor under the Securities, the Guarantees or the Indenture or
for any claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Holder waives and releases all such
liability. The waiver and release are part of the consideration for the issue
of the Securities.
18. Governing Law
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS
OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
19. Abbreviations
Customary abbreviations may be used in the name of a Holder or an
assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
<PAGE> 98
20. CUSIP Numbers
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Holders. No representation is made as
to the accuracy of such numbers either as printed on the Securities or as
contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
The Company will furnish to any Holder upon written request and
without charge to the Holder a copy of the Indenture which has in it the text
of this Security.
<PAGE> 99
SECURITY GUARANTEE
Subject to the limitations set forth in the Indenture, the Guarantors
(as defined in the Indenture referred to in this Security and each hereinafter
referred to as a "Guarantor," which term includes any successor or additional
Guarantor under the Indenture) have jointly and severally, irrevocably and
unconditionally guaranteed (a) the due and punctual payment of the principal
(and premium, if any) of and interest on the Securities, whether at Stated
Maturity, by acceleration, call for redemption, upon a Change of Control Offer,
Asset Sale Offer, purchase or otherwise, (b) the due and punctual payment of
interest on the overdue principal of and interest on the Securities, if any, to
the extent lawful, (c) the due and punctual performance of all other
Obligations of the Company and the Guarantors to the Holders under the
Indenture and the Notes and (d) in case of any extension of time of payment or
renewal of any Securities or any of such other Obligations, the same will be
promptly paid in full when due or performed in accordance with the terms of the
extension or renewal, whether at Stated Maturity, by acceleration, call for
redemption, upon a Change of Control Offer, Asset Sale Offer, purchase or
otherwise. Capitalized terms used herein shall have the same meanings assigned
to them in the Indenture unless otherwise indicated.
Payment on each Security is guaranteed jointly and severally, by the
Guarantors pursuant to Article 11 of the Indenture and reference is made to
such Indenture for the precise terms of the Guarantees.
The obligations of each Guarantor are limited to the lesser of (a) an
amount equal to such Guarantor's Adjusted Net Assets as of the date of the
Guarantee and (b) the maximum amount as well, after giving effect to such
maximum amount and all other contingent and fixed liabilities of such
Guarantor, and after giving effect to any collections from or payments made by
or on behalf of any other Guarantor in respect of the Obligations of such other
Guarantor under its Guarantee or pursuant to its contribution Obligations under
the Indenture, result in the Obligations of such Guarantor under the Guarantee
not constituting a fraudulent conveyance or fraudulent conveyance or fraudulent
transfer under federal or state law or not otherwise being void, voidable or
unenforceable under any similar other bankruptcy, receivership, insolvency,
liquidation or other similar legislation or legal principles under applicable
foreign law. Each Guarantor that makes a payment or distribution under a
Guarantee shall be entitled to a contribution from each other Company in a pro
rata amount based on the Adjusted Net Assets of each Guarantor.
Certain of the Guarantors may be released from their Guarantors upon
the terms and subject to the conditions provided in the Indenture.
The Guarantee shall be binding upon each Guarantor and its successors
and assigns and shall inure to the benefit of the Trustee and the Holders and,
in the event of any transfer or assignment of rights by any Holder or the
Trustee, the rights, the rights and privileges herein conferred upon that party
shall automatically extend to and be vested in such transferee or assignee, all
subject to the terms and conditions hereof and in the Indenture.
DRILLERS, INC.
By:
DI INTERNATIONAL, INC.
By:
DI ENERGY, INC.
By:
<PAGE> 100
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's social security or tax I.D. No.)
and irrevocably appoint agent to transfer this Security
on the books of the Company. The agent may substitute another to act for him.
Dated: ________________ Your Signature:
Sign exactly as your name appears on the other side of this Security.
Signature Guarantee:
Signature must be guaranteed
Notice: Signature(s) must be guaranteed by an institution which is a
participant in the Securities Transfer Agent Medallion Program
("STAMP") or similar program.
<PAGE> 101
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the
Company pursuant to Section 4.07 or Section 4.09 of the Indenture, check the
appropriate box:
Section 4.07 [ ]
Section 4.09 [ ]
If you want to elect to have only part of this Security
purchased by the Company pursuant to Section 4.07 or Section 4.09 of the
Indenture, state the amount in principal amount (must be an integral of
$1,000): $_______________
Dated: _______________ Your Signature:
(Sign exactly as your name
appears on the other side of
this Security.)
Signature Guarantee:
(Signature must be guaranteed)
Notice: Signature(s) must be guaranteed by an institution which is a
participant in the Securities Transfer Agent Medallion Program
("STAMP") or similar program.
<PAGE> 102
APPENDIX B
FORM OF SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"), dated as of
_______________, among [GUARANTOR] (the "New Guarantor"), a subsidiary of DI
Industries, Inc. (or its successor), a Texas corporation (the "Company"), DI
INDUSTRIES, INC., the Guarantors (the "Existing Guarantors") under the
Indenture referred to below, and Texas Commerce Bank National Association, a
national banking association, as trustee under the Indenture referred to below
(the "Trustee").
W I T N E S S E T H :
WHEREAS the Company has heretofore executed and delivered to
the Trustee an Indenture (as such may be amended from time to time, the
"Indenture"), dated as of __________, 1997, providing for the issuance of an
aggregate principal amount of $150,000,000 of ___% Senior Notes due 2007 (the
"Securities");
WHEREAS Section 11.07 of the Indenture provides that the
Company is required to cause the New Guarantor to execute and deliver to the
Trustee a supplemental indenture pursuant to which the New Guarantor shall
jointly and severally and unconditionally and irrevocably guarantee all of the
Company's Obligations under the Securities and the Indenture pursuant to a
Guarantee contained in the Indenture on the terms and conditions set forth
herein; and
WHEREAS pursuant to Section 10.01 of the Indenture, the
Trustee, the Company and Existing Guarantors are authorized to execute and
deliver this Supplemental Indenture;
NOW THEREFORE, in consideration of the foregoing and for
other good and valuable consideration, the receipt of which is hereby
acknowledged, the New Guarantor, the Company, the Existing Guarantors and the
Trustee mutually covenant and agree for the equal and ratable benefit of the
holders of the Securities as follows:
1. Definitions. (a) Capitalized terms used herein
without definition shall have the meanings assigned to them in the Indenture.
(b) For all purposes of this Supplemental Indenture, except
as otherwise herein expressly provided or unless the context otherwise
requires: (i) the terms and expressions used herein shall have the same
meanings as corresponding terms and expressions used in the Indenture; and (ii)
the words "herein," "hereof" and "hereby" and other words of similar import
used in this Supplemental Indenture refer to this Supplemental Indenture as a
whole and not to any particular section hereof.
2. Agreement to Guarantee. The New Guarantor hereby agrees,
jointly and severally and unconditionally and irrevocably, with all other
Guarantors, to guarantee the Company's Obligations under the Securities and the
Indenture on the terms and subject to the conditions set forth in Article 11 of
the Indenture and to be bound by all other applicable provisions of the
Indenture. From and after the date hereof, the New Guarantor shall be a
Guarantor for all purposes under the Indenture and the Securities.
3. Ratification of Indenture; Supplemental Indentures Part of
Indenture. Except as expressly amended hereby, the Indenture is in all respects
ratified and confirmed and all the terms, conditions and provisions thereof
shall remain in full force and effect. This Supplemental Indenture shall form a
part of the Indenture for all purposes, and every Holder of Securities
heretofore or hereafter authenticated and delivered shall be bound hereby.
<PAGE> 103
4. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO
THE EXTENT THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE
REQUIRED THEREBY.
5. Trustee Makes No Representation. The Trustee makes no
representation as to the validity or sufficiency of this Supplemental
Indenture.
6. Counterparts. The parties may sign any number of copies
of this Supplemental Indenture. Each signed copy shall be an original, but all
of them together represent the same agreement.
7. Effect of Headings. The Section headings herein are for
convenience only and shall not effect the construction thereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Supplemental Indenture to be duly executed as of the date first above written.
[NEW GUARANTOR]
By:
Name:
Title:
DI INDUSTRIES, INC.
By:
Name:
Title:
[ALL EXISTING GUARANTORS]
By:
Name:
Title:
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
as Trustee
By:
Name:
Title:
<PAGE> 1
EXHIBIT 5.1
[PORTER & HEDGES, L.L.P. LETTERHEAD]
June 20, 1997
DI Industries, Inc.
10370 Richmond Avenue, Suite 600
Houston, Texas 77042-4136
Re: Opinion as to legality of Senior Notes due 2007
Ladies & Gentlemen:
We have examined the articles of incorporation, the bylaws, and the
corporate proceedings of DI Industries, Inc., a Texas corporation (the
"Company"), and certain of its subsidiaries relating to the registration under
the Securities Act of 1933, as amended, of $150,000,000 aggregate principal
amount of Senior Notes due 2007 (the "Notes") (including guarantees by certain
of the Company's domestic subsidiaries (the "Guarantees")), to be issued
pursuant to an Indenture between the Company and Texas Commerce Bank National
Association, as Trustee (the "Indenture"), and the qualification of the
Indenture under the Trust Indenture Act of 1939, as amended, on behalf of the
Company, for the purpose of sale of the Notes to the underwriters for offering
to the public. In giving this opinion, we have made such other examinations as
we deem necessary in the premises and from such examinations we are of the
opinion that:
1. Upon execution and delivery, the Indenture will have been duly
authorized by all necessary corporate action, and it will constitute
a legal, valid, and binding instrument enforceable in accordance with
its terms, except as enforcement may be limited by bankruptcy,
insolvency, or other laws relating to or affecting enforcement of
creditors' rights generally, and except that remedies of specific
performance and other forms of equitable relief are subject to
certain equitable defenses and to the discretion of the court.
<PAGE> 2
DI Industries, Inc.
June 20, 1997
Page 2
2. When issued and sold, the Notes and the Guarantees will have
been duly authorized by all necessary corporate action, and when
authenticated, delivered to and paid for by the underwriters,
will be legal, valid, and binding obligations of the Company and
the affected subsidiaries, respectively, entitled to the
benefits of the Indenture and enforceable in accordance with its
and their terms, except as enforcement may be limited by
bankruptcy, insolvency or other laws relating to or affecting
enforcement of creditors' rights generally, and except that
remedies of specific performance and other forms of equitable
relief are subject to certain equitable defenses and to the
discretion of the court.
We consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption
"Legal Matters" in the Prospectus included as a part of the Registration
Statement.
This opinion is conditioned upon the Registration Statement being
declared effective and upon compliance by the Company with all applicable
provisions of the Securities Act of 1933, as amended, and such state securities
rules, regulations and laws as may be applicable.
Very truly yours,
/s/ PORTER & HEDGES, L.L.P.
PORTER & HEDGES, L.L.P.
<PAGE> 1
EXHIBIT 12.1
DI INDUSTRIES, INC.
RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------------------- ---------------------------------------------
PRO FORMA PRO FORMA
1997 1997 1996 1996 1996 1995 1994
--------- ------ ------- --------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Pretax income from continuing
operations............................ $ 523 $2,976 $(1,491) (26,834) $(10,877) $(12,675) $(3,557)
Add:
Fixed Charges:
Interest, whether expensed or
capitalized...................... 3,375 672 262 13,500 1,220 1,472 404
Amortization of debt expense and
discount or premium.............. 116 87 12 463 183 47 --
Minority interest in the loss of
Indrillers....................... 202 202 -- -- 118 -- --
------ ------ ------- -------- -------- -------- -------
Earnings as adjusted.................... 4,216 3,937 (1,217) (12,871) (9,356) (11,156) (3,153)
====== ====== ======= ======== ======== ======== =======
Mixed Charges........................... 3,491 759 274 13,963 1,403 1,519 404
====== ====== ======= ======== ======== ======== =======
Ratio of Earnings to fixed Charges...... 1.21 5.19 -- -- -- -- --
====== ====== ======= ======== ======== ======== =======
Deficiency in earnings.................. -- -- $(1,491) $(26,834) $(10,759) $(12,675) $(3,557)
====== ====== ======= ======== ======== ======== =======
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED MARCH 31,
DECEMBER 31, ---------------------
1994 1994 1993
------------ --------- ---------
<S> <C> <C> <C>
Pretax income from continuing
operations............................ $(2,260) $(1,384) $(3,387)
Add:
Fixed Charges:
Interest, whether expensed or
capitalized...................... 332 257 --
Amortization of debt expense and
discount or premium.............. -- -- --
Minority interest in the loss of
Indrillers....................... -- -- --
------- ------- -------
Earnings as adjusted.................... (1,928) (1,127) (3,387)
======= ======= =======
Mixed Charges........................... 332 257 --
======= ======= =======
Ratio of Earnings to fixed Charges...... -- -- --
======= ======= =======
Deficiency in earnings.................. $(2,260) $(1,384) $(3,387)
======= ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to incorporation by reference in this registration statement of
DI Industries, Inc. on Form S-3 of our report dated March 14, 1997, relating to
the consolidated balance sheet of DI Industries, Inc. and Subsidiaries as of
December 31, 1996 and the related consolidated statements of operations, changes
in shareholders' equity and cash flows for the year then ended, and the related
financial statement schedule, which report appears in the December 31, 1996
annual report on Form 10-K of DI Industries, Inc.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Houston, Texas
June 20, 1997
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-26519 of DI Industries, Inc., on Form S-3 of our report dated March 28,
1996, included in and incorporated by reference in the Annual Report on Form
10-K of DI Industries, Inc. for the year ended December 31, 1996, and to the use
of our report dated March 28, 1996, appearing in the Prospectus, which is part
of this Registration Statement. We also consent to the reference to us under the
heading "Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Houston, Texas
June 19, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report on the financial statements of Grey Wolf Drilling Company and to all
other references to our Firm included in or made a part of this registration
statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Houston, Texas
June 19, 1997
<PAGE> 1
EXHIBIT 25
================================================================================
Securities AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM T-1
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939
OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY
OF A TRUSTEE PURSUANT TO SECTION 305(B)(2) ____
-------------------------
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
74-0800980
(I.R.S. Employer Identification Number)
712 MAIN STREET, HOUSTON, TEXAS 77002
(Address of principal executive offices) (Zip code)
LEE BOOCKER, 712 MAIN STREET, 26TH FLOOR
HOUSTON, TEXAS 77002 (713) 216-2448
(Name, address and telephone number of agent for service)
DI INDUSTRIES, INC.
DRILLERS, INC.
DI INTERNATIONAL, INC.
DI ENERGY, INC.
(Exact name of obligor as specified in its charter)
TEXAS 74-2144774
TEXAS 74-1987143
TEXAS 76-0000351
TEXAS 74-2175411
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
10370 RICHMOND AVENUE, SUITE 600, HOUSTON, TEXAS 77042
(Address of principal executive offices) (Zip code)
SENIOR NOTES DUE 2007
(Title of indenture securities)
================================================================================
<PAGE> 2
ITEM 1. GENERAL INFORMATION.
FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING
AUTHORITY TO WHICH IT IS SUBJECT.
Comptroller of the Currency, Washington, D.C.
Federal Deposit Insurance Corporation, Washington, D.C.
Board of Governors of the Federal Reserve System, Washington,
D.C.
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
The trustee is authorized to exercise corporate trust powers.
ITEM 2. AFFILIATIONS WITH THE OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH
SUCH AFFILIATION.
The obligor is not an affiliate of the trustee. (See Note on
Page 7.)
ITEM 3. VOTING SECURITIES OF THE TRUSTEE.
FURNISH THE FOLLOWING INFORMATION AS TO EACH CLASS OF VOTING
SECURITIES OF THE TRUSTEE.
<TABLE>
<CAPTION>
COL. A COL. B
TITLE OF CLASS AMOUNT OUTSTANDING
-------------- ------------------
<S> <C>
Not applicable by virtue of Form T-1 General Instruction B
and response to Item 13.
</TABLE>
ITEM 4. TRUSTEESHIPS UNDER OTHER INDENTURES.
IF THE TRUSTEE IS A TRUSTEE UNDER ANOTHER INDENTURE UNDER
WHICH ANY OTHER SECURITIES, OR CERTIFICATES OF INTEREST OR PARTICIPATION IN ANY
OTHER SECURITIES, OF THE OBLIGOR ARE OUTSTANDING, FURNISH THE FOLLOWING
INFORMATION:
(a) TITLE OF THE SECURITIES OUTSTANDING UNDER EACH SUCH
OTHER INDENTURE.
Not applicable by virtue of Form T-1 General Instruction B
and response to Item 13.
1
<PAGE> 3
ITEM 4. (CONTINUED)
(b) A BRIEF STATEMENT OF THE FACTS RELIED UPON AS A BASIS FOR
THE CLAIM THAT NO CONFLICTING INTEREST WITHIN THE MEANING OF
SECTION 310(B)(1) OF THE ACT ARISES AS A RESULT OF THE
TRUSTEESHIP UNDER ANY SUCH OTHER INDENTURE, INCLUDING A
STATEMENT AS TO HOW THE INDENTURE SECURITIES WILL RANK AS
COMPARED WITH THE SECURITIES ISSUED UNDER SUCH OTHER
INDENTURE.
Not applicable by virtue of Form T-1 General Instruction B
and response to Item 13.
ITEM 5. INTERLOCKING DIRECTORATES AND SIMILAR RELATIONSHIPS WITH
OBLIGOR OR UNDERWRITERS.
IF THE TRUSTEE OR ANY OF THE DIRECTORS OR EXECUTIVE OFFICER
OF THE TRUSTEE IS A DIRECTOR, OFFICER, PARTNER, EMPLOYEE, APPOINTEE, OR
REPRESENTATIVE OF THE OBLIGOR OR OF ANY UNDERWRITER FOR THE OBLIGOR, IDENTIFY
EACH SUCH PERSON HAVING ANY SUCH CONNECTION AND STATE THE NATURE OF EACH SUCH
CONNECTION.
Not applicable by virtue of Form T-1 General Instruction B
and response to Item 13.
ITEM 6. VOTING SECURITIES OF THE TRUSTEE OWNED BY THE OBLIGOR OR ITS
OFFICIALS.
FURNISH THE FOLLOWING INFORMATION AS TO THE VOTING SECURITIES
OF THE TRUSTEE OWNED BENEFICIALLY BY THE OBLIGOR AND EACH DIRECTOR, PARTNER AND
EXECUTIVE OFFICER OF THE OBLIGOR.
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D
PERCENTAGE OF
VOTING SECURITIES
REPRESENTED BY
AMOUNT OWNED AMOUNT GIVEN IN
NAME OF OWNER TITLE OF CLASS BENEFICIALLY COL. C
------------- -------------- ------------ -----------------
<S> <C> <C> <C>
Not applicable by virtue of Form T-1 General Instruction B and response to
Item 13.
</TABLE>
2
<PAGE> 4
ITEM 7. VOTING SECURITIES OF THE TRUSTEE OWNED BY UNDERWRITERS OR
THEIR OFFICIALS.
FURNISH THE FOLLOWING INFORMATION AS TO THE VOTING SECURITIES
OF THE TRUSTEE OWNED BENEFICIALLY BY EACH UNDERWRITER FOR THE OBLIGOR AND EACH
DIRECTOR, PARTNER AND EXECUTIVE OFFICER OF EACH SUCH UNDERWRITER.
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D
PERCENTAGE OF
VOTING SECURITIES
REPRESENTED BY
AMOUNT OWNED AMOUNT GIVEN IN
NAME OF OWNER TITLE OF CLASS BENEFICIALLY COL. C
------------- -------------- ------------ -----------------
<S> <C> <C> <C>
Not applicable by virtue of Form T-1 General Instruction B and response to
Item 13.
</TABLE>
ITEM 8. SECURITIES OF THE OBLIGOR OWNED OR HELD BY THE TRUSTEE.
FURNISH THE FOLLOWING INFORMATION AS TO THE SECURITIES OF THE
OBLIGOR OWNED BENEFICIALLY OR HELD AS COLLATERAL SECURITY FOR OBLIGATIONS IN
DEFAULT BY THE TRUSTEE.
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D
AMOUNT OWNED
WHETHER THE BENEFICIALLY OR PERCENT OF
SECURITIES HELD AS COLLATERAL CLASS
ARE VOTING SECURITY FOR REPRESENTED BY
OR NONVOTING OBLIGATIONS IN AMOUNT GIVEN
TITLE OF CLASS SECURITIES DEFAULT IN COL. C
-------------- ------------ ------------------- --------------
<S> <C> <C> <C>
Not applicable by virtue of Form T-1 General Instruction B and response to
Item 13.
</TABLE>
3
<PAGE> 5
ITEM 9. SECURITIES OF UNDERWRITERS OWNED OR HELD BY THE TRUSTEE.
IF THE TRUSTEE OWNS BENEFICIALLY OR HOLDS AS COLLATERAL
SECURITY FOR OBLIGATIONS IN DEFAULT ANY SECURITIES OF AN UNDERWRITER FOR THE
OBLIGOR, FURNISH THE FOLLOWING INFORMATION AS TO EACH CLASS OF SECURITIES OF
SUCH UNDERWRITER ANY OF WHICH ARE SO OWNED OR HELD BY THE TRUSTEE.
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D
AMOUNT OWNED
BENEFICIALLY OR PERCENT OF
HELD AS COLLATERAL CLASS
NAME OF ISSUER SECURITY FOR REPRESENTED BY
AND AMOUNT OBLIGATIONS IN AMOUNT GIVEN
TITLE OF CLASS OUTSTANDING DEFAULT BY TRUSTEE IN COL. C
-------------- ------------ ------------------ --------------
<S> <C> <C> <C>
Not applicable by virtue of Form T-1 General Instruction B and response to
Item 13.
</TABLE>
ITEM 10. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF VOTING SECURITIES
OF CERTAIN AFFILIATES OR SECURITY HOLDERS OF THE OBLIGOR.
IF THE TRUSTEE OWNS BENEFICIALLY OR HOLDS AS COLLATERAL
SECURITY FOR OBLIGATIONS IN DEFAULT VOTING SECURITIES OF A PERSON WHO, TO THE
KNOWLEDGE OF THE TRUSTEE (1) OWNS 10% OR MORE OF THE VOTING SECURITIES OF THE
OBLIGOR OR (2) IS AN AFFILIATE, OTHER THAN A SUBSIDIARY, OF THE OBLIGOR,
FURNISH THE FOLLOWING INFORMATION AS TO THE VOTING SECURITIES OF SUCH PERSON.
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D
AMOUNT OWNED
BENEFICIALLY OR PERCENT OF
HELD AS COLLATERAL CLASS
NAME OF ISSUER SECURITY FOR REPRESENTED BY
AND AMOUNT OBLIGATIONS IN AMOUNT GIVEN
TITLE OF CLASS OUTSTANDING DEFAULT BY TRUSTEE IN COL. C
-------------- ------------ ------------------ --------------
<S> <C> <C> <C>
Not applicable by virtue of Form T-1 General Instruction B and response to
Item 13.
</TABLE>
4
<PAGE> 6
ITEM 11. OWNERSHIP OR HOLDINGS BY THE TRUSTEE OF ANY SECURITIES OF
A PERSON OWNING 50% OR MORE OF THE VOTING SECURITIES OF THE
OBLIGOR.
IF THE TRUSTEE OWNS BENEFICIALLY OR HOLDS AS COLLATERAL
SECURITY FOR OBLIGATIONS IN DEFAULT ANY SECURITIES OF A PERSON WHO, TO THE
KNOWLEDGE OF THE TRUSTEE, OWNS 50% OR MORE OF THE VOTING SECURITIES OF THE
OBLIGOR, FURNISH THE FOLLOWING INFORMATION AS TO EACH CLASS OF SECURITIES OR
SUCH PERSON ANY OF WHICH ARE SO OWNED OR HELD BY THE TRUSTEE.
<TABLE>
<CAPTION>
COL. A COL. B COL. C COL. D
AMOUNT OWNED
BENEFICIALLY OR PERCENT OF
HELD AS COLLATERAL CLASS
NAME OF ISSUER SECURITY FOR REPRESENTED BY
AND AMOUNT OBLIGATIONS IN AMOUNT GIVEN
TITLE OF CLASS OUTSTANDING DEFAULT BY TRUSTEE IN COL. C
-------------- ------------ ------------------ --------------
<S> <C> <C> <C>
Not applicable by virtue of Form T-1 General Instruction B and response to
Item 13.
</TABLE>
ITEM 12. INDEBTEDNESS OF THE OBLIGOR TO THE TRUSTEE.
EXCEPT AS NOTED IN THE INSTRUCTIONS, IF THE OBLIGOR IS
INDEBTED TO THE TRUSTEE, FURNISH THE FOLLOWING INFORMATION:
<TABLE>
<CAPTION>
COL. A COL. B COL. C
NATURE OF AMOUNT
INDEBTEDNESS OUTSTANDING DATE DUE
------------ ----------- --------
<S> <C> <C>
Not applicable by virtue of Form T-1 General Instruction B and response
to Item 13.
</TABLE>
ITEM 13. DEFAULTS BY THE OBLIGOR.
(a) STATE WHETHER THERE IS OR HAS BEEN A DEFAULT WITH RESPECT TO
THE SECURITIES UNDER THIS INDENTURE. EXPLAIN THE NATURE OF ANY SUCH DEFAULT.
There is not, nor has there been, a default with respect to the
securities under this indenture. (See Note on Page 7.)
5
<PAGE> 7
ITEM 13. (CONTINUED)
(b) IF THE TRUSTEE IS A TRUSTEE UNDER ANOTHER INDENTURE UNDER WHICH
ANY SECURITIES, OR CERTIFICATES OF INTEREST OR PARTICIPATION IN ANY OTHER
SECURITIES, OF THE OBLIGOR ARE OUTSTANDING, OR IS TRUSTEE FOR MORE THAN ONE
OUTSTANDING SERIES OF SECURITIES UNDER THE INDENTURE, STATE WHETHER THERE HAS
BEEN A DEFAULT UNDER ANY SUCH INDENTURE OR SERIES, IDENTIFY THE INDENTURE OR
SERIES AFFECTED, AND EXPLAIN THE NATURE OF ANY SUCH DEFAULT.
There has not been a default under any such indenture or series. (See
Note on Page 7.)
ITEM 14. AFFILIATIONS WITH THE UNDERWRITERS.
IF ANY UNDERWRITER IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE
EACH SUCH AFFILIATION.
Not applicable by virtue of Form T-1 General Instruction B and response
to Item 13.
ITEM 15. FOREIGN TRUSTEE.
IDENTIFY THE ORDER OR RULE PURSUANT TO WHICH THE FOREIGN
TRUSTEE IS AUTHORIZED TO ACT AS SOLE TRUSTEE UNDER INDENTURES QUALIFIED OR TO
BE QUALIFIED UNDER THE ACT.
Not applicable.
ITEM 16. LIST OF EXHIBITS.
LIST BELOW ALL EXHIBITS FILED AS PART OF THIS STATEMENT OF
ELIGIBILITY.
o 1. A copy of the articles of association of the trustee now
in effect.
# 2. A copy of the certificate of authority of the trustee to
commence business.
* 3. A copy of the certificate of authorization of the
trustee to exercise corporate trust powers issued by the
Board of Governors of the Federal Reserve System under date
of January 21, 1948.
+ 4. A copy of the existing bylaws of the trustee.
5. Not applicable.
6. The consent of the United States institutional trustees
required by Section 321(b) of the Act.
6
<PAGE> 8
7. A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority.
8. Not applicable.
9. Not applicable.
- -----------------------
o Incorporated by reference to exhibit bearing the same designation and
previously filed with the Securities and Exchange Commission as exhibits to the
Form S-3 File No. 33-56195.
# Incorporated by reference to exhibit bearing the same designation and
previously filed with the Securities and Exchange Commission as exhibits to the
Form S-3 File No. 33-42814.
* Incorporated by reference to exhibit bearing the same designation and
previously filed with the Securities and Exchange Commission as exhibits to the
Form S-11 File No. 33-5132.
+ Incorporated by reference to exhibit bearing the same designation and
previously filed with the Securities and Exchange Commission as exhibits to the
Form S-3 File No. 33-65055.
----------------
NOTE
Inasmuch as this Form T-1 is filed prior to the ascertainment
by the trustee of all facts on which to base responsive answers to Items 2 and
13, the answers to said Items are based on incomplete information. Such Items
may, however, be considered as correct unless amended by an amendment to this
Form T-1.
7
<PAGE> 9
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE TRUST INDENTURE ACT OF 1939 THE
TRUSTEE, TEXAS COMMERCE BANK NATIONAL ASSOCIATION, A NATIONAL BANKING
ASSOCIATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE UNITED STATES OF
AMERICA, HAS DULY CAUSED THIS STATEMENT OF ELIGIBILITY TO BE SIGNED ON ITS
BEHALF BY THE UNDERSIGNED, THEREUNTO AUTHORIZED, ALL IN THE CITY OF HOUSTON,
AND STATE OF TEXAS, ON THE 6TH DAY OF JUNE, 1997.
TEXAS COMMERCE BANK NATIONAL ASSOCIATION
(Trustee)
By: /s/ MAURI J. COWEN
---------------------------------
Mauri J. Cowen
Vice President and Trust Officer
8
<PAGE> 10
Exhibit 6
Securities and Exchange Commission
Washington, D.C. 20549
Gentlemen:
The undersigned is trustee under an indenture to be entered into
between DI Industries, Inc., Drillers, Inc., DI International, Inc. and DI
Energy, Inc., each of which are Texas corporations, and Texas Commerce Bank
National Association, as Trustee, entered into in connection with the issuance
of their Senior Notes Due 2007.
In accordance with Section 321(b) of the Trust Indenture Act of 1939,
the undersigned hereby consents that reports of examinations of the
undersigned, made by Federal or State authorities authorized to make such
examinations, may be furnished by such authorities to the Securities and
Exchange Commission upon its request therefor.
Very truly yours,
TEXAS COMMERCE BANK
NATIONAL ASSOCIATION
By: /s/ Mauri J. Cowen
-------------------------------------
Mauri J. Cowen
Vice President and Trust Officer
