As filed with the Securities and Exchange Commission on February 7, 1997.
Registration No. 333-20423
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
Amendment No. 2 to
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
------------------
DI INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-2144774
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
450 GEARS ROAD, SUITE 625
HOUSTON, TEXAS 77067
(713) 874-0202
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
<TABLE>
<S> <C>
T. Scott O'Keefe COPIES TO:
Senior Vice President and Chief Financial Officer
450 Gears Road, Suite 625 Nick D. Nicholas
Houston, Texas 77067 Porter & Hedges, L.L.P.
(281) 874-0202 700 Louisiana, 35th Floor
(Name, address, including zip code, and telephone number, Houston, Texas 77002
including area code, of agent for service) (713) 226-0600
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: From time
to time after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED SHARE PRICE REGISTRATION FEE
=========================================================================================================================
<S> <C> <C> <C> <C>
Common Stock, par value $0.10 per share.... 1,750,000 $3.125(1) $ 5,468,750 $1,657.20(1)
- -------------------------------------------------------------------------------------------------------------------------
Common Stock, par value $0.10 per share.... 12,426,000 $3.125(2) $38,831,250 $11,767.05(2)
=========================================================================================================================
</TABLE>
(1) Pursuant to Rule 457(c), the registration fee is calculated on the basis of
the average of the high and low sale prices for the Common Stock on the
American Stock Exchange on January 21, 1997, $3.125 per share, and was
previously paid.
(2) Pursuant to Rule 457(c), the registration fee is calculated on the basis of
high and low sale prices for the Common Stock on the American Stock Exchange
on February 4, 1997, $3.125 per share.
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.
PURSUANT TO THE PROVISIONS OF RULE 429 OF THE SECURITIES ACT OF 1933, AS
AMENDED, THE PROSPECTUS CONTAINED IN THIS REGISTRATION STATEMENT ALSO RELATES TO
7,500,000 AND 71,194,038 SHARES OF COMMON STOCK COVERED BY THE REGISTRANT'S
REGISTRATION STATEMENTS ON FORM S-3 (REG. NO. 333-14783) AND FORM S-3 (REG. NO.
333-6077), RESPECTIVELY. THE PREVIOUSLY FILED FORM S-3 (REG. NO. 333-14783)
REGISTERED 7,500,000 SHARES OF COMMON STOCK FOR WHICH THE REGISTRATION FEES WITH
RESPECT THERETO WERE PREVIOUSLY FILED. THE PREVIOUSLY FILED FORM S-3 (REG. NO.
333-6077) AMENDED A REGISTRATION STATEMENT ON FORM S-4 AND REGISTERED 82,337,956
SHARES OF COMMON STOCK, 9,143,918 OF WHICH HAVE BEEN SOLD AND 2,000,000 OF WHICH
RELATED TO SHARES UNDERLYING WARRANTS THAT HAVE TERMINATED. THE REGISTRATION
FEES WITH RESPECT THERETO WERE PREVIOUSLY PAID.
================================================================================
<PAGE>
SUBJECT TO COMPLETION DATED FEBRUARY 7, 1997
PROSPECTUS 92,870,038 SHARES
DI INDUSTRIES, INC.
COMMON STOCK
-----------------------------
The 92,870,038 shares (the "Shares") of common stock, par value $0.10 per
share (the "Common Stock"), of DI Industries, Inc., a Texas corporation (the
"Company"), offered hereby are held by, or subject to certain warrants or
options held by, certain shareholders of the Company (the "Selling
Shareholders"). The Company will not receive any part of the proceeds of the
sale of the Shares offered hereby.
Sales of the Shares by the Selling Shareholders may be made from time to
time in one or more transactions, including block transactions, on the American
Stock Exchange ("AMEX"), or any other exchange or quotation system on which the
Common Stock may be listed or quoted (collectively, the "Exchanges"), pursuant
to and in accordance with the applicable rules of the Exchanges, in the
over-the-counter market, in privately negotiated transactions not crossing an
Exchange or other public securities market or in a combination of any such
methods of sale, at fixed prices that may be changed, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. The Shares may be offered directly, to or
through agents designated from time to time, or to or through brokers or
dealers, or through any combination of such methods of sale. Such agents,
brokers or dealers may receive compensation in the form of discounts,
concessions or commissions from the Selling Shareholders and/or the purchasers
of the Shares for whom such broker-dealers may act as agents or to whom they
sell as principals, or both (which compensation as to a particular broker-dealer
might be in excess of customary commissions). A member firm of an Exchange may
be engaged to act as an agent in the sale of Shares by the Selling Shareholders.
See "Plan of Distribution."
The Selling Shareholders and any brokers, dealers, agents or others that
participate with the Selling Shareholders in the distribution of the Shares may
be deemed to be "underwriters" within the meaning of the Securities Act of 1933,
as amended (the "Securities Act"), and any commissions or fees received by such
persons and any profit on the resale of the Shares purchased by such persons may
be deemed to be underwriting commissions or discounts under the Securities Act.
The Company has agreed to indemnify certain of the Selling Shareholders against
certain liabilities, including liabilities under the Securities Act. See "Plan
of Distribution."
The total costs, fees and expenses incurred in connection with the
registration of the Shares are estimated to be approximately $30,500.
The Common Stock is traded on the AMEX under the symbol "DRL." On February
5, 1997, the closing sales price of the Common Stock as reported on the AMEX was
$3.125 per share.
-----------------------------
INVESTORS SHOULD CONSIDER CAREFULLY THE MATTERS SET FORTH UNDER THE CAPTION
"RISK FACTORS" BEGINNING ON PAGE 3.
-----------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-----------------------------
The date of this Prospectus is February ____, 1997.
<PAGE>
THIS PROSPECTUS CONTAINS OR INCORPORATES BY REFERENCE, "FORWARD-LOOKING
STATEMENTS" WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT, AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). ALL
STATEMENTS OTHER THAN STATEMENTS OF HISTORICAL FACTS SO INCLUDED IN THIS
PROSPECTUS INCLUDING, WITHOUT LIMITATION, STATEMENTS REGARDING THE COMPANY'S
BUSINESS STRATEGY, PLANS, OBJECTIVES AND BELIEFS OF MANAGEMENT FOR FUTURE
OPERATIONS ARE FORWARD-LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THE
EXPECTATIONS AND BELIEFS REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE
REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE
BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM THE COMPANY'S EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE
DISCUSSED HEREIN UNDER THE CAPTIONS "RISK FACTORS" AND "RECENT DEVELOPMENTS" AND
IN THE COMPANY'S ANNUAL REPORT ON FORM 10-K/A AND QUARTERLY REPORTS ON FORM
10-Q, INCORPORATED HEREIN BY REFERENCE UNDER THE CAPTION "MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS."
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). The
Registration Statement (defined below), as well as such reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
its Regional Offices at Seven World Trade Center, New York, New York 10048 and
at Northwest Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661. Copies of such material can also be obtained at prescribed rates
from the Public Reference Section of the Commission at 450 Fifth Street, N.W.
Washington, D.C. 20549. The Common Stock is listed and traded on the AMEX and
certain of the Company's reports, proxy statements and other information can be
inspected at the offices of the American Stock Exchange, 86 Trinity Place, New
York, New York 10006. The Commission maintains a site on the World Wide Web that
contains certain documents filed with the Commission electronically. The address
of such site is http://www.sec.gov and the Registration Statement may be
inspected at such site.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with any amendments or supplements thereto, the "Registration
Statement") under the Securities Act with respect to the Shares. This Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits thereto, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information, reference
is made to the Registration Statement and the exhibits thereto. Statements
contained in this Prospectus (or in any document incorporated into this
Prospectus by reference) as to the contents of any contract or other document
referred to herein (or therein) are not necessarily complete, and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed with the Commission pursuant
to the Exchange Act (File No. 1-8826), are incorporated herein by reference and
made a part of this Prospectus:
1. The Company's Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1995.
2. The Company's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1996, June 30, 1996 and September 30, 1996.
3. The Company's Definitive Proxy Statement for the 1996 Annual Meeting of
Shareholders to be held August 27, 1996, including the description of
the Common Stock contained therein under the caption "Description of
Capital Stock of the Company."
4. The Company's Current Reports on Form 8-K dated June 24, 1996, October
2, 1996, November 4, 1996, December 30, 1996 and January 31, 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 of the Common Stock covered hereby shall be
deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the respective dates of filing of such documents. Any statement
contained in a document or information incorporated or deemed to be incorporated
herein by reference shall be deemed to be modified or superseded for purposes of
this Prospectus to the extent that a statement contained herein or in any
subsequently filed document that also is, or is deemed to be, incorporated
herein by reference, modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, expect as so modified or
superseded, to constitute a part of this Prospectus.
The Company undertakes to provide, without charge, to each person, including
any beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of such person, a copy of any and all of the documents
or information referred to above that has been or may be incorporated by
reference in this prospectus (excluding exhibits to such documents unless such
exhibits are specifically incorporated by reference). Requests should be
directed to the corporate secretary, DI Industries, Inc., 450 Gears Road, Suite
625, Houston, Texas 77067, telephone (281) 874-0202.
2
<PAGE>
THE COMPANY
DI Industries, Inc., a Texas corporation formed in 1980, is engaged
primarily in the business of providing onshore contract drilling services to the
oil and gas industry. The Company conducts domestic operations in Texas,
Louisiana, Arkansas, Oklahoma, Ohio, Pennsylvania, New York, Michigan and other
states; and currently has international operations in Argentina and Venezuela.
The principal office of the Company is located at 450 Gears Road, Suite 625,
Houston, Texas 77067, and its telephone number is (281) 874-0202.
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION CONTAINED IN THIS PROSPECTUS, THE
FOLLOWING SHOULD BE CAREFULLY CONSIDERED IN EVALUATING THE COMPANY AND ITS
BUSINESS BEFORE PURCHASING THE COMMON STOCK OFFERED HEREBY.
CHANGE IN BUSINESS STRATEGY AND MANAGEMENT
In early 1996, the Company began implementing a new business strategy
which involves new management, focusing its resources toward higher margin
markets and recapitalizing the Company to provide for growth capacity.
Implementing the new strategy will involve redeploying its rigs to more
profitable markets, refurbishing and upgrading certain of its rigs, and
acquiring businesses and assets complementing the Company's land drilling
operations. Inherent in such strategy are certain risks, such as increasing
demand for liquidity and capital resources, increasing debt service
requirements, combining disparate company cultures and facilities, and
conducting operations in geographically and competitively diverse markets.
Material changes in the Company's management and business strategy have
only recently occurred. The Company is therefore unable to predict the effect of
these material changes on the Company's financial condition and results of
operations. This is particularly so in light of the rapid consolidation and
competitive changes in the Company's most profitable markets. The success of the
Company's new business strategy and its ability to repay increased debt service
will depend in part on the Company's ability (i) to redeploy its rigs to higher
margin markets, (ii) to finance and timely complete the refurbishment and
upgrade of its rig inventory on a cost effective basis and, (iii) to continue to
contract for, finance and integrate into its business future acquisitions. There
can be no assurance these material changes will result in the desired effect of
improving the Company's competitive position and its financial condition. See
"Recent Developments."
LEVERAGE AND LIQUIDITY
The Company currently has approximately $27.2 million of debt
obligations. Accordingly, the Company will require substantial cash flow to meet
its debt service requirements. Payment of principal and interest on these
obligations will depend on the Company's future performance, which is subject to
general economic and business factors beyond the Company's control.
The Company's programs of rig refurbishment and upgrades will require
increasing amounts of capital and to the extent, if any, it is unable to
continue such programs, the Company will have fewer rigs available for service.
Further debt may be needed to finance any future acquisitions. It is likely
therefore, that the Company's exposure to the risks associated with leverage
will increase as its new business strategy is implemented.
The Company's current credit facility (the "Facility") restricts, among
other things, the Company's ability to incur additional indebtedness in excess
of certain amounts, encumber certain of its properties and make certain asset
dispositions. Furthermore, the Facility prohibits the payment of dividends by
the Company and requires the Company to maintain a minimum working capital
balance of $5.0 million and minimum net worth of $60.0 million. In addition, the
Facility requires the Company to maintain certain financial ratios. These
restrictions could limit the Company's flexibility in responding to changing
market conditions and impair its ability to achieve its new business strategy.
See "Recent Developments."
NEW MANAGEMENT AND BOARD OF DIRECTORS; DEPENDENCE ON KEY PERSONNEL
Since April 1996, the Company has hired a majority of its current senior
management team. In addition, in August 1996, the shareholders of the Company
elected a Board of Directors comprised of five members, all but one of which
were elected for the first time. In connection with an acquisition, another new
member was added to the Company's Board of Directors effective January 31, 1997.
The Company believes that its operations are dependent upon the Company's small
group of relatively new management personnel, the loss of any of whom could have
a material adverse effect on the Company. See "Recent Developments."
3
<PAGE>
INTENSE COMPETITION; INDUSTRY CONDITIONS
The Company experiences intense competition in its onshore drilling
markets. The contract drilling industry is cyclical and is characterized by high
capital and maintenance costs. Due to an oversupply of rigs, the onshore
drilling market is highly competitive and no one competitor is dominant. While
price is a primary factor in the selection of drilling contractors, a
contractor's safety record, crew quality, service record and equipment
capability are also important factors. Certain of the Company's competitors have
greater financial and other resources than the Company and may commit more
resources than the Company to these important factors.
The Company's operations are materially dependent upon the levels of
activity in the exploration, development and production of oil and natural gas
in the United States and worldwide. Such activity levels are affected both by
short-term and long-term trends in the prices of oil and natural gas. In recent
years, oil and natural gas prices, and therefore the level of drilling and
exploration activity, have been volatile. Worldwide military, political and
economic events have contributed to, and are likely to continue to contribute
to, such price volatility. Any prolonged reduction in oil and natural gas prices
would depress the level of exploration and development activity and would result
in a corresponding decline in the demand for the Company's services and
therefore have a material adverse effect on the Company's financial condition
and results of operations.
LOSSES FROM OPERATIONS
The historical financial data for the Company reflect net losses of
$13.4 million and $3.5 million (unaudited) for the calendar years ended December
31, 1995 and 1994, which included a non-cash impairment provision of $5.3
million during the fourth quarter of 1995 for certain drilling rigs and
equipment. This provision was the result of market indications that the carrying
amount was not fully recoverable based on appraisals, comparable sales data and
management estimates. The Company continues to experience losses, realizing a
net loss to Common Stock of $559,000 (unaudited) for the nine months ended
September 30, 1996. There can be no assurance that any capital needed for the
future will be available on acceptable terms.
INTERNATIONAL OPERATIONS
A major portion of the Company's revenues has been attributable to
international operations. Revenues from international sources accounted for
approximately 41.2 percent and 52.7 percent of the Company's operating revenues
for the nine-month period ended September 30, 1996 and the year ended December
31, 1995, respectively. In addition to the risks inherent in the drilling
business, the Company's international operations are subject to certain
political, economic and other uncertainties, including, among others, risks of
war and civil disturbances, expropriation, nationalization, renegotiation or
modification of existing contracts, taxation policies, foreign exchange
restrictions, international monetary fluctuations and other hazards arising out
of foreign operations. See "Recent Developments."
SHARES ELIGIBLE FOR FUTURE SALE
There are approximately 93 million shares of Common Stock which are
available for sale under this Prospectus, including 3.49 million shares issuable
upon exercise of warrants or options. On a fully diluted basis, such shares
represent approximately 66% of the Company's outstanding Common Stock. The
contractual registration periods for such shares terminate at various times
during the period ending on the later of August 29, 1999, and three years after
exercise of any Shadow Warrants (defined under "Recent Developments -
Acquisitions"). The Company also may be required to issue additional shares of
Common Stock under certain repricing provisions of a private placement and a
recently completed acquisition. Any additional shares issued under these
obligations would also be subject to similar shelf registration rights. There
can be no assurances that additional shares will not be issued under these
provisions or that the Company may not agree to similar provisions in connection
with future acquisitions. Future sale of substantial amounts of Common Stock in
the public market could adversely affect prevailing market prices. See "Recent
Developments - Acquisitions."
ABSENCE OF DIVIDENDS ON THE COMMON STOCK
The Company has never paid any cash dividends on the Common Stock and
does not anticipate paying dividends on the Common Stock at any time in the
foreseeable future. Additionally, certain of its debt covenants prohibit the
Company from paying dividends without the consent of the lender .
4
<PAGE>
LIMITATIONS ON THE AVAILABILITY OF THE COMPANY'S NET OPERATING LOSS
CARRYFORWARDS
As a result of the Mergers (as hereinafter defined), the Company has
undergone an "ownership change" within the meaning of Section 382 of the
Internal Revenue Code of 1986, as amended. Therefore, the right of the Company
to use its existing net operating loss carryforwards ("NOLs") and certain other
tax attributes for both regular tax and alternative minimum tax purposes during
each future year is limited to a percentage (currently approximately six
percent) of the fair market value of the Company's Common Stock immediately
before the ownership change (the "Section 382 Limitation"). To the extent that
taxable income exceeds the Section 382 Limitation in any year subsequent to the
ownership change, such excess income may not be offset by NOLs from years prior
to the ownership change. To the extent the amount of taxable income in any
subsequent year is less than the Section 382 Limitation for such year, the
Section 382 Limitation for future years is correspondingly increased. There is
generally no restriction on the use of NOLs arising after the ownership change,
although Section 382 applies anew each time there is an ownership change. The
actual effect, if any, of such utilization of NOLs will depend on the Company's
profitability in future years. As of December 31, 1995, the Company had
approximately $64.0 million of NOLs, a significant portion of which are already
subject to a Section 382 Limitation resulting from ownership changes in years
prior to 1996.
OPERATIONAL RISKS
The Company's operations are subject to the many hazards inherent in the
drilling business, including blowouts, cratering, fires and collisions. These
hazards could cause personal injury and loss of life, suspend drilling
operations or seriously damage or destroy the property and equipment involved
and, in addition to environmental damage, could cause damage to producing
formations and surrounding areas. Although the Company maintains insurance
against many of these hazards, the Company does not have casualty or other
insurance with respect to the rigs themselves, and such other insurance is
subject to substantial deductibles and provides for premium adjustments based on
claims. Certain other matters are also excluded from coverage, such as loss of
earnings on certain rigs.
GOVERNMENTAL AND ENVIRONMENTAL MATTERS
Many aspects of the Company's operations are affected by domestic and
foreign political developments and are subject to numerous domestic and foreign
governmental regulations that may relate directly or indirectly to the contract
drilling industry. The regulations applicable to the Company's operations
include certain regulations that control the discharge of materials into the
environment or require remediation of contaminations, under certain
circumstances. Usually these environmental laws and regulations impose "strict
liability," rendering a person liable without regard to negligence or fault on
the part of such person. Such environmental laws and regulations may expose the
Company to liability for the conduct of, or conditions caused by, others, or for
acts of the Company that were in compliance with all applicable laws at the time
such acts were performed.
CONTROL CONSIDERATIONS
On May 7, 1996, certain shareholders of the Company entered into a
Shareholders' Agreement (the "Shareholders' Agreement"), which shareholders and
their affiliates beneficially own approximately 59% of the issued and
outstanding shares of Common Stock as of the date of this Prospectus. The
Shareholders' Agreement provides that all of the parties thereto, and certain of
their successors will be required to vote their shares of Common Stock so as to
maintain the size of the Board of Directors at five, and to vote their shares at
any annual or special meeting of the shareholders for three directors designated
by such parties and two independent directors. By reason of their shareholdings
and the Shareholders' Agreement, the parties to the Shareholders' Agreement, and
certain of their successors will each exercise considerable influence over the
Company and will be able to collectively control all of its business and affairs
for so long as they own these shares. Several of the Selling Shareholders are
party to the Shareholders' Agreement.
RECENT DEVELOPMENTS
OVERVIEW
In 1996, the Company elected a substantially new board of directors,
installed new senior management and completed several transactions that
significantly improved its liquidity and added drilling rigs to its existing
fleet. The combined effect of these changes materially changed the Company's
principal shareholders, management, capital structure, and business strategy.
CHANGE IN MANAGEMENT
The Company began its management restructuring in April 1996, with the
termination of its former President and Chief Executive Officer on April 9,
1996. Since that date, the Company has hired a majority of its current senior
5
<PAGE>
management team, including Thomas P. Richards, President and Chief Executive
Officer, Forrest M. Conley, Jr., Senior Vice President - International, Donald
J. Guedry, Treasurer, Ronnie E. McBride, Senior Vice President - Operations, T.
Scott O'Keefe, Senior Vice President and Chief Financial Officer, and David W.
Wehlmann, Vice President and Controller. Mr. Wehlmann began his employment in
July 1996 while Messrs. Conley, McBride, O'Keefe and Richards began their
employment in September 1996. Mr. Guedry joined the Company in October 1996. In
addition, on August 27, 1996, the shareholders of the Company elected a Board of
Directors comprised of five members, all but one of which were elected to the
Board for the first time. Returning to the Board as Chairman was Ivar Siem.
Directors Roy T. Oliver, Jr., Steven A. Webster, William R. Ziegler and Peter M.
Holt were newly elected to the Board of Directors of the Company. In connection
with the acquisition of Flournoy Drilling Company ("Flournoy") on January 31,
1997, Mr. Lucien Flournoy, the founder of Flournoy, joined the Company's Board
of Directors. See "-- Acquisitions."
CHANGE IN BUSINESS STRATEGY
The Company also began implementing in 1996 a new business strategy
intended to return the Company to profitability and to enable it to keep pace
with rapidly changing competitive conditions in the land drilling business
which, management believes, is undergoing a period of rapid consolidation. This
strategy involves:
o redeploying its drilling rigs and related assets where feasible
to geographic markets with greater potential for increased gross
operating margin;
o restoring certain of its stacked rigs to marketable condition
through a program of capital expenditures; and
o acquiring businesses and assets complementing its land drilling
operations.
To meet the increased capital resources and liquidity requirements of its new
business strategy, the Company will incur additional bank debt and may require
other forms of debt or equity financing.
REDEPLOYMENT OF OPERATING ASSETS
Due to continuing operating losses, the Company has recently withdrawn
all four of its rigs from Mexico. These rigs have been returned to Texas for
subsequent service in the higher margin markets of Texas, Oklahoma, Arkansas and
Louisiana. The Company is planning to withdraw from Argentina and is considering
withdrawing from certain other low margin domestic markets.
REFURBISHMENT OF STACKED RIGS
The majority of the Company's existing drilling rigs were built during
1979 to 1981, the industry's most recent rig building cycle. As of the date of
this Prospectus, approximately one third of its rig fleet is stacked. Over the
years, the Company has deferred some maintenance on its stacked rigs. Management
believes that the market for land drilling rigs in the southern United States,
particularly in Arkansas, Louisiana, Oklahoma and Texas, has improved
sufficiently to justify a program to restore certain of its stacked rigs to
marketable condition. Accordingly, as market conditions warrant and the
Company's finances permit, the Company plans to undertake capital expenditures
to refurbish and upgrade certain of its rig inventory. As noted below, the
Company recently placed in service one of the deep land drilling rigs acquired
in the Mergers (hereinafter defined.) The Company is currently refurbishing
three of its rigs at an estimated total cost of approximately $1.5 to $2.0
million. Management believes these rigs should be ready for operation in the
Company's domestic market in the first quarter of 1997.
ACQUISITIONS
Five major acquisitions have been completed since the Company's change
of management:
RTO/LRAC ACQUISITIONS. The two mergers (collectively, the "Mergers")
were closed on August 29, 1996. Under the first agreement, the capital stock of
R. T. Oliver, Inc., an Oklahoma corporation ("RTO"), and Land Rig Acquisition
Corp., a Delaware corporation("LRAC"), was exchanged for 39,423,978 shares of
the Common Stock. In addition, RTO's and LRAC's stockholders were issued
warrants to acquire up to 1,720,000 additional shares of the Common Stock
("Shadow Warrants"), the exercise of which is contingent upon the occurrence of
certain events. Since the date of issuance, one million of these shadow warrants
have been terminated. This Merger resulted in the acquisition of 18 inactive,
deep capacity land drilling rigs. The Company believes that these rigs can be
brought up to operating condition within a reasonable time on an economic basis
and that this group of rigs represents a significant concentration of the
relatively small number of such deep drilling land rigs currently available in
the market. The Company has placed one of these rigs in operation. Under the
second agreement, the capital stock of Somerset Investment Corp., a Texas
corporation ("Somerset"), was exchanged for 39,423,978 shares of the Common
Stock. In addition, Somerset's shareholders were issued Shadow Warrants to
acquire up to 1,720,000 shares of the Common Stock were issued, the exercise of
which is contingent upon the occurrence of certain events. Since the date of
issuance, one million of these Shadow Warrants have been terminated. This Merger
resulted in a $25.0 million equity infusion into the Company and it is
anticipated that these funds will be used for combined rig fleet refurbishment
and general corporate purposes.
MESA ACQUISITION. The third acquisition was completed in October 1996,
pursuant to an asset purchase agreement for three rigs operating in South Texas
and three stacked rigs in exchange for 5,500,000 shares of Common Stock.
DIAMOND M ACQUISITION. The fourth acquisition was completed in December
1996, pursuant to an asset purchase agreement to acquire all of the South Texas
operational assets of Diamond M Onshore, Inc., a wholly-owned subsidiary of
Diamond Offshore Drilling, Inc. ("Diamond M"). These assets consist of ten land
drilling rigs, all of which are currently operating, 19 rig hauling trucks, a
yard facility in Alice, Texas and various other equipment and drill pipe. The
Diamond M assets were acquired for approximately $26.0 million in cash, which
was financed under the new credit facility described below.
FLOURNOY ACQUISITIONS. The fifth acquisition was completed in January
1997, pursuant to an asset purchase agreement to acquire the operating assets of
Flournoy for approximately 12.43 million shares of Common Stock and cash of
approximately $800,000 which was utilized to repay certain of Flournoy's debt.
These assets include 13 land 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
6
<PAGE>
Flournoy transaction, the Company agreed to issue additional shares if the
shareholders of Flournoy hold value less than $2.00 per share on January 31,
1998.
NEW CREDIT FACILITY
As of December 31, 1996, the Company entered into a $35.0 million
reducing revolving credit facility (the "Facility") to fund the Diamond M
acquisition and for other general corporation purposes. The Facility provides
for an initial loan commitment of $35.0 million which reduces by $5.0 million
each year until maturity on December 31, 1999. 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 the lending
institution's prime rate plus 2%. In connection with entering into the Facility,
the Company utilized existing working capital to repay the $9.4 million balance
outstanding under its previous term loan agreement.
SELLING SHAREHOLDERS
The following table sets forth certain information, as of the date
hereof, with respect to the number of Shares beneficially owned and being
offered hereby by the Selling Shareholders.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED AND SHARES OWNED
TO BE OFFERED AFTER THE
NAME OF BENEFICIAL OWNER OWNED(1) HEREBY(1) OFFERING
- ------------------------------------------------ ------------ -------------- -----------
<S> <C> <C> <C>
Flournoy Drilling Company....................... 12,426,000(2) 12,426,000 --
Lucien Flournoy (3)........................ 7,127,555(4) 7,127,555 --
Maxine E. Flournoy (3)..................... 7,127,555(4) 7,127,555 --
Betty Louise Flournoy Fields (3),(5)....... 1,461,298(6) 1,461,298 --
Helen Ruth Flournoy Pope (3),(5)........... 1,202,836(7) 1,202,836 --
Mary Anne Flournoy Guthrie (3),(5)......... 1,391,711(8) 1,391,711 --
Byron W. Fields (3),(5).................... 1,192,897(9) 1,192,897 --
John B. Pope (3),(5)....................... 934,435(10) 934,435 --
Gregory M. Guthrie (3),(5)................. 944,376(11) 944,376 --
Flournoy First Fields Grandchild Trust (3),(5) 89,467 89,467 --
Flournoy Second Fields Grandchild Trust (3),(5) 89,467 89,467 --
Flournoy Third Fields Grandchild Trust (3),(5) 89,467 89,467 --
Flournoy First Pope Grandchild Trust (3),(5) 89,467 89,467 --
Flournoy Second Pope Grandchild Trust (3),(5) 89,467 89,467 --
Flournoy Third Pope Grandchild Trust (3),(5) 89,467 89,467 --
Flournoy First Guthrie Grandchild Trust (3),(5) 89,467 89,467 --
</TABLE>
7
<PAGE>
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED AND SHARES OWNED
TO BE OFFERED AFTER THE
NAME OF BENEFICIAL OWNER OWNED(1) HEREBY(1) OFFERING
- ------------------------------------------------ ------------ -------------- -----------
<S> <C> <C> <C>
Flournoy Second Guthrie Grandchild Trust (3),(5) 89,467 89,467 --
Flournoy Third Guthrie Grandchild Trust (3),(5) 89,467 89,467 --
Flournoy Fourth Guthrie Grandchild Trust (3),(5) 89,467 89,467 --
Flournoy Fifth Guthrie Grandchild Trust (3),(5) 89,467 89,467 --
F.C. West (3),(5).......................... 1,242,600 1,242,600 --
Wexford Special Situations 1996, L.P............ 1,175,300(12) 1,175,300 --
Wexford-Euris Special Situations 1996, L.P...... 301,350(12) 301,350 --
Wexford Special Situations 1996 Institutional, L.P. 214,550(12) 214,550 --
Wexford Special Situations 1996 Limited......... 58,800(12) 58,800 --
Somerset Capital Partners ("SCP") (13), (14).... 35,423,978(15) 35,423,978 --
Somerset Drilling Associates, L.L.C. ("SDA") (13),(14) 29,962,223 29,962,223 --
John Winfield (14).............................. 500,000 500,000 --
Intergroup Corporation (14)..................... 500,000 500,000 --
Winston Partners, L.P.(14)...................... 2,000,000 2,000,000 --
Roy T. Oliver, Jr.(13), (14).................... 15,703,306(16) 15,279,827 423,479*
U.S. Rig & Equipment, Inc.(13), (14)............ 2,701,051 2,701,051 --
Don Bodard 1995 Revocable Trust (14)............ 2,524,102 2,524,102 --
Roberds Johnson Industries, Inc.(14)............ 399,282 399,282 --
Craig Cannon (14)............................... 1,070,703 277,053 793,650*
Mike Mullen Energy Equipment
Resource, Inc.(13), (14).................... 7,373,620 7,373,620 --
GCT Investments, Inc., (13), (14)............... 3,219,191 3,219,191 --
Empire Holdings, Ltd., (14)..................... 215,657 215,657 --
Layton Humphrey, (14) .......................... 1,161,122 705,222 455,900*
John Mullen, III (14)........................... 508,605 508,605 --
NRY #1 Family Ltd. Partnership (14)............. 73,323 73,323 --
PAN #1 Family Ltd. Partnership (14)............. 73,323 73,323 --
La Patagonia Offshore, Inc. (14)................ 887,692 887,692 --
R.E. Ferrell (14)............................... 83,039 83,039 --
Lloyd Haggard (14).............................. 41,520 41,520 --
Jack Witkin Family LLC (14)..................... 41,520 41,520 --
Lee Irrevocable Trust #1 (14)................... 41,520 41,520 --
Alan Munoz (14)................................. 41,520 41,520 --
James L. Northrup (14).......................... 166,079 166,079 --
Lee Financial Corporation (14).................. 7,607 2,158 5,449*
Dr. Brady Allen (14)............................ 31,256 8,862 22,394*
Dr. F. Allen Barber (14)........................ 60,501 17,154 43,347*
BMRN Family Partners, Ltd. (14)................. 12,100 3,431 8,669*
Dr. Francisco Cardenas (14)..................... 30,251 8,577 21,674*
Mrs. Bobbie A. Chrest (14)...................... 31,256 8,862 22,394*
David Franklin (14)............................. 52,201 14,801 37,400*
Gonzalez Partners L.P. (14)..................... 31,256 8,862 22,394*
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED AND SHARES OWNED
TO BE OFFERED AFTER THE
NAME OF BENEFICIAL OWNER OWNED(1) HEREBY(1) OFFERING
- ------------------------------------------------ ------------ -------------- -----------
<S> <C> <C> <C>
Dr. Robert W. Hahn (14)......................... 31,256 8,862 22,394*
Marilyn L. Hanna Trust (14)..................... 30,251 8,577 21,674*
Polly Pierson Living Trust (14)................. 30,251 8,577 21,674*
RRG #1 Family Limited Partnership (14).......... 15,126 4,289 10,837*
Ronald L. Skaggs (14)........................... 62,514 17,725 44,789*
David C. Vaughn (14)............................ 62,514 17,725 44,789*
Ronald D. Watson (14)........................... 30,251 8,577 21,674*
Jack A. Witkin.................................. 242,008 68,618 173,390*
T. Scott O'Keefe ............................... 50,000(17) 50,000 --
Spencer Finance Corp. (18)...................... 3,297,436 3,297,436 --
Scan Atlantic, Inc. (18)....................... 618,540 618,540 --
B.F. Interests, Inc. (18)....................... 618,540 618,540 --
Gilbo Invest A/S (18)........................... 422,581 422,581 --
Vantage Industry Partners, Inc. (18)............ 542,903 542,903 --
Thomas P. Richards.............................. 2,000,000(19) 2,000,000 --
</TABLE>
- ---------------
* Less than one percent.
(1) Unless otherwise noted, all Shares reflected are beneficially owned.
These amounts do not reflect 1,440,000 shares which may be issued,
subject to certain contingencies, under the Shadow Warrants. All or
only a portion of the indicated number of shares may be sold by the
Selling Shareholders.
(2) The Company issued these shares in connection with an asset acquisition
from Flournoy. See "Recent Developments -- Acquisitions."
(3) These persons are the shareholders of Flournoy. The number of shares
listed for each shareholder reflects the number of shares of Common
Stock that such shareholder will beneficially own upon completion of
Flournoy's liquidation. The Company has been advised by Mr. Flournoy
that this liquidation is presently expected to occur during the first
quarter of 1997, whereupon these persons will become Selling
Shareholders in place of Flournoy.
(4) Includes 4,229,811 and 2,897,744 shares of Common Stock to be owned
beneficially by Lucien Flournoy and Maxine E. Flournoy, respectively,
upon Flournoy's liquidation. Mr. and Mrs. Flournoy are married to each
other and are deemed to beneficially own one another's shares of Common
Stock.
(5) Betty Louise Flournoy Fields, Helen Ruth Flournoy Pope and Mary Anne
Flournoy Guthrie are the adult children of Lucien and Maxine E.
Flournoy. Mrs. Fields is married to Bryon W. Fields and is the Trustee
of the Fields Grandchild Trusts. Mrs. Pope is married to John B. Pope
and is the Trustee of the Pope Grandchild Trusts. Mrs. Guthrie is
married to Gregory M. Guthrie and is the Trustee of the Guthrie
Grandchild Trusts. F.C. West was formerly employed by Flournoy as Vice
President and Operations Manager. As of the date of this Prospectus, Mr.
West serves as Vice President of Operations for the South Texas division
of Drillers, Inc., a wholly-owned subsidiary of the Company ("Drillers,
Inc.")
(6) Includes 884,731 shares of Common Stock to be beneficially owned by Mrs.
Fields upon Flournoy's liquidation. Also includes 268,401 and 308,166
shares of Common Stock to be beneficially owned through the Fields
Grandchild Trusts and Mr. Fields, respectively, upon Flournoy's
liquidation. See notes 3 and 5.
(7) Includes 884,731 shares of Common Stock to be beneficially owned by Mrs.
Pope upon Flournoy's liquidation. Also includes 268,401 and 49,704
shares of Common Stock to be beneficially owned through the Pope
Grandchild Trusts and Mr. Pope, respectively, upon Flournoy's
liquidation. See notes 3 and 5.
(8) Includes 884,731 shares of Common Stock to be beneficially owned by Mrs.
Guthrie upon Flournoy's liquidation. Also includes 447,335 and 59,645
shares of Common Stock to be beneficially owned through the Guthrie
Grandchild Trusts and Mr. Guthrie, respectively, upon Flournoy's
liquidation. See notes 3 and 5.
9
<PAGE>
(9) Includes 308,166 shares of Common Stock to be beneficially owned by
Mr. Fields upon Flournoy's liquidation. Also includes 884,731 shares of
Common Stock to be beneficially owned through Mrs. Fields upon
Flournoy's liquidation. See notes 3 and 5.
(10) Includes 49,704 shares of Common Stock to be beneficially owned by Mr.
Pope upon Flournoy's liquidation. Also includes 884,731 shares of Common
Stock to be beneficially owned through Mrs. Pope upon Flournoy's
liquidation. See notes 3 and 5.
(11) Includes 59,645 shares of Common Stock to be beneficially owned by Mr.
Guthrie upon Flournoy's liquidation. Also includes 884,731 shares of
Common Stock to be beneficially owned through Mrs. Guthrie upon
Flournoy's liquidation. See notes 3 and 5.
(12) The Company issued these shares of Common Stock to the respective
Selling Shareholders in a private placement on December 30, 1996. The
proceeds of the private placement were utilized to repay a $4.0 million
note.
(13) Party to the Shareholders' Agreement or, in the case of SCP, a person
that controls a party to the Shareholders' Agreement. See "Risk
Factors-- Control Considerations."
(14) The Company issued 78,847,956 shares of Common Stock directly to: (i)
these Selling Shareholders; (ii) other Shareholders who have since sold
such shares; or (iii) partnerships in which certain of these Selling
Shareholders were partners, in a private placement in connection with
the consummation of the Mergers. As of the date of this Prospectus,
9,143,918 of such shares of Common Stock have been resold. See "Recent
Developments -- Acquisitions."
(15) Includes 29,962,223 shares of Common Stock owned beneficially through
SDA of which SCP is the managing member.
(16) Includes 12,114,563 shares of Common Stock owned beneficially by Mr.
Oliver, 2,701,051 shares beneficially owned through U.S. Rig &
Equipment, Inc., a corporation wholly-owned and controlled by him, and
887,692 shares beneficially owned through La Patagonia Offshore, Inc., a
corporation jointly-owned and controlled by Mr. Oliver.
(17) Represents shares of Common Stock issuable to Mr. O'Keefe upon the
exercise of options granted pursuant to a letter agreement dated April
2, 1996. The options were granted to Mr. O'Keefe as partial compensation
for consulting services provided by him to the Company. The options may
be exercised at any time and expire on April 1, 1997.
(18) The Company issued 5,500,000 shares of Common Stock directly to Meritus,
Inc., a Texas corporation, Mesa Rig 4 L.L.C., a Texas Limited Liability
company, Mesa Venture, a Texas general partnership and Mesa Drilling,
Inc., a Texas corporation (collectively, "Mesa"), in which these Selling
Shareholders were shareholders, members or partners, in a private
placement in connection with the consummation of an asset purchase from
Mesa and the other transactions contemplated thereby. See "Recent
Developments -- Acquisitions."
(19) Represents shares of Common Stock issuable to Mr. Richards upon the
exercise of options granted pursuant to a Non-Qualified Stock Option
Agreement dated September 3, 1996 (the "Option Agreement"). The options
were granted to Mr. Richards as partial consideration for his employment
as the President and Chief Executive Officer of the Company. The options
may be exercised as to 20% of the total option shares currently, and as
to 20% of the total option shares beginning on the next four annual
anniversaries of the date of the Option Agreement.
Wexford Special Situations 1996, L.P., Wexford - Euris Special
Situations 1996, L.P., Wexford Special Situations 1996 Institutional, L.P. and
Wexford Special Situations 1996 Limited (collectively, the "Wexford Entities")
are members of SDA and collectively own approximately 10.5% of SDA's outstanding
capital. The Wexford Entities are not managing members of SDA and disclaim
control of SDA.
Roy T. Oliver, Jr. is a director of the Company. Thomas P. Richards is
the President and Chief Executive Officer of the Company. T. Scott O'Keefe
provided consulting services to the Company from April, 1996, until September,
1996, when he was appointed Senior Vice President and Chief Financial Officer.
William R. Ziegler and Steven A. Webster, both general partners of SCP, are also
directors. The Company has entered into an investment monitoring agreement
providing for a one-time $75,000 payment by the Company to SCP to monitor SDA's
investment in the Company.
Mr. Lucien Flournoy became a director of the Company on January 31,
1997. Mr. Flournoy is 77 years old and has over 50 years of experience in the
land drilling business. He founded Flournoy in 1950 and has served as its
President and Chief Executive Officer since that time. As of the date of this
Prospectus, Mr. Flournoy owns directly and indirectly through his wife,
approximately 57% of the common stock of Flournoy. In 1994, Drillers, Inc.
drilled a well for Flournoy for total payment of $495,110.
10
<PAGE>
In connection with the Mergers, 3,440,000 shares of Common Stock were
issuable upon the occurrence of certain events, to the shareholders of LRAC, RTO
and Somerset upon the exercise of the Shadow Warrants. As of the date of this
Prospectus, 2,000,000 of the Shadow Warrants have been terminated.
Except as otherwise noted, none of the other Selling Shareholders have
held any position or office or had any other material relationship with the
Company.
PLAN OF DISTRIBUTION
Sales of the Shares by the Selling Shareholders may be made from time to
time in one or more transactions, including block transactions, on the AMEX or
any other exchange or quotation system on which the Common Stock may be listed
or quoted pursuant to and in accordance with the applicable rules of the
Exchanges, in the over-the-counter market, in privately negotiated transactions
not crossing an Exchange or other public securities market or in a combination
of any such methods of sale, at fixed prices that may be changed, at market
prices prevailing at the time of sale, at prices related to such prevailing
market prices or at negotiated prices. The Shares may be offered directly, to or
through agents designated from time to time, or to or through brokers or
dealers, or through any combination of these methods of sale. Such agents,
brokers or dealers may receive compensation in the form of discounts,
concessions or commissions from the Selling Shareholders and/or the purchasers
of the Shares for whom such broker-dealers may act as agents or to whom they
sell as principals, or both (which compensation as to a particular broker-dealer
might be in excess of customary commissions). A member firm of an Exchange may
be engaged to act as an agent in the sale of Shares by the Selling Shareholders.
The Selling Shareholders and any brokers, dealers, agents or others that
participate with the Selling Shareholders in the distribution of the Shares may
be deemed to be "underwriters" within the meaning of the Securities Act, and any
commissions or fees received by such persons and any profit on the resale of the
Shares purchased by such persons may be deemed to be underwriting commissions or
discounts under the Securities Act.
Agents, brokers and dealers may be entitled under agreements entered
into by the Selling Shareholders and/or the Company to indemnification against
certain civil liabilities, including liabilities under the Securities Act.
There is no assurance that the Selling Shareholders will sell any or all
of the Shares offered hereby.
EXPERTS
The financial statements and the related financial statement schedules
incorporated in this Prospectus by reference from the Company's Definitive Proxy
Statement for the 1996 Annual Meeting of Shareholders for the year ended
December 31, 1995 and Form 8-K dated December 30, 1996 have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their reports which
are incorporated herein by reference, and have been so incorporated in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.
LEGAL MATTERS
Certain legal matters in connection with the Shares have been passed
upon for the Company by Cokinos, Bosien & Young or by Porter & Hedges, L.L.P.,
both of Houston, Texas.
11
<PAGE>
================================================================================
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR ANY OTHER PERSON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL, NOR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES IN ANY JURISDICTION
TO OR FROM ANY PERSON TO OR FROM WHOM IT IS NOT LAWFUL TO MAKE ANY SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS CORRECT AS OF
ANY TIME SUBSEQUENT TO ITS DATE.
-----------------------------
TABLE OF CONTENTS
Available Information ..................................................... 2
Incorporation of Certain Documents by Reference ........................... 2
The Company ............................................................... 3
Risk Factors .............................................................. 3
Recent Developments ....................................................... 5
Selling Shareholders ...................................................... 7
Plan of Distribution ...................................................... 11
Experts ................................................................... 11
Legal Matters ............................................................. 11
92,870,038 SHARES
DI INDUSTRIES, INC.
COMMON STOCK
(PAR VALUE $0.10 PER SHARE)
[DI INDUSTRIES LOGO]
February __, 1997
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC registration fee.............................. $ 13,424.25
Blue Sky fees and expenses........................ 1,000.00
Legal fees and expenses........................... 5,000.00
Printing expenses................................. 7,000.00
Accounting fees and expenses...................... 2,000.00
Miscellaneous..................................... 2,075.75
---------
Total Expenses...................... $ 30,500.00
=========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Article 1302-7.06 of the Texas Miscellaneous Corporation Laws Act,
the articles of incorporation of a Texas corporation may provide that a director
of that corporation shall not be liable, or shall be liable only to the extent
provided in the articles of incorporation, to the corporation or its
shareholders for monetary damages for acts or omissions in the director's
capacity as a director, except that the articles of incorporation cannot provide
for the elimination or limitation of liability of a director to the extent that
the director is found liable for (i) a breach of the director's duty of loyalty
to the corporation or its shareholders, (ii) acts or omissions not in good faith
that constitutes a breach of duty of the director to the corporation or an act
or omission that involves intentional misconduct or a knowing violation of the
law, (iii) any transaction from which the director received an improper personal
benefit, or (iv) an act or omission for which the liability of a director is
expressly provided by an applicable statute. Article XII of the Company's
Articles of Incorporation, as amended, states that a director of the Company
shall not be liable to the Company or its shareholders for monetary damages
except to the extent otherwise expressly provided by the statutes of the State
of Texas.
In addition, Article 2.02-1 of the Texas Business Corporations Act (the
"TBCA") authorizes a Texas corporation to indemnify a person who was, is, or is
threatened to be made a named defendant or respondent in a proceeding, including
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, arbitrative, or investigative because the person is or
was a director. The TBCA provides that unless a court of competent jurisdiction
determines otherwise, the indemnification is permitted only if it is determined
that the person (1) conducted himself in good faith; (2) reasonably believed (a)
in the case of conduct in his official capacity as a director of the
corporation, that his conduct was in the corporation's best interests; and (b)
in all other cases, that his conduct was at least not opposed to the
corporation's best interests; and (3) in the case of any criminal proceeding,
had no reasonable cause to believe his conduct was unlawful. A person may be
indemnified under Article 2.02-1 against judgments, penalties (including excise
and similar taxes), fines, settlements, and reasonable expenses actually
incurred by the person (including court costs and attorneys' fees), but if the
person is found liable to the corporation or is found liable on the basis that
personal benefit was improperly received by him, the indemnification is limited
to reasonable expenses actually incurred and shall not be made in respect of any
proceeding in which the person has been found liable for willful or intentional
misconduct in the performance of his duty to the corporation. A corporation is
obligated under Article 2.02-1 to indemnify a director or officer against
reasonable expenses incurred by him in connection with a proceeding in which he
is named defendant or respondent because he is or was a director or officer if
he has been wholly successful, on the merits or otherwise, in the defense of the
proceeding. Under Article 2.02-1 a corporation may (i) indemnify and advance
expenses to an officer, employee, agent or other persons who are or were serving
at the request of the corporation as a director, officer, partner venturer,
proprietor, trustee, employee, agent or similar functionary of another entity to
the same extent that it may indemnify and advance expenses to its directors,
(ii) indemnify and advance expenses to directors and such other persons
identified in (i) to such further extent, consistent with law, as may be
provided in the corporation's articles of incorporation, bylaws, action of its
board of directors, or contract or as permitted by common law and (iii) purchase
and maintain insurance or another arrangement on behalf of directors and such
other persons identified in (i) against any liability asserted against him and
incurred by him in such a capacity or arising out of his status as such a
person. The Bylaws of the Company set forth specific provisions for
indemnification of directors, officers, agents and other persons which are
substantially identical to the provisions of Article 2.02-1 described above. The
Company maintains directors and officers insurance.
II-1
<PAGE>
ITEM 16. EXHIBITS
(A) EXHIBITS
The exhibits listed in the Exhibit Index below are filed as part of the
Registration Statement:
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2.1 -- Agreement and Plan of Merger dated May 7, 1996, among DI Industries,
Inc., DI Merger Sub, Inc., Roy T. Oliver, Jr., Mike L. Mullen, R.T.
Oliver, Inc. and Land Rig Acquisition Corp. (Incorporated herein by
reference to Exhibit 2.1 to Registration Statement No. 333-6077).
2.1.1 -- Amendment to Agreement and Plan of Merger dated May 7, 1996, among DI
Industries, Inc., DI Merger Sub, Inc., Roy T. Oliver, Jr., Mike L.
Mullen, R.T. Oliver, Inc. and Land Rig Acquisition Corp. (Incorporated
herein by reference to Exhibit 2.1.1 to Registration Statement No.
333-6077).
2.1.2 -- Second Amendment to Agreement and Plan of Merger dated July 26, 1996,
among DI Industries, Inc., DI Merger Sub, Inc., Roy T. Oliver, Jr., Mike
L. Mullen, R.T. Oliver, Inc. and Land Rig Acquisition Corp.
(Incorporated herein by reference to Exhibit 2.1.2 to Amendment No. 1 to
Registration Statement No. 333-6077).
2.2 -- Agreement and Plan of Merger dated May 7, 1996, among DI Industries,
Inc. and Somerset Investment Corp. (Incorporated herein by reference to
Exhibit 2.2 to Registration Statement No. 333-6077).
2.2.1 -- Amendment to Agreement and Plan of Merger dated May 7, 1996, among DI
Industries, Inc. and Somerset Investment Corp. (Incorporated herein by
reference to Exhibit 2.2.1 to Registration Statement No. 333-6077).
2.2.2 -- Second Amendment to Agreement and Plan of Merger dated July 26, 1996,
among DI Industries, Inc. and Somerset Investment Corp. (Incorporated
herein by reference to Exhibit 2.2.2 to Amendment No. 1 to Registration
Statement No. 333-6077).
2.3 -- Asset Purchase Agreement dated October 3, 1996, by and between the
Company and Meritus, Inc., a Texas corporation, Mesa Rig 4 L.L.C., a
Texas limited liability company, Mesa Venture, a Texas general
partnership and Mesa Drilling, Inc., a Texas corporation (Incorporated
by reference to Exhibit 2.1 to Registration No. 333-14783).
2.4.1 -- Asset Purchase Agreement dated November 12, 1996, between Diamond M
Onshore, Inc. and Drillers, Inc. (the "Asset Purchase Agreement")
(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).
5* -- Opinion of Porter & Hedges, L.L.P.
10.1 -- Shareholders' Agreement dated May 7, 1996, among Somerset Drilling
Associates, L.L.C., Roy T. Oliver, Jr., U.S. Rig and Equipment, Inc.,
Mike Mullen Energy Equipment Resource, Inc., GCT Investments, Inc., Mike
L. Mullen, Norex Drilling Ltd., and Pronor Holdings, Ltd. (Incorporated
herein by reference to Exhibit 10.9 to Registration Statement No.
333-6077).
10.1.1 -- Amendment to Shareholders' Agreement dated May 7, 1996, among
Somerset Drilling Associates, L.L.C., Somerset Capital Partners, Roy T.
Oliver, Jr., U.S. Rig and Equipment, Inc., Mike Mullen Energy Equipment
Resource, Inc., GCT Investments, Inc., Mike L. Mullen, Norex Drilling
Ltd., and Pronor Holdings, Ltd. (Incorporated herein by reference to
Exhibit 10.9.1 to Registration Statement No. 333- 6077).
10.2 -- Form of Shadow Warrant to be issued to the shareholders of Somerset
Investment Corporation (Incorporated herein by reference to Exhibit
10.10 to Registration Statement No. 333-6077).
II-2
<PAGE>
10.3 -- Form of Shadow Warrant to be issued to the shareholders of R.T.
Oliver, Inc. and Land Rig Acquisition Corporation (Incorporated herein
by reference to Exhibit 10.11 to Registration Statement No. 333-6077).
10.4 -- Registration Rights Agreement dated May 7, 1996, among Somerset
Drilling Associates, L.L.C., Roy T. Oliver, Jr., U.S. Rig and Equipment,
Inc., Mike Mullen Energy Equipment Resource, Inc., GCT Investments,
Inc., Norex Drilling Ltd., and Pronor Holdings, Ltd. (Incorporated
herein by reference to Exhibit 10.12 to Registration Statement No.
333-6077).
10.4.1 -- Amendment to Registration Rights Agreement dated May 7, 1996, among
Somerset Drilling Associates, L.L.C., Somerset Capital Partners, Roy T.
Oliver, Jr., U.S. Rig and Equipment, Inc., Mike Mullen Energy Equipment
Resource, Inc., GCT Investments, Inc., Norex Drilling Ltd., and Pronor
Holdings, Ltd. (Incorporated herein by reference to Exhibit 10.12.1 to
Registration Statement No. 333-6077).
10.4.2 -- Second Amendment to Registration Rights Agreement dated July 26,
1996, among Somerset Drilling Associates, L.L.C., Somerset Capital
Partners, Roy T. Oliver, Jr., U.S. Rig and Equipment, Inc., Mike Mullen
Energy Equipment Resource, Inc., GCT Investments, Inc., Norex Drilling
Ltd., and Pronor Holdings, Ltd. (Incorporated herein by reference to
Exhibit 10.4.2 to Amendment No. 1 to Registration Statement No.
333-6077).
10.5 -- Investment Monitoring Agreement dated May 7, 1996, among DI
Industries, Inc., Somerset Capital Partners and Somerset Drilling
Associates, L.L.C. (Incorporated herein by reference to Exhibit 10.13 to
Registration Statement No. 333-6077).
10.6 -- Form of Non-Competition Agreement to be executed among DI Industries,
Inc., Roy T. Oliver, Jr., U.S. Rig and Equipment, Inc., Mike L. Mullen
and Mike Mullen Energy Equipment Resource, Inc. (Incorporated herein by
reference to Exhibit 10.14 to Registration Statement No. 333-6077).
10.7 -- Employment Agreement dated September 3, 1996, by and between the
Company and Thomas P. Richards (Incorporated herein by reference to
Exhibit 10.1 to Registration Statement No. 333-14783).
10.8 -- Non-Qualified Stock Option Agreement dated September 3, 1996, by and
between the Company and Thomas P. Richards (Incorporated herein by
reference to Exhibit 10.2 to Registration Statement No. 333-14783).
10.9 -- Letter Agreement dated April 2, 1996, by and between the Company and
T. Scott O'Keefe, regarding consulting arrangement and stock options
(Incorporated herein by reference to Exhibit 10.9 to Post Effective
Amendment No. 1 to Registration Statement No. 333-14783).
10.10 -- Letter Agreement dated August 31, 1996, by and between the Company
and T. Scott O'Keefe, regarding employment and stock options
(Incorporated herein by reference to Exhibit 10.10 to Post Effective
Amendment No. 1 to Registration Statement No. 333-14783).
10.11 -- Employment Agreement dated September 17, 1996, by and between the
Company and Forrest M. Conley, Jr. (Incorporated herein by reference to
Exhibit 10.11 to Post Effective Amendment No. 1 to Registration
Statement No. 333-14783).
10.12 -- Incentive Stock Option Agreement dated September 17, 1996, by and
between the Company and Forrest M. Conley (Incorporated herein by
reference to Exhibit 10.12 to Post Effective Amendment No. 1 to
Registration Statement No. 333-14783).
10.13 -- Employment Agreement dated September 3, 1996, by and between the
Company and Ronnie E. McBride (Incorporated herein by reference to
Exhibit 10.13 to Post Effective Amendment No. 1 to Registration
Statement No. 333-14783).
10.14 -- Incentive Stock Option Agreement dated September 3, 1996, by and
between the Company and Ronnie E. McBride (Incorporated herein by
reference to Exhibit 10.14 to Post Effective Amendment No. 1 to
Registration Statement No. 333-14783).
II-3
<PAGE>
10.15 -- Non-Qualified Stock Option Agreement dated September 3, 1996, by and
between the Company and Ronnie E. McBride (Incorporated herein by
reference to Exhibit 10.15 to Post Effective Amendment No. 1 to
Registration Statement No. 333-14783).
10.16 -- Employment Agreement dated October 1, 1996, by and between the
Company and Terrell L. Sadler (Incorporated herein by reference to
Exhibit 10.16 to Post Effective Amendment No. 1 to Registration
Statement No. 333-14783).
10.17 -- Non-Qualified Stock Option Agreement dated October 1, 1996, by and
between the Company and Terrell L. Sadler (Incorporated herein by
reference to Exhibit 10.17 to Post Effective Amendment No. 1 to
Registration Statement No. 333-14783).
10.18 -- Incentive Stock Option Agreement dated October 1, 1996, by and
between the Company and Terrell L. Sadler (Incorporated herein by
reference to Exhibit 10.18 to Post Effective Amendment No. 1 to
Registration Statement No. 333-14783).
10.19 -- Stock Purchase Agreement dated as of December 28, 1996, between DI
Industries, Inc., and Wexford Special Situations 1996, L.P.,
Wexford-Euris Special Situations 1996, L.P., Wexford Special Situations
1996 Institutional, L.P. and Wexford Special Situations 1996 Limited
(Incorporated herein by reference to Exhibit 10.1 to Form 8-K dated
December 30, 1996).
10.20 -- Senior Secured Reducing Revolving Credit Agreement dated as of
December 31, 1996, among DI Industries, Inc. and Drillers, Inc. (as
borrowers), DI International, Inc. (as guarantor), Bankers Trust Company
(as agent and administrative agent), ING (US) Capital Corporation (as
co-agent) and Nordlandsbanken AS (as lender) (Incorporated herein by
reference to Exhibit 99.1 to Form 8-K dated December 30, 1996).
10.21 -- 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).
10.22* -- 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, Byron 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.
23.1** -- Consent of Deloitte & Touche LLP.
23.2 -- Consent of Cokinos, Bosien & Young (Incorporated by reference to
Exhibits 23.2 to each Amendment No. 1 to Registration Statement No.
333-6077 and Registration Statement No. 333-14783).
23.3* -- Consent of Porter & Hedges, L.L.P. (included in their opinion filed
as Exhibit 5 hereto.)
24** -- Powers of Attorney
- ------
* Filed herewith.
** Previously filed.
II-4
<PAGE>
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) to include any prospectus required by section
10(a)(3) of the Securities Act of 1933 (the "Securities Act");
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement; and
(iii) to include any material information with respect to
the plan of distribution not previously disclosed in the
registration statement or any material change to such information
in the registration statement;
PROVIDED, HOWEVER, that clauses (a)(1)(i) and (a)(1)(ii) of this
paragraph do not apply if the information required to be included in a
post-effective amendment by those clauses is contained in periodic
reports filed with or furnished to the Securities and Exchange
Commission by the registrant pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by reference
in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof; and
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at
the termination of the offering;
(b) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling persons
of the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by registrant
of expenses incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with the
securities being registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed by
the final adjudication of such issue.
II-5
<PAGE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE
REGISTRANT CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL
OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS AMENDMENT TO
THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF TEXAS, ON
FEBRUARY 7, 1997.
DI INDUSTRIES, INC.
By: /s/ T. SCOTT O'KEEFE
T. Scott O'Keefe, Senior Vice President and
Chief Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
AMENDMENT TO THIS REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING
PERSONS IN THE CAPACITIES AND ON THE DATES INDICATED.
SIGNATURES TITLE DATE
---------- ----- ----
President and Chief
/s/ THOMAS P. RICHARDS* Executive Officer February 7, 1997
Thomas P. Richards
Senior Vice President
/s/ T. SCOTT O'KEEFE* and Chief Financial February 7, 1997
T. Scott O'Keefe Officer
/s/ DAVID W. WEHLMANN* Vice President February 7, 1997
David W. Wehlmann and Controller
/s/ PETER M. HOLT* Director February 7, 1997
Peter M. Holt
/s/ ROY T. OLIVER, JR.* Director February 7, 1997
Roy T. Oliver, Jr.
/s/ IVAR SIEM* Director February 7, 1997
Ivar Siem
/s/ STEVEN A. WEBSTER* Director February 7, 1997
Steven A. Webster
/s/ WILLIAM R. ZIEGLER* Director February 7, 1997
William R. Ziegler
*By: /s/ T. SCOTT O'KEEFE
T. Scott O'Keefe
(Individually and as Attorney-in-Fact)
II-6
EXHIBIT 5
[Porter & Hedges Letterhead]
February 7, 1997
DI Industries, Inc.
450 Gears Road, Suite 625
Houston, Texas 77067
Re: DI INDUSTRIES, INC. AMENDMENT NO. 2 TO REGISTRATION STATEMENT ON
FORM S-3 (SECURITIES ACT OF 1933 REGISTRATION STATEMENT NO. 333-20423)
Ladies and Gentlemen:
At your request, we have examined the Articles of Incorporation, as
amended, of DI Industries, Inc., a Texas corporation (the "Company"), the bylaws
and all corporate proceedings of the Company in connection with the proposed
sale to the public by:
(i) Flournoy Drilling Company or its shareholders (as set forth in the
Amendment No. 2 to the Registration Statement on Form S-3) of up to
12,426,000 shares (the "Flournoy Shares") of Common Stock, par value $0.10
per share (the "Common Stock"); and
(ii) Wexford Special Situations 1996, L.P., Wexford-Euris Special Situations
1996, L.P., Wexford Special Situations 1996 Institutional, L.P. and
Wexford Special Situations 1996 Limited of up to 1,750,000 shares (the
"Wexford Shares") of Common Stock.
We have also reviewed such other matters as we deem relevant in the premises.
Based upon such examination and review, we are of the opinion that the Flournoy
Shares and the Wexford Shares have been duly authorized and are validly issued,
fully-paid and nonassessable outstanding shares of Common Stock of the Company.
We hereby consent to the reference to our firm under the caption "Counsel"
in the Prospectus included in the Amendment No. 2 to the Registration Statement
on Form S-3 being filed by the Company with the Securities and Exchange
Commission in connection with the offering of the Flournoy Shares and the
Wexford Shares.
Very truly yours,
PORTER & HEDGES, L.L.P.
EXHIBIT 10.22
SHAREHOLDER'S AGREEMENT
This Shareholder's Agreement (this "Agreement"), dated January ___, 1997,
is among Drillers, Inc., a Texas corporation ("Buyer"), DI Industries, Inc., a
Texas corporation ("DI") and __________________ ("Shareholder").
WHEREAS, Buyer and Flournoy Drilling Company, (the "Company"), a Texas
corporation, are parties to an Asset Purchase Agreement dated December __, 1996
(the "Asset Purchase Agreement"), which provides, upon the terms and subject to
the conditions thereof, for the acquisition by Buyer of substantially all of the
assets of the Company ("Assets");
WHEREAS, in order to induce Buyer to consummate the transactions
contemplated by the Asset Purchase Agreement, Shareholder has agreed to execute
and deliver this Agreement as provided in Section 8.4 of the Asset Purchase
Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein, the parties hereto agree as follows:
1. GUARANTY OF COMPANY INDEMNIFICATION OBLIGATION.
(a) The Shareholder hereby irrevocably and unconditionally
guarantees to Buyer the prompt and full discharge by the Company of all of the
Company's covenants, agreements, obligations and liabilities under Section 9.1
of the Asset Purchase Agreement including, without limitation, the due and
punctual payment of all amounts which are or may become due and payable by the
Company thereunder when and as the same shall become due and payable
(collectively, the "Company Obligations"), in accordance with the terms hereof.
The Shareholder acknowledges and agrees that, with respect to the Company
Obligations, such guaranty shall be a guaranty of payment and performance and
not of collection and shall not be conditioned or contingent upon the pursuit of
any remedies against the Company. If the Company shall default in the due and
punctual performance of any Company Obligation, including the full and timely
payment of any amount due and payable pursuant to any Company Obligation, the
Shareholder will forthwith perform or cause to be performed such Company
Obligation and will forthwith make full payment of any amount due with respect
thereto at its sole cost and expense. The liabilities and obligations of the
Shareholder pursuant to this Agreement are unconditional and absolute and,
without limiting the generality of the foregoing, shall not be released,
discharged or otherwise affected by:
(1) any acceleration, extension, renewal, settlement, compromise,
waiver or release in respect of any Company Obligation by operation of law
or otherwise;
(2) the invalidity or unenforceability, in whole or in part, of this
Agreement or the Asset Purchase Agreement;
<PAGE>
(3) any modification or amendment of or supplement to this Agreement
or the Asset Purchase Agreement;
(4) any change in the corporate existence, structure or ownership of
Buyer or the Company, or any insolvency, bankruptcy, reorganization or
other similar proceeding affecting either of them or their assets; or
(5) any other act, omission to act, delay of any kind by any party
hereto or any other person, or any other circumstance whatsoever that
might, but for the provisions of this Section 1(a), constitute a legal or
equitable discharge of the obligations of the Shareholder hereunder.
(b) The Shareholder hereby waives any right, whether legal or equitable,
statutory or non-statutory, to require Buyer to proceed against or take any
action against or pursue any remedy with respect to the Company or any other
person or make presentment or demand for performance or give any notice of
nonperformance before Buyer may enforce its rights hereunder against the
Shareholder.
(c) The Shareholder's obligations hereunder shall remain in full force and
effect until the Company Obligations shall have been performed in full. If at
any time any performance by any Person of any Company Obligation is rescinded or
must be otherwise restored or returned, whether upon the insolvency, bankruptcy
or reorganization of the Company or otherwise, the Shareholder's obligations
hereunder with respect to such Company Obligation shall be reinstated at such
time as though such Company Obligation had become due and had not been
performed.
(d) Upon performance by the Shareholder of any Company Obligation, the
Shareholder shall be subrogated to the rights of Buyer against the Company with
respect to such Company Obligation; PROVIDED, that the Shareholder shall not
enforce any Company Obligation by way of subrogation against the Company while
any Company Obligation is due and unperformed by the Company.
(e) Notwithstanding any other provisions to the contrary in this
Agreement, the Shareholder's liability under this Section 1 shall be limited to
the product of (i) the shareholder's percentage ownership in Flournoy and (ii)
$10,000,000 cash or, if Flournoy so elects, shares of DI stock with a total
value of $10,000,000 at the last reported sale price of DI stock on the American
Stock Exchange for the ten trading days prior to the date of payment of the
indemnified amount.
2. DI'S OBLIGATION TO ISSUE ADDITIONAL SHARES.
DI shall issue to the Shareholder after the Determination Date (as defined
below) the number of shares of DI's Common Stock, par value $0.10 (the "Common
Stock") issuable to the Shareholder, if any, under the terms and subject to the
conditions set forth in this Section 2 (the "Additional Shares"). The number of
Additional Shares issuable to the Shareholder shall be equal to the number of
shares of Common Stock calculated by dividing (i) the Shortfall Amount by (ii)
the Average DI Stock Price during the Measurement Period, as such terms are
hereafter defined. Any fractional share resulting from such calculation shall be
rounded up to the nearest whole share.
2
<PAGE>
(a) The term "SHORTFALL AMOUNT" shall mean with respect to each
Shareholder one-half of the positive difference, if any, between (i) the
product of (x) $2.00, MULTIPLIED BY (y) the number of Distributed Shares,
MINUS (ii) the sum of (A) the gross proceeds of all Public Dispositions
(as such term is hereinafter defined), (B) the gross proceeds of all
Private Dispositions (as such term is hereinafter defined) and (C) the
product of (x) the Average DI Stock Price during the Measurement Period,
MULTIPLIED BY (y) the number of Distributed Shares that remain
beneficially owned by Shareholder as of 5:00 p.m. New York, New York time
on the Determination Date.
(b) The term "DISTRIBUTED SHARES" shall mean, with respect to each
Shareholder, the number of shares of Common Stock distributed to such
Shareholder by the Company as a liquidating distribution.
(c) The term "DISPOSITION" shall mean and include a sale,
assignment, pledge, gift, transfer or other conveyance of some or all (or
any undivided interest in some or all) of the Common Stock, or any
contract or option to make any such sale, assignment, pledge, transfer or
conveyance. The term "PUBLIC DISPOSITION" shall mean a Disposition
effected by the sale of all or any portion of the Distributed Shares on
the American Stock Exchange or such other principal trading market on
which the Common Stock is then publicly traded. A Public Disposition shall
be deemed to occur on the date such transaction occurs rather than the
settlement date thereof. The term "PRIVATE DISPOSITION" shall mean any
Disposition of Distributed Shares that is not a Public Disposition, and
does not result in the Shareholder retaining beneficial ownership of the
Distributed Shares. As used in this Agreement, gross proceeds of a Private
Disposition shall mean the greater of: (i) the fair market value of all
consideration given by the transferee(s) in such Private Disposition, and
(ii) the product of (A) the Average DI Stock Price during the ten Trading
Days (hereinafter defined) immediately preceding the date of the Private
Disposition multiplied by (B) the number of Distributed Shares transferred
in such Private Disposition.
(d) The term "AVERAGE DI STOCK PRICE" shall mean the average of the
last reported sale price regular way of the Common Stock on the American
Stock Exchange or other principal trading market on which the Common Stock
is then publicly traded calculated for the number Trading Days over which
such average is to be computed, or if the principal market on which the
Common Stock is then traded does not report prices on the basis of sale
transactions, the average of the closing bid and ask prices for the Common
Stock over the applicable number of Trading Days.
(e) The term "MEASUREMENT PERIOD" shall mean the first ten Trading
Days immediately prior to and including the Determination Date on which
none of the Shareholders or their respective Affiliates shall have sold or
offered for sale any shares of the Common Stock in any public securities
market on which the Common Stock is then traded. In the event that any of
the Shareholders or their respective Affiliates have sold or offered for
sale Common Stock on a Trading Day that would otherwise be included in the
Measurement Period, such Trading Day shall be excluded from the
Measurement Period and in substitution for such day there shall be added
to the beginning of the Measurement Period the next
3
<PAGE>
preceding Trading Day on which no such sales or offers were made by any of
the Shareholders or their respective Affiliates. For purposes of this
paragraph (e), an offer of Common Stock shall be deemed to have occurred
in connection with an underwritten public offering only from the period
from and including the effective date of the registration statement for
the offering through and including the closing date of such public
offering. No offer of Common Stock shall be deemed to have occurred for
purposes of this paragraph (e) with respect to Common Stock covered by a
shelf registration statement under Rule 415 under the Securities Act
except on days on which orders for sales of Common Stock have been placed
by any Shareholder or their respective Affiliates on the American Stock
Exchange or other principal securities market on which the Common Stock
may then be publicly traded.
(f) A "TRADING DAY" shall mean a day on which the Common Stock is
traded on the American Stock Exchange, or the principal trading market on
which the Common Stock is then publicly traded if other than the American
Stock Exchange.
(g) The "DETERMINATION DATE" shall mean the one year anniversary of
the Closing Date under the Asset Purchase Agreement, unless the
Shareholder shall have sold all of the Shares before such anniversary
date, in which event the Determination Date shall be the next Trading Day
following the final sale of Shares.
(h) An "AFFILIATE" of a person shall have the meaning ascribed to
that term in Rule 12b-2 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") as promulgated by the U.S. Securities and
Exchange Commission (the "SEC"), and, with respect to a Shareholder, shall
include all of the Company's other Shareholders.
(i) Promptly after the Determination Date, but in no event later
than ten business days after the Determination Date, Shareholder shall
deliver to the Company an originally executed, written certification sworn
to and notarized by the Shareholder containing the following information:
(i) a true and complete description of each Public Disposition
by Shareholder through and including the Determination Date, which
description shall include the number of Distributed Shares included
in each Public Disposition, the date of each Public Disposition, and
the amount of gross proceeds from any such Public Disposition;
(ii) a true and correct description of the character and terms
of each Private Disposition, including, without limitation, the
number of Distributed Shares included in the Private Disposition,
the date of such Private Disposition, the amount of all cash
consideration given by the transferee, and the nature and fair
market value of all noncash consideration given by the transferee(s)
for, or in connection with, such Private Disposition; and
4
<PAGE>
(iii) the number of Distributed Shares that remain
beneficially owned by Shareholder as of 5:00 p.m. local time in New
York, New York on the Determination Date, and the owner of record of
such Shares if other than Shareholder.
(j) EXAMPLES. Attached as Exhibit F-1 are illustrations showing the
parties' intended interpretation and application of the provisions of this
Section 2 to certain hypothetical fact situations.
Upon request of DI, Shareholder shall promptly provide such other and further
information and documents and affidavits as DI may request to verify the number
of Additional Shares, if any, issuable pursuant to this Agreement.
(k) Within five business days after being furnished the information
required to be provided by the Shareholder under this Agreement or as may be
required to assure compliance by DI with federal and applicable state securities
laws, DI shall issue the Additional Shares and shall deliver to the Shareholder
a stock certificate for the Additional Shares duly registered in the name of the
Shareholder. Shareholder covenants and agrees that for a period of twelve months
following each sale of Distributed Shares during the Determination Period,
neither Shareholder nor its Affiliates shall purchase any shares of Common
Stock.
(l) Within five business days after being furnished the information
required to be provided by Shareholder under this Agreement or as may be
required to assure compliance by DI with federal and applicable state securities
laws, DI may, in its sole discretion, in lieu of issuing the Additional Shares,
pay to Shareholder an amount in cash equal to the Shortfall Amount by wire
transfer of immediately available funds.
(m) The Shareholder agrees that he will not engage in a Disposition within
the ten Trading Days immediately prior to the one year anniversary of the
Closing Date. Shareholder also acknowledges and agrees that he may be requested
not to make a Disposition for a period of time by DI because of requirements by
underwriters of DI securities or as a requirement of the Securities Act. It is
understood and agreed that the period shall not exceed 90 days.
3. NON-COMPETITION. [MR. FLOURNOY ONLY] In order to allow Buyer and DI to
realize the full benefit of their bargain in connection with the purchase of the
Assets, Shareholder will not, at any time for a period of three years following
the Closing Date, directly or indirectly, acting alone or as a member of a
partnership or as a holder of in excess of 5% of any security of any class, or
as a consultant to or representative of, any corporation or other business
entity,
a. engage in any business in competition with the Business as
conducted by the Company at the date hereof in those geographic areas in
which such Business is conducted or has been conducted within one year
prior to the date of this Agreement; or
b. request any present or future customer or supplier of the Company
or of the Business as conducted by Buyer to curtail or cancel its business
with Buyer; or
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<PAGE>
c. unless otherwise required by law, disclose to any person, firm or
corporation any details of organization or business affairs of the Company
or the Business, any names of past or present customers of the Company or
any other non-public information concerning the Business, the Company or
the Assets; or
d. induce or attempt to influence any employee of Buyer assigned to
the conduct of the Business to terminate his or her employment.
The Shareholder acknowledges that in the event the scope of the covenants set
forth in this Section 3 is deemed to be too broad in any proceeding, the court
may reduce such scope to that which it deems reasonable under the circumstances.
The parties hereto agree and acknowledge that Buyer and DI would not have any
adequate remedy at law for the breach or threatened breach by the Shareholder or
any of his affiliates of the covenants and agreements set forth in this Section
3 and, accordingly, the Company further agrees that Buyer or DI may, in addition
to the other remedies which may be available to them hereunder, file suit in
equity to enjoin the Shareholder from such breach or threatened breach and
consent to the issuance of injunctive relief hereunder. Shareholder understands
and agrees that the act of Buyer and DI in entering into this Agreement and the
Asset Purchase Agreement, and Buyer's and DI's covenants and payments hereunder,
shall and do constitute sufficient consideration for Shareholder to agree not to
compete against Buyer and DI as set out in this Section 3. Notwithstanding the
foregoing, nothing herein shall restrain Shareholder from contracting for the
services of third party drilling contractors for the drilling of oil and gas
wells or from engaging in and exploring for and developing oil and gas
properties for the account of the Shareholder or any of his affiliates.
4. NOMINATION TO BOARD. [MR. FLOURNOY ONLY] DI agrees that it shall
nominate Shareholder to serve on its Board of Directors as soon as practicable
after the date hereof.
5. REPRESENTATION OF SHAREHOLDER. Shareholder hereby represents and
warrants to Buyer and DI that Shareholder has no current plan or intention to
engage in a sale, transfer, exchange, distribution, pledge or other disposition,
or otherwise reduce his risk of ownership of, more than forty-five percent of
the DI Stock he receives from the Company.
6. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly given (and shall be deemed to have
been duly received if so given) if personally delivered or sent by registered or
certified mail, postage prepaid, addressed to the respective parties as follows:
If to Buyer or DI:
DI Industries, Inc.
625 Paragon Center Drive
450 Gears Road
Houston, Texas 77067
Attn: Thomas P. Richards
6
<PAGE>
with a copy to:
Gardere Wynne Sewell & Riggs, L.L.P.
333 Clay Avenue, Suite 800
Houston, Texas 77002
Attn: Frank M. Putman
If to the Shareholder:
--------------------
--------------------
--------------------
or to such other address as a party may have furnished to the other parties in
writing in accordance herewith, except that notices of change of address shall
be effective only upon receipt.
7. SEVERABILITY. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall continue in full force and effect and shall
in no way be affected, impaired or invalidated.
8. COUNTERPARTS. This Agreement may be executed in several counterparts,
each of which shall be an original, but all of which together shall constitute
one and the same agreement.
9. CAPTIONS. The section headings herein are for convenience only and
shall not affect the construction hereof.
10. ASSIGNABILITY. Shareholder may not assign any of his rights or
obligations hereunder to any other person without the prior written consent of
DI. DI and Buyer may not assign any of their respective rights or obligations
hereunder to any other person without the prior written consent of Shareholder,
except that no such consent will be required in connection with an assignment by
Buyer or DI to an affiliate.
11. ENTIRE AGREEMENT. This Agreement (including the Exhibits and Schedules
hereto) constitutes the entire agreement between the parties hereto and
supersedes all prior agreements and understandings, oral and written, between
the parties hereto with respect to the subject matter hereof.
12. AMENDMENT; WAIVER. This Agreement may be amended, supplemented or
otherwise modified only by a written instrument executed by the parties hereto.
No waiver by any party of any of the provisions hereof shall be effective unless
explicitly set forth in writing and executed by the
7
<PAGE>
party so waiving. Except as provided in the preceding sentence, no action taken
pursuant to this Agreement, including any investigation by or on behalf of any
party, shall be deemed to constitute a waiver by the party taking such action of
compliance with any representations, warranties, covenants, or agreements
contained herein, and in any documents delivered or to be delivered pursuant to
this Agreement and in connection with the Closing hereunder. The waiver by any
party hereto of a breach of any provision of this Agreement shall not operate or
be construed as a waiver of any subsequent breach.
13. APPLICABLE LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Texas.
14. NO THIRD PARTY BENEFICIARIES. This Agreement is solely for the benefit
of the parties hereto and nothing contained herein should be deemed to confer
upon any third parties any remedy, claim, liability reimbursement, claim of
action or other right in excess of those existing without reference to this
Agreement.
IN WITNESS WHEREOF, this Agreement has been executed by each of the
parties hereto as of the date first above written.
DRILLERS, INC.
By:
Name:
Title:
DI INDUSTRIES, INC.
By:
Name:
Title:
SHAREHOLDER
--------------------------------------
Printed Name:_________________________
8
<PAGE>
ADDITIONAL SHARE ISSUANCE
CASE I
ASSUME: a. Distributed Shares 1,000,000
b. Number of Shares 200,000
Sold by Public Disposition
Prior to Anniversary Date
c. Shares Disposed of Privately 0
d. Average DI Stock Price of $1.50/share
Shares Sold
e. Average DI Stock Price $1.75/share
at Anniversary Date
AS = SA
--
AP
Where:
AS = Additional Shares
AP = Average DI Stock Price
SA = Shortfall Amount determined as follows:
SA = 1/2 [(2.00 x 1,000,000) - (200,000 x 1.50 + 1.75 x 800,000)]
SA = 1/2 [(2,000,000) - (300,000 + 1,400,000)]
SA = 1/2 [(2,000,000) - (1,700,000)]
SA = 150,000
AS = 150,000 = 85,714
-------
1.75
<PAGE>
ADDITIONAL SHARE ISSUANCE
CASE I
ASSUME: a. Distributed Shares 1,000,000
b. Number of Shares 0
Sold by Public Disposition
Prior to Anniversary Date
c. Shares Disposed of Privately 0
d. Average DI Stock Price of N/A
Shares Sold
e. Average DI Stock Price $1.75/share
at Anniversary Date
AS = SA
--
AP
Where:
AS = Additional Shares
AP = Average DI Stock Price
SA = Shortfall Amount determined as follows:
SA = 1/2 [(2.00 x 1,000,000) - (1.75 x 1,000,000)]
SA = 1/2 [(2,000,000) - (1,750,000)]
SA = 1/2 [(2,000,000) - (1,750,000)]
SA = 125,000
AS = 125,000 = 71,429
-------
1.75
