PROSPECTUS
92,870,038 SHARES
DI INDUSTRIES, INC.
COMMON STOCK
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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 12, 1997, the closing sales price of the Common Stock as reported on
the AMEX was $2.625 per share.
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INVESTORS SHOULD CONSIDER CAREFULLY THE MATTERS SET FORTH UNDER THE
CAPTION "RISK FACTORS" BEGINNING ON PAGE 3.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
-----------------------------
The date of this Prospectus is February 12, 1997.
1
<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.
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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.
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."
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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."
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."
4
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ABSENCE OF DIVIDENDS ON THE COMMON STOCK
The Company has never paid any cash dividends on the Common Stock and
does not anticipate paying dividends on the Common Stock at any time in the
foreseeable future. Additionally, certain of its debt covenants prohibit the
Company from paying dividends without the consent of the lender .
LIMITATIONS ON THE AVAILABILITY OF THE COMPANY'S NET OPERATING LOSS
CARRYFORWARDS
As a result of the Mergers (as hereinafter defined), the Company has
undergone an "ownership change" within the meaning of Section 382 of the
Internal Revenue Code of 1986, as amended. Therefore, the right of the Company
to use its existing net operating loss carryforwards ("NOLs") and certain other
tax attributes for both regular tax and alternative minimum tax purposes during
each future year is limited to a percentage (currently approximately six
percent) of the fair market value of the Company's Common Stock immediately
before the ownership change (the "Section 382 Limitation"). To the extent that
taxable income exceeds the Section 382 Limitation in any year subsequent to the
ownership change, such excess income may not be offset by NOLs from years prior
to the ownership change. To the extent the amount of taxable income in any
subsequent year is less than the Section 382 Limitation for such year, the
Section 382 Limitation for future years is correspondingly increased. There is
generally no restriction on the use of NOLs arising after the ownership change,
although Section 382 applies anew each time there is an ownership change. 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.
5
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RECENT DEVELOPMENTS
OVERVIEW
In 1996, the shareholders elected a substantially new Board of
Directors, and this Board installed new senior management. Since these changes,
the Company has completed several transactions which 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
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 markets in the first quarter of 1997.
6
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ACQUISITIONS
Four major acquisitions have been completed since the Company's change
of management:
RTO/LRAC. The first acquisition was completed in August 1996 pursuant to
two agreements and plans of merger (collectively, the "Mergers"). 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, 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. The second acquisition was completed in October 1996, pursuant to
an asset purchase agreement to acquire three rigs operating in South Texas and
three stacked rigs in exchange for 5,500,000 shares of Common Stock.
DIAMOND M. The third 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. The fourth 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 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.
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SELLING SHAREHOLDERS
The following table sets forth certain information, as of the date
hereof, with respect to the number of Shares beneficially owned and being
offered hereby by the Selling Shareholders.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED AND TO SHARES OFFERED OWNED AFTER
NAME OF BENEFICIAL OWNER BE OWNED(1) HEREBY(1) THE 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 --
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 --
8
<PAGE>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED AND TO SHARES OFFERED OWNED AFTER
NAME OF BENEFICIAL OWNER BE OWNED(1) HEREBY(1) THE OFFERING
- ----------------------------------------------- ------------ -------------- ------------
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*
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.
9
<PAGE>
(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 Byron 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) 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."
10
<PAGE>
(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 director since that time. As of the date of this Prospectus, Mr.
Flournoy owns directly and indirectly through his wife, approximately 57% of the
outstanding common stock of Flournoy. In 1994, Drillers, Inc. drilled a well for
Flournoy for total payment of $495,110.
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.
11
<PAGE>
EXPERTS
The financial statements and the related financial statement schedules
incorporated in this Prospectus by reference from the Company's Definitive Proxy
Statement for the 1996 Annual Meeting of Shareholders for the year ended
December 31, 1995 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.
12
<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 ....................................................... 6
Selling Shareholders ...................................................... 8
Plan of Distribution ...................................................... 11
Experts ................................................................... 12
Legal Matters ............................................................. 12
================================================================================
92,870,038 Shares
DI INDUSTRIES, INC.
COMMON STOCK
(par value $0.10 per share)
------------------
[DI INDUSTRIES, INC. LOGO]
------------------
February 12, 1997
================================================================================
