<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 5, 1997.
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
DI INDUSTRIES, INC.
DRILLERS, INC.
DI INTERNATIONAL, INC.
DI ENERGY, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
TEXAS 74-2144774
TEXAS 74-1987143
TEXAS 76-0000351
TEXAS 74-2175411
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
T. SCOTT O'KEEFE
SENIOR VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
10370 RICHMOND AVENUE, SUITE 600 10370 RICHMOND AVENUE, SUITE 600
HOUSTON, TEXAS 77042 HOUSTON, TEXAS 77042-4136
(713) 435-6100 (713) 435-6100
(Address, including zip code, and telephone number, (Name, address, including zip code, and telephone
including area code, of registrant's principal number,
executive offices) including area code, of agent for service)
</TABLE>
Copies to:
<TABLE>
<S> <C>
SETH R. MOLAY, P.C.
NICK D. NICHOLAS AKIN, GUMP, STRAUSS, HAUER & FELD, L.L.P.
PORTER & HEDGES, L.L.P. 4100 FIRST CITY CENTER
700 LOUISIANA, 35TH FLOOR 1700 PACIFIC AVENUE, SUITE 4100
HOUSTON, TEXAS 77002 DALLAS, TEXAS 75201
(713) 226-0600 (214) 969-2800
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================
TITLE OF EACH CLASS OF PROPOSED MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
% Senior Notes due 2007.............................. $125,000,000(1) $37,879(1)
- --------------------------------------------------------------------------------------------------------------------
Subsidiary Guarantees(2).................................. (3) (3)
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</TABLE>
(1) Estimated pursuant to Rule 457(o) solely for the purpose of calculating the
registration fee.
(2) Guarantees by Drillers, Inc., DI International, Inc. and DI Energy, Inc.
(the "Guarantors") of the payment of the principal of, and premium, if any,
and interest on the Senior Notes due 2007. Pursuant to Rule 457(n), no
separate registration fee is required.
(3) No separate consideration will be received for the Guarantees.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
================================================================================
<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such state.
SUBJECT TO COMPLETION DATED MAY 5, 1997
PROSPECTUS
, 1997
$125,000,000
DI INDUSTRIES, INC. [LOGO]
% SENIOR NOTES DUE 2007
The % Senior Notes due 2007 (the "Notes") are being offered (the
"Offering") by DI Industries, Inc. (the "Company" or "DI"). Interest on the
Notes is payable semi-annually on and of each
year, commencing , 1997. The Notes will not be redeemable prior to
, 2002, after which the Notes will be redeemable, in whole or in
part, at the option of the Company at the redemption prices set forth herein
plus accrued and unpaid interest, if any, to the date of redemption. In
addition, at any time during the first 36 months after the date of the issuance
of the Notes, the Company may, at its option, redeem up to a maximum of %
of the aggregate principal amount of the Notes with the net proceeds of one or
more Qualified Equity Offerings (as defined herein) at a redemption price equal
to % of the principal amount thereof, plus accrued and unpaid interest
thereon, provided that at least $ million in aggregate principal amount of
Notes remain outstanding immediately after the occurrence of such redemption.
Upon the occurrence of a Change of Control (as defined herein), each Holder (as
defined herein) of the Notes may require the Company to repurchase such Notes at
101% of the principal amount thereof, plus accrued and unpaid interest, to the
date of repurchase.
The Notes will be general unsecured senior obligations of the Company
ranking pari passu in right of payment with all indebtedness and other
liabilities of the Company that are not subordinated by their terms to other
Indebtedness (as defined herein) of the Company and senior in right of payment
to all indebtedness of the Company that by its terms is so subordinated. The
Company's obligation to pay the principal of, premium, if any, and interest on
the Notes will be unconditionally guaranteed, on a joint and several basis (the
"Guarantees"), by each of the Company's wholly-owned, domestic subsidiaries and
any other subsidiary that guarantees Indebtedness of the Company or a guarantor
(the "Guarantors"). The Guarantees will be senior unsecured obligations of each
respective Guarantor and will rank pari passu in right of payment with all other
indebtedness and liabilities of such Guarantor that are not subordinated by
their terms to other Indebtedness of such Guarantor. The Guarantees may be
released under certain circumstances. The Notes and Guarantees will be
effectively subordinated to secured Indebtedness of the Company and the
Guarantors, respectively, with respect to the assets securing such Indebtedness,
including any Indebtedness under the Bank Credit Facility (as defined herein),
which is secured by liens on substantially all of the assets of the Company and
the Guarantors. As of March 31, 1997, on a pro forma basis after giving effect
to the issuance of the Notes and the completion of the other transactions
described in "Use of Proceeds," the Company and its subsidiaries would have had
outstanding approximately $1.3 million of secured indebtedness. The indenture
governing the Notes (the "Indenture") will permit the Company and its
subsidiaries, including the Guarantors, to incur additional Indebtedness in the
future, including certain secured Indebtedness, subject to limitations.
The Notes will be issued in the form of one or more global Notes (the
"Global Notes") registered in the name of Cede & Co., as nominee of The
Depository Trust Company, which will act as the depositary (the "Depositary").
Beneficial interests in the Global Notes will be shown on, and transfers thereof
will be effected only through, records maintained by the Depositary and its
participants. Except as described herein, Notes in definitive form will not be
issued. See "Description of Notes -- Book-Entry, Delivery and Form." The Notes
will not be listed on any securities exchange or included in any automated
quotation system, and there can be no assurance that there will be a secondary
market therefor.
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
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PRICE UNDERWRITING PROCEEDS
TO THE DISCOUNTS AND TO THE
PUBLIC(1) COMMISSIONS(2) COMPANY(3)
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Note.................................... % % %
Total(3).................................... $ $ $
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Plus accrued interest, if any, from the date of issuance.
(2) The Company and the Guarantors have agreed to indemnify the Underwriters (as
defined herein) against certain liabilities, including liabilities under the
Securities Act of 1933, as amended (the "Securities Act"). See
"Underwriting."
(3) Before deducting expenses payable by the Company estimated to be $ .
The Notes are offered by the several Underwriters, subject to prior sale,
when, as and if issued to and accepted by the Underwriters, and subject to
various prior conditions, including their right to reject orders in whole or in
part. It is expected that delivery of the Notes will be made in New York, New
York on or about , 1997.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BT SECURITIES CORPORATION
ING BARINGS
<PAGE> 3
DI INDUSTRIES, INC. LOGO
DI'S GEOGRAPHIC MARKETS
GRAPHICS INCLUDE A MAP SHOWING THE
GEOGRAPHIC EXTENT OF THE COMPANY'S MARKET AREAS.
DI MAP
<TABLE>
<S> <C>
Pro forma rig fleet as of April 15, 1997
Ark-La-Tex................................................ 15
South Texas............................................... 30
Gulf Coast................................................ 18
Venezuela................................................. 6
Eastern/INDRILLERS........................................ 15
Inventory................................................. 23
---
Total............................................. 107
===
</TABLE>
The areas depicted on this map are referred to in this Prospectus as the
Company's Ark-La-Tex, South Texas, Gulf Coast, Venezuela, Eastern and INDRILLERS
markets.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE NOTES, INCLUDING,
AMONG OTHERS, STABILIZING AND SHORT-COVERING TRANSACTIONS IN THE NOTES, AND THE
IMPOSITION OF A PENALTY BID, DURING AND AFTER THE OFFERING. FOR A DESCRIPTION OF
THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
contained elsewhere in this Prospectus. Unless the context indicates otherwise,
references in this Prospectus to the "Company" or "DI" mean DI Industries, Inc.
and its subsidiaries and predecessors. Unless otherwise indicated, the
information contained herein gives effect to the acquisition of Grey Wolf
Drilling Company (the "Grey Wolf Acquisition").
THE COMPANY
The Company is a leading provider of contract land drilling services in the
U.S. with a domestic fleet of 101 rigs, of which 78 are currently marketed. The
Company believes it has the largest or second largest active rig fleet in each
of its three domestic core markets, the Ark-La-Tex, Gulf Coast and South Texas
markets. The Company believes these markets have historically maintained higher
utilization rates and day rates than other domestic markets. In addition to its
domestic operations, the Company operates in Venezuela where the Company intends
to increase its market presence by refurbishing its current fleet of six rigs
and deploying additional deep drilling rigs as warranted by market conditions.
The Company has an inventory of 23 rigs, of which 20 are diesel electric SCR
rigs, available for refurbishment and redeployment as demand warrants. The
Company estimates that each of these rigs can be activated for service in
domestic markets at an average cost of approximately $1.5 million, including the
cost of new drill pipe.
In April 1996, the Company initiated a reorganization of its operations
which consisted of replacing substantially all of the senior management and the
members of the Board of Directors of the Company and implementing a new
operating strategy. The new operating strategy seeks to achieve increased cash
flow and earnings through: (i) acquiring land drilling businesses and assets to
capitalize on anticipated improvements in the industry; (ii) focusing on core
markets and establishing leading positions in these markets to achieve economies
of scale and provide an infrastructure to activate rigs into these markets in a
cost effective manner; (iii) refurbishing and activating inventoried rigs to
satisfy increases in demand; and (iv) attracting and retaining qualified
personnel to support the Company's increased level of operations.
The Company has aggressively implemented its new operating strategy,
acquiring 65 land drilling rigs in five separate transactions since August 1996.
Four of these acquisitions were of companies with long histories operating in
the Gulf Coast and South Texas markets. The fifth acquisition provided the
Company with an inventory of diesel electric SCR drilling rigs suited for
deployment to the Company's core domestic markets and Venezuela. As a result of
these acquisitions, the Company has obtained (i) a leading market presence in
each of its core domestic markets, (ii) management and rig personnel with
customer relationships and operating experience in their markets and (iii) an
infrastructure in each core domestic market to cost effectively activate its
fleet of inventoried rigs as needed. The Company has refurbished and activated
four rigs and is currently refurbishing an additional six rigs from its
inventory. The Company has also discontinued unprofitable operations in
Argentina and Mexico and divested its non-core well servicing division, enabling
management to focus on the Company's land drilling business in its core markets.
INDUSTRY OVERVIEW
The domestic land drilling industry is undergoing a period of rapid
consolidation. The Company believes that during 1996 and the first quarter of
1997, six land rig companies have completed or have pending at least 17
transactions in which a combined total of approximately 341 rigs have been or
are proposed to be acquired. Recent and pending transactions by the Company
accounted for five of these consolidating transactions in which it acquired 65
rigs, of which 44 were actively marketed at the time of acquisition and 21 were
stacked.
Industry sources estimate that there are approximately 1,400 land drilling
rigs available for work in the U.S. as compared to over 5,000 domestic land
drilling rigs in 1982 and approximately 2,000 land drilling rigs as recently as
1990. The Company believes the demand for land drilling rigs in the Company's
core markets has increased principally due to improved oil and gas drilling and
production economics resulting from increased use of 3-D seismic, directional
drilling and enhanced recovery techniques. For the first three months of 1997,
the Company believes that the average active domestic land rig count was 715 as
compared to 652 for the full year 1996, and 595 for the first three months of
1996. The Company's utilization rates in its core
3
<PAGE> 5
domestic markets averaged over 90% for the first three months of 1997. The
convergence of land drilling rig supply and demand in its core domestic markets
has contributed to improved financial results for the Company. In the first
quarter of 1997, the Company generated $9.4 million of EBITDA pro forma for the
Grey Wolf Acquisition and the Flournoy Acquisition (as defined below), as
compared to $17.8 million of EBITDA for the full year 1996 on a pro forma basis
for all of the Transactions (as defined below).
RECENT AND PENDING TRANSACTIONS
The Company has entered into a series of transactions since August 1996
that have significantly increased the size of its rig fleet, refocused
operations and established leading market positions in its core domestic
markets, increased its equity capitalization by $87.8 million and positioned the
Company to benefit from anticipated increases in demand in the land drilling
industry. The transactions (collectively, the "Transactions") are:
- Grey Wolf Acquisition. In March 1997, the Company entered into a
definitive agreement to acquire Grey Wolf Drilling Company ("Grey Wolf").
Grey Wolf owns a fleet of 18 drilling rigs located in the Gulf Coast
market, 16 of which are rated to drill to depths greater than 15,000
feet. All of Grey Wolf's drilling rigs are currently operating. Aggregate
consideration for the Grey Wolf Acquisition is approximately $103.6
million comprised of up to $61.6 million cash and approximately 14.0
million shares of Common Stock, subject to adjustment in certain
circumstances. Grey Wolf establishes the Company's presence in the Gulf
Coast market and provides an infrastructure to reactivate the rigs
acquired in the RTO/LRAC Acquisition (as defined herein). The proceeds
from the Offering will be used, in part, to fund the cash portion of the
Grey Wolf Acquisition. The closing of the Offering is contingent upon the
simultaneous closing of the Grey Wolf Acquisition.
- Flournoy Acquisition. In January 1997, the Company acquired the operating
assets of Flournoy Drilling Company, which included 13 actively marketed
land drilling rigs and other assets located in the South Texas market, in
exchange for 12.4 million shares of Common Stock, valued by the Company
at $31.1 million, and $800,000 in cash (the "Flournoy Acquisition"). As a
result of the Flournoy Acquisition, DI is currently the largest land
drilling contractor in the South Texas market.
- Diamond M Acquisition. In December 1996, the Company acquired the assets
of Diamond M Onshore, Inc. for $26.0 million in cash (the "Diamond M
Acquisition"). The assets consisted of ten land drilling rigs located in
South Texas, all of which were operating, and other operating assets. The
Diamond M Acquisition further enhanced DI's presence in South Texas.
- Mesa Acquisition. In October 1996, the Company acquired six diesel
electric SCR drilling rigs, three of which were operating, from Mesa
Drilling, Inc. in exchange for 5.5 million shares of Common Stock, valued
by the Company at $7.5 million (the "Mesa Acquisition"). The Mesa
Acquisition established the Company's presence in South Texas.
- RTO/LRAC Acquisition and Somerset Acquisition. In August 1996, the
Company acquired 18 inactive land drilling rigs, including 14 drilling
rigs with depth ratings of 25,000 feet or greater, in exchange for
approximately 39.4 million shares of Common Stock, valued by the Company
at $25.0 million (the "RTO/LRAC Acquisition"). The Company also received
$25.0 million in exchange for approximately 39.4 million shares of Common
Stock (the "Somerset Acquisition"). The RTO/LRAC Acquisition has provided
the Company with a supply of idle rigs to leverage its existing operating
infrastructure as demand warrants and the Somerset Acquisition provided
capital that was used by the Company for rig refurbishments, debt
repayments and general corporate purposes. These acquisitions are
collectively referred to as the "RTO/LRAC and Somerset Acquisitions."
- Western Division Sale. In June 1996, the Company sold its Western
Division for $3.9 million in cash (the "Western Sale"). The primary
assets of the Western Division consisted of 23 workover rigs which the
Company determined were non-core assets.
4
<PAGE> 6
THE OFFERING
All capitalized terms used in this Prospectus with respect to the Notes and
not otherwise defined herein, have the meanings set forth under "Description of
Notes -- Certain Definitions."
Securities Offered......... % Senior Notes due 2007
Principal Amount........... $125,000,000
Maturity Date.............. , 2007
Interest Payment Dates..... and of each year, commencing
, 1997
Sinking Fund............... None
Guarantees................. The Notes will be unconditionally guaranteed, on a
joint and several basis, by the Guarantors, which
include all domestic subsidiaries and any other
subsidiary that guarantees any Indebtedness of the
Company and its subsidiaries. The Guarantees will
be senior unsecured obligations of the Guarantors
and will rank pari passu in right of payment with
all other indebtedness and liabilities of such
Guarantor that are not subordinated by their terms
to other Indebtedness of such Guarantor. In
addition, the Guarantees will be subordinated to
secured Indebtedness of the Guarantors, including
Indebtedness under the Bank Credit Facility, which
is secured by substantially all of the assets of
the two most significant Guarantors, Drillers, Inc.
("Drillers") and DI International, Inc.
("International"). The Notes will be effectively
subordinated to claims of creditors (other than the
Company) of the Company's Subsidiaries other than
the Guarantors, including the Bank Credit Facility.
Claims of creditors (other than the Company) of
such Subsidiaries, including trade creditors, tort
claimants, secured creditors, taxing authorities
and creditors holding guarantees, will generally
have priority as to assets of such Subsidiaries
over the claims and equity interest of the Company
and, thereby indirectly, the holders of the
indebtedness of the Company, including the Notes
and the Guarantees.
Ranking.................... The Notes will be general unsecured senior
obligations of the Company, ranking pari passu in
right of payment with all indebtedness and other
liabilities of the Company that are not
subordinated by their terms to other Indebtedness
of the Company and senior in right of payment to
all indebtedness of the Company that by its terms
is so subordinated. The holders of secured
indebtedness of the Company (including Indebtedness
under the Company's Bank Credit Facility, which is
secured by first priority liens on substantially
all of the assets of the Company, Drillers and
International), will have claims with respect to
the assets constituting collateral for such
Indebtedness that are prior to claims of holders of
the Notes and the Trustee. As of March 31, 1997, on
a pro forma basis after giving effect to the
issuance of the Notes and the completion of the
Grey Wolf Acquisition, the Company would have had
outstanding approximately $1.3 million of secured
indebtedness. See "Description of
Notes -- Guarantees of Notes" and "-- General."
Optional Redemption........ The Notes will be redeemable, at the Company's
option, in whole or in part from time to time on or
after , 2002, at the redemption prices
set forth herein, plus accrued and unpaid interest
to the redemption date. In the event the Company
consummates one or more Qualified Equity Offerings
on or prior to , 2000, the Company at
its option may use all or a portion of the proceeds
from such Qualified Equity Offerings to redeem up
to $ million principal amount of the Notes at
a redemption price equal to % of the aggregate
principal amount thereof, together with accrued and
unpaid interest to
5
<PAGE> 7
the date of redemption, provided that at least
$ million aggregate principal amount of Notes
remains outstanding immediately after such
redemption. See "Description of Notes -- Optional
Redemption."
Change of Control.......... Upon a Change of Control, each Holder of Notes will
have the right to require the Company to repurchase
all or any part of such Holder's Notes at a
purchase price equal to 101% of the aggregate
principal amount thereof, plus accrued and unpaid
interest to the date of purchase. See "Description
of Notes -- Change of Control."
Certain Covenants.......... The Indenture will contain covenants limiting the
ability of the Company and its subsidiaries to,
among other things, pay dividends or make other
Restricted Payments, make Investments, incur
additional Indebtedness, create Liens, incur
dividend and other payment restrictions affecting
Subsidiaries, enter into consolidation, merger,
conveyance, lease or transfer transactions, make
asset sales, enter into transactions with
Affiliates and engage in unrelated lines of
business. In addition, the Indenture will impose
restrictions on the ability of subsidiaries to
issue guarantees. These covenants are subject to
certain exceptions and qualifications. See
"Description of Notes -- Certain Covenants" and
"-- Consolidation, Merger, Conveyance, Lease or
Transfer."
Condition to Closing....... Completion of the Offering will be contingent upon,
and will occur simultaneously with, the
consummation of the Grey Wolf Acquisition.
Use of Proceeds............ The net proceeds of the Offering will be used to
pay the cash portion of the Grey Wolf Acquisition,
to repay outstanding indebtedness and for general
corporate purposes, including capital expenditures
for refurbishment of rigs. See "Use of Proceeds."
Risk Factors............... Prospective investors should carefully consider
certain risk factors relating to an investment in
the Notes. See "Risk Factors."
6
<PAGE> 8
SUMMARY FINANCIAL AND OPERATING DATA
The following summary financial data for the years ended and as of December
31, 1996 and 1995 have been derived from the audited consolidated financial
statements of the Company included elsewhere herein. This data should be read in
conjunction with such consolidated financial statements and the notes thereto.
The following summary financial data for the three-month periods ended March 31,
1997 and 1996 and as of March 31, 1997 have been derived from the unaudited
consolidated financial statements of the Company, which include all adjustments,
consisting of normal recurring adjustments, that the Company considers necessary
for a fair presentation of its financial position and results of operations for
these periods. Operating results for the three-month period ended March 31, 1997
are not necessarily indicative of the results that may be expected for the
entire year. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
The pro forma data in the table should be read in conjunction with the
unaudited pro forma consolidated financial statements and the notes thereto
included elsewhere in this Prospectus. The pro forma financial data does not
purport to represent what the Company's financial condition or results of
operations actually would have been had the Transactions in fact occurred on the
assumed dates or to project the Company's financial condition or results of
operations for any future period or date. See "Unaudited Pro Forma Consolidated
Financial Data."
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
-------------------------------- -----------------------------------
HISTORICAL HISTORICAL
PRO FORMA(1) ----------------- PRO FORMA(2) --------------------
1997 1997 1996 1996 1996 1995
------------ ------- ------- ------------ -------- --------
(IN THOUSANDS, EXCEPT RATIOS AND DRILLING RIG ACTIVITY DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues.................... $ 55,709 $35,975 $20,102 $205,316 $ 81,767 $ 94,709
Drilling operations costs... 44,806 28,792 18,936 181,605 80,388 93,825
Depreciation and
amortization............. 5,426 2,207 1,097 24,511 4,689 4,832
General and
administrative........... 2,098 1,654 720 7,659 4,274 3,555
Provision for asset
impairment(3)............ -- -- -- -- -- 5,290
Non-recurring charges(4).... -- -- 602 6,131 6,131 --
-------- ------- ------- -------- -------- --------
Operating income (loss)..... 3,379 3,332 (1,253) (14,590) (13,715) (12,793)
Interest expense(5)......... 2,949 672 262 12,582 1,220 1,472
Other income (expense),
net...................... 635 326 24 1,719 4,058 1,590
-------- ------- ------- -------- -------- --------
Income (loss) from
continuing operations.... 1,065 2,976 (1,491) (25,453) (10,877) (12,675)
Loss from discontinued
operations(6)............ -- -- -- -- -- (772)
-------- ------- ------- -------- -------- --------
Income (loss) before income
taxes.................... 1,065 2,976 (1,491) (25,453) (10,877) (13,447)
Income taxes................ 241 662 -- 845 845 --
-------- ------- ------- -------- -------- --------
Net income (loss)........... $ 824 $ 2,314 $(1,491) $(26,298) $(11,722) $(13,447)
======== ======= ======= ======== ======== ========
OTHER DATA (UNAUDITED):
EBITDA(7)................... $ 9,440 $ 5,855 $ 470 $ 17,771(8) $ 1,163(8) $ (1,853)
Capital expenditures........ 185,343 47,750 921 251,449 71,219 5,657
Ratio of EBITDA to interest
expense.................. 3.2x 8.7x 1.8x 1.4x 1.0x --
Ratio of earnings to fixed
charges(9)............... 1.4x 5.2x -- -- -- --
DRILLING RIG ACTIVITY DATA
(UNAUDITED)(10):
Average utilization rate of
drilling rigs available
for service.............. 80% 76% 68% 78% 63% 66%
Average revenues per
day(11).................. $ 8,971 $ 8,134 $ 7,501 $ 8,167 $ 7,610 $ 7,739
Drilling rigs available for
service -- end of
period................... 88 70 44 70 52 58
Inventoried drilling
rigs -- end of period.... 23 23 22 25 25 22
</TABLE>
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<TABLE>
<CAPTION>
HISTORICAL
--------------------------------
PRO FORMA DECEMBER 31,
MARCH 31, MARCH 31, -------------------
1997 1997 1996 1995
--------- --------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................................ $ 37,236 $ 9,074 $ 6,195 $ 7,503
Property and equipment, net.................... 271,600 134,007 88,476 25,910
Total assets................................... 346,272 169,428 117,819 57,783
Long-term debt net of current maturities....... 125,771 32,071 26,846 11,146
Series A preferred stock -- mandatory
redeemable.................................. 726 726 764 900
Shareholders' equity........................... 140,042 98,042 64,646 19,694
</TABLE>
- ---------------
(1) Gives effect to the Offering and application of the net proceeds therefrom
and the consummation of the Flournoy Acquisition and the Grey Wolf
Acquisition as if such acquisitions had occurred as of January 1, 1996 for
the pro forma statement of operations data, other data and drilling rig
activity data and as of March 31, 1997 for the pro forma balance sheet
data.
(2) Gives effect to the Offering and the application of the net proceeds
therefrom and the consummation of the Transactions as if the Transactions
had occurred as of January 1, 1996 for the pro forma statement of
operations data, other data and drilling rig activity data.
(3) Represents impairment to certain drilling rigs and equipment caused by
market indications that the carrying amounts were not recoverable. See note
1 to the Company's consolidated financial statements included elsewhere in
this Prospectus.
(4) For the three months ended March 31, 1996, represents employment severance
costs for the Company's former President and Chief Executive Officer. For
the year ended December 31, 1996, primarily represents such employment
severance costs and costs to exit the Argentine and Mexican markets. See
note 11 to the Company's consolidated financial statements included
elsewhere in this Prospectus.
(5) Pro forma interest expense assumes that the Notes bear interest at an
annual rate of 9.75%, but does not give effect to interest earned on
proceeds of the Offering prior to application thereof.
(6) To account for the discontinued operations of DI Energy, Inc. effective
April 1, 1995.
(7) EBITDA (earnings before interest, taxes, depreciation and amortization,
asset impairment and non-recurring charges) is presented here to provide
additional information about the Company's operations. EBITDA should not be
considered as an alternative to net income, as determined in accordance
with generally accepted accounting principles ("GAAP"), as an indicator of
the Company's operating performance or as an alternative to cash flows (as
determined in accordance with GAAP) as a better measure of liquidity.
(8) Includes $8.4 million of operating losses related to the Company's
operations in Argentina and Mexico which have since been discontinued.
(9) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (earnings before income taxes plus
fixed charges less capitalized interest) by fixed charges (interest expense
plus capitalized interest and the portion of operating lease rental expense
that represents the interest factor). There were insufficient earnings to
cover fixed charges in each period presented as follows: three months ended
March 31, 1996 -- $1,491; pro forma year ended December 31, 1996 --
$25,453; and year ended December 1996 and 1995 -- $16,759 and $12,675,
respectively.
(10) Excludes the Company's workover rigs.
(11) Represents total contract drilling revenues divided by the total number of
days the Company's drilling rig fleet operated during the period.
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RISK FACTORS
Prospective investors should carefully evaluate all of the information
contained and incorporated by reference in this Prospectus and, in particular,
the following before making an investment in the Notes:
SIGNIFICANT LEVERAGE AND DEBT SERVICE REQUIREMENTS
After giving effect to the Offering, the Company will have significant debt
service requirements due to the substantial indebtedness it has incurred
primarily to finance acquisitions (including the Grey Wolf Acquisition) and
expand its operations. Additionally, the Company and Drillers entered into the
Bank Credit Facility, which is a $50.0 million amended and restated senior
secured revolving credit facility with a syndicate of commercial banks. The Bank
Credit Facility is expected to be substantially undrawn immediately following
the Offering. The Company expects to continue to borrow under the Bank Credit
Facility and possible future credit arrangements in order to finance possible
future acquisitions and for general corporate purposes. As of March 31, 1997, on
a pro forma basis, after giving effect to the Grey Wolf Acquisition and the
repayment of all indebtedness then outstanding under the Bank Credit Facility
from the proceeds of the Offering, the Company would have had $126.3 million in
total indebtedness and $140.0 million in shareholders' equity.
The level of the Company's indebtedness could have several important
effects on the Company's future operations, including, among others, (i) its
ability to obtain additional financing for working capital, acquisitions,
capital expenditures, general corporate and other purposes may be limited, (ii)
a substantial portion of the Company's cash flow from operations will be
dedicated to the payment of principal and interest on its indebtedness, thereby
reducing funds available for other purposes and (iii) the Company's significant
leverage could make it more vulnerable to economic downturns in the industry.
The Company's ability to meet its debt service obligations and reduce its total
indebtedness will be dependent upon the Company's future performance, which will
be subject to the success of its business strategy, general economic conditions,
industry cycles, levels of interest rates, and financial, business and other
factors affecting the operations of the Company, many of which are beyond its
control. There can be no assurance that the Company's business will generate
sufficient cash flow from operations to meet debt service requirements and
payments of principal, and if the Company is unable to do so, it may be required
to sell assets, to refinance all or a portion of its indebtedness, including the
Notes, or to obtain additional financing. There can be no assurance that any
such refinancing would be possible or that any additional financing could be
obtained.
HOLDING COMPANY STRUCTURE; EFFECTIVE SUBORDINATION OF THE NOTES; SUBSIDIARY CASH
FLOW
The Company is a holding company that conducts substantially all of its
operations through both U.S. and foreign subsidiaries, and substantially all of
the Company's assets consist of equity in such subsidiaries. Accordingly, the
Company is and will be dependent on its ability to obtain funds from its
subsidiaries to service its indebtedness, including the Notes.
The Notes will not be secured by any assets of the Company or its
subsidiaries. The Notes will therefore be effectively subordinated in right of
payment to all existing and future secured indebtedness of the Company and its
subsidiaries to the extent of the collateral for such secured indebtedness. The
indebtedness under the Bank Credit Facility is secured by a security interest in
(i) all domestic drilling rigs and related equipment owned by the Company,
Drillers and International, (ii) the stock of Drillers and International, (iii)
the member interest of Drillers in INDRILLERS, L.L.C. ("INDRILLERS") and (iv)
substantially all other assets of the Company, Drillers and International,
wherever located (other than stock of other subsidiaries). Drillers is a
co-borrower with the Company under the Bank Credit Facility and International
has guaranteed the obligations under the Bank Credit Facility. Accordingly, the
lenders under the Bank Credit Facility and other secured debt of the Company
have claims with respect to the rigs and other assets constituting collateral
for any indebtedness thereunder and the assets of any subsidiary guaranteeing
such indebtedness, which will be satisfied prior to the unsecured claims of
holders of the Notes. In the event of a default on the Notes or a bankruptcy,
liquidation or reorganization of the Company, such assets will be available to
satisfy obligations with respect to the indebtedness secured thereby before any
payment therefrom could be made on the Notes.
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In addition, the Notes are effectively subordinated to all of the
creditors, including trade creditors and tort claimants, of the Company's
subsidiaries that are not Guarantors and to all secured creditors of the
Guarantors. The stock of the Guarantors has been pledged to secure indebtedness
under the Bank Credit Facility. In addition, certain financing arrangements that
the Company's subsidiaries are party to (including the Bank Credit Facility)
impose restrictions on the ability of the Company to gain access to the cash
flow or assets of its subsidiaries. The Company's foreign subsidiaries may also
face governmentally imposed restrictions, from time to time, on their ability to
transfer funds to the Company. See "Description of Bank Credit Facility" and
"Description of Notes -- General."
UNENFORCEABILITY AND RELEASES OF SUBSIDIARY GUARANTEES
Various fraudulent conveyance laws enacted for the protection of creditors
may apply to the Guarantors' issuance of the Guarantees. To the extent that a
court were to find that (i) a Guarantee was incurred by a Guarantor with intent
to hinder, delay or defraud any present or future creditor or the Guarantor
contemplated insolvency with a design to prefer one or more creditors to the
exclusion, in whole or in part, of others or (ii) a Guarantor did not receive
fair consideration or reasonably equivalent value for issuing its Guarantee and
such Guarantor (A) was insolvent, (B) was rendered insolvent by reason of the
issuance of such Guarantee, (C) was engaged or about to engage in a business or
transaction for which the remaining assets of such Guarantor constituted
unreasonably small capital to carry on its business or (D) intended to incur, or
believed that it would incur, debts beyond its ability to pay such debts as they
matured, the court could avoid or subordinate such Guarantee in favor of the
Guarantor's creditors. Among other things, a legal challenge of a Guarantee on
fraudulent conveyance grounds may focus on the benefits, if any, realized by the
Guarantor as a result of the issuance by the Company of the Notes. The Indenture
contains a savings clause, which generally will limit the obligations of each
Guarantor under its Guarantee to the maximum amount as will, after giving effect
to all of the liabilities of such Guarantor, result in such obligations not
constituting a fraudulent conveyance. To the extent a Guarantee of any Guarantor
was avoided as a fraudulent conveyance or held unenforceable for any other
reason, Holders of the Notes would cease to have any claim against such
Guarantor (and could be required to return payments received from such
Guarantor) and would be creditors solely of the Company and any Guarantor whose
Guarantee was not avoided or held unenforceable. In such event, the claims of
the Holders of the Notes against the issuer of an invalid Guarantee would be
subject to the prior payment of all liabilities of such Guarantor. There can be
no assurance that, after providing for all prior claims, there would be
sufficient assets to satisfy the claims of the Holders of the Notes relating to
any avoided portions of any of the Guarantees.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any such proceeding. Generally, however,
a Guarantor may be considered insolvent if the sum of its debts, including
contingent liabilities, was greater than the fair marketable value of all of its
assets at a fair valuation or if the present fair marketable value of its assets
was less than the amount that would be required to pay its probable liability on
its existing debts, including contingent liabilities, as they become absolute
and matured.
Any Guarantor may be released from its Guarantee at any time upon any sale,
exchange or transfer, in compliance with the provisions of the Indenture, by the
Company of the capital stock of such Guarantor or substantially all of the
assets of such Guarantor and in certain other circumstances. See "Description of
Notes -- Guarantees of Notes."
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Indenture will contain covenants restricting or limiting the ability of
the Company and certain of its subsidiaries to, among other things: (i) incur
additional indebtedness; (ii) pay dividends or make other restricted payments;
(iii) make asset dispositions; (iv) permit liens; (v) enter into sale and
leaseback transactions; (vi) enter into certain mergers, acquisitions and
consolidations; (vii) make certain investments; (viii) enter into transactions
with related persons; and (ix) engage in unrelated lines of business.
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In addition, the loan agreement setting forth the terms of the Bank Credit
Facility (the "Bank Credit Agreement") contains certain other and more
restrictive covenants than those contained in the Indenture. These covenants may
adversely affect the Company's ability to pursue its acquisition and rig
refurbishment strategies and limit its flexibility in responding to changing
market conditions. The Bank Credit Agreement also requires the Company to
maintain specific financial ratios and satisfy certain financial condition
tests. The Company's ability to meet those financial ratios and financial
condition tests can be affected by events beyond its control, and there can be
no assurance that the Company will meet those tests. The Indenture and the Bank
Credit Agreement contain covenants and default terms that effectively cross
default the two credit arrangements. Accordingly, the breach of any of the debt
covenants applicable to the Company could result in a default under both the
Bank Credit Agreement and the Indenture, and possibly other then outstanding
debt obligations of the Company, if any. If the indebtedness under the Bank
Credit Facility or other indebtedness were to be accelerated, there can be no
assurance that the Company's assets would be sufficient to repay in full all the
Company's indebtedness, including the Notes. See "Description of Bank Credit
Facility."
RISK OF INABILITY TO REPURCHASE NOTES UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company must offer to
purchase all Notes then outstanding at a purchase price equal to 101% of the
principal amount thereof plus accrued and unpaid interest to the date of
purchase. The occurrence of a Change of Control (as defined in the Bank Credit
Facility) may result in lenders under the Bank Credit Facility having the right
to require the Company to repay all indebtedness outstanding thereunder. There
can be no assurance that the Company will have available funds sufficient to
repay all indebtedness owing under the Bank Credit Facility or to fund the
purchase of the Notes upon a Change of Control. In the event a Change of Control
occurs at a time when the Company does not have available funds sufficient to
pay for all of the Notes delivered by Holders seeking to accept the Company's
repurchase offer, an event of default would occur under the Indenture. See
"Description of Notes -- Certain Covenants" and "-- Change of Control."
HISTORY OF LOSSES FROM OPERATIONS
The Company has a history of losses and has not had a profitable year since
1991. The Company incurred net losses of $11.7 million and $13.4 million for the
years ended December 31, 1996 and 1995, respectively, and $2.2 million for nine
months ended December 31, 1994. The calendar year 1996 loss includes non-
recurring charges of $6.1 million, while the 1995 loss includes a provision for
asset impairment of $5.3 million. On a historical basis, the Company would not
have been able to service the Notes. Profitability in the future will depend
largely upon utilization rates and day rates for the Company's drilling rigs.
There is no assurance that current utilization rates and day rates will not
decline or that the Company will not continue to experience losses.
DEPENDENCE ON KEY PERSONNEL; NEW BUSINESS STRATEGY
Since April 1996, the Company has hired a majority of its current senior
management team. In addition, in August 1996, the shareholders of the Company
elected a Board of Directors comprised of five members, all but one of whom were
elected for the first time. In connection with the Flournoy Acquisition, another
new member was added to the Company's Board of Directors effective January 31,
1997. The Company believes that its operations are dependent upon a small group
of relatively new management personnel, the loss of any one of whom could have a
material adverse effect on the Company's financial condition and results of
operations. Material changes in the Company's management and business strategy
have only recently occurred. The Company is therefore unable to predict the
effect of these changes on the Company's financial condition and results of
operations. The Company's ability to meet substantially increased debt service
and principal payments will depend, in part, on the success of the Company's new
business strategy. There can be no assurance these material changes in the
Company's management and business strategy will result in the improvement of the
Company's financial condition and results of operations.
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DEPENDENCE ON OIL AND GAS INDUSTRY; INDUSTRY CONDITIONS
The Company's current business and operations are substantially dependent
upon conditions in the oil and gas industry and, specifically, the exploration
and production expenditures of oil and gas companies. The demand for contract
land drilling and related services is directly influenced by oil and gas prices,
expectations about future prices, the cost of producing and delivering oil and
gas, government regulations, local and international political and economic
conditions, including the ability of the Organization of Petroleum Exporting
Countries ("OPEC") to set and maintain production levels and prices, the level
of production by non-OPEC countries and the policies of the various governments
regarding exploration and development of their oil and gas reserves. There can
be no assurance that current levels of oil and gas exploration expenditures will
be maintained or that demand for the Company's services will reflect the level
of such expenditures.
COMPETITION
The land drilling industry is a highly competitive and cyclical business
characterized by high capital and maintenance costs. Drilling contracts are
usually awarded on a competitive bid basis and, while an operator may consider
factors such as quality of service and type and location of equipment as well as
the ability to provide ancillary services, price is generally the primary factor
in determining which contractor is awarded a job. An increasingly important
competitive factor in the land drilling industry is the ability to provide
drilling equipment adaptable to, and personnel familiar with, new technologies
and drilling techniques as they become available. Certain of the Company's
competitors have greater financial and human resources than the Company, which
may enable them to better withstand periods of low rig utilization, to compete
more effectively on the basis of price and technology, to build new rigs or
acquire existing rigs and to provide rigs more quickly than the Company in
periods of high rig utilization. There can be no assurance that the Company will
be able to compete successfully against its competitors in the future.
RISKS ASSOCIATED WITH TURNKEY DRILLING
Contract drilling services performed under turnkey drilling contracts have
historically represented, and are expected to continue to represent, a
significant component of the Company's revenues. Under a turnkey drilling
contract, the Company contracts to drill a well to a contract depth under
specified conditions for a fixed price. In addition, the Company provides
technical expertise and engineering services, as well as most of the equipment
required for the well, and is compensated when the contract terms have been
satisfied. On a turnkey well, the Company often subcontracts for related
services and manages the drilling process. The risks to the Company on a turnkey
drilling contract are substantially greater than on a well drilled on a daywork
basis because the Company assumes most of the risks associated with drilling
operations generally assumed by the operator in a daywork contract, including
risk of blowout, loss of hole, stuck drill string, machinery breakdowns,
abnormal drilling conditions and risks associated with subcontractors' services,
supplies and personnel. Although the Company has obtained insurance coverage in
the past to reduce certain of the risks inherent in turnkey drilling operations
there can be no assurance that such coverage will be obtained or available in
the future. The occurrence of an uninsured or under insured loss could have a
material adverse effect on the Company's financial position and results of
operations.
OPERATING HAZARDS AND INSURANCE
The Company's operations are subject to the many hazards inherent in the
land drilling business, including blowouts, cratering, fires, explosions, loss
of hole and lost or stuck drill strings, and damage or loss from adverse
weather. These hazards could also cause personal injury and loss of life,
substantial damage to the environment, suspension of drilling operations or
serious damage to or destruction of the property and equipment involved and
damage to producing formations and surrounding areas.
The Company maintains insurance coverage against some but not all operating
hazards. The Company believes that it is adequately insured for public liability
and property damage to others with respect to its operations. However, such
insurance may not be sufficient to protect the Company against liability for all
consequences of well disasters, personal injury, extensive fire damage or damage
to the environment. In
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addition, the Company does not have casualty insurance with respect to its rigs
or drill strings, and other insurance maintained by the Company is subject to
substantial deductibles and provides for premium adjustments based on claims. In
view of difficulties that may be encountered in renewing such insurance at
reasonable rates, no assurance can be given that the Company will be able to
maintain the type and amount of coverage that it considers adequate. The
occurrence of a significant event for which the Company is not fully insured
could have a material adverse effect on the Company's financial position and
results of operations. See "Business -- Insurance."
RISKS OF ACQUISITION STRATEGY
As a key component of its new business strategy, the Company has pursued
and intends to continue to pursue acquisitions of complementary assets and
drilling businesses. Since mid-1996, a number of significant acquisitions have
been completed by the Company or are pending. Possible future acquisitions may
be for purchase prices significantly higher than those paid for recent and
pending acquisitions. Certain risks are inherent in an acquisition strategy,
such as increasing leverage and debt service requirements and combining
disparate company cultures and facilities, which could adversely affect the
Company's operating results. The success of any completed acquisition will
depend in part on the Company's ability to integrate effectively the acquired
business into the Company. The process of integrating such acquired businesses
may involve unforeseen difficulties and may require a disproportionate amount of
management's attention and the Company's financial and other resources. No
assurance can be given that the Company will be able to continue to identify
additional suitable acquisition opportunities, negotiate acceptable terms,
obtain financing for acquisitions on satisfactory terms or successfully acquire
identified targets. The Company's failure to achieve consolidation savings, to
incorporate the acquired businesses and assets into its existing operations
successfully or to minimize any unforeseen operational difficulties could have a
material adverse effect on the Company. See "Business -- Recent and Pending
Transactions."
SHORTAGES OF EQUIPMENT, SUPPLIES AND PERSONNEL
There is a general shortage of drilling equipment and supplies which the
Company believes may intensify. The costs and delivery times of equipment and
supplies are substantially greater than in prior periods and are currently
escalating. Accordingly, in 1996 the Company formed an alliance with a drill
pipe manufacturer that enables the Company to take delivery through 1998 of
agreed maximum quantities of drill pipe in commonly used diameters at fixed
prices plus possible escalations for increases in the manufacturer's cost of raw
materials. Due in part to its alliance arrangement, the Company is not currently
experiencing any material shortages of, or material price increases in, drill
pipe. The Company believes that the alliance may reduce, but not eliminate, its
exposure to price increases and supply shortages of drill pipe. As is common in
the industry, the drill pipe supply alliance is not a formal contractual
agreement but represents an informal arrangement in which both parties undertake
to satisfy the supply objectives of the alliance. If the Company's source of
supply through its alliance becomes unavailable or insufficient for any reason
(including by reason of additional rig acquisitions), the Company will likely
experience substantial delays in, and material price increases for, obtaining
substitute or additional supplies for drill pipe. Additionally, the Company may
be subject to shortages and price increases with respect to quantities in excess
of, and varieties of drill pipe not covered by, its drill pipe supply alliance.
Although the Company is attempting to establish arrangements to assure adequate
availability of certain other necessary equipment and supplies on satisfactory
terms, there can be no assurance that it will be able to do so. If the Company
experiences shortages of drilling equipment or supplies, its ability to market
its rigs could be limited, which could have a material adverse effect on its
financial condition and results of operations. See "Business -- Equipment and
Supplies."
The demand for, and wage rates of, qualified rig crews, have begun to rise
in the land drilling industry in response to the increasing number of active
rigs in service. Although the Company has not encountered material difficulty in
hiring and retaining qualified rig crews, such shortages have in the past
occurred in the industry in times of increasing demand for land drilling
services. If the number of active drilling rigs continues to increase, the
Company may experience shortages of qualified personnel to operate its rigs,
which could have a material adverse effect on the Company's financial condition
and results of operations.
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GOVERNMENTAL REGULATIONS
Many aspects of the Company's operations are affected by domestic and
foreign political developments and are subject to numerous governmental
regulations that may relate directly or indirectly to the contract drilling and
well servicing industries. The Company's operations routinely involve the
handling of waste materials, some of which are classified as hazardous
substances. Consequently, the regulations applicable to the Company's operations
include those with respect to containment, disposal and controlling the
discharge of hazardous oilfield waste and other nonhazardous waste material into
the environment, requiring removal and cleanup under certain circumstances, or
otherwise relating to the protection of the environment. Laws and regulations
protecting the environment have become more stringent in recent years and may in
certain circumstances impose strict liability, rendering a party liable for
environmental damage without regard to negligence or fault on the part of such
party. Such laws and regulations may expose the Company to liability for the
conduct of, or conditions caused by, others or for acts of the Company which
were in compliance with all applicable laws at the time such acts were
performed. The application of these requirements or the adoption of new
requirements could have a material adverse effect on the Company. In addition,
the modification of existing laws or regulations or the adoption of new laws or
regulations curtailing exploratory or development drilling for oil and gas for
economic, environmental or other reasons could have a material adverse effect on
the Company's operations by limiting future contract drilling opportunities.
RISKS OF INTERNATIONAL OPERATIONS
The Company derives revenues from international operations. The Company's
current international operations are conducted only in Venezuela. Risks
associated with operating in international markets include foreign exchange
restrictions and currency fluctuations, foreign taxation, political instability,
foreign and domestic monetary and tax policies, expropriation, nationalization,
nullification, modification or renegotiation of contracts, war and civil
disturbances or other risks that may limit or disrupt markets. Additionally, the
ability of the Company to compete in the international drilling markets may be
adversely affected by foreign government regulations that favor or require the
awarding of such contracts to local contractors, or by regulations requiring
foreign contractors to employ citizens of, or purchase supplies from, a
particular jurisdiction. Furthermore, the Company's foreign subsidiaries may
face governmentally imposed restrictions from time to time on their ability to
transfer funds to the Company. No predictions can be made as to what foreign
governmental regulations may be applicable to the Company's operations in the
future.
QUALIFICATION AS A REORGANIZATION FOR U.S. FEDERAL INCOME TAX PURPOSES
The Grey Wolf Acquisition is intended to qualify as a tax free
reorganization under Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal
Revenue Code of 1986, as amended (the "Code"), with respect to Common Stock
received by Grey Wolf shareholders. Arthur Andersen LLP has rendered an opinion
for the benefit of the parties to the Grey Wolf Acquisition, including Grey Wolf
and its shareholders, that the Grey Wolf Acquisition qualifies as such a
reorganization. The opinion is based on a number of assumptions of fact, which
are supported by certificates from the Company, Grey Wolf and certain Grey Wolf
shareholders. A principal assumption is that the shareholders of Grey Wolf will
satisfy the continuity of proprietary interest standard with respect to Common
Stock received in the Grey Wolf Acquisition. Thus, under present Internal
Revenue Service ("IRS") guidelines, dispositions of Common Stock by Grey Wolf
shareholders during the five years following the Grey Wolf Acquisition could
cause the IRS to assert that the Grey Wolf Acquisition does not qualify as a tax
free reorganization. If the Grey Wolf Acquisition fails to qualify as a tax free
reorganization for this or any other reason, the receipt of Common Stock will be
taxable to the Grey Wolf shareholders at the time of the Grey Wolf Acquisition,
and Grey Wolf will be deemed to have sold all of its assets in a taxable
exchange triggering a corporate tax liability to Grey Wolf estimated to be in
excess of $30.0 million. The Company's wholly-owned subsidiary, Drillers, as the
surviving corporation of the Grey Wolf Acquisition, would be liable for any such
corporate tax.
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ABSENCE OF PUBLIC MARKET FOR THE NOTES
The Notes will be part of a new issue of securities for which there is
currently no public market. The Company does not intend to list the Notes on any
national or regional securities exchange or apply for inclusion of the Notes in
any automated quotation system. Although the Underwriters have informed the
Company that they currently intend to make a market in the Notes, the
Underwriters are not obligated to do so and may discontinue such market-making
at any time without notice. Accordingly, there can be no assurance as to the
development or liquidity of any market for the Notes.
RISKS OF CERTAIN LITIGATION
Grey Wolf is a defendant in litigation in which the plaintiff alleges that
Grey Wolf breached contractual obligations by failing to drill an oil and gas
well or wells thus causing the plaintiff to lose its alleged rights under an oil
and gas lease. The plaintiff has alleged unspecified monetary damages that are
characterized in the lawsuit as "many tens of millions of dollars." In
connection with the closing of the Grey Wolf Acquisition, an escrow consisting
of $5.0 million of the cash consideration for the Grey Wolf Acquisition will be
established to provide a source of payment for the Company's costs, if any, for
any eventual settlement of, or the payment of a monetary court judgment, arising
out of this or any other lawsuit by the plaintiff based on the same facts and
circumstances. A settlement or judgement in favor of the plaintiff in excess of
$5.0 million could have a material adverse effect on the Company's financial
condition and results of operations. See "Business--Legal Proceedings."
OFFERING PROCEEDS TO BENEFIT AFFILIATES OF UNDERWRITERS
Affiliates of each of BT Securities Corporation and ING Baring (U.S.)
Securities, Inc. will receive more than 10% of the net proceeds from the
Offering as a result of the use of such proceeds to repay all of the borrowings
under the Bank Credit Facility. See "Use of Proceeds." As a result, the Offering
is being made in compliance with Rule 2710(c)(8) of the Conduct Rules of the
National Association of Securities Dealers, Inc. ("NASD") pursuant to which a
"qualified independent underwriter" will assume certain responsibilities of
pricing and conducting due diligence for the Offering. See "Underwriting."
FORWARD-LOOKING STATEMENTS
This Prospectus contains, or incorporates by reference, certain statements
that may be deemed "forward-looking statements" within the meaning of Section
27A of the Securities Act, and Section 21E of the Securities Exchange Act of
1934, as amended (the "Exchange Act"). All statements, other than statements of
historical facts so included in this Prospectus that address activities, events
or developments that the Company expects, projects, believes or anticipates will
or may occur in the future, including, without limitation, statements regarding
the Company's business strategy, plans and objectives; statements expressing
beliefs and expectations regarding future rig utilization rates, day rates and
other events and conditions that may influence the land rig drilling market and
the Company's performance in the future; statements concerning future rig
refurbishment plans, including the anticipated level of capital expenditure for,
and the nature and scheduling of, rig refurbishment; statements regarding future
redeployment of the Company's rigs to different markets; trends in the land
drilling business and other such matters are forward-looking statements. Such
statements are based on certain assumptions and analyses made by management of
the Company in light of its experience and its perception of historical trends,
current conditions, expected future developments and other factors it believes
to be appropriate. The forward-looking statements included in this Prospectus
are also subject to a number of material risks and uncertainties. Important
factors that could cause actual results to differ materially from the Company's
expectations are discussed herein under the captions "Risk Factors" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." Prospective investors are cautioned that such forward-looking
statements are not guarantees of future performance and that actual results,
developments and business decisions may differ from those envisaged by such
forward-looking statements.
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USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
$121.1 million, after deducting underwriting discounts, commissions and fees and
expenses of the Offering payable by the Company. The Company intends to use the
net proceeds of the Offering to pay the cash portion of the consideration for
the Grey Wolf Acquisition of up to $61.6 million and associated transaction
costs estimated at $300,000 and repay all indebtedness then outstanding under
the Bank Credit Facility. The balance of the net proceeds will be used for
working capital and for general corporate purposes, including the refurbishment
of rigs. The amount of proceeds used for refurbishing rigs will depend on a
number of factors, including market conditions, management's assessment of
existing and anticipated demand and day rates for land drilling rigs in the
Company's domestic and Venezuelan markets and the Company's success in bidding
for drilling contracts. Of the Company's indebtedness under the Bank Credit
Facility, which is $33.0 million as of May 5, 1997, $24.0 million in principal
amount was borrowed in December 1996 to finance the Diamond M Acquisition and
approximately $9.0 million in principal amount was for general corporate
purposes, including rig refurbishments and increased working capital
requirements resulting from the Diamond M Acquisition and the Flournoy
Acquisition. The Bank Credit Facility matures on April 30, 2000. Interest under
the Bank Credit Facility accrues at variable rates with respect to each advance
under the facility based on one of two interest rate options available to the
Company. As of May , 1997, such weighted average interest rate was % per
annum. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Description of Bank Credit Facility."
16
<PAGE> 18
CAPITALIZATION
The following table sets forth the cash and cash equivalents, short-term
debt and capitalization of the Company as of March 31, 1997, and as adjusted to
give effect to the Offering and the application of the net proceeds therefrom as
described under "Use of Proceeds." This table should be read in conjunction with
the consolidated financial statements and the notes thereto and the pro forma
consolidated financial data and the notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
MARCH 31, 1997
----------------------
ACTUAL PRO FORMA
-------- ---------
(IN THOUSANDS)
<S> <C> <C>
Cash and cash equivalents................................... $ 3,693 $ 29,462
======== ========
Current maturities of long-term debt........................ $ 1,997(1) $ 497
======== ========
Long-term debt, net of current maturities:
Bank Credit Facility...................................... $ 30,000(1) --
% Senior Notes due 2007.............................. -- $125,000
Notes payable............................................. 1,300 --
Other..................................................... 771 771
-------- --------
Total long-term debt, net of current maturities... 32,071 125,771
Series A preferred stock.................................... 726 726
Shareholders' equity:
Common stock, $.10 par value per share.................... 13,752 15,152
Additional paid-in capital................................ 129,135 169,735
Cumulative translation adjustments........................ (404) (404)
Accumulated deficit....................................... (44,441) (44,441)
-------- --------
Total shareholders' equity........................ 98,042 140,042
-------- --------
Total capitalization.............................. $132,836 $267,036
======== ========
</TABLE>
- ---------------
(1) Current maturities of long-term debt includes $1.5 million of outstanding
indebtedness under the Bank Credit Facility. As of the date of May 5, 1997,
the amount of outstanding indebtedness under the Bank Credit Facility is
$33.0 million.
17
<PAGE> 19
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL DATA
The following unaudited pro forma consolidated balance sheet as of March
31, 1997 includes the historical consolidated balance sheet of the Company as of
March 31, 1997 and gives effect to the following as if they occurred as of March
31, 1997: (i) the Grey Wolf Acquisition; and (ii) the application of the
estimated net proceeds from the Offering (after deducting underwriting discounts
and commissions and estimated expenses of the Offering). The following unaudited
pro forma consolidated statement of operations for the three months ended March
31, 1997 includes the historical results of the Company for the three months
ended March 31, 1997 and gives effect to the Flournoy Acquisition and Grey Wolf
Acquisition as if they occurred on January 1, 1996. The following unaudited pro
forma consolidated statements of operations for the year ended December 31, 1996
includes the historical results of the Company for the year ended December 31,
1996 and gives effect to each of the above transactions and the Western Sale,
the RTO/LRAC and Somerset Acquisitions, the Mesa Acquisition and the Diamond M
Acquisition, all which occurred before December 31, 1996, as if they occurred on
January 1, 1996. Pro forma adjustments are described in the accompanying notes.
The following unaudited pro forma consolidated statements of operations are
not necessarily indicative of the actual results of operations that would have
been reported if the events described above had occurred on the dates noted
above nor do they purport to indicate the results of the Company's future
operations. Furthermore, the pro forma results do not give effect to all cost
savings or incremental costs that may occur as a result of the integration and
consolidation of the acquisitions, mergers and sale of assets. In the opinion of
management, all adjustments necessary to present fairly such pro forma financial
statements have been made.
The unaudited pro forma consolidated financial information should be read
in conjunction with "Capitalization," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements and the notes thereto included elsewhere in this Prospectus.
18
<PAGE> 20
DI INDUSTRIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1997
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
HISTORICAL
--------------------- PRO FORMA
DI GREY WOLF ADJUSTMENTS PRO FORMA
-------- --------- ----------- ---------
<S> <C> <C> <C> <C>
Current assets:
Cash and cash equivalents................... $ 3,693 $ 899 $121,062(a) $ 29,462
(61,600)(b)
(34,292)(a)
Restricted cash -- insurance deposits....... 250 -- (300)(b) 250
Accounts receivable, net of allowance....... 25,395 7,852 33,247
Rig inventory and supplies.................. 428 -- 428
Assets held for sale........................ 557 -- 557
Prepaids and other current assets........... 4,054 1,524 5,578
-------- -------- -------- --------
Total current assets................ 34,377 10,275 24,870 69,522
-------- -------- -------- --------
Property and equipment:
Land, buildings and improvements............ 5,042 815 5,857
Drilling and well service equipment......... 141,916 54,502 81,867(b) 278,285
Furniture and fixtures...................... 1,208 409 1,617
Accumulated depreciation and amortization... (14,159) (37,300) 37,300(b) (14,159)
-------- -------- -------- --------
Net property and equipment.......... 134,007 18,426 119,167 271,600
-------- -------- -------- --------
Other noncurrent assets....................... 1,044 345 (177)(b) 5,150
3,938(a)
-------- -------- -------- --------
$169,428 $ 29,046 $147,798 $346,272
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt........ $ 1,997 $ 8 $ (1,508)(a) $ 497
Accounts payable -- trade................... 14,050 8,483 22,533
Accrued workers' compensation............... 2,164 -- 2,164
Payroll and related employee costs.......... 4,422 -- 4,422
Customer advances........................... 777 -- 777
Taxes payable............................... 1,083 -- 1,083
Other accrued liabilities................... 810 -- 810
-------- -------- -------- --------
Total current liabilities........... 25,303 8,491 (1,508) 32,286
-------- -------- -------- --------
% Senior Notes.............................. -- -- 125,000(a) 125,000
Long-term debt net of current maturities...... 32,071 1,484 (32,784)(a) 771
Other long-term liabilities and minority
interest.................................... 3,177 381 3,558
Deferred income taxes......................... 10,109 2,933 30,847(b) 43,889
Series A preferred stock-mandatory
redeemable.................................. 726 -- 726
Shareholders' equity:
Common stock, $.10 par value................ 13,752 6,553 (5,153)(b) 15,152
Additional paid-in capital.................. 129,135 -- 40,600(b) 169,735
Cumulative translation adjustments, deferred
compensation and treasury stock.......... (404) (33) 33(b) (404)
Retained earnings (deficit)................. (44,441) 9,237 (9,237)(b) (44,441)
-------- -------- -------- --------
Total shareholders' equity.......... 98,042 15,757 26,243 140,042
-------- -------- -------- --------
$169,428 $ 29,046 $147,798 $346,272
======== ======== ======== ========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial data.
19
<PAGE> 21
DI INDUSTRIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
---------------------------------
FLOURNOY PRO FORMA
DI ACQUISITION GREY WOLF ADJUSTMENTS PRO FORMA
------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Contract drilling................... $35,975 $3,871 $15,863 $ -- $55,709
Costs and expenses:
Drilling operations................. 28,792 3,098 12,260 656(c) 44,806
Depreciation and amortization....... 2,207 138 626 2,455(d) 5,426
General and administrative.......... 1,654 250 974 (780)(c)(e) 2,098
------- ------ ------- ------- -------
Total costs and expenses.... 32,653 3,486 13,860 2,331 52,330
------- ------ ------- ------- -------
Operating income (loss)............... 3,322 385 2,003 (2,331) 3,379
------- ------ ------- ------- -------
Other income (expense):
Interest income..................... 92 -- 8 -- 100
Gain on sale of assets.............. 30 -- 235 -- 265
Interest expense.................... (672) (7) (42) (2,228)(f) (2,949)
Minority interest and other......... 204 -- 66 -- 270
------- ------ ------- ------- -------
Other income (expense),
net....................... (346) (7) 267 (2,228) (2,314)
------- ------ ------- ------- -------
Income (loss) before income taxes..... 2,976 378 2,270 (4,559) 1,065
Income taxes.......................... 662 -- 908 (1,329)(g) 241
------- ------ ------- ------- -------
Net income (loss)..................... 2,314 378 1,362 (3,230) 824
Series A preferred stock redemption
premium............................. (22) -- -- -- (22)
------- ------ ------- ------- -------
Net income (loss) applicable to common
stock............................... $ 2,292 $ 378 $ 1,362 $(3,230) $ 802
======= ====== ======= ======= =======
Net income per common share........... $ .02 $ .01
======= =======
Weighted average common shares
outstanding......................... 133,334 151,469
======= =======
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial data.
20
<PAGE> 22
DI INDUSTRIES, INC.
UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS HISTORICAL
------------------------ ---------------------------------------
HISTORICAL WESTERN RTO/LRAC MESA DIAMOND M FLOURNOY
DI SALE ACQUISITION ACQUISITION ACQUISITION ACQUISITION
---------- ------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Contract drilling...................... $ 81,767 $(3,206)(h) -- $4,693 $22,675 $42,850
Costs and expenses:
Drilling operations.................... 80,388 (3,029)(h) 84(i) 3,428 19,405 33,970
Depreciation and amortization.......... 4,689 (117)(h) -- -- 759 1,655
General and administrative............. 4,274 (254)(h) -- -- 476 2,994
Non-recurring charges.................. 6,131 -- -- -- -- --
-------- ------- ---- ------ ------- -------
Total costs and expenses......... 95,482 (3,400) 84 3,428 20,640 38,619
-------- ------- ---- ------ ------- -------
Operating income (loss).................. (13,715) 194 84 1,265 2,035 4,231
-------- ------- ---- ------ ------- -------
Other income (expense):
Interest income........................ 505 -- -- -- -- --
Interest expense....................... (1,220) 4(h) -- -- -- (87)
Gain (loss) on sale of assets.......... 3,078 (2,775)(h) -- -- -- --
Minority interest and other............ 475 -- -- -- -- --
-------- ------- ---- ------ ------- -------
Other income (expense), net...... 2,838 (2,771) -- -- -- (87)
-------- ------- ---- ------ ------- -------
Income (loss) before income taxes........ (10,877) (2,577) (84) 1,265 2,035 4,144
Income taxes............................. 845 -- -- -- -- --
-------- ------- ---- ------ ------- -------
Net income (loss)........................ (11,722) (2,577) (84) 1,265 2,035 4,144
Series A preferred stock redemption
premium................................ (13) -- -- -- -- --
Series B preferred stock subscription
dividend requirement................... (402) -- 402(j) -- -- --
-------- ------- ---- ------ ------- -------
Net income (loss) applicable to
common stock........................... $(12,137) $(2,577) $318 $1,265 $ 2,035 $ 4,144
======== ======= ==== ====== ======= =======
Net loss per common share................ $ (0.18)
========
Weighted average common shares
outstanding............................ 67,495
========
<CAPTION>
HISTORICAL
-----------
GREY WOLF PRO FORMA
ACQUISITION ADJUSTMENTS PRO FORMA
----------- ----------- ---------
<S> <C> <C> <C>
Revenues:
Contract drilling...................... $56,537 -- $205,316
Costs and expenses:
Drilling operations.................... 44,735 2,624(c) 181,605
Depreciation and amortization.......... 2,163 15,362(d) 24,511
General and administrative............. 4,036 (3,867)(c)(e) 7,659
Non-recurring charges.................. -- -- 6,131
------- -------- --------
Total costs and expenses......... 50,934 14,119 219,906
------- -------- --------
Operating income (loss).................. 5,603 (14,119) (14,590)
------- -------- --------
Other income (expense):
Interest income........................ 2 -- 507
Interest expense....................... (394) (10,885)(f) (12,582)
Gain (loss) on sale of assets.......... 368 -- 671
Minority interest and other............ 66 -- 541
------- -------- --------
Other income (expense), net...... (42) (10,885) (10,863)
------- -------- --------
Income (loss) before income taxes........ 5,645 (25,004) (25,453)
Income taxes............................. 2,265 (2,265)(g) 845
------- -------- --------
Net income (loss)........................ 3,380 (22,739) (26,298)
Series A preferred stock redemption
premium................................ -- -- (13)
Series B preferred stock subscription
dividend requirement................... -- -- --
------- -------- --------
Net income (loss) applicable to
common stock........................... $ 3,380 $(22,739) $(26,311)
======= ======== ========
Net loss per common share................ $ (0.17)
========
Weighted average common shares
outstanding............................ 151,469
========
</TABLE>
See accompanying notes to unaudited pro forma consolidated financial data.
21
<PAGE> 23
DI INDUSTRIES, INC.
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The following sets forth the explanations and assumptions used in preparing
the Company's unaudited pro forma consolidated balance sheet as of March 31,
1997 and unaudited pro forma consolidated statements of operations for the three
months ended March 31, 1997 and for the year ended December 31, 1996.
The unaudited pro forma consolidated financial data should be read in
conjunction with (i) the consolidated financial statements of the Company as of
and for the three months ended March 31, 1997 and for the year ended December
31, 1996 and the notes thereto included elsewhere herein and (ii) the financial
statements of Grey Wolf as of and for the three months ended January 31, 1997
and for the year ended October 31, 1996 and the notes thereto, included
elsewhere herein. Pro forma financial data are not necessarily indicative of
future operations of DI due to numerous factors, including changes in
utilization rates for drilling rigs, changes in the rates received for drilling
services and future equipment sales and acquisitions.
(2) Adjustment to the Historical Financial Statements
The unaudited pro forma consolidated balance sheet assumes the Grey Wolf
Acquisition occurred on March 31, 1997. The other Transactions noted occurred
prior to March 31, 1997, and are included in DI's historical balance sheet as of
March 31, 1997. The unaudited pro forma consolidated statement of operations for
the three months ended March 31, 1997 assumes the Flournoy Acquisition and the
Grey Wolf Acquisition occurred on January 1, 1996 while all the other
Transactions noted above are included in historical results for the period. The
unaudited pro forma consolidated statement of operations data for the year ended
December 31, 1996 assumes all of the Transactions occurred on January 1, 1996.
The following assumptions and pro forma adjustments have been made with
respect to the historical balance sheet of the Company:
(a) To reflect the Offering and the related issuance costs of the
notes and the repayment of substantially all of the Company's existing
long-term debt.
(b) To reflect the purchase of Grey Wolf for $61.6 million in cash and
the issuance of 14.0 million shares of Common Stock. Also assumes the
payment of approximately $300,000 in transaction costs which were
capitalized as part of the cost of the acquisition. For pro forma
presentation, it was assumed that there would be no adjustment to the
purchase price for changes in the price of Common Stock.
The following assumptions and pro forma adjustments have been made to the
historical statements of operations of the Company.
(c) To reclassify $656,000 for the three months ended March 31, 1997
and approximately $2.6 million for the year ended December 31, 1996 of Grey
Wolf's general and administrative expenses to operating costs to conform to
the Company's presentation of expenses.
(d) To reflect the additional depreciation expense for the three
months ended March 31, 1997 for the assets acquired in the Flournoy
Acquisition ($221,000) and the Grey Wolf Acquisition (approximately $2.2
million) and the additional depreciation expense for the year ended
December 31, 1996 associated with the assets acquired in the Mesa
Acquisition ($648,000), the Diamond M Acquisition (approximately $2.7
million), the Flournoy Acquisition (approximately $2.7 million) and the
Grey Wolf Acquisition (approximately $9.4 million). Pro forma depreciation
was calculated on a straight line basis over the estimated useful lives of
the assets.
(e) To reflect, for the three months ended March 31, 1997, the
elimination of $67,000 of general and administrative expenses of Flournoy
Drilling Company ("Flournoy") for the cost of the founder and president of
Flournoy and one other employee who did not join the Company and the
reclassification of
22
<PAGE> 24
$656,000 of general and administrative expenses of Grey Wolf to drilling
operations costs (see note (c) above) and the elimination of general and
administrative expense for the cost of the president and other employees of
Grey Wolf who will not be joining DI ($57,000) and to reflect, for the year
ended December 31, 1996, (i) the elimination of $217,000 of general and
administrative expenses of Diamond M Onshore, Inc. ("Diamond M") allocated
by its parent, less the additional general and administrative expenses
estimated by the Company for an additional employee; (ii) the elimination
of $800,000 of general and administrative expenses of Flournoy for the cost
of the founder and president of Flournoy and one other employee who did not
join the Company; and (iii) the reclassification of approximately $2.6
million of general and administrative expenses of Grey Wolf to drilling
operations costs (see note (c) above) and the elimination of general and
administrative expenses for the cost of the president and other employees
of Grey Wolf who will not be joining DI ($226,000).
(f) To reflect, for the three months ended March 31, 1997, the
additional interest expense for the Notes to be issued in the Offering and
the reduction of interest expense associated with the retirement of the
majority of the Company's long term debt and to reflect, for the year ended
December 31, 1996, (i) the elimination of $87,000 interest expense on the
debt that was repaid by the Company at the closing of the Flournoy
Acquisition, (ii) the additional interest expense for the Notes to be
issued in the Offering and (iii) the reduction of interest expense
associated with the retirement of the majority of the Company's outstanding
long term debt. The effect of a 0.25% change in the annual interest rate of
the Notes would change pro forma interest expense by $78,125 for the three
months ended March 31, 1997, and $312,500 for the year ended December 31,
1996.
(g) To eliminate the income tax expense of Grey Wolf in order to
conform to the Company's income tax position.
(h) To reflect the sale of the operational assets of the Company's
Western Division on the revenues and expenses of the Company.
(i) To adjust operating expense for the estimated cost to store the
rigs acquired in the RTO/LRAC Acquisition.
(j) To provide for the liquidation of the Series B preferred stock
subscription and related dividend requirement in connection with the
RTO/LRAC and Somerset Acquisitions. See notes 5 and 7 of the Company's
consolidated financial statements included elsewhere herein.
23
<PAGE> 25
SELECTED FINANCIAL DATA
The following selected financial data for the years ended and as of
December 31, 1996 and 1995 and for the nine-months ended December 31, 1994 have
been derived from the audited consolidated financial statements of the Company
included elsewhere herein. This data should be read in conjunction with such
consolidated financial statements and the notes thereto. The selected financial
data for the three-month periods ended March 31, 1997 and 1996, as of March 31,
1997 and for the twelve-month period ended December 31, 1994 have been derived
from the unaudited consolidated financial statements of the Company, which
include all adjustments, consisting of normal recurring adjustments, that the
Company considers necessary for a fair presentation of its financial position
and results of operations for these periods. Operating results for the
three-month period ended March 31, 1997 are not necessarily indicative of the
results that may be expected for the entire year. The selected financial data as
of December 31, 1994, for the years ended and as of March 31, 1994 and 1993 have
been derived from audited consolidated financial statements of the Company which
are not included herein. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR ENDED NINE MONTHS YEAR ENDED
MARCH 31, DECEMBER 31, ENDED MARCH 31,
------------------ --------------------------------- DECEMBER 31, -----------------
1997 1996 1996 1995 1994 1994(1) 1994(1) 1993
-------- ------- -------- -------- ----------- ------------ ------- -------
(UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS, RATIOS AND DRILLING RIG ACTIVITY DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues........................ $ 35,975 $20,102 $ 81,767 $ 94,709 $65,393 $50,987 $67,855 $62,242
Drilling operations costs....... 28,792 18,936 80,388 93,825 62,929 48,988 62,574 57,583
Depreciation and amortization... 2,207 1,097 4,689 4,832 3,247 2,377 3,523 3,448
General and administrative...... 1,654 720 4,274 3,555 3,007 2,074 2,910 4,498
Provision for asset
impairment(2)................. -- -- -- 5,290 -- -- -- --
Non-recurring charges(3)........ -- 602 6,131 -- -- -- -- --
-------- ------- -------- -------- ------- ------- ------- -------
Operating income (loss)......... 3,332 (1,253) (13,715) (12,793) (3,790) (2,452) (1,152) (3,287)
Interest expense................ 672 262 1,220 1,472 404 332 257 --
Other income (expense), net..... 326 24 4,058 1,590 637 524 25 (100)
-------- ------- -------- -------- ------- ------- ------- -------
Income (loss) from continuing
operations.................... 2,976 (1,491) (10,877) (12,675) (3,557) (2,260) (1,384) (3,387)
Income (loss) from discontinued
operations(4)................. -- -- -- (772) 55 51 (1,274) 60
-------- ------- -------- -------- ------- ------- ------- -------
Income (loss) before income
taxes......................... 2,976 (1,491) (10,877) (13,447) (3,502) (2,209) (2,658) (3,327)
Income taxes.................... 662 -- 845 -- -- -- -- 168
-------- ------- -------- -------- ------- ------- ------- -------
Net income (loss)............... 2,314 (1,491) (11,722) (13,447) (3,502) (2,209) (2,658) (3,495)
Series B preferred stock
subscription dividend......... -- -- 402 -- -- -- -- --
-------- ------- -------- -------- ------- ------- ------- -------
Net income (loss) applicable to
common stock.................. $ 2,314 $(1,491) $(12,124) $(13,447) $(3,502) $(2,209) $(2,658) $(3,495)
======== ======= ======== ======== ======= ======= ======= =======
Income (loss) per share --
continuing operations......... $ .02 $ (.04) $ (.18) $ (.33) $ (.09) $ (.06) $ (.04) $ (.09)
Loss per share -- discontinued
operations(4)................. -- -- -- (.02) -- -- (.03) --
-------- ------- -------- -------- ------- ------- ------- -------
Net income (loss) per share..... $ .02 $ (.04) $ (.18) $ (.35) $ (.09) $ (.06) $ (.07) $ (.09)
======== ======= ======== ======== ======= ======= ======= =======
Weighted average shares
outstanding................... 133,334 38,669 67,495 38,669 38,607 38,641 38,416 38,416
OTHER DATA (UNAUDITED):
EBITDA(5)....................... $ 5,855 $ 470 $1,163(6) $ (1,853) $ 149 $ 500 $ 1,122 $ 121
Capital expenditures............ 6,447 921 71,219 5,657 9,737 14,350 2,849 2,479
Ratio of EBITDA to interest
expense....................... 8.7x 1.8x 1.0x -- 0.4x 1.5x 4.4x --
Ratio of earnings to fixed
charges(7).................... 5.2x -- -- -- -- -- -- --
DRILLING RIG ACTIVITY DATA
(UNAUDITED)(8):
Average utilization rate of
drilling rigs available for
service....................... 76% 68% 63% 66% 51% 58% 51% 48%
Average revenues per day(9)..... $ 8,134 $ 7,501 $ 7,610 $ 7,739 $ 8,520 $ 9,609 $ 9,102 $ 7,746
Drilling rigs available for
service -- end of period...... 70 44 52 58 57 57 57 46
Inventoried drilling rigs -- end
of period..................... 23 22 25 22 13 13 13 14
</TABLE>
24
<PAGE> 26
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
MARCH 31, ------------------------------ ------------------
1997 1996 1995 1994(1) 1994(1) 1993
------------- -------- ------- ------- ------- -------
(UNAUDITED) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA(10):
Working capital................................ $ 9,074 $ 6,195 $ 7,503 $12,462 $ 9,053 $ 7,507
Property and equipment, net.................... 134,007 88,476 25,910 30,786 19,797 21,199
Total assets................................... 169,428 117,819 57,783 62,860 46,524 48,074
Long-term debt net of current maturities....... 32,071 26,846 11,146 10,224 198 223
Series A preferred stock -- mandatory
redeemable................................... 726 764 900 -- -- --
Shareholders' equity........................... 98,042 64,646 19,694 29,141 31,150 33,808
</TABLE>
- ---------------
(1) During 1994, the Company changed its fiscal year end from March 31 to
December 31.
(2) Represents impairment to certain drilling rigs and equipment caused by
market indications that the carrying amounts were not recoverable. See note
1 to the Company's consolidated financial statements included elsewhere in
this Prospectus.
(3) For the three months ended March 31, 1996, represents employment severance
costs for the Company's former President and Chief Executive Officer. For
the year ended December 31, 1996, primarily represents such employment
severance costs and costs to exit the Argentine and Mexican markets. See
note 11 to the Company's consolidated financial statements included
elsewhere in this Prospectus.
(4) To account for the discontinued operations of DI Energy, Inc. effective
April 1, 1995.
(5) EBITDA (earnings before interest, taxes, depreciation and amortization,
asset impairment and non-recurring charges) is presented here to provide
additional information about the Company's operations. EBITDA should not be
considered as an alternative to net income, as determined in accordance
with GAAP, as an indicator of the Company's operating performance or as an
alternative to cash flows (as determined in accordance with GAAP) as a
better measure of liquidity.
(6) Includes $8.4 million of operating losses related to the Company's
operations in Argentina and Mexico which have since been discontinued.
(7) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (earnings before income taxes plus
fixed charges less capitalized interest) by fixed charges (interest expense
plus capitalized interest and the portion of operating lease rental expense
that represents the interest factor). There were insufficient earnings to
cover fixed charges in each period presented as follows: three months ended
March 31, 1996 -- $1,491; year ended December 1996, 1995 and 1994 --
$16,759, $12,675 and $3,557, respectively; nine months ended December 31,
1994 -- $2,260; and year ended March 31, 1994 and 1993 -- $1,384 and
$3,387, respectively.
(8) Excludes the Company's workover rigs.
(9) Represents total contract drilling revenues divided by the total number of
days the Company's drilling rig fleet operated during the period.
(10) Except for shareholders' equity, these items have been restated to account
for the discontinued operations of DI Energy, Inc. effective April 1, 1995.
25
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company's operations have been and will continue to be significantly
affected by the new management team installed in 1996 and the Transactions which
have transformed the Company into the second largest domestic land drilling
contractor. The historical statements of operations for the years ended December
31, 1996 and 1995 and the twelve months ended December 31, 1994 presented herein
do not include the operations of Grey Wolf, Flournoy and Diamond M and reflect
the operations of Mesa Drilling, Inc. ("Mesa") for only three months. The
statement of operations for the three months ended March 31, 1997 does not
include the operations of Grey Wolf and reflects the operations of Flournoy for
only two months. The rigs acquired in RTO/LRAC Acquisition did not have a
material effect on the Company's results for the periods presented because the
rigs have been idle since acquired in August 1996, except for one rig that was
refurbished and placed in service in October 1996. In addition, the Company
exited unprofitable markets in Mexico and Argentina, the results of which are
included in the historical statement of operations for the periods presented.
The Company believes that, due to the Transactions and exiting certain foreign
markets, the historical statements of operations presented herein are not
indicative of the Company's future potential, particularly in light of the
recent increased demand and contract rates for land drilling rigs in its core
domestic markets.
FINANCIAL CONDITION AND LIQUIDITY
Since August 1996, the Company has completed the Flournoy Acquisition, the
Diamond M Acquisition, the Mesa Acquisition and the RTO/LRAC and Somerset
Acquisitions. The Diamond M Acquisition was financed primarily by $24.0 million
of borrowings under the Bank Credit Facility. Substantially all of the
consideration paid by the Company in the other acquisitions was in the form of
96.7 million shares of Common Stock, valued by the Company at $87.8 million, and
warrants to purchase approximately 3.4 million shares of Common Stock, of which
approximately 2.9 million had expired without being exercised as of April 30,
1997. As a result of such acquisitions, property and equipment increased by
$100.1 million. In addition, in December 1996 the Company issued an aggregate of
approximately 1.8 million shares of Common Stock in a private placement for $4.1
million in cash.
The following table summarizes the Company's financial position as of March
31, 1997 and as of December 31, 1996 and 1995 (in thousands).
<TABLE>
<CAPTION>
MARCH 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
-------------- ----------------- -----------------
<S> <C> <C> <C>
Working capital.......................... $ 9,074 $ 6,195 $ 7,503
Property and equipment, net.............. 134,007 88,476 25,910
Other noncurrent assets.................. 1,044 1,132 277
-------- ------- -------
Total.......................... $144,125 $95,803 $33,690
======== ======= =======
Long-term debt net of current
maturities............................. $ 32,071 $26,846 $11,146
Other long-term liabilities.............. 14,012 4,311 2,850
Shareholders' equity..................... 98,042 64,646 19,694
-------- ------- -------
Total.......................... $144,125 $95,803 $33,690
======== ======= =======
</TABLE>
The most significant changes in the Company's financial position from
December 31, 1995 to March 31, 1997 are the increases in property and equipment,
net of $108.1 million. During this same period, long-term debt net of current
maturities increased by $20.9 million and shareholders' equity increased by
$78.3 million. These changes are a direct result of the transactions described
above.
The Company's cash and cash equivalents increased by $4.3 million for the
year ended December 31, 1996 from $1.9 million as of December 31, 1995 to $6.2
million as of December 31, 1996. This increase was
26
<PAGE> 28
primarily the result of $39.4 million provided by financing activities offset by
$1.4 million used by operating activities and $33.5 million used in investing
activities.
Operating Activities
During the year ended December 31, 1996 the Company used $1.4 million to
fund operating activities. The Company used $7.3 million in cash from
operations, however, changes in working capital items provided $5.9 million.
Operating cash losses of $8.4 million were generated from the Company's
Argentine and Mexican divisions. Cash provided from working capital items
primarily included (i) collections of accounts receivable of $3.3 million, (ii)
monetization of inventory and assets held for sale totalling $3.1 million, (iii)
the receipt of customer advances at the end of 1996 of $2.4 million and (iv)
payments of $1.9 million for workers' compensation and $1.1 million of other
current liabilities.
During the first quarter of 1997, the Company used $1.9 million to fund
operating activities. While the Company generated cash from operations of $4.9
million, working capital requirements increased by $6.7 million due to recent
acquisitions. In these acquisitions, the Company purchased drilling rigs and
certain other related equipment which required additional working capital to
operate.
Investing Activities
During 1996, the Company invested $33.5 million in fixed assets net of
asset sales. The major components of these additions were the Diamond M
Acquisition for $26.0 million, $2.4 million for rig refurbishments and $5.1
million for other asset additions. Non-cash transactions accounted for an
additional $32.5 million in property and equipment additions. The Company
completed the RTO/LRAC Acquisition in exchange for approximately 39.4 million
shares of Common Stock valued at $25.0 million. In addition, the Company
completed the Mesa Acquisition in exchange for approximately 5.5 million shares
of Common Stock valued at $7.5 million.
During the quarter ended March 31, 1997, the Company invested $7.2 million
in fixed assets, net of asset sales. Rig refurbishments consisted of $3.3
million and $3.9 million was invested in drill pipe and other drilling related
equipment. In addition, the acquisition of Flournoy resulted in a $40.5 million
non-cash addition to property and equipment.
Financing Activities
During 1996, the Company raised $39.4 million from financing activities.
The Company borrowed $31.5 million during the year, including $24.0 million
borrowed under the Bank Credit Facility for the Diamond M Acquisition. The
Company also issued approximately 39.4 million shares of Common Stock for $25.0
million in cash in the Somerset Acquisition and also completed a private
placement of approximately 1.8 million shares of Common Stock for $4.1 million
in cash. The Company made repayments of debt totaling $16.5 million during the
year.
During the first quarter of 1997, the Company obtained $6.6 million from
financing activities, consisting principally of borrowings under the Bank Credit
Facility. See "Description of Bank Credit Facility." These borrowings were used
to fund the working capital requirements and capital expenditures discussed
above.
Future Activities
In March 1997, the Company entered into an agreement to acquire Grey Wolf
for approximately $103.6 million with up to $61.6 million in cash and
approximately 14.0 million shares of Common Stock. Up to $61.6 million of the
net proceeds of the Offering will be used to fund the cash portion of the Grey
Wolf Acquisition. The number of shares of Common Stock to be issued in the Grey
Wolf Acquisition is subject to adjustment if the average closing price of the
Common Stock in the ten trading days immediately preceding the third trading day
before closing is greater than $4.00 or less than $3.00 per share. Additionally,
the agreement calls for the decrease of cash consideration and a corresponding
increase in the number of shares issued so that at least 45% of the value of the
consideration consists of Common Stock. If the Grey Wolf
27
<PAGE> 29
Acquisition were to close on May 1, 1997, the aggregate consideration would
consist of approximately $57.0 million in cash and 18.7 million shares of Common
Stock. An escrow will be established for certain post-closing contingencies with
$5.0 million of the cash consideration. See "Business -- Recent and Pending
Transactions" and "-- Legal Proceedings."
In addition to the capital requirements necessary to fund the Grey Wolf
Acquisition, the Company anticipates substantial additional funding requirements
in connection with its rig refurbishment program. During the last quarter of
1996 and the first quarter of 1997, the Company commenced and completed the
refurbishment of four rigs at an aggregate cost of $3.2 million. In addition, as
of April 30, 1996, the Company is refurbishing six additional rigs. The cost of
refurbishing these rigs is estimated to be $8.6 million, of which $188,000 had
been expended as of March 31, 1997. The Company also anticipates that during the
remainder of 1997, it may commence the refurbishment of up to an additional ten
rigs depending upon a variety of factors, including market conditions,
management's assessment of existing and anticipated demand and day rates for
land drilling rigs in the Company's domestic and Venezuelan markets and the
Company's success in bidding for drilling contracts. The estimated costs of
refurbishment could vary substantially, depending upon the type of rig
refurbished and its intended market following refurbishment. The Company
estimates that rigs destined for its core domestic markets will cost an average
of approximately $1.5 million to refurbish while 2,000 to 3,000 horsepower rigs
to be deployed to Venezuela are estimated to cost an average of approximately
$12.0 million to refurbish, in each case including the cost of a new drill
string.
The Company believes that the balance of the proceeds from the Offering,
cash flow from operations and, to the extent required, borrowings under the Bank
Credit Facility will be sufficient to fund the Company's 1997, refurbishment
program and to meet its other anticipated capital requirements for 1997. On
April 30, 1997 the Company amended and restated its Bank Credit Facility
increasing the available borrowing capacity from $35.0 million to $50.0 million.
Upon consummation of the Offering and the application of the net proceeds
therefrom, as described under "Use of Proceeds," the Company will not have any
amounts outstanding under the Bank Credit Facility, and management expects that
the Company will have cash or cash equivalents of $19.0 to $21.0 million. See
"Description of Bank Credit Facility."
The Company continues to actively review possible acquisition
opportunities. While the Company has no definitive agreements to acquire
additional equipment, other than the Grey Wolf Acquisition, suitable
opportunities may arise in the future. The timing or success of any acquisition
effort and the size of the associated potential capital commitments cannot be
predicted at this time. The ability of the Company to consummate any such
transaction will be dependent in large part by its ability to fund such
transaction. There can be no assurance that adequate funding will be available
on terms satisfactory to the Company.
28
<PAGE> 30
RESULTS OF OPERATIONS
The following tables and related discussions highlight rig days worked,
revenues and operating expenses for the Company's domestic and foreign
operations for the three months ended March 31, 1997 and 1996 (unaudited), the
years ended December 31, 1996 and 1995 and the twelve months ended December 31,
1994 (unaudited).
Comparison of Three Months Ended March 31, 1997 and 1996
<TABLE>
<CAPTION>
THREE MONTHS ENDED THREE MONTHS ENDED
MARCH 31, 1997 MARCH 31, 1996
--------------------------------- ---------------------------------
DOMESTIC FOREIGN DOMESTIC FOREIGN
OPERATIONS OPERATIONS TOTAL OPERATIONS OPERATIONS TOTAL
---------- ---------- ------- ---------- ---------- -------
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE REVENUES PER DAY)
<S> <C> <C> <C> <C> <C> <C>
Rig days worked....................... 3,973 450 4,423 1,349 1,331 2,680
Average revenues per day.............. $ 8,205 $7,500 $ 8,134 $ 7,731 $7,267 $ 7,501
Drilling revenues..................... $32,600 $3,375 $35,975 $10,429 $9,673 $20,102
Operating expenses(1)................. 25,817 2,975 28,792 9,770 9,166 18,936
------- ------ ------- ------- ------ -------
Gross profit (loss)................... $ 6,783 $ 400 $ 7,183 $ 659 $ 507 $ 1,166
======= ====== ======= ======= ====== =======
</TABLE>
- ---------------
(1) Operating expenses exclude depreciation and amortization and general and
administrative expenses.
Revenues increased approximately $15.9 million, or 79%, to $36.0 million
for the three months ended March 31, 1997, from $20.1 million for the three
months ended March 31, 1996. The increase is due to an increase in revenue from
domestic operations of $22.2 million partially offset by a decrease in revenue
from foreign operations of $6.3 million. Revenues from domestic operations
increased due to an increase in rig days worked of 2,624, and an increase in the
average revenue per day of $474. The increase in domestic days worked is a
result of an increase in the number of rigs owed and available for service to 59
at March 31, 1997, compared to 26 at March 31, 1996. The increase in rigs
available for service is principally the result of the acquisitions completed in
1996 and the first quarter of 1997 in which the Company added 26 working rigs.
Rig days worked in domestic operations consisted of 2,254 days worked in the
Company's South Texas Division, 1,152 days worked in the Company's Ark-La-Tex
Division, and 567 days worked in all other divisions of the Company. Revenues
from foreign operations decreased due to a decrease in rig days worked of 881
partially offset by an increase in average revenue per day of $233. The decrease
in days worked is primarily a result of the Company withdrawing from Mexico and
Argentina during the fourth quarter of 1996. Increases in domestic and foreign
revenues per day are a result of the overall increase in demand for land
drilling rigs.
Drilling operating expenses increased by approximately $9.9 million, or
52%, to $28.8 million for the three months ended March 31, 1997, as compared to
$18.9 million for the three months ended March 31, 1996. The increase is due to
a $16.0 million increase in drilling operating expenses from domestic operations
partially offset by a decrease of $6.1 million in drilling operating expenses
from foreign operations. The increase in domestic drilling operating expenses is
a direct result of the increase in the number of rigs owned and available for
service and the corresponding 2,624 increase in the days worked. The decrease in
drilling operating expenses from foreign operations is due to fewer rigs
operating as a result of the Company's withdrawal from Mexico and Argentina as
discussed above.
Depreciation and amortization expense increased by $1.1 million, or 101%,
to $2.2 million for the three months ended March 31, 1997, compared to $1.1
million the three months ended March 31, 1996. The increase is primarily due to
additional depreciation associated with the acquisition in late 1996 of 13
additional operating rigs and the acquisition of 13 operating rigs in January
1997.
General and administrative expense increased by $1.0 million, or 130%, to
$1.7 million for the three months ended March 31, 1997, from $720,000 for the
same period of 1996 due primarily to (i) increased payroll costs associated with
new management and increased corporate staff, (ii) increased legal fees due to
the Company's expansion activities, and (iii) increased insurance expenses due
to an increase in the number of rigs as well as an overall increase in employee
related insurance coverage.
29
<PAGE> 31
During the first quarter of 1996, the Company incurred $602,000 in
non-recurring charges relating to the contractual severance to be paid over a
two-year period to the Company's former president and chief executive officer.
Interest expense increased by $410,000, or 156%, to $672,000 for the three
months ended March 31, 1997, compared to $262,000 for the three months ended
March 31, 1996. The increase is due to an increase in the average outstanding
debt balance of $18.6 million to $30.8 million for the three months ended March
31, 1997 from $12.2 million for the three months ended March 31, 1996.
For the three months ended March 31, 1997, the Company provided income tax
expense of $662,000. This expense is the result of the Company's profitable
operations and the resulting taxable income. The Company had no taxable income
for the first quarter of 1996.
Comparison of Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, 1996 DECEMBER 31, 1995
---------------------------------- ----------------------------------
DOMESTIC FOREIGN DOMESTIC FOREIGN
OPERATIONS OPERATIONS TOTAL OPERATIONS OPERATIONS TOTAL
---------- ---------- -------- ---------- ---------- --------
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE REVENUES PER DAY)
<S> <C> <C> <C> <C> <C> <C>
Rig days worked..................... 7,050 3,694 10,744 6,289 5,405 11,694
Average revenues per day............ $ 7,446 $ 7,924 $ 7,610 $ 7,123 $ 8,455 $ 7,739
Drilling revenues................... $ 52,495 $ 29,272 $ 81,767 $ 44,797 $ 45,698 $ 90,495
Export sales........................ -- -- -- -- 4,214 4,214
Operating expenses(1)............... 49,431 30,957 80,388 40,867 48,277 89,144
Export sales expenses............... -- -- -- -- 4,681 4,681
-------- -------- -------- -------- -------- --------
Gross profit (loss)................. $ 3,064 $ (1,685) $ 1,379 $ 3,930 $ (3,046) $ 884
======== ======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) Operating expenses exclude for depreciation and amortization and general and
administrative expenses.
Revenues decreased approximately $12.9 million, or 13.6%, to $81.8 million
for the year ended December 31, 1996 from $94.7 million for the year ended
December 31, 1995. This decrease was primarily due to a decrease in revenues
from foreign operations of $20.6 million where rig utilization decreased by
1,711 days. Revenues generated in the Mexican and Argentine markets decreased by
$17.3 million to $11.3 million for the year ended December 31, 1996, compared to
$28.6 million for the year ended December 31, 1995, due to a decline in average
revenues per day, lower rig utilization and the Company's withdrawal from these
markets. Revenues generated in Venezuela increased slightly to $18.0 million for
the year ended December 31, 1996 from $17.1 million for the year ended December
31, 1995. The increase was due to increases in day rates received because the
number of rig days worked actually decreased by 360 days due primarily to lower
rig utilization rates. The remainder of the decrease in revenues from foreign
operations was due to $4.2 million in non-recurring export sales during the year
ended December 31, 1995. The decrease in revenues from foreign operations was
partially offset by a $7.7 million increase in revenues from domestic operations
to $52.5 million for the year ended December 31, 1996, as compared to $44.8
million for the year ended December 31, 1995. Domestic rig utilization improved
by 7.0% in 1996, and average revenues per day increased by 5.0%, due to an
overall improvement in the domestic contract drilling market.
Drilling operations costs decreased by $13.4 million, or 14.3%, to $80.4
million for the year ended December 31, 1996, from $93.8 million for the year
ended December 31, 1995. The decrease was due to a $22.0 million decrease in
foreign drilling expenses, which was partially offset by a $8.5 million increase
in drilling expenses from domestic operations. Drilling expenses associated with
the Company's Mexican and Argentine operations decreased by $16.0 million to
$15.3 million for the year ended December 31, 1996 from $31.3 million for the
year ended December 31, 1995. This decrease was due to the lower utilization in,
and the Company's ultimate withdrawal from, those markets. Drilling operating
expenses included $1.0 million in mobilization costs to transport the Company's
drilling rigs from Mexico to the United States. Drilling expenses in Venezuela
decreased by $1.3 million to $15.7 million for the year ended December 31, 1996
from
30
<PAGE> 32
$17.0 million for the year ended December 31, 1995 primarily because of lower
rig utilization in 1996. Also contributing to the decrease in operating expenses
from foreign operations was $4.7 million in costs related to non-recurring
export sales for the year ended December 31, 1995. Drilling expenses from
domestic operations increased $8.5 million to $49.4 million for the year ended
December 31, 1996, from $40.9 million for the year ended December 31, 1995. This
increase was primarily due to increased utilization and, to a lesser extent,
increased direct labor costs.
Depreciation and amortization expenses decreased by $143,000, or 3%, to
$4.7 million for the year ended December 31, 1996 from $4.8 million for the
twelve months ended December 31, 1995. The decrease in depreciation expense was
primarily attributable to the decrease in the depreciable asset base resulting
from the $5.3 million impairment provision recorded in the fourth quarter of
1995. While the RTO/LRAC Acquisition which occurred in August 1996 increased the
Company's asset base, no depreciation expense was recorded until the acquired
rigs are placed in service. Only one of these rigs was placed in service in late
1996.
During the year ended December 31, 1996, the Company recorded non-recurring
charges of $6.1 million which included $1.1 million in employment severance
costs, $4.6 million in costs to exit the Argentine and Mexican markets and
approximately $400,000 of other non-recurring charges. The employment severance
costs includes $602,000 in contractual severance pay to be paid over a two-year
period to the Company's former President and Chief Executive Officer and the
transfer to him of certain drilling equipment with a net book value of $535,000
in settlement of a dispute over options to purchase Common Stock. As a result of
the Company's desire to redeploy assets to more productive markets, the Company
decided in late 1996 to withdraw from both the Argentine and Mexican markets and
has recorded estimated exit costs of $1.3 million for Mexico, which primarily
consist of the forfeiture of a performance bond and other costs to be incurred
to close the office, and exit costs of $800,000 for Argentina, which primarily
consist of costs expected to be incurred during the period necessary to exit the
market and close the office. In addition, in 1996 the Company agreed to sell
three of the six drilling rigs and certain other assets located in Argentina for
$1.5 million. As a result, the Company recorded a write down of rig equipment
and other assets of $2.5 million. The remaining Argentine drilling rigs are
expected to be mobilized out of Argentina to the United States or Venezuela
where they are expected to be refurbished and returned to service. Mobilization
costs will be expensed as incurred in 1997.
General and administrative expenses increased by $719,000 to $4.3 million
for the year ended December 31, 1996, from $3.6 million for the year ended
December 31, 1995, due to increased payroll cost associated with the new
management members and the increased corporate staff, legal fees associated with
unsuccessful litigation to recover amounts the Company believed it was owed and
other professional fees.
Interest expense decreased by $252,000 for the year ended December 31,
1996, primarily as a result of lower average outstanding debt levels during 1996
in the United States and lower outstanding levels on an overdraft facility in
Argentina. The consolidated average debt balances during 1996 and 1995 were
$13.7 million and $15.0 million, respectively. Interest rates during these
periods remained relatively unchanged.
The Company's net loss in 1995 is reflective of net losses from
discontinued operations of $772,000 incurred in connection with the sale of oil
and gas properties, for which there was no similar transaction in 1996.
The Company recorded a gain on sale of $2.8 million in connection with the
sale of its Western Division in the second quarter of 1996.
The Company's income tax expense in 1996 was solely attributable to
Venezuelan income taxes.
31
<PAGE> 33
Comparison of Year Ended December 31, 1995 to Twelve Months Ended December 31,
1994
<TABLE>
<CAPTION>
YEAR ENDED TWELVE-MONTH PERIOD ENDED
DECEMBER 31, 1995 DECEMBER 31, 1994(1)
----------------------------------- -----------------------------------
DOMESTIC FOREIGN DOMESTIC FOREIGN
OPERATIONS OPERATIONS TOTAL OPERATIONS OPERATIONS TOTAL
---------- ---------- ------- ---------- ---------- -------
(DOLLARS IN THOUSANDS, EXCEPT AVERAGE REVENUES PER DAY)
<S> <C> <C> <C> <C> <C> <C>
Rig days worked............ 6,289 5,405 11,694 6,246 1,209 7,455
Average revenues per day... $ 7,123 $ 8,455 $ 7,739 $ 7,930 $11,566 $ 8,520
Drilling revenues.......... $44,797 $45,698 $90,495 $49,530 $13,983 $63,513
Export sales............... -- 4,214 4,214 -- 1,880 1,880
Operating expenses(2)...... 40,867 48,277 89,144 47,722 13,204 60,926
Export sales expenses...... -- 4,681 4,681 -- 2,147 2,147
------- ------- ------- ------- ------- -------
Gross profit (loss)........ $ 3,930 $(3,046) $ 884 $ 1,808 $ 512 $ 2,320
======= ======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) Effective December 31, 1994, the Company changed its fiscal year end from
March 31 to December 31.
(2) Operating expenses exclude depreciation and amortization and general and
administrative expenses.
Revenues increased $29.3 million, or 44.8%, to $94.7 million for the fiscal
year ended December 31, 1995 from $65.4 million for the twelve months ended
December 31, 1994. This increase was primarily due to the expansion of the
Company's operations in Argentina, Mexico and Venezuela. Revenues from the
Company's foreign operations increased by $34.0 million to $49.9 million for the
year ended December 31, 1995 from $15.9 million for the twelve months ended
December 31, 1994. This increase was due to an increase in rig days worked from
1,209 during 1994 to 5,405 during 1995, partially offset by a decrease in
average revenues per day from $11,566 to $8,455. The increase in rig days worked
was primarily due to the inclusion of Venezuelan operations for a full twelve
months in 1995 as compared to only four months in 1994 as the Venezuelan
operating company was acquired effective September 1, 1994. The addition of four
rigs to the Argentine market and three rigs to the Mexican market also
contributed to the increase in rig days worked. International export revenues
for the year ended December 31, 1995 were $4.2 million and resulted from
materials sold for export to Costa Rica. The increase in revenue from foreign
operations was partially offset by a decrease in revenue from domestic
operations of $4.7 million to $44.8 million for the year ended December 31, 1995
from $49.5 million for the twelve months ended December 31, 1994. This decrease
was due to an $807 decrease in average revenues per day from $7,930 during 1994
to $7,123 during 1995.
Drilling operating expenses and export sales expenses increased $30.7
million, or 48.8%, to $93.8 million for the year ended December 31, 1995, from
$63.1 million for the twelve months ended December 31, 1994. Operating expenses
for the Company's foreign operations increased $37.6 million for the year ended
December 31, 1995, as compared to the 1994 twelve-month period as a result of
the expansion of the Company's Argentine drilling rig fleet and acquisition of
the Venezuelan operating company discussed above, the start-up costs on the four
rigs added to the Company's Argentine operations and higher than expected
repairs, maintenance and rig move costs experienced on all Argentine rigs during
1995. International export operating and other expenses for the year ended
December 31, 1995 were $4.7 million, primarily representing costs of materials
sold for export to Costa Rica. Domestic operating expenses decreased by $6.9
million for the year ended December 31, 1995 as compared to the twelve months
ended December 31, 1994. This decrease in costs from domestic operations of
approximately $500,000 was due to a change in the mix of the Company's rig
utilization from higher cost markets to lower cost markets and a change in the
type of work from a greater percentage of turnkey projects in 1994 to a greater
percentage of daywork in 1995.
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
effective for years beginning after December 15, 1995. As the FASB encouraged
earlier application, the Company adopted the provisions of SFAS No. 121 during
the fourth quarter of 1995. This new accounting standard requires certain assets
to be reviewed for impairment whenever events or circumstances indicate the
carrying amount may not be recoverable. The Company has provided a non-cash
impairment provision of $5.3 million for certain drilling rigs and equipment due
to market
32
<PAGE> 34
indications that the carrying amounts were not fully recoverable. Net realizable
value was determined based upon appraisal, comparable sale data and management
estimates.
Depreciation and amortization expenses increased $1.7 million, or 54.8%, to
$4.8 million for the year ended December 31, 1995, from $3.1 million for the
twelve months ended December 31, 1994. This increase was due to the acquisition
of drilling equipment for foreign operations.
General and administrative expenses increased approximately $500,000 to
$2.9 million for the year ended December 31, 1995 from $2.4 million for the
twelve months ended December 31, 1994 primarily due to the expanded scope of the
Company's foreign operations.
Gain from foreign currency of $888,000 for the year ended December 31, 1995
was the result of currency exchange transactions associated with the Company's
Venezuelan operations.
Interest expense increased $1.0 million to $1.4 million for the year ended
December 31, 1995 from $425,000 for the twelve months ended December 31, 1994.
The increase was due to an increase in borrowings for expansion in foreign
markets. The consolidated average debt balances during the year ended December
31, 1995, and the twelve-months ended December 31, 1994 were $15.0 million and
$7.7 million, respectively. Interest rates during these periods remained
relatively unchanged.
The net loss from discontinued operations was $772,000 for the year ended
December 31, 1995 as compared to net income of $55,000 for the twelve months
ended December 31, 1994. The net loss in 1995 consisted primarily of a non-cash
provision resulting from the disposal of the Company's oil and gas properties.
On June 7, 1995, the Company entered into an agreement to sell its producing oil
and gas properties, effective April 1, 1995, for a cash sales price of $4.2
million, subject to certain adjustments. The sale was closed on August 9, 1995.
Proceeds from this transaction were used to pay off the Company's production
term note which had an outstanding balance of approximately $1.5 million and to
purchase two certificates of deposit totaling approximately $1.4 million as
collateral for two letters of credit that were then outstanding under the
Company's revolving line of credit, with the remainder of the proceeds,
approximately $1.3 million, used for working capital purposes.
INFLATION AND CHANGING PRICES
Contract drilling revenues do not necessarily track the changes in general
inflation as they tend to respond to the level of activity on the part of the
oil and gas industry in combination with the supply of equipment and the number
of competing companies. Capital and operating costs are influenced to a larger
extent by specific price changes in the oil and gas industry and to a lesser
extent by changes in general inflation.
FOREIGN EXCHANGE
The Venezuelan operations are often performed by the Company pursuant to
drilling contracts under which payments to the Company are denominated in United
States Dollars but are payable in Venezuelan currency at a floating exchange
rate. Although the Company's Venezuelan contracts presently allow the Company to
exchange up to 35% of payments made to it in Venezuelan currency for United
States Dollars for a limited period of time following the payment and at the
official Venezuelan exchange rate in effect at the time the payment was made to
the Company (thus offering limited protection against adverse currency
fluctuation), the Company is typically subject to the risk of adverse currency
fluctuations with respect to the balance of such payments. Additionally, a
significant portion of costs and expenses relating to the Company's
international operations are comprised of goods and services procured in the
respective foreign countries and paid for in the respective countries'
currencies. Accordingly, management expects that the Company's subsidiaries
operating in Venezuela will be required to maintain significant cash balances in
Venezuelan currency. The Company has not during the three-year period ended
December 31, 1996 entered into any currency hedges to protect it from foreign
currency losses. Instead, the Company attempts to manage assets in foreign
countries to minimize its exposure to currency fluctuations. Despite these
efforts, however, the Company remains subject to the risk of foreign currency
losses. During the year ended December 31, 1995,
33
<PAGE> 35
however, the Company realized currency gains of $888,000, and, in 1996, $404,000
was recorded as a decrease to shareholders' equity due to a devaluation of the
Venezuelan Bolivar.
FORWARD-LOOKING INFORMATION
The Management's Discussion and Analysis of Financial Condition and Results
of Operations ("MD&A") contains "forward-looking statements" within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act. All
statements other than statements of historical facts included in the MD&A
including, without limitation, statements regarding the Company's operating
strategy, plans, objectives and beliefs of management for future operations, and
the anticipated closing and methods of financing the Grey Wolf Acquisition are
forward-looking statements. Although the Company believes the expectations and
beliefs reflected in such forward-looking statements are reasonable, it can give
no assurance that such expectations will prove to have been correct. See "Risk
Factors" for a discussion of important factors that could cause actual results
to differ materially from the Company's expectations. Also, see "Forward-Looking
Statements."
RECENT ACCOUNTING PRONOUNCEMENTS
In February 1997, the FASB issued SFAS No. 128, "Earnings per Share." SFAS
No. 128 specifies the compilation, presentation and disclosure requirements for
earnings per share for entities with publicly held common stock or potential
common stock. The requirements of this statement will be effective for fiscal
years beginning after December 15, 1997. Management does not believe that the
implementation of SFAS No. 128 will have a material effect on its financial
statements.
34
<PAGE> 36
BUSINESS
GENERAL
The Company is a leading provider of contract land drilling services in the
U.S. with a domestic fleet of 101 rigs, of which 78 are currently marketed. The
Company believes it has the largest or second largest active rig fleet in each
of its three domestic core markets, the Ark-La-Tex, Gulf Coast and South Texas
markets. The Company believes these markets have historically maintained higher
utilization and day rates than other domestic markets. In addition to its
domestic operations, the Company operates in Venezuela where the Company intends
to increase its market presence by refurbishing its current fleet of six rigs
and deploying additional deep drilling rigs as warranted by market conditions.
The Company has an inventory of 23 rigs, of which 20 are diesel electric SCR
rigs, available for refurbishment and redeployment as demand warrants. The
Company estimates that each of these rigs can be activated for service in
domestic markets for at an average cost of approximately $1.5 million, including
the cost of a new drill string.
In 1996, the Company initiated a reorganization of its operations in which
the Company (i) replaced substantially all of its board of directors, (ii) hired
a new management team, substantially all of whom joined the Company after August
1996 and (iii) implemented a new operating strategy. The Company believes the
reorganization has positioned the Company to benefit from recent improvements in
the land drilling industry.
INDUSTRY OVERVIEW
The domestic land drilling industry is undergoing a period of rapid
consolidation. The Company believes that during 1996 and the first quarter of
1997, six land rig companies have completed or have pending at least 17
transactions in which a combined total of approximately 341 rigs have been or
are proposed to be acquired. Recent and pending transactions by the Company
accounted for five of these consolidating acquisitions in which it acquired 65
rigs, of which 44 were actively marketed at the time of acquisition and 21 were
stacked.
Industry sources estimate that there are approximately 1,400 land drilling
rigs available for work in the U.S. as compared to over 5,000 domestic land
drilling rigs in 1982 and approximately 2,000 land drilling rigs as recently as
1990. The Company believes the demand for land drilling rigs in the Company's
core markets has increased principally due to improved oil and gas drilling and
production economics resulting from increased use of 3-D seismic, directional
drilling and enhanced recovery techniques. For the first three months of 1997,
the average active domestic land rig count was 715 as compared to 652 for the
full year 1996, and 595 for the first three months of 1996. The Company's
utilization rates in its core domestic markets averaged over 90% for the first
three months of 1997. The convergence of land drilling rig supply and demand in
its core domestic markets have contributed to improved financial results for the
Company. In the first quarter of 1997, the Company generated $9.4 million of
EBITDA pro forma for the Grey Wolf Acquisition and the Flournoy Acquisition, as
compared to $17.8 million of EBITDA for the full year 1996 on a pro forma basis
for all of the Transactions.
OPERATING STRATEGY
The Company's operating strategy, which was initiated in connection with
its change of management, is to achieve increased cash flow and earnings by:
Acquiring Land Drilling Rigs. The Company intends to continue to be
an active consolidator of the land drilling industry. Since August 1996,
the Company has acquired 65 land drilling rigs in five separate
transactions. Four of these acquisitions were of land drilling companies
with long histories of operating in the Gulf Coast and South Texas markets.
The fifth acquisition provided the Company with an inventory of diesel
electric SCR drilling rigs suited for deployment to the Company's core
domestic markets and Venezuela.
Focusing on Core Markets. The Company intends to focus its operations
in its core markets, the Ark-La-Tex, Gulf Coast, South Texas and Venezuelan
markets. In each of its domestic core markets the Company believes it has
the largest or second largest active rig fleet, and intends to maintain a
leading market position. Management believes these markets have
historically maintained higher demand and
35
<PAGE> 37
utilization rates than other domestic markets and that the Company's
leading presence in these domestic markets enables it to achieve economies
of scale and maintain the operating infrastructure to facilitate the
deployment of inventoried drilling rigs into these markets in a cost
effective manner. In Venezuela, the Company intends to increase its market
presence by refurbishing its current fleet of six rigs and deploying
additional diesel electric rigs as warranted by market conditions.
Refurbishing Rigs. The Company seeks to grow internally by
capitalizing on its rig inventory. The Company has 23 rigs available for
refurbishment and return to marketable status. Twenty of these rigs are
diesel electric SCR drilling rigs which are currently in demand because of
their suitability for directional and deep drilling applications. During
the last quarter of 1996 and the first quarter of 1997, the Company
refurbished and placed in service four drilling rigs. An additional six
rigs are currently in various stages of refurbishment and are expected to
be available for service by the end of the third quarter of 1997. The
Company anticipates that during 1997 it may commence the refurbishment of
up to an additional ten rigs, depending upon a variety of factors,
including management's assessment of existing and anticipated demand and
day rates for land drilling rigs in the Company's domestic and Venezuelan
markets and the Company's success in bidding for drilling contracts. See
"-- Rig Inventory and Rig Refurbishments."
Attracting and Retaining Qualified Personnel. The Company intends to
attract and retain qualified personnel by offering a combination of wage
rates, benefits and training programs that it believes will distinguish it
from its competitors. Whenever possible, management intends to retain
qualified operating personnel employed by drilling businesses acquired by
the Company. In the Diamond M Acquisition and Flournoy Acquisition, the
Company employed substantially all of the seller's rig personnel. The
Company expects to retain substantially all the rig personnel of Grey Wolf.
The Company has maintained a strong equity capitalization to provide it
with the financial flexibility to pursue acquisitions and rig refurbishments as
opportunities arise. In all but one of the completed Transactions, the
acquisition price for the business or assets acquired by the Company consisted
entirely or primarily of Common Stock, resulting in an increase in shareholders'
equity of $87.8 million. Additionally, the Company has increased its equity
capitalization by raising $4.1 million in cash through a private placement of
its Common Stock in December 1996.
RECENT AND PENDING TRANSACTIONS
Grey Wolf Acquisition. On March 7, 1997, the Company entered into a
definitive agreement to merge Grey Wolf into Drillers (the "Merger Agreement").
Grey Wolf is a land drilling contractor operating primarily in South Louisiana
and along the Texas Gulf Coast and its principal operating assets are a fleet of
18 deep drilling land rigs, related equipment and vehicles. All of Grey Wolf's
18 rigs are currently working. The Grey Wolf Acquisition is subject to obtaining
regulatory approval, Grey Wolf shareholders' approval and to certain other
conditions. The proceeds from the Offering will be used, in part, to fund the
cash portion of the Grey Wolf Acquisition. The closing of the Offering is
contingent upon the simultaneous closing of the Grey Wolf Acquisition.
The Merger Agreement provides that Grey Wolf's shareholders will receive up
to $61.6 million in cash and approximately 14.0 million shares of Common Stock.
The Merger Agreement provides, however, that if the "DI Common Stock Price" (as
defined below) is less than $3.00 or more than $4.00, the number of shares of
Common Stock to be issued will be adjusted. If the DI Common Stock Price is less
than $3.00, the number of shares of Common Stock to be issued will be increased
to a number of shares equal to $42.0 million divided by the DI Common Stock
Price. If the DI Common Stock Price is more than $4.00, the number of shares of
Common Stock to be issued will be decreased to the greater of (i) 11,666,667
shares, or (ii) a number of shares equal to $56.0 million divided by the DI
Common Stock Price. Additionally, the Merger Agreement provides for the decrease
of the cash consideration and a corresponding increase in the number of shares
issued so that at least 45% of the value of the consideration consists of Common
Stock. The "DI Common Stock Price" means an amount equal to the average of the
closing sales price of DI Common Stock on the American Stock Exchange
Consolidated Tape as reported by The Wall Street Journal (Southwest Edition)
36
<PAGE> 38
on each of the ten consecutive trading days immediately preceding the third
trading day before the closing of the Grey Wolf Acquisition. Grey Wolf has
agreed that it will not, and has agreed that it will request each of its
officers and directors to agree that they will not, engage in trading in Common
Stock during the 20 consecutive days immediately preceding the closing of the
Grey Wolf Acquisition. A post-closing escrow arrangement will be established for
certain Grey Wolf litigation matters with $5.0 million of the cash consideration
otherwise payable in the Merger to Grey Wolf's shareholders. If the Grey Wolf
Acquisition were to close on May 1, 1997, the aggregate consideration would
consist of $57.0 million in cash and 18.7 million shares of Common Stock.
Flournoy Acquisition. On January 31, 1997, the Company acquired the
operating assets of Flournoy for approximately 12.4 million shares of Common
Stock and cash of approximately $800,000, which was utilized to repay certain
indebtedness of Flournoy. The assets acquired included 13 land drilling rigs, 17
rig hauling trucks, a yard and office facility in Alice, Texas and various other
equipment and drill pipe. Under the purchase method of accounting, the Company
valued the Common Stock issued in the Flournoy Acquisition at $31.1 million. The
Company agreed to issue additional shares of the Common Stock to Flournoy's
shareholders if, and to the extent that, on January 31, 1998 the aggregate
market value of one-half of the shares received by the Flournoy shareholders,
plus the gross proceeds from certain sales of Common Stock received in the
transaction by the Flournoy shareholders prior to January 31, 1998, is, in
total, less than $12.4 million.
Diamond M Acquisition. On December 31, 1996, the Company completed the
Diamond M Acquisition for approximately $26.0 million in cash. The assets
acquired consisted of ten land drilling rigs, all of which are currently
operating in South Texas, 19 rig hauling trucks, a yard and office facility in
Alice, Texas and various other drill pipe and equipment.
Mesa Acquisition. On October 3, 1996, the Company acquired all of the South
Texas operating assets of Mesa in exchange for 5.5 million shares of Common
Stock. The assets acquired consist of six diesel electric SCR rigs, three of
which are currently operating in South Texas. Under the purchase method of
accounting, the Company valued the Common Stock issued in the Mesa Acquisition
transaction at $7.5 million.
RTO/LRAC and Somerset Acquisitions. On August 29, 1996, the Company
completed the RTO/LRAC Acquisition in which approximately 39.4 million shares of
Common Stock were exchanged for 18 inactive, deep drilling land rigs. The rigs
acquired in the RTO/LRAC Acquisition include five 3,000 horsepower and nine
2,000 horsepower land rigs rated for depths of 25,000 feet or greater.
Contemporaneously with the closing of the RTO/LRAC Acquisition, the Company
completed the Somerset Acquisition in which it issued approximately 39.4 million
shares of Common Stock for $25.0 million in cash. Under the purchase method of
accounting, the Company valued the Common Stock issued in the RTO/LRAC
Acquisition and the Somerset Acquisition at $25.0 million and $24.6 million,
respectively. The recipients of the shares issued in the RTO/LRAC and Somerset
Acquisitions were also issued warrants to acquire up to an aggregate of 3.4
million shares of Common Stock (the "Shadow Warrants"), exercisable upon the
occurrence of certain events. As of April 30, 1996, approximately 2.9 million of
the Shadow Warrants have been terminated unexercised. The $25.0 million capital
infusion from the Somerset Acquisition was used for rig fleet refurbishment,
debt repayment and general corporate purposes.
Western Sale. On June 24, 1996, the Company completed the Western Sale for
$3.9 million in cash. The Company's Western Division provided well workover
services in Montana, Utah and North Dakota. The Western Division consisted of 23
carrier-mounted workover rigs and certain real estate owned by the Company in
Glendive, Montana and Roosevelt, Utah. Pursuant to the purchase agreement, the
buyer assumed the obligations of the Company under its real and personal
property leases relating to the division. The Company recognized a gain of
approximately $2.8 million on the sale of this division.
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<PAGE> 39
DOMESTIC OPERATIONS
Giving effect to the Grey Wolf Acquisition, the Company has a total
domestic rig fleet of 101 rigs, 78 of which are being actively marketed and 23
of which are held in inventory for refurbishment. See "-- Rig Inventory and
Refurbishments." The following table summarizes the Company's domestic rig
fleet, by horsepower rating and drive system:
<TABLE>
<CAPTION>
HORSEPOWER RATING DIESEL ELECTRIC MECHANICAL TOTAL
----------------- --------------- ---------- -----
<S> <C> <C> <C>
300- 999................................... 1 37 38
1,000-1,999................................. 19 13 32
2,000-3,000................................. 28 3 31
-- -- ---
Total............................. 48 53 101
== == ===
</TABLE>
- ------------------------------------
The Company's domestic drilling operations are conducted through five
operating divisions in the United States organized by geographic area. The
market area covered by each of the Company's divisions is depicted on the map
located in the inside front cover of this Prospectus.
Ark-La-Tex Division. The Ark-La-Tex Division provides drilling services
primarily in Northeast Texas, Northern Louisiana and Southern Arkansas, and
currently markets a fleet of 15 rigs. The majority of drilling in the Ark-La-Tex
market is directed to three of the five principal target geologic formations in
the region, generally located at depths ranging from 8,900 to 13,000 feet. For
these target formations, 700 to 1,000 horsepower mechanical rigs are typically
utilized in the Ark-La-Tex market. Thirteen of the division's rigs are suited
for drilling to these depths, ten of which are mechanical, two of which are
electrical and one is an SCR rig. The other two principal geologic targets in
the market, the Austin Chalk and Pinnacle Reef formations, are located at
substantially greater depths, typically from 15,500 to 22,000 feet. The Company
has two marketable rigs suitable for these drilling targets. One of these deep
drilling rigs is a 2,000 horsepower diesel electrical rig with a depth rating of
25,000 feet, while the second is a 3,000 horsepower diesel electric SCR rig
rated for 30,000 feet.
During 1996, approximately 42% of the division's revenues were generated
from daywork contracts, 3% from footage contracts and 55% from turnkey
contracts. For the first quarter of 1997, the percentage of its contract
revenues provided by daywork, footage and turnkey contracts was 46%, 5% and 49%,
respectively. The average revenues per day for the division during 1996 and the
first quarter of 1997, were $7,685 and $7,916, respectively, and for the same
periods its average rig utilization rates were 86% and 92%, respectively.
South Texas Division. The South Texas Division markets a fleet of 30 rigs
consisting of 14 trailer mounted rigs with rated depth capacities ranging from
9,000 to 13,000 feet, eight diesel electric SCR rigs with rated depth capacities
from 12,000 to 25,000 feet and eight conventional mechanical rigs with rated
depth capacities ranging from 10,000 to 13,000 feet. The Company believes that
trailer mounted rigs and 1,500 to 2,000 horsepower diesel electric SCR rigs are
in highest demand in this market. Trailer mounted rigs are relatively more
mobile than conventional rigs, thus decreasing the time and expense to the
customer of moving the rig to and from the drillsite. Under ordinary conditions,
the Company's trailer mounted rigs are capable of drilling an average of two
10,000 foot wells per month. The Company believes it operates the largest
trailer mounted rig fleet in this market. The South Texas Division also operates
a fleet of 35 trucks, which are used exclusively to move the Company's rigs.
Most drilling in this market is for natural gas at depths ranging from 10,000 to
15,000 feet.
During 1996, approximately 75% of the division's revenues were generated
from daywork contracts, 14% from footage contracts and 11% from turnkey
contracts. For the first quarter of 1997, the percentage of its contract
revenues provided by daywork, footage and turnkey contracts was 47%, 15% and
38%, respectively. The average revenues per day for the division during 1996 and
the first quarter of 1997, were $5,522 and $7,992, respectively, and for the
same periods its average rig utilization rates were 85% and 98%, respectively.
Gulf Coast Division. Upon completion of the Grey Wolf Acquisition, Grey
Wolf's assets and personnel will establish the Company's Gulf Coast Division.
Grey Wolf's drilling services are provided to operators in
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<PAGE> 40
South Louisiana and along the upper Texas Gulf Coast. Grey Wolf's rig fleet
consists of 18 deep drilling rigs, including ten diesel electric rigs with rated
depth capacities of 18,000 to 25,000 feet, five diesel electric SCR rigs with
rated depth capacities of 14,000 to 25,000 feet and three conventional
mechanical rigs with rated depth capacities of 18,000 feet.
During Grey Wolf's fiscal year ended October 31, 1996, approximately 48% of
its revenues were generated from daywork contracts, 10% from footage contracts
and 42% from turnkey contracts. For its first fiscal quarter ended January 31,
1997, the percentage of its contract revenues provided by daywork, footage and
turnkey contracts was 55%, 1% and 44%, respectively. The average revenues per
day for Grey Wolf during 1996 and the its first fiscal quarter of 1997, were
$9,637 and $10,395, respectively, and for the same periods its average rig
utilization rates were 91% and 98%, respectively.
Eastern Division. The Eastern Division markets a fleet of five rigs,
primarily in Ohio. The Eastern Division principally drills gas wells at depths
of 7,000 feet or less using air drilling techniques. This division typically
contracts to drill packages of several wells.
During 1996, approximately 30% of the division's revenues were generated
from daywork contracts and 70% from footage contracts. For the first quarter of
1997, the percentage of its contract revenues provided by daywork and footage
contracts was 11% and 89%, respectively. The average revenues per day for the
division during 1996 and the first quarter of 1997, were $4,944 and $4,923,
respectively, and for the same periods its average rig utilization rates were
72% and 88%, respectively.
INDRILLERS Division. In 1996, the Company and Dart Energy Corp. ("Dart")
formed INDRILLERS in which the Company has a 65% economic interest and Dart has
a 35% economic interest. Rights to manage the company are shared equally. This
division drills oil and gas wells principally in Michigan at depths of 1,000 to
16,000 feet. Nine of the ten rigs in this division have depth ratings ranging
from 5,500 to 10,500 feet, and one is rated to 17,000 feet.
During 1996, approximately 62% of the division's revenues were generated
from daywork contracts, 22% from footage contracts and 16% from turnkey
contracts. For the first quarter of 1997, the percentage of its contract
revenues provided by daywork, footage and turnkey contracts was 69%, 23% and 8%,
respectively. The average revenues per day for the division during 1996 and the
first quarter of 1997, were $5,936 and $4,923, respectively, and for the same
periods its average rig utilization rates were 31% and 19%, respectively.
FOREIGN OPERATIONS
Venezuela Division. The Company began operating in Venezuela in 1994, and
intends to upgrade the performance capabilities of its rig fleet in Venezuela
and intensify its marketing efforts there in response to increased demand for
land rig drilling services. The Company believes this demand has resulted
principally from changes in Venezuelan government policies and legislation
encouraging private sector participation in oil and gas exploration and
production. In recent years, the Venezuelan national oil company, Petroleos de
Venezuela, S.A. ("PDVSA"), has permitted international oil companies to enter
into operating agreements with one of PDVSA's three main operating subsidiaries
to rehabilitate, reactivate and develop certain of its older fields.
Additionally, the Venezuelan government has enacted legislation enabling
multinational oil companies to conduct exploration and development operations in
Venezuela through production sharing arrangements with PDVSA and its
subsidiaries. Through March 1997, eight large undeveloped properties have been
awarded to multinational oil companies for development through production
sharing arrangements. In November 1996, PDVSA solicited tenders from private
companies for the rehabilitation, reactivation and development of 20 additional
areas. The new operating agreements (referred to by PDVSA as the "Third
Operating Round") are expected to cover 12 areas described by PDVSA as "onshore"
locations covering a combined area of approximately 2,600 square kilometers
(approximately 1,003 square miles). The Company believes that Third Operating
Round operations will require drilling and workover rigs ranging from 4,000 to
18,000 feet in capacity.
Drilling contractors operating in Venezuela generally obtain contracts
through a bidding process open only to drilling contractors previously approved
for inclusion on the "bid list" of the customer and PDVSA.
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<PAGE> 41
Drilling contracts are sometimes awarded on a long-term basis, for periods of up
to 24 months. In the Company's experience, bid specifications for Venezuelan
drilling contracts typically require premium quality, intermediate and deep
drilling rigs with 1,500 to 3,000 horsepower ratings equipped with top drive
mechanisms. The Company believes that 3,000 horsepower rigs are currently the
most in demand, but it anticipates that demand for intermediate capacity 1,500
to 2,000 horsepower rigs may improve in response to the Third Operating Round.
Management has implemented measures to enhance the Company's Venezuelan
operations, and has recently added local management having substantial
experience with competing drilling contractors in Venezuela. The Company has
since been restored to PDVSA's bid list from which it had been previously
removed. The Venezuela Division is currently marketing four land drilling rigs
with rated depths of 10,000 to 15,000 feet and two workover rigs, none of which
is currently under contract. To improve the marketability of its existing
Venezuelan rig fleet, the Company has scheduled all of its Venezuelan rigs for
capital improvements and is actively seeking contracts for the improved rigs
upon completion. The Company has budgeted $2.9 million for these capital
improvements.
To further increase its market presence and deep drilling capabilities in
Venezuela, the Company is evaluating plans to refurbish and to deploy Venezuela
two 3,000 horsepower diesel electric SCR rigs and two additional 800 horsepower,
10,000 foot drilling capacity rigs, each of which will require refurbishment to
operate in the Venezuelan market. Its decision to refurbish and deploy such rigs
in Venezuela will depend upon a variety of factors, including market conditions,
management's assessment of existing and anticipated demand and day rates and the
Company's success in bidding for drilling contracts. The Venezuelan Division
generally provides its drilling services under daywork contracts and workover
services under hourly contracts. Hourly contracts call for the Company to
provide a rig and crew, for which it is paid on an hourly basis. Historically,
the Venezuelan Division has contracted to provide crews to man rigs owned by the
customer, and may do so in the future.
Prior Foreign Operations. Foreign operations contributed approximately 36%,
53% and 21% of the Company's operating revenues for the years ended December 31,
1996 and 1995 and for the nine month period ended December 31, 1994, but
accounted for approximately 71%, 68% and 15%, respectively, of the Company's
total losses from continuing operations for the same three periods. For each of
the same periods, the Company's foreign operations were conducted principally in
Mexico and South America.
Consistent with the Company's decision to redeploy its rigs to more
productive markets, the Company has withdrawn from both the Argentine and
Mexican markets. All four of the Company's drilling rigs previously located in
Mexico have been returned to the United States. Of the four repatriated rigs,
three have been refurbished and placed in service in the Company's Ark-La-Tex or
South Texas Divisions and one is held for sale. In April 1997, the Company sold
three of its six drilling rigs and certain other assets located in Argentina for
$1.5 million. The remaining three rigs are being mobilized to the United States
for refurbishment and redeployment over the second and third quarters of 1997.
Although management has determined to concentrate its foreign operations in
Venezuela, the Company will, from time to time, consider expansion into
additional selected international markets as opportunities arise.
RIG INVENTORY AND REFURBISHMENTS
As of the date of this Prospectus, 23 rigs, or approximately 21% of the
Company's rig fleet, are stacked and held in inventory for possible
refurbishment and deployment as demand may warrant. Management believes that the
demand for land drilling rigs in the Company's Ark-La-Tex, Gulf Coast, South
Texas and Venezuelan markets have improved sufficiently to justify a program to
restore certain of its stacked rigs to marketable condition.
During the last quarter of 1996 and the first quarter of 1997, the Company
commenced and completed the refurbishment of four rigs at an aggregate cost of
approximately $3.2 million. Of these four recently refurbished rigs, one was a
3,000 horsepower diesel electric SCR rig rated for 30,000 feet. The diesel
electric SCR rig was a previously stacked rig acquired in the RTO/LRAC
Acquisition. The other three refurbished rigs were previously marketable rigs
that were returned to the U.S. following the Company's withdrawal from
40
<PAGE> 42
the Mexican market in late 1996. These rigs included three mechanical rigs,
rated at 750, 900 and 1,000 horsepower, respectively with rated drilling
capacities of 9,000, 10,000 and 15,000 feet, respectively. All four recently
refurbished rigs are now assigned to the Company's Ark-La-Tex and South Texas
Divisions.
The Company is currently refurbishing six diesel electric SCR rigs. Four of
these rigs are rated at 2,000 horsepower with rated drilling capacities of
25,000 feet. The fifth rig is rated at 1,500 horsepower with a rated drilling
capacity of 18,000 feet, while the sixth rig is rated at 3,000 horsepower with a
rated drilling capacity of 30,000 feet. The Company presently anticipates that
of the refurbished rigs two will be deployed to each of the Company's
Ark-La-Tex, South Texas and Gulf Coast markets.
The Company anticipates that during 1997 it may commence the refurbishment
of up to an additional ten rigs, depending upon a variety of factors, including
management's assessment of trends in the demand and day rates in the Company's
domestic and foreign markets, the Company's capital resources and other factors
that may be pertinent at the time. The refurbishment cost for rigs to be
deployed in the Company's core domestic markets is estimated to average
approximately $1.5 million each, while refurbishment costs for 2,000 to 3,000
horsepower rigs for the Venezuelan market are estimated to average approximately
$12.0 million, in each case including the cost of the associated drill string.
RIG FLEET
A land drilling rig consists of engines, drawworks, a mast, substructure,
pumps to circulate drilling fluid, blowout preventers, drill string and related
equipment. The actual drilling capacity of a rig may be less than its rated
drilling capacity due to numerous factors, including the length of its drill
string. The intended well depth and the drill site conditions determine the
amount of string and other equipment needed to complete the well. Generally,
land rigs operate domestically with crews of five to six persons and in
Venezuela with crews of ten to 12 persons. The following table further sets
forth certain information regarding the rigs owned and operated by the Company
and Grey Wolf as of April 15, 1997.
<TABLE>
<CAPTION>
MAXIMUM
RATED
YEAR BUILT/ HORSEPOWER DRILLING
RIG NO. REBUILT DRAWWORKS DRIVE SYSTEM(1) RATING DEPTH STATUS(2)
- ------- ----------- --------- --------------- ---------- --------- ---------
(IN FEET)
<C> <S> <C> <C> <C> <C> <C>
Ark-La-Tex Division
1 1957/1980 Brewster N-85 Mechanical 900 15,000 Active
2 1957/1981 Brewster N-85 Mechanical 900 15,000 Active
3 1960/1982 Continental-Emsco A-550 Mechanical 700 13,500 Active
6 1957/1980 Brewster N-85 Mechanical 900 15,000 Active
7 1978 National 55 Mechanical 700 12,500 Active
10 1964/1989 Gardner-Denver 800 Mechanical 1,000 14,000 Active
12 1980 Gardner-Denver 700 Mechanical 800 12,500 Active
13 1981 Brewster N-75B Mechanical 1,000 13,000 Active
15 1965/1989 National 610 Mechanical 750 14,000 Active
19 1981/1997 National 80-B Mechanical 1,000 15,000 Active
39 1980/1989 Gardner-Denver 800 Diesel Electric 1,000 16,000 Active
40 1979 Gardner-Denver 1100E Diesel Electric 1,500 20,000 Active
44 1982 Gardner-Denver 1500E Diesel Electric 2,000 25,000 Active
48 1981/1997 Ideco E-3000 Diesel Electric SCR 3,000 30,000 Active
75 1982/1996 Continental-Emsco D-3E Diesel Electric SCR 1,000 16,000 Active
South Texas Division
31 1980/1994 Cabot 750 Mechanical 750 9,000 Active
33 1981/1992 National 80 UE Diesel Electric SCR 1,000 14,000 Active
34 1981/1992 Superior 700 UE Diesel Electric SCR 700 12,000 Active
37 1981/1992 Continental-Emsco Elec. II Diesel Electric SCR 2,000 25,000 Active
42 1981 Continental-Emsco Elec. II Diesel Electric SCR 2,000 25,000 Active
43 1981 Ideco E-1200 Diesel Electric SCR 1,200 17,000 Active
70 1981/1997 Ideco BIR 800 Mechanical 900 10,000 Active
301 1990 Mid-Continent U-36A Mechanical 900 12,000 Active
302 1964/1988 RMI 750 Mechanical 900 10,500 Active
303 1966/1995 Brewster N-75 Mechanical 1,000 14,000 Active
304 1969/1975 Cabot 750 Mechanical 750 9,500 Active
305 1973/1990 Cabot 1000 Mechanical 1,000 13,000 Active
306 1990/1997 RMI 1000 Diesel Electric SCR 1,000 13,500 Active
307 1993/1995 Ideco E-1200 Mechanical 1,200 17,000 Active
</TABLE>
41
<PAGE> 43
<TABLE>
<CAPTION>
MAXIMUM
RATED
YEAR BUILT/ HORSEPOWER DRILLING
RIG NO. REBUILT DRAWWORKS DRIVE SYSTEM(1) RATING DEPTH STATUS(2)
- ------- ----------- --------- --------------- ---------- --------- ---------
(IN FEET)
<C> <S> <C> <C> <C> <C> <C>
308 1975/1992 Ideco BIR 800 Mechanical 900 10,000 Active
309 1976/1990 Gardner-Denver 500 Mechanical 800 10,000 Active
310 1980/1995 Brewster N-46 Mechanical 850 12,000 Active
311 1981/1996 Ideco BIR 800 Mechanical 900 10,000 Active
312 1982 Gardner-Denver 1100E Diesel Electric SCR 1,500 17,000 Active
314 1996 Cabot 750 Mechanical 750 9,500 Active
840 1981/1994 Oilwell 840E Diesel Electric SCR 1,500 18,000 Active
851 1982/1994 National 80-B Mechanical 1,000 14,000 Active
859 1978/1991 Brewster N-75 Mechanical 1,000 14,000 Active
860 1976/1995 Cabot 750 Mechanical 750 9,500 Active
861 1978/1993 Cabot 900 Mechanical 900 11,000 Active
862 1976 Cabot 900 Mechanical 900 13,000 Active
863 1978/1988 Cabot 1000 Mechanical 1,000 13,000 Active
864 1975/1994 Cabot 1000 Mechanical 1,000 13,000 Active
865 1979/1993 Cabot 1200 Mechanical 1,200 14,000 Active
866 1982/1993 Cabot 1200 Mechanical 1,200 14,000 Active
Gulf Coast Division (Grey Wolf Fleet)(3)
502 1987 Continental-Emsco C-II Diesel Electric 2,000 25,000 Active
503 1991 National 1320 UE Diesel Electric 2,000 25,000 Active
504 1990 National 110 M Mechanical 1,500 18,000 Active
505 1995 National 1320 UE Diesel Electric 2,000 25,000 Active
506 1977 Continental-Emsco C-II Diesel Electric 2,000 25,000 Active
507 1979 Continental-Emsco C-II Diesel Electric 2,000 25,000 Active
508 1981 Continental-Emsco C-II Diesel Electric 2,000 25,000 Active
509 1982 Continental-Emsco C-II Diesel Electric 2,000 25,000 Active
510 1983 Continental-Emsco C-II Diesel Electric 2,000 25,000 Active
510 1984 National 110 M Mechanical 1,500 18,000 Active
512 1990 National 110 UE Diesel Electric SCR 1,500 18,000 Active
514 1990 Oilwell 760 E Diesel Electric SCR 1,000 14,000 Active
515 1990 Oilwell 760 E Diesel Electric SCR 1,000 14,000 Active
516 1990 Oilwell 860 M Mechanical 1,500 18,000 Active
517 1991 Continental-Emsco C-I-II Diesel Electric 1,500 18,000 Active
518 1991 Continental-Emsco C-I-II Diesel Electric 1,500 18,000 Active
519 1995 Oilwell 840 E Diesel Electric SCR 1,500 18,000 Active
520 1997 National 1320 UE Diesel Electric SCR 2,000 25,000 Active
Eastern Division
202 1981 Wilson Mogul 42 Mechanical-Air 450 8,000 Active
203 1980 Wilson Mogul 42 Mechanical-Air 450 8,000 Active
204 1979 Wilson Mogul 42 Mechanical-Air 450 6,500 Active
208 1980 Wilson Mogul 42 Mechanical-Air 450 6,500 Active
215 1980 Wilson Mogul 42 Mechanical-Air 450 6,500 Active
INDRILLERS Division
1 1980 Challenger 320 Mechanical 350 5,500 Idle
2 1979 Ideco H-37 Mechanical 300 7,000 Idle
3 1980 Challenger 320 Mechanical 350 5,500 Idle
4 1980 Challenger 320 Mechanical 350 5,500 Idle
5 1980 Ideco BIR 800 Mechanical 900 10,000 Active
41 1981 Ideco E-1200 Diesel Electric SCR 1,200 17,000 Idle
53 1976 Cabot 550 Mechanical 450 6,500 Active
56 1980 Ideco DIR 700 Mechanical 700 8,500 Idle
57 1977 Ideco BIR 550 Mechanical 422 6,500 Active
58 1977 Ideco DIR 700 Mechanical 700 8,500 Active
Venezuelan Division
407 1980 Cooper LT0 350 Mechanical-WO 350 14,000 Idle
423 1981/1996 Mid-Continent 712-U Mechanical 1,500 15,000 Idle
441 1980 Wilson Mogul 42 Mechanical-WO 350 12,000 Idle
451 1981 Cabot 900 Mechanical 900 10,000 Idle
452 1975/1994 Cabot 900 Mechanical 900 10,000 Idle
453 1982/1994 Ideco H-35 Mechanical 450 10,000 Idle
Rigs held in inventory
38 1981 Oilwell 840E Diesel Electric SCR 1,500 18,000 Inventory
47 1982 Ideco E-1200 Diesel Electric SCR 1,200 17,000 Inventory
49 1982 Ideco E-1200 Diesel Electric SCR 1,200 17,000 Inventory
76 1982 Continental-Emsco D-3-E Diesel Electric SCR 1,000 16,000 Inventory
77 1981 Mid-Continent 914 EC Diesel Electric SCR 1,400 20,000 Inventory
78 1981 Continental-Emsco C-2-E Diesel Electric SCR 2,000 25,000 Inventory
79 1981 National 110 UE Diesel Electric SCR 1,500 18,000 Inventory
80 1981/1982 Oilwell E-2000 Diesel Electric SCR 2,000 25,000 Inventory
81 1981 Oilwell E-2000 Diesel Electric SCR 2,000 25,000 Inventory
82 1981 Oilwell E-2000 Diesel Electric SCR 2,000 25,000 Inventory
</TABLE>
42
<PAGE> 44
<TABLE>
<CAPTION>
MAXIMUM
RATED
YEAR BUILT/ HORSEPOWER DRILLING
RIG NO. REBUILT DRAWWORKS DRIVE SYSTEM(1) RATING DEPTH STATUS(2)
- ------- ----------- --------- --------------- ---------- --------- ---------
(IN FEET)
<C> <S> <C> <C> <C> <C> <C>
83 1981 Oilwell E-2000 Diesel Electric SCR 2,000 25,000 Inventory
84 1982 Oilwell E-2000 Diesel Electric SCR 2,000 25,000 Inventory
85 1981 National 1320 UE Diesel Electric SCR 2,000 25,000 Inventory
86 1981 National 1320 UE Diesel Electric SCR 2,000 25,000 Inventory
87 1979 National 1320 UE Diesel Electric SCR 2,000 25,000 Inventory
88 1981 Continental-Emsco C-3 Diesel Electric SCR 3,000 30,000 Inventory
89 1981 Oilwell E-3000 Diesel Electric SCR 3,000 30,000 Inventory
90 1980/1981 National 1625 DE Diesel Electric SCR 3,000 30,000 Inventory
91 1980/1981 National 1625 DE Diesel Electric SCR 3,000 30,000 Inventory
92 1980/1981 National 1625 DE Diesel Electric SCR 3,000 30,000 Inventory
454 1981 Ideco BIR 800 Mechanical 900 10,000 Inventory
455 1981 Ideco BIR 800 Mechanical 900 10,000 Inventory
473 1981/1994 Cabot 900 Mechanical 900 10,000 Inventory
</TABLE>
- ---------------
(1) "SCR" means silicone controlled rectifier; and "WO" means workover.
(2) The Company considers a rig that is presently working to be an "active" rig.
Rigs that are not working but which are currently being actively marketed
are viewed as "idle." "Inventory" rigs are rigs that are not working, are
not currently being actively marketed and will require additional capital
expenditures to activate them for service.
(3) To become the Company's Gulf Coast Division upon completion of the Grey Wolf
Acquisition.
CONTRACTS
The Company's contracts for drilling oil and gas wells are obtained either
through competitive bidding or as a result of negotiations with customers, with
the rate of bidding dependent on the complexity and risk of operations, on-site
drilling conditions, type of equipment used and the anticipated duration of the
work to be performed. Generally, domestic drilling contracts are for a single
well while foreign drilling contracts are for multiple wells, and in either case
the terms and rates varying depending upon the nature and duration of the work,
the equipment and services supplied and other matters. The contracts typically
obligate the Company to pay certain operating expenses, including wages of
drilling personnel, maintenance expenses, incidental rig supplies, equipment and
local office facilities. Domestic drilling contracts are typically subject to
termination by the customer on short notice, usually upon payment of a fee.
Foreign drilling contracts generally require longer notice periods for
termination and also may require that the customer pay for the mobilization and
demobilization costs.
The Company's oil and gas drilling contracts generally provide for
compensation on either a daywork, turnkey or footage basis. See "-- Domestic
Operations" for the percentage of revenues by contract type for each domestic
division.
Daywork Contracts. Under daywork drilling contracts, the Company provides a
drilling rig with required personnel to the operator, who supervises the
drilling of the well. The Company is paid based on a negotiated fixed rate per
day while the rig is utilized. Daywork drilling contracts generally specify the
type of equipment to be used, the size of the hole and the depth of the well.
Under a daywork drilling contract, the customer bears a large portion of
out-of-pocket costs of drilling and the Company generally bears no part of the
usual capital risks associated with oil and gas exploration (such as time delays
for various reasons, including stuck drill pipe and blowout.)
Turnkey Contracts. Under a turnkey contract, the Company contracts to drill
a well to an agreed-upon depth under specified conditions for a fixed price,
regardless of the time required or the problems encountered in drilling the
well. The Company provides technical expertise and engineering services, as well
as most of the equipment required for the well, and is compensated when the
contract terms have been satisfied. Turnkey contracts afford an opportunity to
earn a higher return than would normally be available on daywork or footage
contracts if the contract can be completed successfully without complications.
43
<PAGE> 45
The risks to the Company on a turnkey contract are substantially greater
than on a well drilled on a daywork basis because the Company assumes most of
the risks associated with drilling operations generally assumed by the operator
in a daywork contract, including risk of blowout, loss of hole, stuck drill
pipe, machinery breakdowns, abnormal drilling conditions and risks associated
with subcontractors' services, supplies, cost escalation and personnel. The
Company employs or contracts for engineering expertise to analyze seismic,
geologic and drilling data to identify and reduce many of the drilling risks
assumed by the Company. Management uses the results of this analysis to evaluate
the risks of a proposed contract and accounts for such risks in its bid
preparation. The Company believes that its operating experience, qualified
drilling personnel, risk management program, internal engineering expertise and
access to proficient third party engineering contractors have allowed it to
reduce the risks inherent in turnkey drilling operations. The Company also
maintains insurance coverage against some but not all drilling hazards.
Footage Contracts. Under footage contracts, the Company is paid a fixed
amount for each foot drilled, regardless of the time required or the problems
encountered in drilling the well. The Company pays more of the out-of-pocket
costs associated with footage contracts compared with daywork contracts. Similar
to a turnkey contract, the risks to the Company on a footage contract are
greater because it assumes most of the risks associated with drilling operations
generally assumed by the operator in a daywork contract, including risk of
blowout, loss of hole, stuck drill pipe, machinery breakdowns, abnormal drilling
conditions and risks associated with subcontractors' services, supplies, cost
escalation and personnel. As with turnkey contracts, the Company manages this
additional risk through the use of engineering expertise and bid the footage
contracts accordingly. The Company also maintains insurance coverage against
certain drilling hazards.
CUSTOMERS AND MARKETING
The Company's contract drilling customers include independent producers,
major oil companies and national petroleum companies. One unaffiliated customer
accounted for 18% of the Company's revenues for the quarter ended March 31,
1997. No customer accounted for more than 10% of DI's consolidated revenues for
three months ended March 31, 1996, the years ended December 31, 1996 and 1995 or
the nine months ended December 31, 1994.
The Company primarily markets its drilling rigs on a regional basis through
employee salesmen. These salesmen utilize personal contacts and industry
periodicals and publications to determine which operators are planning to drill
oil and gas wells in the immediate future. Once the Company has been placed on
the "bid list" for a particular operator, the Company will typically be given
the opportunity to bid on all future wells for that operator on an area basis.
The Company from time to time enters into informal, nonbinding commitments
with its customers to provide drilling rigs for future periods at agreed upon
rates plus fuel and mobilization charges, if applicable, and escalation
provisions. This practice is customary in the land drilling business during
times of tightening rig supply. Although neither the Company nor the customer is
legally required to honor these commitments, the Company strives to satisfy such
commitments in order to maintain good customer relations.
COMPETITION
The land drilling industry has recently experienced a period of
consolidation. All of the Company's markets, however, continue to be highly
competitive among several drilling contractors. Competition is generally based
on price, workforce experience, equipment suitability and availability,
reputation, expertise and financial capability. The Company believes that in
each of its markets, it has a significant presence in terms of equipment and
workforce experience. Several of the Company's competitors have greater
financial and other resources than the Company and may commit more capital and
human resources than the Company to these important factors. If demand for
drilling rigs increases in the future, rig and crew availability may become more
critical competitive factors. Although competition is primarily on a regional
basis, rigs can be moved from one region to another in response to changes in
levels of drilling activity, subject to crew availability and mobilization
expenses.
44
<PAGE> 46
EQUIPMENT AND SUPPLIES
Although equipment and supplies used in the Company's business are
generally available from multiple sources, there is a general shortage of
drilling equipment and supplies, which the Company believes may intensify. The
costs and delivery times of equipment and supplies are substantially greater
than in prior periods and are currently escalating. In response to this trend,
the Company in 1996 formed an alliance with a major drill pipe manufacturer. The
alliance enables the Company to take delivery through 1998 of agreed maximum
quantities of drill pipe in commonly used diameters at fixed prices plus
possible escalations for increases in the manufacturer's cost of raw materials.
As is common in the industry, the drill pipe supply alliance is not a formal
contractual agreement but represents an informal arrangement in which both
parties undertake to satisfy the supply objectives of the alliance. Due in part
to its alliance arrangement, the Company is not currently experiencing any
material shortages of, or material price increases in, drill pipe. The Company
may, however, experience drill pipe shortages and price increases in the future
with respect to quantities in excess of, and varieties of drill pipe not covered
by, its drill pipe alliance. The Company is also attempting to establish
arrangements to assure adequate availability of certain other necessary drilling
equipment and supplies on satisfactory terms, but there can be no assurance that
it will be able to do so.
REGULATION
General. The drilling of oil and gas wells is subject to various federal,
state, local and foreign laws, rules and regulations, including regulations that
control the discharge of materials into the environment or require remediation
of contamination. Many of the Company's activities are conducted in or near
ecologically sensitive areas, such as wetlands, inland waterways, and coastal
environments. Numerous federal and state environmental laws regulate drilling
activities and impose liability for causing pollution in inland, coastal and
offshore waters. State and federal legislation also provide special protections
to animal and marine life that could be affected by the Company's activities. In
general, under various applicable environmental programs, the Company may
potentially be subject to regulatory enforcement action in the form of
injunctions, cease and desist orders, and administrative, civil and criminal
penalties for violations of environmental laws. The Company may also be subject
to liability for natural resource damages and other civil claims arising out of
a pollution event.
Environmental regulation has led to higher drilling costs, a more difficult
and lengthy well permitting process and, in general, has adversely affected many
oil companies' drilling decisions. Prohibitions on drilling in certain
ecologically sensitive areas are likely to remain in effect or even be extended.
Laws and regulations protecting the environment have become more stringent
in recent years, and may, in certain circumstances, impose strict liability
rendering a person liable for environmental damage without regard to negligence
or fault on the part of such person. Such laws and regulations may expose the
Company to liability for the conduct of or conditions caused by others, or for
acts of the Company which were in compliance with all applicable laws at the
time such acts were performed. The application of these requirements or adoption
of new requirements could have a material adverse effect on the Company.
The primary environmental statutory and regulatory programs that affect the
Company's operations include:
Oil Pollution Act and Clean Water Act. The Oil Pollution Act of 1990
("OPA") amends certain provisions of the Federal Water Pollution Control Act of
1972, commonly referred to as the Clean Water Act ("CWA"), and other statutes as
they pertain to the prevention of and response to hazardous substances and oil
spills into navigable waters. Under OPA, a person owning a facility or equipment
from which there is a discharge or threat of a discharge of oil into or upon
navigable waters and adjoining shorelines is liable as a "responsible party" for
removal costs and damages. Federal law imposes strict, joint and several
liability on facility owners for containment and clean-up costs and certain
other damages, including natural resource damages, arising from a spill.
Responsible parties under OPA include owners or operators of onshore or
offshore drilling facilities. OPA requires responsible parties to maintain proof
of financial responsibility to cover some portion of the cost of a
45
<PAGE> 47
potential spill and to prepare an oil spill contingency plan. Failure to comply
with these requirements or inadequate cooperation in a spill event may subject a
responsible party to civil or criminal enforcement action.
Wetlands. The CWA regulates the discharge of dredged or fill material and
pollutants to wetlands areas. Many of the Company's activities are conducted in
or near ecologically sensitive areas, such as wetlands, coastal environment and
inland waterways. An oil spill in a wetland or inland waterway could produce
substantial damage to the environment, including wildlife and natural resources.
Clean Air Act. The operations of the Company are subject to the Clean Air
Act ("CAA"), as amended, and comparable state statutes. Traditional air quality
programs relating to prevention of significant deterioration of air quality in
areas with unacceptable pollution levels ("nonattainment areas") restrict
drilling in affected areas. Amendments to the CAA contain provisions that may
result in the imposition over the next decade of certain requirements with
respect to air emissions, which requirements may require capital expenditures by
the Company. The Environmental Protection Agency ("EPA") is currently developing
regulations to implement these requirements which may result in more stringent
air quality standards. Regulations mandating stricter emissions controls in
nonattainment areas would increase the cost associated with operations in those
areas.
Superfund. The Comprehensive Environmental Response, Compensation and
Liability Act ("CERCLA"), commonly referred to as the "Superfund" law, imposes
strict, joint and several liability on certain classes of persons with respect
to the release or threatened release of a hazardous substance to the
environment. These persons include: (i) the owner and operator of a facility
from which hazardous substances are released; (ii) owners and operators of a
facility at the time any hazardous substances were disposed; (iii) generators of
hazardous substances that were released at such facility; and (iv) parties who
arranged for the transportation of hazardous substances to such facility. The
Company may be responsible under CERCLA for all or part of the costs to clean up
sites at which hazardous substances have been released. To date, however, the
Company has not been named a potentially responsible party under CERCLA or any
similar state Superfund laws.
Hazardous Waste Disposal. The Company's operations involve the generation
or handling of materials that are classified as hazardous waste, and that are
subject to the federal Resource Conservation and Recovery Act ("RCRA") and
comparable state statutes. The EPA and various state agencies have limited the
disposal options for certain hazardous and nonhazardous wastes and is
considering the adoption of stricter handling and disposal standards for
nonhazardous wastes.
NORM. Oil and gas exploration and production activities have been
identified as generators of naturally-occurring radioactive materials ("NORM").
The generation, handling and disposal of NORM due to oil and gas exploration and
production activities is currently regulated in Louisiana. NORM regulations also
have been adopted recently in Texas. The Company does not believe that its
compliance with such regulations will have a material effect on its operations
or financial condition, but there can be no assurance in this regard.
Right-To-Know. Title III of the Federal Superfund Amendment and
Reauthorization Act ("SARA Title III") of 1986, commonly known as the Emergency
Planning and Community Right-to-Know Act ("EPCRA"), requires owners and
operators of facilities that store, use or release hazardous and extremely
hazardous chemicals over specified threshold amounts to report information about
those chemicals. Non-manufacturing operations, including oil and gas exploration
and producing facilities, are subject to EPCRA and similar state statutes.
Regulations implementing EPCRA require the facility owner and operator to notify
state and local authorities of certain chemicals on site, to report releases of
these chemicals and to submit an annual inventory of chemicals at the facility.
Administrative, civil and criminal penalties may be assessed for regulatory
violations. The Company will likely be required to increase its expenditures
during the next several years to comply with higher industry and regulatory
safety standards. Such expenditures cannot be accurately estimated at this time.
Hazard Communication Standard. The Occupational Safety and Health
Administration issued the Hazard Communication Standard ("HCS") that employers
to identify the chemical hazards at their facilities and to educate employees
about these hazards. HCS applies to all private-sector employers including the
oil
46
<PAGE> 48
and gas exploration and producing industry. HCS requires that employers assess
their chemical hazards, obtain and maintain certain written descriptions of
these hazards, develop a hazard communication program and train employees to
work safely with the chemicals on site. Failure to comply with the requirements
of the standard may result in administrative, civil and criminal penalties.
Frost Laws. The operations of the Company's Eastern Division and INDRILLERS
Division are limited during April and May of each year due to the "frost laws"
of the states in which they operate. These frost laws restrict the movement of
equipment on public roads during these months.
LEGAL PROCEEDINGS
The Company is involved in litigation incidental to the conduct of its
business, none of which management believes is, individually or in the
aggregate, material to the Company's financial condition or results of
operations.
Certain litigation, styled TEPCO, Inc. v. Grey Wolf Drilling Company (Cause
No. 96-49194), is presently pending against Grey Wolf in the 164th Judicial
District Court of Harris County, Texas. In its petition filed on September 30,
1996, TEPCO, Inc. ("TEPCO") alleges that Grey Wolf breached contractual
obligations it owed to TEPCO by failing to drill an oil and gas well or wells
for it in the Treasure Isle Field, located in Galveston, Texas. TEPCO also
alleges that it lost rights under an oil and gas lease it had under an alleged
agreement with Mobil Producing Texas and New Mexico, Inc., causing plaintiff to
suffer money damages, which it values in its petition as "many tens of millions
of dollars." Grey Wolf intends to vigorously defend this action. Grey Wolf has
filed a counterclaim in the lawsuit for approximately $250,000 for recovery of
unpaid statements, and interest, for services rendered or materials provided by
Grey Wolf in connection with the drilling of two wells for TEPCO which were
completed before Grey Wolf ceased performing work for TEPCO. Following the
consummation of the Grey Wolf Acquisition, Messrs. James K. B. Nelson and
Sheldon B. Lubar, as representatives of the Grey Wolf shareholders, will control
and direct the handling of the lawsuit, and the Company will provide such
assistance and cooperation as is reasonably requested by the attorneys
representing the Company in the case. Mr. Nelson is a director nominee to be
elected following the Grey Wolf Acquisition and Mr. Lubar is a principal
shareholder of Grey Wolf. An escrow, consisting of $5.0 million of the cash
consideration for the Grey Wolf Acquisition, will be established to provide a
source of payment for the net costs to the Company, if any, for any eventual
settlement by, or the payment of a monetary court judgment against, the Company
arising out of this or any other lawsuit by TEPCO based on the same facts and
circumstances. A judgment in favor of TEPCO in excess of $5.0 million could have
a material adverse effect on the Company.
INSURANCE
The Company's operations are subject to the many hazards inherent in the
drilling business, including, for example, blowouts, cratering, fires,
explosions and adverse weather. These hazards could cause personal injury,
suspend drilling operations or seriously damage or destroy the equipment
involved and could cause substantial damage to producing formations and
surrounding areas. Damage to the environment could also result from the
Company's operations, particularly through oil spillage and extensive,
uncontrolled fires. As a protection against operating hazards, the Company
maintains insurance coverage, including comprehensive general liability or
commercial contract indemnity (including a separate policy for foreign
liability), commercial umbrella and workers' compensation insurance. The
Company's third party liability insurance coverage under each of the general and
foreign policies is $1.0 million per occurrence, with a deductible of $100,000
per occurrence and annual maximum coverage of $2.0 million. The commercial
umbrella limit is $30.0 million per occurrence. The Company believes that it is
adequately insured for public liability and property damage to others with
respect to its operations. However, such insurance may not be sufficient to
protect the Company against liability for all consequences of well disasters,
extensive fire damage or damage to the environment.
The Company also maintains insurance coverage on an annual basis to protect
against certain hazards inherent in its turnkey contract drilling operations.
This insurance covers "control of well" (including blowouts above and below the
surface), cratering, seepage and pollution and care, custody and control. The
Company
47
<PAGE> 49
does not have casualty insurance with respect to its rigs or drill strings. The
Company believes that it maintains insurance in accordance with industry
standards. The Company's current insurance program provides $500,000 coverage
per occurrence for care, custody and control, and $10.0 million coverage per
occurrence for control of well, cratering and seepage and pollution associated
with drilling operations. Each form of coverage provides for a deductible for
the account of the Company, as well as a maximum limit of liability. Each
casualty is an occurrence, and there may be more than one such occurrence on a
well, each of which would be subject to a separate deductible.
FACILITIES
The following table summarizes the Company's significant owned and leased
properties as of the date of this Prospectus:
<TABLE>
<CAPTION>
LOCATION INTEREST USES
-------- -------- ----
<S> <C> <C>
Houston, Texas........................... Leased Executive Offices
Houston, Texas........................... Owned Rig Yard
Alice, Texas............................. Owned Field Office, Rig Yard, Truck Yard
Duson, Louisiana......................... Owned Rig Yard
Eunice, Louisiana........................ Owned Field Office
Fillmore, Louisiana...................... Owned Field Office
Oklahoma City, Oklahoma.................. Owned Rig Yard
Mt. Pleasant, Michigan................... Owned Field Office, Rig Yard
Midvale, Ohio............................ Owned Field Office, Rig Yard
</TABLE>
The Company has leased approximately 17,200 square feet of office space for
its principal executive offices at a cost of approximately $22,000 per month.
The Company considers all of its facilities to be in good operating condition
and adequate for their present uses.
EMPLOYEES
At April 30, 1997, the Company had approximately 1,580 employees and Grey
Wolf had approximately 425 employees, substantially all of whom are expected to
join the Company. None of the Company's or Grey Wolf's employees are subject to
collective bargaining agreements, and management believes its employee relations
are satisfactory.
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<PAGE> 50
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The table and descriptions below set forth certain information regarding
the Company's executive officers, directors and director nominees to be elected
following the Grey Wolf Acquisition:
<TABLE>
<CAPTION>
NAME AGE POSITION(S) WITH THE COMPANY
---- --- ----------------------------
<S> <C> <C>
Ivar Siem.............................. 51 Chairman of the Board
Thomas P. Richards..................... 53 President and Chief Executive Officer
T. Scott O'Keefe....................... 41 Senior Vice President, Chief Financial Officer
and Secretary
Terrell L. Sadler...................... 47 Senior Vice President -- Domestic Operations
Ronnie E. McBride...................... 47 Senior Vice President -- Domestic Operations
Forrest M. Conley, Jr.................. 49 Senior Vice President -- International
Operations
David W. Wehlmann...................... 38 Vice President and Controller
Gary D. Lee............................ 51 Vice President -- Human Resources
Donald J. Guedry, Jr................... 40 Treasurer
Lucien Flournoy........................ 77 Director
Peter M. Holt.......................... 48 Director
Roy T. Oliver, Jr...................... 44 Director
Steven A. Webster...................... 45 Director
William R. Ziegler..................... 54 Director
William T. Donovan..................... -- Director Nominee
James K. B. Nelson..................... 69 Director Nominee
</TABLE>
Ivar Siem has been Chairman of the Board since August 1995 and was
President and Chief Executive Officer from April 1996 through August 1996. He
has been an international consultant in energy, technology and finance since
1985. He is a member of the board of directors of several privately held and
publicly traded companies, including: Chairman of the Board of Blue Dolphin
Energy Company, an oil and gas pipeline and exploration company, since 1989;
director of Norex Industries, Inc., a company with investments in the oil and
gas, cruise and shipping industries, since 1992; and director of DSND ASA, a
Norwegian service company that operates specialty vessels and provides subsea
engineering services, since 1993.
Thomas P. Richards joined the Company in September 1996 as President and
Chief Executive Officer. Mr. Richards was with Diamond Offshore Drilling, Inc.
("Diamond Offshore") from September 1990 until September 1996. He started as
Senior Vice President of Diamond M Onshore, Inc., a subsidiary of Diamond
Offshore, in 1990 and was serving as Senior Vice President of Worldwide
Operations when he left Diamond Offshore in 1996. Mr. Richards served as Vice
President -- Land for Penrod Drilling Corporation from January 1989 until
September 1990 when Diamond M Corporation purchased substantially all of
Penrod's land drilling assets. From February 1974 until December 1988, Mr.
Richards owned and served as President and Chief Executive Officer of Richards
Drilling Company, a land drilling contractor based in Bay City, Texas.
T. Scott O'Keefe was appointed Senior Vice President and Chief Financial
Officer of the Company in September 1996. During the period beginning in April
1996 and ending with such appointment, Mr. O'Keefe provided consulting services
to the Company. Prior to joining the Company, he was Vice President and Chief
Financial Officer of Convest Energy Corporation ("Convest") for six years.
Convest is a publicly held oil and gas exploration and production company. From
1985 to 1989, Mr. O'Keefe was employed in various financial management
capacities with Convest or its affiliates. Mr. O'Keefe is a certified public
accountant.
Terrell L. Sadler joined the Company in 1989 as the Ark-La-Tex District
Manager. He was promoted to Vice President -- Mid Continent Division in November
1994, and became Vice President -- Domestic Drilling in April 1996. Mr. Sadler
was promoted to Senior Vice President -- Domestic Operations in September 1996.
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<PAGE> 51
Ronnie E. McBride joined the Company in September 1996 as Senior Vice
President -- Domestic Operations. Mr. McBride was the Vice President of Turnkey
Services at Diamond Offshore from December 1995 until September 1996. He served
as Operational Manager of Diamond M from October 1991 until March 1993, at which
time he was promoted to Vice President -- Onshore Operations and served in this
position until December 1995. Prior to October 1991, Mr. McBride was Vice
President -- Operations for Harkins & Company for four years until it was
acquired by Diamond M.
Forrest M. Conley, Jr. joined the Company in September 1996 as Senior Vice
President -- International Operations. Mr. Conley has twenty-six years of
drilling industry experience. From May 1993 until joining the Company, he was
with Noble Drilling Corporation -- Triton Engineering where he served as
Manager -- Sales and Marketing, Manager -- International Marketing and most
recently as the Vice President and General Manager of Triton International.
Previously, he was General Manager of ENSCO Tool & Supply's West Africa division
from December 1991 until May 1993.
David W. Wehlmann joined the Company in July 1996 as Vice President and
Controller. From November 1994 until he joined the Company, Mr. Wehlmann was
Vice President and Chief Accounting Officer of EnerVest Management Company,
L.C., a privately-held oil and gas property acquisition and management company.
Mr. Wehlmann was Controller of Convest from April 1991 to November 1994. Mr.
Wehlmann is a certified public accountant.
Gary D. Lee joined the Company in March 1997 as Vice President -- Human
Resources. For the past 15 years, he was with Diamond Offshore where from 1990
until March 1997, he served as Vice President -- Human Resources.
Donald J. Guedry, Jr. has been the Company's Treasurer since October 1996.
During the seven years prior to joining the Company, Mr. Guedry served in
various treasury management positions for Weatherford Enterra, Inc. and a
predecessor company.
Lucien Flournoy became a director of the Company in January 1997 in
connection with the Company's purchase of the operating assets of Flournoy. Mr.
Flournoy has over 50 years of experience in the land drilling business. He
founded Flournoy in 1950 and had served as its President and a Director from
that time until Flournoy was acquired by the Company on January 31, 1997.
Peter M. Holt has been a director of the Company since August 1996. He has
been the President, Chief Executive Officer and principal owner of Holt
Companies for over 13 years. Holt Companies is comprised of two Caterpillar
dealerships in central/south Texas and western Ohio and various other business
interests.
Roy T. Oliver, Jr. has been a director of the Company since August 1996. He
has been the Chairman of the Board and Chief Executive Officer of U.S. Rig &
Equipment, Inc., an Oklahoma corporation ("USRE"), a worldwide supplier of
drilling equipment, since its organization in 1982.
Steven A. Webster has been a director of the Company since August 1996. He
has been the Chairman of the Board and Chief Executive Officer of Falcon
Drilling Company, Inc. ("Falcon Drilling"), a marine oil and gas drilling
contractor, since 1988. He serves as a director of Crown Resources Corporation,
(a mining company), and as Trust Manager of Camden Property Trust and is a
managing member of Somerset Drilling Associates, L.L.C., a Delaware limited
liability company ("SDA") and a general partner of Somerset Capital Partners
("SCP").
William R. Ziegler has been a director of the Company since August 1996. He
has been a partner of the law firm of Parson & Brown since June 1994. Prior to
that time he was a partner in the law firm of Whitman Breed Abbott & Morgan and
a predecessor firm for over five years. Mr. Ziegler is a director of Falcon
Drilling, a general partner of SCP and a managing member of SDA.
William T. Donovan is expected to become a director of the Company upon
closing of the Grey Wolf Acquisition. Since 1980, Mr. Donovan has been a
Principal and Managing Director of Lubar & Co., a private investment and venture
capital firm. Mr. Donovan also serves as Executive Vice President and Chief
Financial Officer of Christiana Companies, Inc. and as a director of various
private industrial companies. Prior to joining
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Lubar & Co., Mr. Donovan was an officer with Manufacturers Hanover Trust Company
from 1976 to 1980, where he specialized in merger acquisition financing.
James K. B. Nelson is expected to become a director of the Company upon
closing of the Grey Wolf Acquisition. He joined Grey Wolf in 1960 and has served
as President and Chief Executive Officer of Grey Wolf since 1978. He began his
career in the oil field drilling industry as a roughneck in 1946.
DESCRIPTION OF NOTES
The Notes will be issued under an indenture, dated as of , 1997
(the "Indenture") by and among the Company, the Guarantors and , as
trustee under the Indenture (the "Trustee"). The Notes are subject to the terms
stated in the Indenture and the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). Holders of the Notes are referred to the Indenture and
the Trust Indenture Act for a statement of those terms. The statements and
definitions of terms under this caption relating to the Notes, the Guarantees
and the Indenture described below are summaries and do not purport to be
complete. Such summaries make use of certain terms defined in the Indenture and
are qualified in their entirety by express reference to the Indenture. A copy of
the Indenture in substantially the form in which it is to be executed has been
filed as an exhibit to the Registration Statement of which this Prospectus is a
part. For purposes of this section of this Prospectus, references to the
"Company" means DI Industries, Inc., excluding its subsidiaries. Certain terms
used herein are defined below under "-- Certain Definitions."
GENERAL
The Notes will be general unsecured senior obligations of the Company,
limited in aggregate principal amount at Stated Maturity to $125 million. The
Indebtedness evidenced by the Notes will rank pari passu in right of payment
with all indebtedness and other liabilities of the Company that are not
subordinated by their terms to other Indebtedness of the Company and senior to
all Indebtedness of the Company that by its terms is so subordinated. At March
31, 1997, on a pro forma basis after giving effect to the issuance of the Notes
and the completion of the other transactions described herein, the Company would
have had outstanding approximately $1.3 million of secured indebtedness.
The Indenture provides that each of the Company's wholly-owned domestic
Subsidiaries (and any other Subsidiaries that guarantee any Indebtedness of an
Obligor) shall be a Guarantor. The holders of secured indebtedness of the
Company (including Indebtedness under the Company's Bank Credit Facility, which
is secured by first priority liens on substantially all of the assets of the
Company and its domestic Subsidiaries), will have claims with respect to the
assets constituting collateral for such Indebtedness that are prior to claims of
holders of the Notes and the Trustee. In the event of a default on the Notes or
the Guarantees, or a bankruptcy, liquidation or reorganization of the Company or
any Guarantors, such assets will be available to satisfy obligations with
respect to the indebtedness secured thereby before any payment therefrom could
be made on the Notes or the Subsidiary Guarantees. To the extent that the value
of such collateral is not sufficient to satisfy the Indebtedness secured
thereby, amounts remaining outstanding on such Indebtedness would be entitled to
share with the holders of the Notes and the Trustee and their claims with
respect to any other assets of the Company. The Guarantees will be senior
unsecured obligations of each respective Guarantor and will rank pari passu in
right of payment with all other indebtedness and liabilities of such Guarantor
that are not subordinated by their terms to other Indebtedness of such
Guarantor, and senior in right of payment to all Subordinated Indebtedness of
such Guarantor. However, the Guarantees will be effectively subordinated to
secured Indebtedness of the Guarantors, including Indebtedness under the Bank
Credit Facility, which is secured by liens on substantially all of their assets.
The Notes will be effectively subordinated to claims of creditors (other
than the Company) of the Company's Subsidiaries other than the Guarantors,
including the Bank Credit Facility. Claims of creditors (other than the Company)
of such Subsidiaries, including trade creditors, tort claimants, secured
creditors, taxing authorities and creditors holding guarantees, will generally
have priority as to assets of such Subsidiaries over the claims and equity
interest of the Company and, thereby indirectly, the holders of the indebtedness
of the Company, including the Notes and the Guarantees. In addition, the
Indenture permits under limited
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<PAGE> 53
circumstances the creation of, or the designation of existing Subsidiaries as,
Unrestricted Subsidiaries. Unrestricted Subsidiaries will not be generally
subject to the covenants applicable to the Company and the Subsidiaries under
the Indenture. See "-- Certain Covenants -- Unrestricted Subsidiaries."
PRINCIPAL, MATURITY AND INTEREST
The Notes will mature on , 2007, and will bear interest at the
rate per annum stated on the cover page hereof from the date of issuance or from
the most recent interest payment date to which interest has been paid or
provided for. Interest on the Notes will be payable semi-annually in arrears on
and of each year, commencing , 1997, to
the Persons in whose names such Notes are registered at the close of business on
the or immediately preceding such interest payment
date. Interest will be calculated on the basis of a 360-day year consisting of
twelve 30-day months.
Principal, premium, if any, and interest on the Notes will be payable, and
the Notes will be transferable, at the office or agency of the Company within
the City and State of New York, maintained for such purpose. In addition, in the
event the Notes do not remain in book-entry form, interest may be paid, at the
option of the Company, by check mailed to the registered holders of the Notes at
the respective addresses as set forth on the Note Register. The Notes will be
issued only in fully registered form, without coupons, in denominations of
$1,000 and integral multiples thereof. No service charge will be made for any
registration of transfer or exchange or redemption of Notes, but the Company or
Trustee may require in certain circumstances payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.
GUARANTEES OF NOTES
Each Guarantor will unconditionally guarantee, jointly and severally, to
each holder and the Trustee, the full and prompt performance of the Company's
Obligations under the Indenture and the Notes, including the payment of
principal of, premium, if any, and interest on, the Notes pursuant to its
Guarantee. If any Subsidiary of the Company that is not an initial Guarantor
guarantees any Indebtedness of the Company or any other Obligor on the Notes or
the Indenture at any time in the future, then the Company will cause the Notes
to be equally and ratably guaranteed by such Subsidiary. In addition, the
Company will cause each domestic subsidiary that is or becomes a Subsidiary to
execute and deliver a supplement to the Indenture pursuant to which such
Subsidiary will guarantee the payment of the Notes on the same terms and
conditions as the Guarantees by the initial Guarantors.
The Obligations of each Guarantor will be limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from or payments made by or
on behalf of any other Guarantor in respect of the Obligations of such other
Guarantor under its Guarantee or pursuant to its contribution obligations under
the Indenture, result in the Obligations of such Guarantor under its Guarantee
not constituting a fraudulent conveyance or fraudulent transfer under federal or
state law or otherwise not being void, voidable or unenforceable under any
bankruptcy, reorganization, receivership, insolvency, liquidation or other
similar legislation or legal principles under any applicable foreign law. Each
Guarantor that makes a payment or distribution under a Guarantee shall be
entitled to a contribution from each other Guarantor in a pro rata amount based
on the Adjusted Net Assets of each Guarantor.
Each Guarantor may consolidate with or merge into or sell or otherwise
dispose of all or substantially all of its Property and assets to the Company or
another Guarantor without limitation, except to the extent any such transaction
is subject to the "Consolidation, Merger, Conveyance, Lease or Transfer"
covenant of the Indenture. Each Guarantor may consolidate with or merge into or
sell all or substantially all of its Property and assets to a Person other than
the Company or another Guarantor (whether or not Affiliated with the Guarantor),
provided that (a) if the surviving Person is not the Guarantor, the surviving
Person agrees to assume such Guarantor's Guarantee and all its Obligations
pursuant to the Indenture (except to the extent the following paragraph would
result in the release of such Guarantee) and (b) such transaction does not (i)
violate any of the covenants described below under "-- Certain Covenants" or
(ii) result in a Default or Event of Default being in existence or continuing
immediately thereafter.
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Upon the sale or other disposition (by merger or otherwise) of a Guarantor
(or all or substantially all of its Property and assets) to a Person other than
the Company or another Guarantor and pursuant to a transaction that is otherwise
in compliance with the Indenture (including as described in clause (b) of the
foregoing paragraph and as described below in the covenant described "-- Certain
Covenants -- Limitation on Asset Sales"), such Guarantor (unless it otherwise
remains a Subsidiary) shall be deemed released from its Guarantee and the
related Obligations set forth in the Indenture; provided that any such
termination shall occur only to the extent that all Obligations of such
Guarantor under all of its guarantees of and under all of its pledges of assets
or other security interests which secure, other Indebtedness of the Company or
any other Subsidiary shall also terminate or be released upon such sale or other
disposition. Each Guarantor that is designated as an Unrestricted Subsidiary in
accordance with the Indenture shall be released from its Guarantee and the
related Obligations set forth in the Indenture so long as it remains an
Unrestricted Subsidiary.
OPTIONAL REDEMPTION
Except as provided in the next paragraph, the Notes will not be redeemable
at the option of the Company prior to , 2002. On or after such date,
the Notes will be redeemable at the option of the Company, in whole at any time
or in part from time to time, at the following prices (expressed in percentages
of the principal amount), if redeemed during the 12 months beginning
of the years indicated below, in each case together with interest
accrued to the redemption date (subject to the right of holders of record on the
relevant record date to receive interest due on the relevant interest payment
date):
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2002........................................................ %
2003........................................................ %
2004........................................................ %
2005 and thereafter......................................... 100.0000%
</TABLE>
Notwithstanding the foregoing, at any time during the first 36 months after
the Issue Date, the Company may, at its option, redeem up to a maximum of 30% of
the aggregate principal amount of the Notes with the net cash proceeds of one or
more Qualified Equity Offerings at a redemption price equal to % of the
principal amount thereof, plus accrued and unpaid interest thereon to the
redemption date; provided that at least $87.5 million aggregate principal amount
of Notes shall remain outstanding immediately after the occurrence of any such
redemption; and provided, further, that each such redemption shall occur within
90 days of the closing of such Qualified Equity Offering.
If fewer than all the Notes are redeemed, selection for redemption will be
made by the Trustee in accordance with the principal stock exchange, if any, on
which the Notes are listed, or, if the Notes are not so listed, on a pro rata
basis, by lot or by any other means which the Trustee determines to be fair and
appropriate.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder will have the right
to require the Company to repurchase all of such holder's Notes in whole or in
part (the "Change of Control Offer") at a purchase price (the "Change of Control
Purchase Price") in cash equal to 101% of the aggregate principal amount
thereof, plus accrued and unpaid interest thereon, if any, to the Change of
Control Payment Date (as defined below) on the terms described below.
Within 30 days following any Change of Control, the Company or the Trustee
(at the expense of the Company) will mail a notice to each holder and to the
Trustee stating, among other things, (i) that a Change of Control has occurred
and a Change of Control Offer is being made as in the Indenture Supplement, and
that, although holders are not required to tender their Notes, all Notes that
are timely tendered will be accepted for payment; (ii) the Change of Control
Purchase Price and the repurchase date, which will be no earlier than 30 days
and no later than 60 days after the date such notice is mailed (the "Change of
Control Payment Date"); (iii) that any Note accepted for payment pursuant to the
Change of Control Offer (and duly
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<PAGE> 55
paid for on the Change of Control Payment Date) will cease to accrue interest
after the Change of Control Payment Date; and (iv) the instructions and any
other information necessary to enable holders to tender their Notes and have
such Notes purchased pursuant to the Change of Control Offer. The Company will
comply with any applicable tender offer rules (including, without limitation,
any applicable requirements of Rule 14e-1 under the Exchange Act) in the event
that the Change of Control Offer is triggered under the circumstances described
herein.
The existence of the holders' rights to require, subject to certain
conditions, the Company to repurchase Notes upon a Change of Control may deter a
third party from acquiring the Company in a transaction that constitutes a
Change of Control. The source of funds for the repurchase of Notes upon a Change
of Control will be the Company's cash or cash generated from operations or other
sources, including borrowings or sales of assets; however, a "Change of Control"
(as defined in the Bank Credit Facility) constitutes an event of default
thereunder that alleviates the lenders from any obligation to make loans and
allows them to accelerate the Indebtedness outstanding thereunder. There can be
no assurance that sufficient funds will be available at the time of any Change
of Control to repay all amounts owing under such other Indebtedness or to make
the required payments of the Notes. In the event that a Change of Control Offer
occurs at a time when the Company does not have sufficient available funds to
pay the Change of Control Purchase Price for all Notes timely tendered pursuant
to such offer or at a time when the Company is prohibited from purchasing the
Notes (and the Company is unable either to obtain the consent of the holders of
the relevant Indebtedness or to repay such Indebtedness), an Event of Default
would occur under the Indenture. In addition, one of the events that constitutes
a Change of Control under the Indenture is a sale, conveyance, transfer or lease
of all or substantially all of the assets of the Company or the Company and the
Subsidiaries, taken as a whole. The Indenture will be governed by New York law,
and there is no established quantitative definition under New York law of
"substantially all" of the assets of a corporation. Accordingly, if the Company
or its Subsidiaries were to engage in a transaction in which it or they disposed
of less than all of the assets of the Company or the Company and its
Subsidiaries taken as a whole, as applicable, a question or interpretation could
arise as to whether such disposition was of "substantially all" of its assets
and whether the Company was required to make a Change of Control Offer.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
repurchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
Except as described above with respect to a Change of Control, the
Indenture does not contain provisions that permit the holders to require the
Company to repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar restructuring. The provisions of the Indenture may
not afford holders protection in the event of a highly leveraged transaction,
reorganization, restructuring, merger or similar transaction affecting the
Company that may adversely affect holders because (i) such transactions may not
involve a shift in voting power or beneficial ownership or, even if they do, may
not involve a shift of the magnitude required under the definition of Change of
Control to require the Company to make a Change of Control Offer or (ii) such
transactions may include an actual shift in voting power or beneficial ownership
to a Permitted Holder which is excluded under the definition of Change of
Control from the amount of shares involved in determining whether or not the
transaction involves a shift of the magnitude required to trigger the
provisions. A transaction involving the management of the Company or its
Affiliates, or a transaction involving a recapitalization of the Company, will
result in a Change of Control only if it is the type of transaction specified in
such definition.
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<PAGE> 56
CERTAIN COVENANTS
Set forth below are certain covenants contained in the Indenture.
Transactions with Affiliates. Subsequent to the Issue Date, the Company
will not, and will not permit any Subsidiary to, directly or indirectly, enter
into or permit to exist any transaction or series of related transactions
(including, but not limited to, the purchase, sale or exchange of Property, the
making of any Investment, the giving of any guarantee or the rendering of any
service with any Affiliate of the Company, other than transactions among the
Company and any Guarantor or any Wholly Owned Subsidiaries) unless (i) such
transaction or series of related transactions is on terms no less favorable to
the Company or such Subsidiary than those that could be obtained in a comparable
arm's length transaction with a Person that is not such an Affiliate and (ii)
(a) with respect to a transaction or series of related transactions that has a
Fair Market Value in excess of $2 million but less than $5 million, the Company
delivers an Officers Certificate to the Trustee certifying that such transaction
or series of related transactions complies with clause (i) above; or (b) with
respect to a transaction or series of related transactions that has a Fair
Market Value equal to or in excess of $5 million, the transaction or series of
related transactions is approved by a majority of the Board of Directors of the
Company (including a majority of the disinterested directors), which approval is
set forth in a Board Resolution certifying that such transaction or series of
transaction complies with clause (i) above. The foregoing provisions shall not
be applicable to (i) reasonable and customary compensation, indemnification and
other benefits paid or made available to an officer, director or employee of the
Company or a Subsidiary for services rendered in such person's capacity as an
officer, director or employee (including reimbursement or advancement of
reasonable out-of-pocket expenses and provisions of directors' and officers'
liability insurance) or (ii) the making of any Restricted Payment otherwise
permitted by the Indenture.
Limitation on Restricted Payments. The Company will not, and will not
permit any Subsidiary to, make any Restricted Payment, unless at the time of and
after giving effect to the proposed Restricted Payment, (a) no Default shall
have occurred and be continuing (or would result therefrom), (b) the Company
could incur at least $1.00 of additional indebtedness under the tests described
in the first sentence under the caption "-- Certain Covenants -- Limitation on
Indebtedness" and (c) the aggregate amount of all Restricted Payments declared
or made on or after the Issue Date by the Company or any Subsidiary shall not
exceed the sum of (i) 50% (or if such Consolidated Net Income shall be a
deficit, minus 100% of such deficit) of the aggregate Consolidated Net Income
accrued during the period beginning on the first day of the fiscal quarter in
which the Issue Date falls and ending on the last day of the fiscal quarter
ending immediately prior to the date of such proposed Restricted Payment, minus
100% of the amount of any writedowns, write-offs and other negative
extraordinary charges not otherwise reflected in Consolidated Net Income during
such period, plus (ii) an amount equal to the aggregate net cash proceeds
received by the Company, subsequent to the Issue Date, from the issuance or sale
(other than to a Subsidiary) of shares of its Capital Stock (excluding
Redeemable Stock, but including Capital Stock issued upon the exercise of
options, warrants or rights to purchase Capital Stock (other than Redeemable
Stock) of the Company) and the liability (expressed as a positive number) as
expressed on the face of a balance sheet in accordance with GAAP in respect of
any Indebtedness of the Company or any of its Subsidiaries, or the carrying
value of Redeemable Stock, which has been converted into, exchanged for or
satisfied by the issuance of shares of Capital Stock (other than Redeemable
Stock) of the Company, subsequent to the Issue Date, plus (iii) 100% of the net
reduction in Restricted Investments, subsequent to the Issue Date, in any
Person, resulting from payments of interest on Indebtedness, dividends,
repayments of loans or advances, or other transfers of Property (but only to the
extent such interest, dividends, repayments or other transfers of Property are
not included in the calculation of Consolidated Net Income), in each case to the
Company or any Subsidiary from any Person (including, without limitation, from
Unrestricted Subsidiaries) or from redesignations of Unrestricted Subsidiaries
as Subsidiaries (valued in each case as provided in the definition of
"Investments"), not to exceed in the case of any Person the amount of Restricted
Investments previously made by the Company or any Subsidiary in such Person and
in each such case which was treated as a Restricted Payment.
The foregoing provisions will not prevent (A) the payment of any dividend
on Capital Stock of any class within 60 days after the date of its declaration
if at the date of declaration such payment would be permitted by the Indenture;
(B) any repurchase or redemption of Capital Stock or Subordinated Indebtedness
of the
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<PAGE> 57
Company or a Subsidiary made by exchange for Capital Stock of the Company (other
than Redeemable Stock), or out of the net cash proceeds from the substantially
concurrent issuance or sale (other than to a Subsidiary) of Capital Stock of the
Company (other than Redeemable Stock), provided that the net cash proceeds from
such sale are excluded from computations under clause (c)(ii) above to the
extent that such proceeds are applied to purchase or redeem such Capital Stock
or Subordinated Indebtedness; (C) so long as no Default shall have occurred and
be continuing or should occur as a consequence thereof, any repurchase or
redemption of Subordinated Indebtedness of the Company or a Subsidiary solely in
exchange for, or out of the net cash proceeds from the substantially concurrent
sale of, new Subordinated Indebtedness of the Company or a Subsidiary, so long
as such Subordinated Indebtedness is permitted under the covenant described
under "-- Limitation on Indebtedness" and (x) is subordinated to the Notes at
least to the same extent as the Subordinated Indebtedness so exchanged,
purchased or redeemed, (y) has a stated maturity later than the stated maturity
of the Subordinated Indebtedness so exchanged, purchased or redeemed and (z) has
an Average Life at the time incurred that is greater than the remaining Average
Life of the Subordinated Indebtedness so exchanged, purchased or redeemed; (D)
Investments in any Joint Ventures and foreign Subsidiaries not constituting
Guarantors in an aggregate amount not to exceed $10 million, and (E) redemptions
of the Series A Preferred Stock issued and outstanding on the Issue Date for an
aggregate redemption price of not more than $750,000. Notwithstanding the
foregoing, the amount available for Investments in Joint Ventures and foreign
Subsidiaries pursuant to clause (D) of the preceding sentence may be increased
by the aggregate amount received by the Company and its Subsidiaries from a
Joint Venture or a foreign Subsidiary on or before such date resulting from
payments of interest on Indebtedness, dividends, repayments of loans or advances
or other transfers of Property made to such Joint Venture or foreign Subsidiary
(but only to the extent such interest dividends, repayments or other transfers
of Property are not included in the calculation of Consolidated Net Income).
Restricted Payments permitted to be made as described in the first sentence of
this paragraph will be excluded in calculating the amount of Restricted Payments
thereafter, except that any such Restricted Payments to be permitted made
pursuant to clause (D) will be included in calculating the amount of Restricted
Payments made pursuant to such clause (D) thereafter.
For purposes of this covenant, if a particular Restricted Payment involves
a non-cash payment, including a distribution of assets, then such Restricted
Payment shall be deemed to be an amount equal to the cash portion of such
Restricted Payment, if any, plus an amount equal to the Fair Market Value of the
non-cash portion of such Restricted Payment.
Limitation on Indebtedness. The Company will not, and will not permit any
Subsidiary to, directly or indirectly, incur any Indebtedness (including
Acquired Indebtedness), unless after giving pro forma effect to the incurrence
of such Indebtedness, the Consolidated Interest Coverage Ratio for the
Determination Period preceding the Transaction Date is at least 2.0 to 1.0 if
such Indebtedness is incurred prior to , 1998 and at least 2.25 to 1.0 if
such Indebtedness is incurred thereafter. Notwithstanding the foregoing, the
Company or any Subsidiary may incur Permitted Indebtedness. Any Indebtedness of
a Person existing at time at which such Person becomes a Subsidiary (whether by
merger, consolidation, acquisition or otherwise) shall be deemed to be incurred
by such Subsidiary at the time at which it becomes a Subsidiary.
Limitation on Subsidiary Indebtedness and Preferred Stock. The Company will
not permit any Subsidiary to, directly or indirectly, incur any Indebtedness or
issue any Preferred Stock except:
(a) Indebtedness or Preferred Stock issued to and held by the Company, a
Guarantor or a Wholly Owned Subsidiary, so long as any transfer of such
Indebtedness or Preferred Stock to a Person other than the Company, Guarantor or
a Wholly Owned Subsidiary will be deemed to constitute an incurrence of such
Indebtedness or Preferred Stock by the issuer thereof as of the date of such
transfer;
(b) Acquired Indebtedness or Preferred Stock of a Subsidiary issued and
outstanding prior to the date on which such Subsidiary was acquired by the
Company (other than Indebtedness or Preferred Stock issued in connection with or
in anticipation of such acquisition);
(c) Indebtedness or Preferred Stock outstanding on the Issue Date and
listed in a schedule attached to the Indenture;
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<PAGE> 58
(d) Indebtedness described in clauses (b), (c), (d), (e), (f), (g) and (h)
under the definition of "Permitted Indebtedness";
(e) Permitted Subsidiary Refinancing Indebtedness of such Subsidiary;
(f) Indebtedness or Preferred Stock issued in exchange for, or the proceeds
of which are used to refinance, repurchase or redeem, Indebtedness or Preferred
Stock described in clauses (a) and (c) of this paragraph (the "Retired
Indebtedness or Stock"), provided that the Indebtedness or the Preferred Stock
so issued has (i) a principal amount or liquidation value, as the case may be,
not in excess of the principal amount or liquidation value of the Retired
Indebtedness or Stock plus related expenses for redemption and issuance, (ii) a
final redemption date later than the Stated Maturity or final redemption date
(if any) of the Retired Indebtedness or Stock and (iii) an Average Life at the
time of issuance of such Indebtedness or Preferred Stock that is greater than
the Average Life of the Retired Indebtedness or Stock;
(g) Indebtedness of a Subsidiary which represents the assumption by such
Subsidiary of Indebtedness of another Subsidiary in connection with a merger of
such Subsidiaries, provided that no Subsidiary or any successor (by way of
merger) thereto existing on the Issue Date shall assume or otherwise become
responsible for any Indebtedness of an entity which is not a Subsidiary on the
Issue Date, except to the extent that a Subsidiary would be permitted to incur
such Indebtedness under this paragraph; and
(h) Non-Recourse Indebtedness incurred by a foreign Subsidiary not
constituting a Guarantor.
Limitations on Dividends and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not permit any Subsidiary to,
directly or indirectly, create, enter into any agreement with any Person or
otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind which by its terms restricts the ability
of any Subsidiary to (a) pay dividends, in cash or otherwise, or make any other
distributions on its Capital Stock to the Company or any Subsidiary, (b) pay any
Indebtedness owed to the Company or any Subsidiary, (c) make loans or advances
to the Company or any Subsidiary or (d) transfer any of its Property or assets
to the Company or any Subsidiary except any encumbrance or restriction contained
in any agreement or instrument:
(i) existing on the Issue Date;
(ii) relating to any Property or assets acquired after the Issue Date, so
long as such encumbrance or restriction relates only to the Property or assets
so acquired and are not and were not created in anticipation of such
acquisition;
(iii) relating to any Acquisition Indebtedness of any Subsidiary at the
date on which such Subsidiary was acquired by the Company or any Subsidiary
(other than Indebtedness incurred in anticipation of such acquisition);
(iv) effecting a refinancing of Indebtedness issued pursuant to an
agreement referred to in the foregoing clauses (i) through (iii), so long as the
encumbrances and restriction contained in any such refinancing agreement are no
more restrictive than the encumbrances and restrictions contained in such
agreements;
(v) constituting customary provisions restricting subletting or assignment
of any lease of the Company or any Subsidiary or provisions in license
agreements or similar agreements that restrict the assignment of such agreement
or any rights thereunder;
(vi) constituting restrictions on the sale or other disposition of any
Property securing Indebtedness as a result of a Permitted Lien on such Property;
and
(vii) constituting any temporary encumbrance or restriction with respect to
a Subsidiary pursuant to an agreement that has been entered into for the sale or
disposition of all or substantially all of the Capital Stock of, or Property and
assets of, such Subsidiary.
Limitation on Asset Sales. The Company will not engage in, and will not
permit any Subsidiary to engage in, any Asset Sale unless (a) except in the case
of (i) an Asset Sale resulting from the requisition of title to, seizure or
forfeiture of any Property or assets or any actual or constructive total loss or
an agreed or
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compromised total loss or (ii) a Bargain Purchase Contract, the Company or such
Subsidiary, as the case may be, receives consideration at the time of such Asset
Sale at least equal to the Fair Market Value of the Property; (b) at least 75%
of such consideration consists of Cash Proceeds (or the assumption of
Indebtedness of the Company or such Subsidiary relating to the Capital Stock or
Property or asset that was the subject of such Asset Sale and the unconditional
release of the Company or such Subsidiary from such Indebtedness); (c) after
giving effect to such Asset Sale, the total non-cash consideration held by the
Company from all such Asset Sales does not exceed $10 million; and (d) the
Company delivers to the Trustee an Officers' Certificate certifying that such
Asset Sale complies with clauses (a), (b) and (c). The Company or such
Subsidiary, as the case may be, may apply the Net Available Proceeds from each
Asset Sale (x) to the acquisition of one or more Replacement Assets, or (y) to
repurchase or repay Senior Debt (with a permanent reduction of availability in
the case of revolving credit borrowings); provided that such acquisition or such
repurchase or repayment shall be made within 365 days after the consummation of
the relevant Asset Sale.
Any Net Available Proceeds from any Asset Sale that are not used to so
acquire Replacement Assets or to repurchase or repay Senior Debt within 365 days
after consummation of the relevant Asset Sale constitute "Excess Proceeds." When
the aggregate amount of Excess Proceeds exceeds $15 million, the Company shall,
or at any time after receipt of Excess Proceeds, the Company may, at its option,
make a pro rata offer (an "Asset Sale Offer") to purchase from all holders an
aggregate principal amount of Notes equal to the Excess Proceeds, at a price in
cash (the "Asset Sale Offer Purchase Price") equal to 100% of the outstanding
principal thereof plus accrued interest, if any, to the purchase date, in
accordance with the procedures set forth in the Indenture. Upon completion of
such Asset Sale Offer, the amount of Excess Proceeds shall be reset to zero and
the Company may use any remaining amount for general corporate purposes.
The Company will comply with any applicable tender offer rules (including,
without limitation, any applicable requirements of Rule 14e-1 under the Exchange
Act) in the event that an Asset Sale Offer is required under the circumstances
described herein.
Limitation on Sale and Lease-Back Transactions. The Company will not, and
will not permit any Subsidiary to, directly or indirectly, enter into, assume,
guarantee or otherwise become liable with respect to any Sale and Lease-Back
Transaction unless (i) the proceeds from such Sale and Lease-Back Transaction
are at least equal to the Fair Market Value to such Property being transferred
and (ii) the Company or such Subsidiary would have been permitted to enter into
such transaction under the covenants described in "-- Certain
Covenants -- Limitation on Indebtedness" and "-- Certain Covenants -- Limitation
on Liens," and under the test described in the first sentence under the caption
"-- Certain Covenants -- Limitation on Subsidiary Indebtedness and Preferred
Stock."
Limitation on Liens. The Company will not, and will not permit any
Subsidiary to, directly or indirectly, create, affirm, incur, assume or suffer
to exist any Liens of any kind other than Permitted Liens on or with respect to
any Property or assets of the Company or such Subsidiary or any interest therein
or any income or profits therefrom, whether owned at the Issue Date or
thereafter acquired, without effectively providing that the Notes shall be
secured equally and ratably with (or prior to) the Indebtedness so secured for
so long as such obligations are so secured.
Limitation on Guarantees by Guarantors. The Company will not permit any
Guarantor to guarantee the payment of any Subordinated Indebtedness of the
Company unless such guarantee shall be subordinated to such Guarantor's
Guarantee at least to the same extent as such Subordinated Indebtedness is
subordinated to the Notes; provided that this covenant will not be applicable to
any guarantee of any Guarantor that (i) existed at the time such Person became a
Subsidiary of the Company and (ii) was not incurred in connection with, or in
contemplation of, such Person becoming a Subsidiary of the Company.
Unrestricted Subsidiaries. The Indenture provides that the Company may
designate a subsidiary (including a newly formed or newly acquired subsidiary)
of the Company or any of its Subsidiaries as an Unrestricted Subsidiary;
provided that (i) immediately after giving effect to the transaction, the
Company could incur $1.00 of additional Indebtedness pursuant to the first
sentence of "-- Certain Covenants -- Limitation on Indebtedness" and (ii) such
designation is at the time permitted under "-- Certain Cove-
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nants -- Limitation on Restricted Payments." Notwithstanding any provisions of
this covenant all subsidiaries of an Unrestricted Subsidiary will be
Unrestricted Subsidiaries.
The Indenture further provides that the Company will not, and will not
permit any of its Subsidiaries to, take any action or enter into any transaction
or series of transactions that would result in a Person (other than a newly
formed subsidiary having no outstanding Indebtedness (other than Indebtedness to
the Company or a Subsidiary) at the date of determination) becoming a Subsidiary
(whether through an acquisition, the redesignation of an Unrestricted Subsidiary
or otherwise) unless, after giving effect to such action, transaction or series
of transactions on a pro forma basis, (i) the Company could incur at least $1.00
of additional Indebtedness pursuant to the first sentence of "-- Certain
Covenants -- Limitation on Indebtedness" and (ii) no Default or Event of Default
would occur.
Subject to the preceding paragraphs, an Unrestricted Subsidiary may be
redesignated as a Subsidiary. The designation of a subsidiary as an Unrestricted
Subsidiary or the designation of an Unrestricted Subsidiary as a Subsidiary in
compliance with the preceding paragraphs shall be made by the Board of Directors
pursuant to a Board Resolution delivered to the Trustee and shall be effective
as of the date specified in such Board Resolution, which shall not be prior to
the date such Board Resolution is delivered to the Trustee. Any Unrestricted
Subsidiary shall become a Subsidiary if it incurs any Indebtedness other than
Non-Recourse Indebtedness. If at any time Indebtedness of an Unrestricted
Subsidiary which was Non-Recourse Indebtedness no longer so qualifies, such
Indebtedness shall be deemed to have been incurred when such NonRecourse
Indebtedness becomes Indebtedness.
Limitations on Line of Business. The Indenture provides that neither the
Company nor any of its Subsidiaries will directly or indirectly engage to any
substantial extent in any line or lines of business activity other than a
Related Business.
Reports. The Indenture provides that, whether or not the Company is subject
to Section 13(a) or 15(d) of the Exchange Act, or any successor provision
thereto, the Company shall file with the Commission the annual reports,
quarterly reports and other documents which the Company would have been required
to file with the Commission pursuant to such Section 13(a) or 15(d) or any
successor provision thereto if the Company were subject thereto, such documents
to be filed with the Commission on or prior to the respective dates (the
"Required Filing Dates") by which the Company would have been required to file
them. The Company shall also (whether or not it is required to file reports with
the Commission), within 30 days of each Required Filing Date, (i) transmit by
mail to all holders of Notes, as their names and addresses appear in the
applicable Security Register, without cost to such holders or Persons, and (ii)
file with the Trustee, copies of the annual reports, quarterly reports and other
documents (without exhibits) which the Company has filed or would have filed
with the Commission pursuant to Section 13(a) or 15(d) of the Exchange Act, any
successor provisions thereto or this covenant. The Company shall not be required
to file any report with the Commission if the Commission does not permit such
filing.
CONSOLIDATION, MERGER, CONVEYANCE, LEASE OR TRANSFER
The Company will not, in any transaction or series of transactions,
consolidate with or merge into any other Person (other than a merger of a
Subsidiary into the Company in which the Company is the continuing corporation),
or sell, convey, assign, transfer, lease or otherwise dispose of all or
substantially all of the Property and assets of the Company and the
Subsidiaries, taken as a whole, to any Person, unless
(i) either (a) the Company shall be the continuing corporation or (b) the
corporation (if other than the Company) formed by such consolidation or into
which the Company is merged, or the Person which acquires, by sale, assignment,
conveyance, transfer, lease or disposition, all or substantially all of the
Property and assets of the Company and the Subsidiaries, taken as a whole (such
corporation or Person, the "Surviving Entity"), shall be a corporation organized
and validly existing under the laws of the United States of America, any
political subdivision thereof or any state thereof or the District of Columbia,
and shall expressly assume, by a supplemental indenture, the due and punctual
payment of the principal of (and premium, if any) and interest on all the Notes
and the performance of the Company's covenants and obligations under the
Indenture;
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(ii) immediately before and after giving effect to such transaction or
series of transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), no Event of Default or
Default shall have occurred and be continuing or would result therefrom;
(iii) immediately after giving effect to such transaction or series of
transactions on a pro forma basis (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions), the Company (or the
Surviving Entity if the Company is not continuing) shall have a Consolidated Net
Worth equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transactions; and
(iv) immediately after giving effect to any such transaction or series of
transactions on a pro forma basis as if such transaction or series of
transactions had occurred on the first day of the Determination Period, the
Company (or the Surviving Entity if the Company is not continuing) would be
permitted to incur $1.00 of additional Indebtedness pursuant to the test
described in the first sentence under the caption "-- Certain
Covenants -- Limitation on Indebtedness."
The provision of clause (iv) shall not apply to any merger or consolidation
into or with, or any such transfer of all or substantially all of the Property
and assets of the Company and the Subsidiaries taken as a whole into, the
Company.
In connection with any consolidation, merger, transfer of assets or other
transactions contemplated by this provision, the Company shall deliver, or cause
to be delivered, to the Trustee, in form and substance reasonably satisfactory
to the Trustee, an Officers' Certificate and an opinion of counsel, each stating
that such consolidation, merger, sale, assignment, conveyance or transfer and
the supplemental indenture in respect thereto comply with the provisions of the
Indenture and that all conditions precedent in the Indenture relating to such
transactions have been complied with.
Upon any transaction or series of transactions that are of the type
described in, and are effected in accordance with, the foregoing paragraphs, the
Surviving Entity shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under the Indenture and the Notes with the
same effect as if such Surviving Entity had been named as the Company in the
Indenture; and when a Surviving Person duly assumes all of the obligations and
covenants of the Company pursuant to the Indenture and the Notes, except in the
case of a lease, the predecessor Person shall be relieved of all such
obligations.
EVENTS OF DEFAULT
Each of the following is an "Event of Default" under the Indenture:
(a) default in the payment of interest on any Note issued pursuant to the
Indenture when the same becomes due and payable, and the continuance of such
default for a period of 30 days;
(b) default in the payment of the principal of (or premium, if any, on) any
Note issued pursuant to the Indenture at its Maturity, upon optional redemption,
required repurchase (including pursuant to a Change of Control Offer or an Asset
Sale Offer) or otherwise or the failure to make an offer to purchase any such
Note as required;
(c) the Company fails to comply with any of its covenants or agreements
contained in "-- Change of Control," "-- Certain Covenants -- Limitation on
Restricted Payments," "-- Certain Covenants -- Limitation on Asset Sales,"
"-- Certain Covenants -- Limitation on Indebtedness," "-- Certain Covenants --
Limitation on Sale and Lease-back Transactions" or "-- Consolidation, Merger,
Conveyance, Lease or Transfer";
(d) default in the performance, or breach, of any covenant or warranty of
the Company in the Indenture (other than a covenant or warranty addressed in
clause (a), (b) or (c) above) and continuance of such Default or breach for a
period of 30 days after written notice thereof has been given to the Company by
the Trustee or to the Company and the Trustee by holders of at least 25% of the
aggregate principal amount at Stated Maturity of the outstanding Notes;
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(e) Indebtedness of the Company or any Subsidiary is not paid when due
within the applicable grace period, if any, or is accelerated by the holders
thereof and, in either case, the principal amount of such unpaid or accelerated
Indebtedness exceeds $10 million.
(f) the entry by a court of competent jurisdiction of one or more final
judgments against the Company or any Restricted Subsidiary in an uninsured or
unindemnified aggregate amount in excess of $5 million which is not discharged,
waived, appealed, stayed, bonded or satisfied for a period of 60 consecutive
days;
(g) the entry by a court having jurisdiction in the premises of (i) a
decree or order for relief in respect of the Company or any Significant
Subsidiary in an involuntary case or proceeding under U.S. bankruptcy laws, as
now or hereafter constituted, or any other applicable Federal, state, or foreign
bankruptcy, insolvency, or other similar law or (ii) a decree or order adjudging
the Company or any Significant Subsidiary a bankrupt or insolvent, or approving
as properly filed a petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Company or any Significant Subsidiary under
U.S. bankruptcy laws, as now or hereafter constituted, or any other applicable
Federal, state or foreign bankruptcy, insolvency, or similar law, or appointing
a custodian, receiver, liquidator, assignee, trustee, sequestrator or other
similar official of the Company or any Significant Subsidiary or of any
substantial part of the Property or assets of the Company or any Significant
Subsidiary, or ordering the winding up or liquidation of the affairs of the
Company or any Significant Subsidiary, and the continuance of any such decree or
order for relief or any such other decree or order unstayed and in effect for a
period of 60 consecutive days;
(h) (i) the commencement by the Company or any Significant Subsidiary of a
voluntary case or proceeding under U.S. bankruptcy laws, as now or hereafter
constituted, or any other applicable Federal, state or foreign bankruptcy,
insolvency or other similar law or of any other case or proceeding to be
adjudicated a bankrupt or insolvent; or (ii) the consent by the Company or any
Significant Subsidiary to the entry of a decree or order for relief in respect
of the Company or any Significant Subsidiary in an involuntary case or
proceeding under U.S. bankruptcy laws, as now or hereafter constituted, or any
other applicable Federal, state, or foreign bankruptcy, insolvency or other
similar law or to the commencement of any bankruptcy or insolvency case or
proceeding against the Company or any Significant Subsidiary; or (iii) the
filing by the Company or any Significant Subsidiary of a petition or answer or
consent seeking reorganization or relief under U.S. bankruptcy laws, as now or
hereafter constituted, or any other applicable Federal, state or foreign
bankruptcy, insolvency or other similar law; or (iv) the consent by the Company
or any Significant Subsidiary to the filing of such petition or to the
appointment of or taking possession by a custodian, receiver, liquidator,
assignee, trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or of any substantial part of the Property or assets of
the Company or any Significant Subsidiary or of any substantial part of the
Property or assets of the Company or any Significant Subsidiary, or the making
by the Company or any Significant Subsidiary of an assignment for the benefit of
creditors; or (v) the admission by the Company or any Significant Subsidiary in
writing of its inability to pay its debts generally as they become due; or (vi)
the taking of corporate action by the Company or any Significant Subsidiary in
furtherance of any such action; or
(i) any Guarantee shall for any reason cease to be, or be asserted by the
Company or any Guarantor, as applicable, not to be, in full force and effect
(except pursuant to the release of any such Guarantee in accordance with the
Indenture).
If any Event of Default (other than an Event of Default specified in clause
(g) or (h) above) occurs and is continuing, then and in every such case the
Trustee or the holders of not less than 25% of the outstanding aggregate
principal amount at Stated Maturity of the Notes, may declare the principal
amount at Stated Maturity, premium, if any, and any accrued and unpaid interest
on all such Notes then outstanding to be immediately due and payable by a notice
in writing to the Company (and to the Trustee if given by holders of such
Notes), and upon any such declaration all amounts payable in respect of the
Notes will become and be immediately due and payable. If any Event of Default
specified in clause (g) or (h) above occurs, the principal amount at Stated
Maturity, premium, if any, and any accrued and unpaid interest on the Notes then
outstanding shall become immediately due and payable without any declaration or
other act on the part of the Trustee or any holder of such Notes. In the event
of a declaration of acceleration because an Event of Default
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set forth in clause (e) above has occurred and is continuing, such declaration
of acceleration shall be automatically rescinded and annulled if the event of
default triggering such Event of Default pursuant to clause (e) shall be
remedied, or cured or waived by the holders of the relevant Indebtedness within
30 days after such event of default; provided that no judgment or decree for the
payment of the money due on the Notes has been obtained by the Trustee as
provided in the Indenture. Under certain circumstances, the holders of a
majority in principal amount at Stated Maturity of the outstanding Notes by
notice to the Company and the Trustee may rescind an acceleration and its
consequences.
The holders of a majority in aggregate principal amount at Stated Maturity
of the Notes then outstanding by notice to the Trustee may on behalf of the
holders of all such Notes waive any existing Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, premium, if any on or the principal of, such Notes. Subject to the
provisions of the Indenture relating to the duties of the Trustee, the Trustee
is under no obligation to exercise any of its rights or powers under the
Indenture at the request, order or direction of any of the holders, unless such
holders have offered to such Trustee reasonable security or indemnity. Subject
to the provisions of the Indenture and applicable law, the holders of a majority
in aggregate principal amount at Stated Maturity of the Notes at the time
outstanding have the right to direct the time, method and place of conducting
any proceeding for any remedy available to the Trustee, or exercising any trust
or power conferred upon the Trustee.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required within five
Business Days after becoming aware of any Default or Event of Default, to
deliver to the Trustee a statement describing such Default or Event of Default,
its status and what action the Company is taking or proposes to take with
respect thereto.
AMENDMENT, SUPPLEMENT AND WAIVER
The Company, the Guarantors and the Trustee may, at any time and from time
to time, without notice to or consent of any holder, enter into one or more
indentures supplemental to the Indenture (a) to evidence the succession of
another Person to the Company and the Guarantors and the assumption by such
successor of the covenants and Obligations of the Company under the Indenture
and contained in the Notes and the Guarantors contained in the Indenture and the
Guarantees, (b) to add to the covenants of the Company, for the benefit of the
holders, or to surrender any right or power conferred upon the Company or the
Guarantors by the Indenture, (c) to add any additional Events of Default, (d) to
provide the uncertificated Notes in addition to or in place of certificated
Notes, (e) to evidence and provide for the acceptance of appointment under the
Indenture by the successor Trustee, (f) to secure the Notes and/or the
Guarantees, (g) to cure any ambiguity, to correct or supplement any provision in
the Indenture which may be inconsistent with any other provision therein or to
add any other provisions with respect to matters or questions arising under the
Indenture, provided that such actions will not adversely affect the interests of
the holders in any material respect or (h) to add or release any Guarantor
pursuant to the terms of the Indenture.
With the consent of the holders of not less than a majority in principal
amount at Stated Maturity of the outstanding Notes (including consents obtained
in connection with a tender offer or exchange offer for the Notes), the Company
and the Trustee may enter into one or more indentures supplemental to the
Indenture for the purpose of adding any provisions to or changing in any manner
or eliminating any of the provisions of the Indenture or of modifying in any
manner the rights of the holders; provided, however, that no such supplemental
indenture will, without the consent of the holder of each Outstanding Note
affected thereby, (a) change the Stated Maturity of the principal of, or any
installment of interest on, any Note, or reduce the principal amount thereof (or
premium, if any), or the interest thereon that would be due and payable upon
Maturity thereof, or change the place of payment where, or the coin or currency
in which, any Note or the interest thereon is payable, or impair the right to
institute suit for the enforcement of any such payment on or after the Stated
Maturity thereof, (b) reduce the percentage in principal amount at Stated
Maturity of the Outstanding Notes, the consent of whose Holders is necessary for
any such supplemental indenture or required for any waiver of compliance with
certain provisions of the Indenture, or certain Defaults thereunder, (c) modify
the Obligations of the Company to make offers to purchase Notes upon a Change of
Control or from the proceeds of Asset Sales, (d) subordinate in right of
payment, or otherwise subordinate, the Notes or
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the Guarantees to any other Indebtedness, (e) amend, supplement or otherwise
modify the provisions of the Indenture requiring any Guarantee or release any
existing Guarantee, or (f) modify any of the provisions of this paragraph
(except to increase any percentage set forth herein).
The holders of not less than a majority in principal amount at Stated
Maturity of the outstanding Notes may on behalf of the holders of all the Notes
waive any past Default or Event of Default under the Indenture and its
consequences, except a Default or Event of Default (a) in the payment of the
principal of (or premium, if any) or interest on any Note or (b) in respect of a
covenant or provision hereof which under the proviso to the prior paragraph
cannot be modified or amended without the consent of the Holder of each
outstanding Note affected.
Satisfaction and Discharge of the Indenture; Defeasance. The Company may
terminate its obligations and the obligations of the Guarantors under the Notes,
the Indenture, and the Guarantees when (i) either (A) all outstanding Notes have
been delivered to the Trustee for cancellation or (B) all such Notes not
therefore delivered to the Trustee for cancellation have become due and payable,
will become due and payable within one year or are to be called for redemption
within one year under irrevocable arrangements satisfactory to the Trustee for
the giving of notice of redemption by the Trustee in the name and at the expense
of the Company, and the Company has irrevocably deposited or caused to be
deposited with the Trustee funds in an amount sufficient to pay and discharge
the entire indebtedness on the Notes not theretofore delivered to the Trustee
for cancellation, for principal of (premium, if any, on) and interest to the
date of deposit or Maturity or date of redemption; (ii) the Company has paid or
caused to be paid all sums then due and payable by the Company under the
Indenture; and (iii) the Company has delivered an Officers Certificate and an
opinion of counsel relating to compliance with the conditions set forth in the
Indenture.
The Company, at its election, shall (a) be deemed to have paid and
discharged its debt on the Notes and the Indenture and Guarantees shall cease to
be of further effect as to all outstanding Notes (except as to (i) rights of
registration of transfer, substitution and exchange of Notes, and the Company's
right of optional redemption, (ii) rights of holders to receive payments of
principal of, premium, if any, and interest on the Notes (but not the Change of
Control Purchase Price or the Asset Sale Offer Purchase Price) and any rights of
the holders with respect to such amounts, (iii) the rights, obligations and
immunities of the Trustee under the Indenture, and (iv) certain other specified
provisions in the Indenture) or (b) cease to be under any obligation to comply
with certain restrictive covenants that are described in the Indenture, after
the irrevocable deposit by the Company with the Trustee, in trust for the
benefit of the holders, at any time prior to the Stated Maturity of the Notes,
of (A) money in an amount, (B) U.S. Government Obligations which through the
payment of interest and principal will provide, not later than one day before
the due date of payment in respect of such Notes, money in an amount, or (C) a
combination thereof sufficient to pay and discharge the principal of, premium,
if any on, and interest on, such Notes then outstanding on the dates on which
any such payments are due in accordance with the terms of the Indenture and of
such Notes. Such defeasance or covenant defeasance shall be deemed to occur only
if certain conditions are satisfied, including, among other things, delivery by
the Company to the Trustee of an opinion of outside counsel acceptable to the
Trustee to the effect that (i) such deposit, defeasance and discharge will not
be deemed, or result in, a taxable event for federal income tax purposes with
respect to the holders; and (ii) the Company's deposit will not result in the
trust or such Trustee being subject to regulation under the Investment Company
Act of 1940.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any capitalized terms used herein for which no definition
is provided.
"Acquired Indebtedness" means, with respect to any specified Person,
Indebtedness of any other Person existing at the time such other Person merged
with or into or became a subsidiary of such specified Person, including
Indebtedness incurred in connection with, or in contemplation of, such other
Person merging with or into or becoming a subsidiary of such specified Person,
but excluding Indebtedness which is extinguished,
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retired or repaid in connection with such other Person merging with or into or
becoming a subsidiary of such specified Person.
"Affiliate" of any specified Person means another Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided, however,
that beneficial ownership of 10% or more of the voting securities of a Person
shall be deemed to be control.
"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
or other disposition (including, without limitation, by way of merger or
consolidation or by means of a Sale and Lease-Back Transaction by the Company or
any Subsidiary to any Person other than the Company, a Guarantor or a Wholly
Owned Subsidiary, in one transaction, or a series of related transactions, of
(i) any Capital Stock of any Subsidiary (except for directors' qualifying shares
or certain minority interests sold to other Persons solely due to local law
requirements that there be more than one stockholder, but which are not in
excess of what is required for such purpose), or (ii) any other Property or
assets of the Company or any Subsidiary, other than (A) sales of drill-string
components and obsolete or worn out equipment in the ordinary course of business
or other assets that, in the Company's reasonable judgment, are no longer used
or useful in the conduct of the business of the Company and its Subsidiaries),
(B) any drilling contract, charter (bareboat or otherwise) or other lease of
Property or other asset entered into by the Company or any Subsidiary in the
ordinary course of business, other than any Bargain Purchase Contract, (C) a
Restricted Payment or Restricted Investment permitted under "-- Certain
Covenants -- Limitation on Restricted Payments," (D) a Change of Control, (E) a
consolidation, merger or the disposition of all or substantially all of the
assets of the Company in compliance with the provision of the Indenture
described in "-- Consolidation, Merger, Conveyance, Lease or Transfer," (F) any
trade or exchange by the Company or any Subsidiary of one or more drilling rigs
for one or more other drilling rigs of like kind owned or held by another
Person, provided that (x) the Fair Value of the rig or rigs traded or exchanged
by the Company or such Subsidiary (including cash or cash equivalents to be
delivered by the Company or such Subsidiary) is reasonably equivalent to the
Fair Value of the drilling rig or rigs (together with cash or cash equivalents
to be received by the Company or such Subsidiary) or other assets as determined
by written appraisal by a nationally (or industry) recognized investment banking
firm or appraisal firm and (y) such exchange is approved by a majority of the
disinterested directors of the Company. An Asset Sale shall include the
requisition of title to, seizure of or forfeiture of any Property or assets, or
any actual or constructive total loss or an agreed or compromised total loss of
any Property or assets.
"Attributable Indebtedness" in respect of a Sale and Lease-Back Transaction
means, at any date of determination, the present value (discounted at the
interest rate borne by the Notes, compounded annually) of the total obligations
of the lessee for rental payments during the remaining terms of the lease (or to
the first date on which the lessee is permitted to terminate such lease without
the payment of a penalty) included in such Sale and Lease-Back Transaction
(including any period for which such lease has been extended).
"Average Life" means, as of any date, with respect to any debt security,
the quotient obtained by dividing (i) the sum of the products of (x) the number
of years from such date to the date of each scheduled principal payment
(including any sinking fund or mandatory redemption payment requirements) of
such debt security multiplied in each case by (y) the amount of such principal
payment by (ii) the sum of all such principal payments.
"Bank Credit Facility" means the $50.0 million Amended and Restated Senior
Secured Revolving Credit Facility dated April 30, 1997 among the Company and
Drillers as co-borrowers, International as guarantor and a syndicate of
commercial banks, as from time to time amended.
"Bargain Purchase Contract" means a drilling contract, charter (bareboat or
otherwise) or lease that provides for acquisition of Property by the other party
to such agreement during or at the end of the term thereof for less than Fair
Market Value thereof at the time such right to acquire such Property is granted.
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"Capital Lease Obligation" means, at any time as to any Person with respect
to any Property leased by such Person as lessee, the amount of the liability
with respect to such lease that would be required at such time to be capitalized
and accounted for as a capital lease on the balance sheet of such Person
prepared in accordance with GAAP.
"Capital Stock" in any Person means any and all shares, interests,
partnership interests, participations or other equivalents in the equity
interest (however designated) in such Person and any rights (other than debt
securities convertible into an equity interest), warrants or options to acquire
any equity interest in such Person.
"Cash Proceeds" means, with respect to any Asset Sale by any Person, the
aggregate consideration received for such Asset Sale by such Person in the form
of cash or cash equivalents (including any amounts of insurance or other
proceeds received in connection with an Asset Sale of the type described in the
last sentence of the definition thereof), including payments in respect of
deferred payment obligations when received in the form of cash or cash
equivalents (except to the extent that such obligations are financed or sold
with recourse to such Person or any subsidiary thereof).
"Change of Control" means (i) a determination by the Company that any
Person or group (as defined in Section 13(d)(3) or 14(d)(2) of the Exchange Act)
has become the direct or beneficial owner (as defined in Rule 13d-3 under the
Exchange Act) of more than 50% of the Voting Stock of the Company other than
Permitted Holders; (ii) the Company is merged with or into or consolidated with
another corporation and, immediately after giving effect to the merger or
consolidation, less than 50% of the outstanding voting securities entitled to
vote generally in the election of directors or persons who serve similar
functions of the surviving or resulting entity are then beneficially owned
(within the meaning of Rule 13d-3 of the Exchange Act) in the aggregate by (x)
the stockholders of the Company immediately prior to such merger or
consolidation, or (y) if the record date has been set to determine the
stockholders of the Company entitled to vote on such merger or consolidation,
the stockholders of the Company as of such a record date; (iii) the Company,
either individually or in conjunction with one or more Subsidiaries, sells,
conveys, transfers or leases, or the Subsidiaries sell, convey, transfer or
lease, all or substantially all of the assets of the Company or the Company and
the Subsidiaries, taken as a whole (either in one transaction or a series of
related transactions ), including Capital Stock of the Subsidiaries, to any
Person (other than a Wholly Owned Subsidiary); (iv) the liquidation or
dissolution of the Company; or (v) the first day on which a majority of the
individuals who constitute the Board of Directors are not Continuing Directors.
"Consolidated Interest Coverage Ratio" means as of the date of the
transaction giving rise to the need to calculate the Consolidated Interest
Coverage Ratio (the "Transaction Date"), the ratio of (i) the aggregate amount
of EBITDA of the Company and its consolidated Subsidiaries for the four fiscal
quarters for which financial information in respect thereof is available
immediately prior to the applicable Transaction Date (the "Determination
Period") to (ii) the aggregate Consolidated Interest Expense of the Company and
its consolidated Subsidiaries that is anticipated to accrue during a period
consisting of the fiscal quarter in which the Transaction Date occurs and the
three fiscal quarters immediately subsequent thereto (based upon the pro forma
amount and maturity of, and interest payments in respect of, Indebtedness of the
Company and its consolidated Subsidiaries expected by the Company to be
outstanding on the Transaction Date), assuming for the purposes of this
measurement the continuation of market interest rates prevailing on the
Transaction Date and base interest rates in respect of floating interest rate
obligations equal to the base interest rates on such obligations in effect as of
the Transaction Date, provided that if the Company or any of its consolidated
Subsidiaries is a party to any Interest Swap Obligation that would have the
effect of changing the interest rate on any Indebtedness of the Company or any
of its consolidated Subsidiaries for such four-quarter period (or a portion
thereof), the resulting rate shall be used for such four-quarter period or
portion thereof; provided, further, that any Consolidated Interest Expense of
the Company with respect to Indebtedness incurred or retired by the Company or
any of its Subsidiaries during the fiscal quarter in which the Transaction Date
occurs shall be calculated as if such debt was incurred or retired on the first
day of the fiscal quarter in which the Transaction Date occurs; provided,
further, that if the transaction giving rise to the need to calculate the
Consolidated Interest Coverage Ratio would have the effect of increasing or
decreasing EBITDA in the future and if such increase or decrease is readily
quantifiable and is directly attributable to such transaction, EBITDA shall be
calculated on a pro forma basis as if such transaction had occurred on the first
day of the
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four fiscal quarter referred to in clause (i) of this definition, and if, during
the same four fiscal quarters, (x) the Company or any of its consolidated
Subsidiaries shall have engaged in any Asset Sale, EBITDA for such period shall
be reduced by an amount equal to the EBITDA (if positive), or increased by an
amount equal to the EBITDA (if negative), directly attributable to the assets
which are the subject of such Asset Sale for such period calculated on a pro
forma basis as if such Asset Sale and any related retirement of Indebtedness had
occurred on the first day of such period or (y) after the Issue Date, the
Company or any of its consolidated Subsidiaries shall have acquired any material
assets other than in the ordinary course of business, EBITDA and Consolidated
Interest Expense shall be calculated on a pro forma basis as if such acquisition
on the first day of such period.
"Consolidated Interest Expense" mean, with respect to any Person for any
period, without duplication (A) the sum of (i) the aggregate amount of cash and
noncash interest expense (including capitalized interest) of such Person and its
subsidiaries for such period as determined on a consolidated basis in accordance
with GAAP in respect of Indebtedness (including, without limitation, (v) any
amortization of debt discount, (w) net costs associated with Interest Swap
Obligations (including any amortization of discounts), (x) the interest portion
of any deferred payment obligation calculated in accordance with the effective
interest method, (y) all accrued interest and (z) all commissions, discounts and
other fees and charges owed with respect to letters of credit, bankers
acceptances or similar facilities) paid or accrued, or scheduled to be paid or
accrued, during such period; (ii) dividends on Preferred Stock or Redeemable
Stock of such Person (and Preferred Stock or Redeemable Stock of its
subsidiaries if paid to a Person other than such Person or its subsidiaries)
declared and payable in cash; (iii) the portion of any rental obligation of such
Person or its subsidiaries in respect of any Capital Lease Obligation allocable
to interest expense in accordance with GAAP; (iv) the portion of any rental
obligation of such Person or its subsidiaries in respect of any Sale and
Lease-Back Transaction allocable to interest expense (determined as if such were
treated as a Capital Lease Obligation); and (v) to the extent any debt of any
other Person is guaranteed by such Person or any of its subsidiaries, the
aggregate amount of interest paid, accrued or scheduled to be paid or accrued,
by such other Person during such period attributable to any such debt, less (B)
to the extent included in (A) above, amortization or write-off of deferred
financing costs of such Person and its subsidiaries during such period and any
charge related or any premium or penalty paid in connection with redeeming or
retiring any Indebtedness of such Person and its subsidiaries prior to its
stated maturity; in the case of both (A) and (B) above, after elimination of
intercompany accounts among such Person and its subsidiaries and as determined
in accordance with GAAP. For purposes of clause (ii) above, dividend
requirements attributable to any Preferred Stock or Redeemable Stock shall be
deemed to be an amount equal to the amount of dividend requirements on such
Preferred Stock or Redeemable Stock times a fraction, the numerator of which is
the amount of such dividend requirements, and the denominator of which is one
minus the applicable combined federal, state, local and foreign income tax rate
of the Company and its Subsidiaries (expressed as a decimal), on a consolidated
basis, for the fiscal year immediately preceding the date of the transaction
giving rise to the need to calculate Consolidated Interest Expense.
"Consolidated Net Income" of any Person means, for any period, the
aggregate net income (or net loss, as the case may be) of such Person and its
subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP, provided that there shall be excluded therefrom, without duplication,
(i) any net income of any Unrestricted Subsidiary, except that the Company's or
any Subsidiary's equity in the net income of such Unrestricted Subsidiary for
such period shall be included in such Consolidated Net Income up to the
aggregate amount of cash or cash equivalents actually distributed by such
Unrestricted Subsidiary during such period to the Company or a Subsidiary as a
dividend or other distribution, (ii) gains and losses, net of taxes, from Asset
Sales or reserves relating thereto, (iii) the net income of any Person that is
not a subsidiary or that is accounted for by the equity method of accounting
which shall be included only to the extent of the amount of dividends or
distributions paid to such Person or its subsidiaries, (iv) items (but not loss
items) classified as extraordinary, unusual or nonrecurring (other than the tax
benefit, if any, of the utilization of net operating loss carryforwards or
alternative minimum tax credits), (v) the net income (but not net loss) of any
Person acquired by such specified Person or any of its subsidiaries in a
pooling-of-interests transaction for any period prior to the date of such
acquisition, (vi) any gain or loss, net of taxes, realized on the termination of
any employee pension benefit plan, (vii) the net income (but not net loss) of
any subsidiary
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of such specified Person to the extent that the transfer to that Person of that
income is not at the time permitted, directly or indirectly, by any means
(including by dividend, distribution, advance or loan or otherwise), by
operation of the terms of its charter or any agreement with a Person other than
with such specified Person, instrument held by a Person other than by such
specified Person, judgment, decree, order, statute, law, rule or governmental
regulations applicable to such subsidiary or its stockholders, except for any
dividends or distributions actually paid by such subsidiary to such Person, and
(viii) with regard to a non-Wholly Owned Subsidiary, any aggregate net income
(or loss) in excess of such Person's or such subsidiary's pro rata share of such
non-Wholly Owned Subsidiary's net income (or loss).
"Consolidated Net Worth" of any Person means, as of any date, the sum of
the Capital Stock and additional paid-in capital plus retained earnings (or
minus accumulated deficit) of such Person and its subsidiaries on a consolidated
basis at such date, each item determined in accordance with GAAP, less amounts
attributable to Redeemable Stock of such Person or any of its subsidiaries.
"Continuing Director" means an individual who (i) is a member of the Board
of Directors of the Company and (ii) either (A) was a member of the Board of
Directors of the Company on the Issue Date or (B) whose nomination for election
or election to the Board of Directors of the Company was approved by vote of at
least a majority of the directors then still in office who were either directors
on the Issue Date or whose election or nomination for election was previously so
approved.
"Currency Hedge Obligations" means, at any time as to any Person, the
obligations of such Person a such time which were incurred in the ordinary
course of business pursuant to any foreign currency exchange agreement, option
or future contract or other similar agreement or arrangement designed to protect
against or manage such Person's or any of its subsidiaries exposure to
fluctuations in foreign currency exchange rates.
"Default" means any event, act or condition the occurrence of which is, or
after notice or the passage time or both would be, an Event of Default.
"Determination Period" has the meaning specified under clause (i) of the
definition of "Consolidated Interest Coverage Radio."
"EBITDA" means, with respect to any Person for any period, the Consolidated
Net Income of such Person for such period, plus to the extent reflected in the
income statement of such Person for such period from which Consolidated Net
Income is determined, without duplication, (i) Consolidated Interest Expense,
(ii) income tax expense, (iii) depreciation expense, (iv) amortization expense,
(v) any charge related to any premium or penalty paid in connection with
redeeming or retiring any Indebtedness prior to its Stated Maturity, (vi) any
other non-cash charges and minus, to the extent reflected in such income
statement, any noncash credits that had the effect of increasing Consolidated
Net Income of such Person for such period, and (vii) non-recurring charges of
approximately $6.1 million incurred during 1996 in employment severance costs,
exit costs attributable to its exiting Argentina and Mexico and other
non-recurring charges, all as described in the Company's Form 10-K for the year
ended December 31, 1996.
"Fair Market Value" means, with respect to consideration received or to be
received pursuant to any transaction by any Person, the fair market value of
such consideration as determined in good faith by the Board of Directors of the
Company.
"Fair Value" means, with respect to any asset or Property, the price which
could be negotiated in an arm's-length free market transaction, for cash,
between a willing seller and a willing buyer, neither of whom is under undue
pressure or compulsion to complete the transaction.
"GAAP" means, at any date, United States generally accepted accounting
principles, consistently applied, as set forth in the opinions of the Accounting
Principles Board of the American Institute of Certified Public Accountants
("AICPA") and statements of the Financial Accounting Standards Board, or in such
other statements by such other entity as may be designated by the AICPA, that
are applicable to the circumstances as of the date of determination; provided,
however, that all calculations made for purposes of determining compliance with
the provisions set forth in the Indenture shall utilize GAAP in effect at the
Issue Date.
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"Guarantee" means any guarantee of the Notes by any Guarantor in accordance
with the provisions described under "-- Guarantees of Notes."
"Guarantor" means each Subsidiary of the Company that is required to
guarantee the Company's Obligations under the Notes and the Indenture as
described in "-- Guarantees of Notes" and any other Subsidiary of the Company
that executes a supplemental Indenture in which such Subsidiary agrees to
guarantee the Company's Obligations under the Notes and the Indenture.
"Incur" means, with respect to any Indebtedness or other obligation of any
Person, to create, issue, suffer to exist, incur (by conversion, exchange or
otherwise), assume, guarantee or otherwise become liable in respect of such
Indebtedness or other obligation or the recording, as required pursuant to GAAP
or otherwise, of any such Indebtedness or obligation on the balance sheet of
such Person (and "incurrence," "incurred," "incurrable" and "incurring" shall
have meanings correlative to the foregoing); provided that a change in GAAP that
results in an obligation of such Person that exists at such time becoming
Indebtedness shall not be deemed an incurrence of such Indebtedness.
"Indebtedness" as applied to any Person means, at any time, without
duplication, whether recourse is to all or a portion of the assets of such
Person, and whether or not contingent, (i) any obligation of such Person for
borrowed money; (ii) any obligation of such Person evidenced by bonds,
debentures, notes or other similar instruments, including, without limitation,
any such obligations incurred in connection with acquisition of Property, assets
or businesses, excluding accounts payable made in the ordinary course of
business which are not more than 90 days overdue or which are being contested in
good faith and by appropriate proceedings; (iii) any obligation of such Person
for all or any part of the purchase price of Property or for the cost of
Property constructed or of improvements thereto (including any obligation under
or in connection with any letter of credit related thereto), other than accounts
payable incurred in respect of Property and services purchased in the ordinary
course of business which are no more than 90 days overdue or which are being
contested in good faith and by appropriate proceedings; (iv) any obligation of
such Person upon which interest charges are customarily paid (other than
accounts payable incurred in the ordinary course of business); (v) any
obligation of such Person under conditional sale or other title retention
agreements relating to purchased Property; (vi) any obligation of such Person
issued or assumed as the deferred purchase price of Property (other than
accounts payable incurred in the ordinary course of business which are no more
than 90 days overdue or which are being contested in good faith and by
appropriate proceedings); (vii) any Capital Lease Obligation or Attributable
Indebtedness pursuant to any Sale and LeaseBack Transaction of such Person;
(viii) any obligation of any other Person secured by (or for which the obligee
thereof has an existing right, contingent or otherwise, to be secured by) any
Lien on Property owned or acquired, whether or not any obligation secured
thereby has been assumed, by such Person; (ix) any obligation of such Person in
respect of any letter of credit supporting any obligation of any other Person;
(x) the maximum fixed repurchase price of any Redeemable Stock of such Person
(or if such Person is a subsidiary, any Preferred Stock of such Person); (xi)
the notional amount of any Interest Swap Obligation or Currency Hedge Obligation
of such Person at the time of determination; and (xii) any obligation which is
in economic effect a guarantee, regardless of its characterization (other than
an endorsement in the ordinary course of business), with respect to any
Indebtedness of another Person, to the extent guaranteed. For purposes of the
preceding sentence, the maximum fixed repurchase price of any Redeemable Stock
or subsidiary Preferred Stock that does not have a fixed repurchase price shall
be calculated in accordance with the terms of such Redeemable Stock or
subsidiary Preferred Stock as if such Redeemable Stock or subsidiary Preferred
Stock were repurchased on any date on which Indebtedness shall be required to be
determined pursuant to the Indenture Supplement; provided, however, that if such
Redeemable Stock or subsidiary Preferred Stock is not then permitted to be
repurchased, the repurchase price shall be the book value of such Redeemable
Stock or subsidiary Preferred Stock. The amount of Indebtedness of any Person at
any date shall be the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability of any guarantees at
such date; provided that for purposes of calculating the amount of any
non-interest bearing or other discount security, such Indebtedness shall be
deemed to be the principal amount thereof that would be shown on the balance
sheet of the issuer dated such date prepared in accordance with GAAP but that
such security shall be deemed to have been incurred only on the date of the
original issuance thereof.
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"Interest Swap Obligation" means, with respect to any Person, the
obligation of such Person pursuant to any interest rate swap agreement, interest
rate cap, collar or floor agreement or other similar agreement or arrangement
designed to protect against or manage such Person's or any of its subsidiaries
exposure to fluctuations in interest rates.
"Investment" means, with respect to any Person, any direct, indirect or
contingent investment in another Person, whether by means of a share purchase,
capital contribution, loan, advance (other than advances to employees for moving
and travel expenses, drawing accounts and similar expenditures in the ordinary
course of business) or similar credit extension constituting Indebtedness of
such other Person, and any guarantee of Indebtedness of any other Person;
provided that the term "Investment" shall not include any transaction involving
the purchase or other acquisition (including by way of merger) of Property
(including Capital Stock) by the Company or any Subsidiary in exchange for
Capital Stock (other than Redeemable Stock) of the Company. The amount of any
Person's Investment shall be the original cost of such Investment to such
Person, plus the cost of all additions thereto paid by such Person, and minus
the amount of any portion of such Investment repaid to such Person in cash as a
repayment of principal or a return of capital, as the case may be, but without
any other adjustments for increases or decreases in value, or write-ups,
writedowns, or write-offs with respect to such Investment. In determining the
amount of any Investment involving a transfer of any Property or assets other
than cash, such Property or assets shall be valued at its Fair Value at the time
of such transfer as determined in good faith by the board of directors (or
comparable body) of the Person making such transfer. The Company shall be deemed
to make an "Investment" in the amount of the Fair Value of the Assets of a
Subsidiary at the time such Subsidiary is designated an Unrestricted Subsidiary.
"Issue Date" means the date on which the Notes are first authenticated and
delivered under the Indenture.
"Joint Venture" means any Person (other than a Guarantor) designated as
such by a resolution of the Board of Directors of the Company and as to which
(i) the Company, any Guarantor or any Joint Venture owns less than 50% of the
Capital Stock of such Person; (ii) no more than [10] unaffiliated Persons own of
record any Capital Stock of such Person; (iii) at all times, each such Person
owns the same proportion of each class of Capital Stock of such Person
outstanding at such time; (iv) no Indebtedness of such Person is or becomes
outstanding other than Non-Recourse Indebtedness; (v) there exist no consensual
encumbrances or restrictions on the ability of such Person to (x) pay, directly
or indirectly, dividends or make any other distributions in respect of its
Capital Stock to the holders of its Capital Stock or (y) pay any Indebtedness or
other obligation owed to the holders of its Capital Stock or (z) make any
Investment in the holders of its Capital Stock, in each case other than the
types of consensual encumbrances or restrictions that would be permitted by the
"Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant if such Person were a Subsidiary; and (vi) the business
engaged in by such Person is a Related Business.
"Lien" means any mortgage, pledge, hypothecation, charge, assignment,
deposit arrangement, encumbrance, security interest, lien (statutory or other),
or preference, priority or other security or similar agreement or preferential
arrangement of any kind or nature whatsoever (including, without limitation, any
agreement to give or grant a Lien or any lease, conditional sale or other title
retention agreement having substantially the same economic effect as any of the
foregoing).
"Maturity" means the date on which the principal of a Note becomes due and
payable as provided therein or in the Indenture, whether at the Stated Maturity
or the Change of Control Payment Date or purchase date established pursuant to
the terms of the Indenture for an Asset Sale Offer or by declaration of
acceleration, call for redemption or otherwise.
"Net Available Proceeds" means, (a) as to any Asset Sale (other than a
Bargain Purchase Contract), the Cash Proceeds therefrom, net of all legal and
title expenses, commissions and other fees and expenses incurred, and all
Federal, state, foreign, recording and local taxes payable as a consequence of
such Asset Sale, net of all payments made to any Person other than the Company
or a Subsidiary on any Indebtedness which is secured by such assets, in
accordance with the terms of any Lien upon or with respect to such assets, or
which must by its terms, or in order to obtain a necessary consent to such Asset
Sale, or by applicable law, be repaid
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out of the proceeds from such Asset Sale and, as for any Asset Sale by a
Subsidiary, net of the equity interest in such Cash Proceeds of any holder of
Capital Stock of such Subsidiary (other than the Company, any other Subsidiary
or any Affiliate of the Company or any such other Subsidiary) and (b) as to any
Bargain Purchase Contract, an amount equal to (i) that portion of the rental or
other payment stream arising under a Bargain Purchase Contract that represents
an amount in excess of the Fair Market Value of the rental or other payments
with respect to the pertinent Property or other asset and (ii) the Cash Proceeds
from the sale of such Property or other asset, net of the amount set forth in
clause (a) above, in each case as and when received.
"Non-Recourse Indebtedness" means Indebtedness or that portion of
Indebtedness of an Unrestricted Subsidiary or a foreign Subsidiary not
constituting a Guarantor as to which (a) neither the Company nor any other
Subsidiary (other than an Unrestricted Subsidiary or a subsidiary of such
foreign subsidiary) (i) provides credit support including any undertaking,
agreement or instrument which would constitute Indebtedness or (ii) is directly
or indirectly liable for such Indebtedness and (b) no default with respect to
such Indebtedness (including any rights which the holders thereof may have to
take enforcement action against an Unrestricted Subsidiary or such foreign
Subsidiary) would permit (upon notice, lapse of time or both) any holder any
other Indebtedness of the Company or its other Subsidiaries to declare a default
on such other Indebtedness cause the payment thereof to be accelerated or
payable prior to its stated maturity.
"Obligations" means, with respect to any Indebtedness, any obligation
thereunder, including, without limitation, principal, premium and interest
(including post petition interest thereon), penalties, fees, costs, expenses,
indemnifications, reimbursements, damages and other liabilities.
"Obligors" means the Company and the Guarantors, collectively; "Obligor"
means the Company or any Guarantor.
"Officers' Certificate" means a certificate signed by the Chairman of the
Board, a Vice Chairman of the Board, the President, the Chief Executive Officer,
the Chief Operating Officer or a Vice President, and by the Chief Financial
Officer, the Chief Accounting Officer, the Treasurer, an Assistant Treasurer,
the Secretary or an Assistant Secretary of the Company or a Subsidiary and
delivered to the Trustee, which shall comply with the Indenture.
"Permitted Holders" means .
"Permitted Indebtedness" means (a) Indebtedness of the Company under the
Notes; (b) Indebtedness (and any guarantee thereof) under one or more credit or
revolving credit facilities with a bank or syndicate of banks or financial
institutions, as such may be amended, modified, revised, extended, replaced, or
refunded from time to time, in an aggregate principal amount at any one time
outstanding not to exceed $ million, less any amounts derived from Asset
Sales and applied to the required permanent reduction of Senior Debt (and a
permanent reduction of the related commitment to lend or amount available to be
reborrowed in the case of a revolving credit facility) under such credit
facilities as contemplated by the "Limitation on Asset Sales" covenant, (c)
Indebtedness of the Company or any Subsidiary under Interest Swap Obligations,
provided that (i) such Interest Swap Obligations are related to payment
obligations on Indebtedness otherwise permitted under the covenants described in
"-- Certain Covenants -- Limitation on Indebtedness" and (ii) the notional
principal amount of such Interest Swap Obligations does not exceed the principal
amount of the Indebtedness to which such Interest Swap Obligations relate; (d)
Indebtedness of the Company or any Subsidiary under Currency Hedge Obligations,
provided that (i) such Currency Hedge Obligations are related to payment
obligations on Indebtedness otherwise permitted under the covenants described in
"-- Certain Covenants -- Limitation on Indebtedness" or to the foreign currency
cash flows reasonably expected to be generated by the Company and the
Subsidiaries and (ii) the notional principal amount of such Currency Hedge
Obligations does not exceed the principal amount of the Indebtedness and the
amount of the foreign currency cash flows to which such Currency Hedge
Obligations relate; (e) Indebtedness of the Company or any Subsidiary
outstanding on the Issue Date; (f) the Guarantees of the Notes (and any
assumption of the obligations guaranteed thereby); (g) Indebtedness of the
Company or any Subsidiary in respect of bid performance bonds, surety bonds,
appeal bonds and letters of credit or similar arrangements issued for the
account of the Company or any Subsidiary, in each case in the ordinary course of
business and other than for
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an obligation for money borrowed; (h) Indebtedness of the Company to a Guarantor
or other Wholly Owned Subsidiary and Indebtedness of a Guarantor or other Wholly
Owned Subsidiary to the Company or another Guarantor or other Wholly Owned
Subsidiary; provided that upon any subsequent issuance or transfer of any
Capital Stock or any other event which results in any such Guarantor ceasing to
be a Guarantor or such Wholly Owned Subsidiary ceasing to be a Wholly Owned
Subsidiary, as the case may be, or any other subsequent transfer of any such
Indebtedness (except to the Company or a Guarantor or other Wholly Owned
Subsidiary), such Indebtedness shall be deemed, in each case, to be incurred and
shall be treated as an incurrence for purposes of the "Limitation on
Indebtedness" covenants at the time the Guarantor in question ceased to be a
Guarantor or the Wholly Owned Subsidiary in question ceased to be a Wholly Owned
Subsidiary; (i) Subordinated Indebtedness of the Company to an Unrestricted
Subsidiary for money borrowed; (j) Indebtedness of the Company in connection
with a purchase of the Notes pursuant to a Change of Control Offer, provided
that the aggregate principal amount of such Indebtedness does not exceed 101% of
the aggregate principal amount at Stated Maturity of the Notes purchased
pursuant to such Change of Control Offer; provided, further, that such
Indebtedness (A) has an Average Life equal to or greater than the remaining
Average Life of the Notes and (B) does not mature prior to one year following
the Stated Maturity of the Notes; (k) Permitted Refinancing Indebtedness; (l)
Permitted Subsidiary Refinancing Indebtedness; and (m) additional Indebtedness
in an aggregate principal amount not in excess of $ at any one time
outstanding. So as to avoid duplication in determining the amount of Permitted
Indebtedness under any clause of this definition, guarantees permitted to be
incurred pursuant to the Indenture of, or obligations permitted to be incurred
pursuant to the Indenture in respect of letters of credit supporting,
Indebtedness otherwise included in the determination of such amount shall not
also be included.
"Permitted Investments" means (a) certificates of deposit, bankers
acceptances, time deposits, Eurocurrency deposits and similar types of
Investments routinely offered by commercial banks with final maturities of one
year or less issued by commercial banks having capital and surplus in excess of
$500 million; (b) commercial paper issued by any corporation, if such commercial
paper has credit ratings of at least "A-1" or its equivalent by S&P and at least
"P-I" by Moody's or its equivalent; (c) U.S. Government Obligations with a
maturity of four years or less; (d) repurchase obligations for instruments of
the type described in clause (c); (e) shares of money market mutual or similar
funds having assets in excess of $100 million; (f) payroll advances in the
ordinary course of business; (g) other advances and loans to officers and
employees of the Company or any Subsidiary, so long as the aggregate principal
amount of such advances and loans does not exceed $500,000 at any one time
outstanding; (h) Investments represented by that portion of the proceeds from
Asset Sales (1) that is not Cash Proceeds or (2) that is deemed to be Cash
Proceeds pursuant to the second sentence of the definition of "Cash Proceeds";
(i) Investments made by the Company in Guarantors or in its other Wholly Owned
Subsidiaries (or any Person that will be a Wholly Owned Subsidiary as a result
of such Investment) or by a Subsidiary in the Company or in one or more
Guarantors or other Wholly Owned Subsidiaries (or any Person that will be a
Wholly Owned Subsidiary as a result of such Investment); (j) Investment in
stock, obligations or securities received in settlement of debts owing to the
Company or any Subsidiary as a result of bankruptcy or insolvency proceedings or
upon the foreclosure, perfection or enforcement of any Lien in favor of the
Company or any Subsidiary, in each case as to debt owing to the Company or any
Subsidiary that arose in the ordinary course of business of the Company or any
such Subsidiary; (k) deposits available for withdrawal on demand with a
commercial bank organized in the United States having capital and surplus in
excess of $75 million, provided that any deposits made in such a commercial bank
having capital and surplus less than $ million shall be made in the ordinary
course of business and shall not exceed at any one time $5 million in the
aggregate; (l) Venezuelan and other foreign bank deposit and cash equivalents;
(m) Grey Wolf pursuant to the Grey Wolf Acquisition agreement; (n) Interest Swap
Obligations with respect to any floating rate Indebtedness that is permitted by
the terms of the Indenture to be outstanding; (o) Currency Hedge Obligations,
provided that such Currency Hedge Obligations constitute Permitted Indebtedness
permitted by clause (d) of the definition thereof; (p) Investments in prepaid
expenses, negotiable instruments held for collection and lease, utility,
worker's compensation and performance and other similar deposits in the ordinary
course of business; and (q) Investments pursuant to any agreement or obligation
of the Company or any Subsidiary in effect on the Issue Date and listed on a
schedule attached to the Indenture.
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"Permitted Liens" means (a) Liens in existence on the Issue Date; (b) Liens
created for the benefit of the Notes and/or the Guarantees; (c) Liens on
Property of a Person existing at the time such Person is merged or consolidated
with or into the Company or a Subsidiary (and not incurred as a result of, or in
anticipation of, such transaction), provided that such Lien relates solely to
such Property; (d) Lien on Property existing at the time of the acquisition
thereof (and not incurred as a result of, or in anticipation of such
transaction), provided that such Lien relates solely to such Property; (e) Liens
incurred or pledges and deposits made in connection with worker's compensation,
unemployment insurance and other social security benefits, statutory
obligations, bid, surety or appeal bonds, performance bonds or other obligations
of alike nature incurred in the ordinary course of business; (f) Liens imposed
by law or arising by operation of law, including without limitation, landlords,
mechanics', carriers', warehousemen's, materialmen's, suppliers' and vendors
Liens and Liens for master's and crew's wages and other similar maritime Liens,
and incurred in the ordinary course of business for sums not delinquent or being
contested in good faith, if such reserves or other appropriate provisions, if
any, as shall be required by GAAP shall have been made with respect thereof; (g)
zoning restrictions, easements, licenses, covenants, reservations, restrictions
on the use of real property and defects, irregularities and deficiencies in
title to real property that do not, individually or in the aggregate, materially
affect the ability of the Company or any Subsidiary to conduct its business
presently conducted; (h) Liens for taxes or assessments or other governmental
charges or levies not yet due and payable, or the validity of which is being
contested by the Company or a Subsidiary in good faith appropriate proceedings
upon stay of execution or the enforcement thereof and for which adequate
reserves accordance with GAAP or other appropriate provision has been made; (i)
Liens to secure Indebtedness incurred for the purpose of financing all or a part
of the purchase price or construction cost of Property (including the cost of
upgrading or refurbishing rigs or drillships) acquired or constructed after the
Issue Date, provided that (l) the principal amount of Indebtedness secured by
such Liens shall not exceed 100% of the lesser of cost or Fair Market Value of
the Property so acquired, upgraded or constructed plus transaction costs related
thereto, or constructed, (2) such Liens shall not encumber any other assets or
Property of the Company or any Subsidiary (other than the proceeds thereof and
accessions and upgrades thereto) and (3) such Liens shall attach to such
Property within 120 days of the date of the completion of the construction or
acquisition of such Property; (j) Liens securing Capital Lease Obligations,
provided, further, that such Liens secure Capital Lease Obligations which, when
combined with (l) the outstanding secured Indebtedness of the Company and its
Subsidiaries (other than Indebtedness secured by Liens described under clauses
(b) and (i) hereof) and (2) the aggregate principal amount of all other Capital
Lease Obligations of the Company and Subsidiaries, does not exceed $5 million at
any one time outstanding; (k) Liens to secure any extension, renewal,
refinancing or refunding (or successive extensions, renewals, refinancings or
refundings), in whole or in part, of any Indebtedness secured by Liens referred
to in the foregoing clauses (a), (c) and (d), provided, further, that such Lien
does not extend to any other Property of the Company or any Subsidiary and the
principal amount of the Indebtedness secured by such Lien is not increased; (l)
any charter (bareboat or otherwise) or lease; (m) leases or subleases of real
property to other Persons; (n) Liens securing Permitted Indebtedness described
in clause (b) of the definitions thereof; (o) judgment liens not giving rise to
an Event of Default so long as any appropriate legal proceedings which may have
been only initiated for the review of such judgment shall not have been finally
terminated or the period within which such proceeding may be initiated shall not
have expired; (p) rights of off-set of banks and other Persons; and (q) liens in
favor of the Company.
"Permitted Refinancing Indebtedness" means Indebtedness of the Company,
incurred in exchange for, or the net proceeds of which are used to renew,
extend, refinance, refund or repurchase outstanding Indebtedness of the Company
which outstanding Indebtedness was incurred in accordance with, or is otherwise
permitted by, the terms of clauses (a) and (e) of the definition of "Permitted
Indebtedness", provided that (i) if the Indebtedness being renewed, extended,
refinanced, refunded or repurchased is pari passu with or subordinated in right
of payment (without regard to its being secured) to the Notes, then such new
Indebtedness is pari passu with or subordinated in right of payment (without
regard to its being secured) to, as the case may be, the Notes at least to the
same extent as the Indebtedness being renewed, extended, refinanced refunded or
repurchased, (ii) such new Indebtedness is scheduled to mature later than the
Indebtedness being renewed, extended, refinanced, refunded or repurchased, (iii)
such new Indebtedness has an Average Life at the time such Indebtedness is
incurred that is greater than the Average Life of the Indebtedness being
renewed,
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extended, refinanced, refunded or repurchased, and (iv) such new Indebtedness is
in aggregate principal amount (or, if such Indebtedness is issued at a price
less than the principal amount thereof, the aggregate amount of gross proceeds
therefrom is) not in excess of the aggregate principal amount then outstanding
of the Indebtedness being renewed, extended, refinanced, refunded or repurchased
(or if the Indebtedness being renewed, extended, refinanced, refunded or
repurchased was issued at a price less than the principal amount thereof, then
not in excess of the amount of liability in respect thereof determined in
accordance with GAAP) plus the amount of reasonable fees, expenses, premium, if
any, incurred by the Company or such Subsidiary in connection therewith.
"Permitted Subsidiary Refinancing Indebtedness" means Indebtedness of any
Subsidiary, incurred in exchange for, or the net proceeds of which are used to
renew, extend, refinance, refund or repurchase outstanding Indebtedness of such
Subsidiary which outstanding Indebtedness was incurred in accordance with, or is
otherwise permitted by, the terms of clauses (e) and (f) of the definition of
Permitted Indebtedness, provided that (i) if the Indebtedness being renewed,
extended, refinanced, refunded or repurchased is pari passu with or subordinated
in right of payment (without regard to its being secured) to the Guarantee of
such Subsidiary, then such new Indebtedness is pari passu with or subordinated
in right of payment (without regard to its being secured) to, as the case may
be, the Guarantee of such Subsidiary at least to the same extent as the
Indebtedness being renewed, extended, refinanced refunded or repurchased, (ii)
such new Indebtedness is scheduled to mature later than the Indebtedness being
renewed, extended, refinanced, refunded or repurchased, (iii) such new
Indebtedness has an Average Life at the time such Indebtedness is incurred that
is greater than the Average Life of the Indebtedness being renewed, extended,
refinanced, refunded or repurchased, and (iv) such new Indebtedness is in an
aggregate principal amount (or, if such Indebtedness is issued at a price less
than the principal amount thereof, the aggregate amount of gross proceeds
therefrom is) not in excess of the aggregate principal amount then outstanding
of the Indebtedness being renewed, extended, refinanced, refunded or repurchased
(or if the Indebtedness being renewed, extended, refinanced, refunded or
repurchased was issued at a price less than the principal amount thereof, then
not in excess of the amount of liability in respect thereof determined in
accordance with GAAP) plus the amount of reasonable fees, expenses, premium, if
any, incurred by the Company or such Subsidiary in connection therewith.
"Person" means any individual, corporation, partnership, joint venture,
incorporated or unincorporated association, joint stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof or other entity of any kind.
"Preferred Stock" of any Person means Capital Stock of such Person of any
class or classes (however designated) that ranks prior, as to the payment of
dividends and/or as to the distribution of assets upon any voluntary or
involuntary liquidation, dissolution or winding up of such Person, to shares of
Capital Stock of at least one other class of such Person.
"Property" means, with respect to any Person, any interest of such Person
in any kind of property or asset, whether real, personal or mixed, or tangible
or intangible, excluding Capital Stock in any other Person.
"Qualified Equity Offering" means an offering of Capital Stock (other than
Redeemable Stock) of the Company, whether pursuant to an effective registration
statement under the Securities Act or pursuant to an exemption from registration
under the Securities Act.
"Redeemable Stock" means, with respect to any Person, any equity security
that by its terms or otherwise is required to be redeemed, or is redeemable at
the option of the holder thereof, at any time prior to one year following the
Stated Maturity of the Notes or is exchangeable into Indebtedness of such Person
or any of its subsidiaries.
"Related Business" means the land drilling business and activities
incidental thereto and any business related or ancillary thereto.
"Replacement Asset" means a Property or asset that, as determined by the
Board of Directors of the Company as evidenced by a Board Resolution, is used or
is useful in a Related Business.
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<PAGE> 75
"Restricted Investment" means any Investment in any Person, including an
Unrestricted Subsidiary or the designation of a Subsidiary as an Unrestricted
Subsidiary, other than a Permitted Investment.
"Restricted Payment" means to (i) declare or pay any dividend on, or make
any distribution in respect of, or purchase, redeem, retire or otherwise acquire
for value any Capital Stock of the Company or any Affiliate of the Company, or
warrants, rights or options to acquire such Capital Stock, other than (x)
dividends payable solely in the Capital Stock (other than Redeemable Stock) of
the Company or such Affiliate, as the case may be, or in warrants, rights or
options to acquire such Capital Stock and (y) dividends or distributions by a
Subsidiary to the Company or to a Wholly Owned Subsidiary; (ii) make any
principal payment on, or redeem, repurchase, defease (including an in-substance
or legal defeasance) or otherwise acquire or retire for value (including
pursuant to mandatory repurchase covenants), prior to any scheduled principal
payment, scheduled sinking fund payment or other Stated Maturity, Indebtedness
of the Company or any Subsidiary which is subordinated (whether pursuant to its
terms or by operation of law) in right of payment to the Notes; or (iii) make
any Restricted Investment in any Person.
"Sale and Lease-Back-Transaction" means, with respect to any Person, any
direct or indirect arrangement pursuant to which Property is sold or transferred
by such Person or a subsidiary of such Person and is thereafter leased back from
the purchaser or transferee thereof by such Person or one of its subsidiaries.
"Senior Debt" means any Indebtedness incurred by the Company, unless the
instrument under which such Indebtedness is incurred expressly provides that it
is subordinated in right of payment to the Notes, provided that Senior Debt will
not include (a) any liability for federal, state, local or other taxes owed or
owing, (b) any Indebtedness owing to any Subsidiaries of the Company, (c) any
trade payables or (d) any Indebtedness that is incurred in violation of the
Indenture.
"Significant Subsidiary" means a Subsidiary that is a "significant
subsidiary" as defined in Rule 1-02(w) of Regulation S-X under the Securities
Act and the Exchange Act.
"Stated Maturity" when used with respect to a Note or any installment of
interest thereon, means the date specified in such Note as the fixed date on
which the principal of such Note or such installment of interest is due and
payable.
"Subordinated Indebtedness" means any Indebtedness of the Company or any
Guarantor that is subordinated in right of payment to the Notes or the
Guarantees, as the case may be, and does not mature prior to one year following
the Stated Maturity of the Notes.
"subsidiary" means, with respect to any Person, (i) any corporation more
than 50% of the outstanding Voting Stock of which is owned, directly or
indirectly, by such Person, or by one or more other subsidiaries or such Person,
or by such Person and one or more other subsidiaries of such Person, (ii) any
general partnership, joint venture or similar entity, more than 50% of the
outstanding partnership or similar interest of which is owned, directly or
indirectly, by such Person, or by one or more other subsidiaries of such Person,
or by such Person and one or more other subsidiaries of such Person and (iii)
any limited partnership of which such Person or any subsidiary of such Person is
a general partner.
"Subsidiary" means a subsidiary of the Company other than a Unrestricted
Subsidiary.
"Transaction Date" has the meaning specified within the definition of
Consolidated Interest Coverage Ratio.
"U.S. Government Obligations" means securities that are (i) direct
obligations of the Untied States of America for the payment of which its full
faith and credit is pledged; (ii) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States of
America the payment of which is unconditionally guaranteed as a full faith and
credit obligation by the United States of America, which, in either case under
clauses (i) or (ii) above, are not callable or redeemable at the option of the
issuers thereof; or (iii) depository receipts issued by a bank or trust company
as custodian with respect to any such U.S. Government Obligations or a specific
payment of interest on or principal of any such U.S. Government Obligation held
by such custodian for the account of the holder of a Depository receipt,
provided that (except as required by law) such custodian is not authorized to
make any deduction from the amount payable to the
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<PAGE> 76
holder of such Depository receipt from any amount received by the custodian in
respect of the U.S. Government Obligation evidenced by such Depository receipt.
"Unrestricted Subsidiary" means any subsidiary of the Company that the
Company has classified as an Unrestricted Subsidiary and that has not been
reclassified as a Subsidiary pursuant to the terms of the Indenture.
"Voting Stock" means with respect to any Person, securities of any class or
classes of Capital Stock in such Person entitling the holder thereof (whether at
all times or at the times that such class of Capital Stock has voting power by
reason of the happening of any contingency) to vote in the election of members
of the board of directors or comparable body of such Person.
"Wholly Owned Subsidiary" means any Subsidiary to the extent (i) all of the
Capital Stock or other ownership interests in such Subsidiary, other than any
directors' qualifying shares mandated by applicable law, is owned directly or
indirectly by the Company or (ii) such Subsidiary is organized in a foreign
jurisdiction and is required by the applicable laws and regulations of such
foreign jurisdiction to be partially owned by the government of such foreign
jurisdiction or individual or corporate citizens of such foreign jurisdiction in
order for such Subsidiary to transact business in such foreign jurisdiction,
provided that the Company, directly or indirectly, owns the remaining Capital
Stock or ownership interest in such Subsidiary and , by contract or otherwise
controls the management and business of such Subsidiary and derives the economic
benefits of ownership of such Subsidiary to substantially the same extent as if
such Subsidiary were a wholly owned Subsidiary.
BOOK-ENTRY, DELIVERY AND FORM
The Notes will be issued in the form of a fully registered Global Note (the
"Global Note"). The Global Note will be deposited on the date of the closing of
the sale of the Notes offered hereby (the "Closing Date") with, or on behalf of,
the Depositary and registered in the name of Cede & Co., as nominee of the
Depositary (such nominee being referred to herein as the "Global Note Holder").
The Depositary is a limited-purpose trust company which was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants includes securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary (i) upon deposit of the Global Note, the Depositary will credit the
accounts of Participants designated by the Underwriters with portions of the
principal amount of the Global Note and (ii) ownership of the Notes will be
shown on, and the transfer of ownership thereof will be effected only through,
records maintained by the Depositary's Indirect Participants. Prospective
purchasers are advised that the laws of some states require that certain Persons
take physical delivery in definitive form of securities that they own.
Consequently, the ability to transfer Notes will be limited to such extent.
DESCRIPTION OF BANK CREDIT FACILITY
On December 31, 1996, DI and Drillers entered into a senior secured
reducing revolving credit facility as co-borrowers. This facility was amended
and restated on April 30, 1997, as the Bank Credit Facility. International
guaranteed the obligations of the borrowers under the Bank Credit Facility. The
Bank Credit Facility, which replaced Drillers' 1994 credit facility, provides
the Company and Drillers with the ability to borrow up to $50.0 million from
time to time prior to April 30, 2000, subject to the reductions described below,
with up to $5.0 million of such amount available for letters of credit. Interest
under the Bank Credit
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Facility accrues at a variable rate, using (at the borrowers' election) either
the agent's base rate plus a margin ranging from 0.75% to 1.50%, depending upon
the Company's trailing 12-month debt to EBITDA ratio, or a rate based on the
interbank Eurodollar market plus a margin ranging from 1.75% to 2.50%, depending
upon the Company's trailing 12-month debt to EBITDA ratio. Letters of credit
accrue a letter of credit fee equal to the margin described above for the
interbank Eurodollar market interest rate plus a facing fee of 1/4% per annum.
The borrowers pay a commitment fee of 0.5% per annum on the average unused
portion of the lenders' commitments. The borrowers' indebtedness under the Bank
Credit Facility is secured by a security interest in (i) all domestic drilling
rigs and related equipment owned by the Company or the Guarantors, (ii) the
stock of the Global Guarantors, (iii) the member interest of Drillers in
INDRILLERS and (iv) substantially all other assets of the Company and the
Guarantors, wherever located (other than stock of other subsidiaries). Drillers
is a co-borrower with the Company under the Bank Credit Facility and
International has guaranteed the Company's obligations under the Bank Credit
Facility.
The lenders' commitments will be reduced by the amount of net cash proceeds
received by the Company or its subsidiaries from sales of collateral in excess
of $1.0 million individually or $2.0 million in the aggregate in any 12-month
period. In addition, mandatory prepayments would be required upon (i) the
receipt of net proceeds received by the Company or its subsidiaries from the
incurrence of certain other debt or sales of debt or equity securities in a
public offering or private placement, or (ii) the receipt of net cash proceeds
received by the Company or its subsidiaries from asset sales (other than
proceeds from dispositions of inventory in the ordinary course of business,
certain licenses of intellectual property, certain inter-company transfers, and
sales of rigs identified in the credit agreement as equipment held for resale)
or the receipt of insurance proceeds on assets of the borrowers, in each case to
the extent that such proceeds are in excess of $500,000 individually or $1.0
million in the aggregate in any 12-month period. The final maturity date of the
Bank Credit Facility is April 30, 2000.
The initial borrowings under the Bank Credit Facility on December 31, 1996,
were used to complete the Diamond M Acquisition. Other borrowings may be used to
make land rig acquisitions and for general corporate purposes.
Among the various covenants that must be satisfied by the Company under the
Bank Credit Agreement are the following five financial covenants under which the
Company will not permit:
(i) working capital (as defined in the Bank Credit Agreement) to be
less than $5.0 million on the last day of any fiscal quarter;
(ii) consolidated net worth to be less than the sum of $60.0 million
plus (a) 50% of the Company's consolidated net income, if positive, for the
period from January 1, 1997, to the final day of the most recent period for
which consolidated financial information of the Company is available and
(b) 50% of the increase to shareholders' equity of the Company attributable
to the issuance of Common Stock;
(iii) the ratio of (a) the appraised fair market value of rigs and
related equipment to (b) the lenders' commitments to be less than 2 to 1;
(iv) the ratio of consolidated debt to total capitalization to exceed
0.6 to 1; and
(v) the ratio of consolidated EBITDA to consolidated interest expense
for the most recent quarter to be less than 3 to 1.
The Bank Credit Agreement also contains provisions restricting the ability
of the Company and its subsidiaries to (i) engage in new lines of business
unrelated to their current activities, (ii) enter into mergers or consolidations
or asset sales or purchases (with specified exceptions), (iii) incur liens or
debts or make advances, investments or loans (in each case, with specified
exceptions), (iv) pay dividends or redeem stock (except for certain
inter-company transfers), (v) enter into transactions with affiliates other than
on an arm's-length basis in the ordinary course of business (with specified
exceptions), (vi) prepay or materially amend any other indebtedness, (vii)
modify any certificate of incorporation or by-laws in a manner adverse to the
lenders, (viii) issue any stock (other than common stock), (ix) agree to or
incur any restriction on the rights of the Company's subsidiaries to pay
dividends, make loans, transfer assets or take similar actions (with certain
exceptions) or (x) form new subsidiaries (with certain exceptions).
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Events of default under the Bank Credit Facility include (i) non-payment of
amounts owing under the Bank Credit Facility, (ii) misrepresentation, (iii)
breach of covenants, (iv) default with respect to other indebtedness in excess
of $350,000, (v) bankruptcy, (vi) certain ERISA events, (vii) default under, or
noneffectiveness of, the security documents covering the collateral, (viii)
default under, or noneffectiveness of, the guaranty by International (or any
other future guaranty), (ix) judgments in excess of $350,000, and (x) a change
of control (meaning that (a) the Company ceases to own 100% of Drillers and
International, (b) some person or group has either acquired beneficial ownership
of 30% or more of the Company or obtained the power to elect a majority of the
Company's board of directors, (c) the Company's board of directors ceases to
consist of a majority of "continuing directors" (as defined in the Bank Credit
Agreement) or (d) Norex Drilling Ltd., SDA, and SCP cease to own or control at
least 30% of the Company).
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UNDERWRITING
Subject to the terms and conditions set forth in the Underwriting Agreement
relating to the Notes, the Company has agreed to sell to the several
Underwriters named below (the "Underwriters"), and the several Underwriters have
agreed to purchase, the principal amounts of the Notes set forth opposite their
respective names:
<TABLE>
<CAPTION>
PRINCIPAL
AMOUNT OF
UNDERWRITER NOTES
----------- ------------
<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation......... $
BT Securities Corporation...................................
ING Baring (U.S.) Securities, Inc...........................
------------
Total............................................. $125,000,000
============
</TABLE>
The Underwriters have advised the Company that they propose initially to
offer the Notes to the public at the public offering price set forth on the
cover page of this Prospectus, and to certain dealers at such price less a
concession not in excess of % of the principal amount of the Notes. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of % of the principal amount of the Notes to certain other dealers. After
the Offering, the public offering price, concession and discount may be changed.
During and after the Offering, the Underwriters may purchase and sell the
Notes in the open market. These transactions may include stabilizing
transactions and purchases to cover syndicate short positions created in
connection with the Offering. The Underwriters may also impose a penalty bid,
whereby selling concessions allowed to syndicate members or other broker-dealers
for the Notes sold in the Offering for their account may be reclaimed by the
syndicate if such Notes are repurchased by the syndicate in stabilizing or
covering transactions. These activities may stabilize, maintain or otherwise
affect the market price of the Notes, which may be higher than the price that
might otherwise prevail in the open market, and, if commenced, may be
discontinued at any time.
The Company has agreed to indemnify the Underwriters against or make
contributions relating to certain liabilities, including liabilities under the
Securities Act.
There currently is no public market for the Notes. The Notes will not be
listed on any securities exchange, and there can be no assurance that there will
be a secondary market for the Notes. From time to time, the Underwriters may
make a market in the Notes; however, the Underwriters are not obligated to do so
and may discontinue such market-making at any time. Accordingly, there can be no
assurance as to whether an active trading market for the Notes will develop or
as to the liquidity of any trading of any trading market for the Notes.
The Underwriting Agreement will provide that the obligations of the several
Underwriters to pay for and accept delivery of the Notes are subject to the
approval of certain legal matters by counsel to the Underwriters and to certain
other conditions. The Underwriters are committed to take and pay for all of the
Notes if any are taken.
As of May 1, 1997, certain affiliates and employees of Donaldson, Lufkin &
Jenrette Securities Corporation ("DLJ") owned indirectly 4,849,000 shares of the
Common Stock in the aggregate, which represented 3.5% of the outstanding shares
of Common Stock of the Company on such date.
Under the Conduct Rules of the NASD, when 10% or more of the net proceeds
of a public offering of debt securities are to be paid to a member of the NASD
participating in such public offering or an affiliate of such member, the yield
at which the debt securities are distributed to the public must be no lower than
that recommended by a "qualified independent underwriter" as defined in Rule
2720 of the Conduct Rules of the NASD. BT Securities Corporation is a member of
the NASD and is an affiliate of Bankers Trust Company, a lender under the Bank
Credit Facility. In addition, ING Baring (U.S.) Securities, Inc. is a member of
the NASD and an affiliate of ING (U.S.) Capital Corporation, a lender under the
Bank Credit Facility. Each of
78
<PAGE> 80
Bankers Trust Company and ING (U.S.) Capital Corporation will receive more than
10% of the net proceeds from this Offering as a result of the use of such
proceeds to repay all of the borrowings outstanding under the Bank Credit
Facility. See "Use of Proceeds." As a result, this Offering is being made in
compliance with Rule 2710(c)(8) of the Conduct Rules of the NASD. DLJ will act
as a qualified independent underwriter in connection with this Offering and
assume the customary responsibilities of acting as a qualified independent
underwriter in pricing and conducting due diligence for this Offering.
Accordingly, the yield on the Notes sold to the public will be no lower than
that recommended by DLJ acting as a qualified independent underwriter for this
Offering. DLJ will receive a fee of $5,000 for acting as the qualified
independent underwriter.
LEGAL MATTERS
The legality of the Notes being offered hereby will be passed upon for the
Company by Porter & Hedges, L.L.P., Houston, Texas. Certain legal matters in
connection with the Offering will be passed upon for the Underwriters by Akin,
Gump, Strauss, Hauer & Feld, L.L.P.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1996, and for the year then ended included herein and elsewhere in the
Registration Statement have been included herein and in the Registration
Statement in reliance on the report of KPMG Peat Marwick LLP, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
The consolidated financial statements of the Company as of December 31,
1994, and 1995, for the year ended December 31, 1995 and for the nine months
ended December 31, 1994 have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein, and have been so included
in reliance upon such report given upon the authority of that firm as experts in
accounting and auditing.
The audited financial statements of Grey Wolf included in this prospectus
and elsewhere in the registration statement to the extent and for the periods
indicated in their report have been audited by Arthur Andersen LLP, independent
public accountants, and are included herein in reliance upon the authority of
said firm as experts in accounting and auditing in giving said report.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Exchange
Act, and, in accordance therewith, files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission"). The
Registration Statement (defined herein), as well as such reports, proxy
statements and other information filed by the Company with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at
its regional offices located at Seven World Trade Center, 13th Floor New York,
New York 10048 and at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661. Copies of such material can also be obtained at prescribed rates from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission maintains a site on the World Wide Web
that contains certain documents filed with the Commission electronically. The
address of such site is http://www.sec.gov and the Registration Statement may be
inspected at such site. The Common Stock is listed and traded on the American
Stock Exchange ("AMEX") and certain of the Company's reports, proxy statements
and other information can be inspected at the offices of the AMEX, 86 Trinity
Place, New York, New York 10006.
The Company has filed with the Commission a Registration Statement on Form
S-3 (together with any amendments or supplements thereto, the "Registration
Statement") under the Securities Act with respect to the Notes. This Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits thereto, certain parts of which are omitted in accordance with
the rules and regulations of the Commission. For further information with
respect to the Company and the Notes, reference is made to the
79
<PAGE> 81
Registration Statement and the exhibits thereto. Statements contained in this
Prospectus (or in any document incorporated into this Prospectus by reference)
as to the contents of any contract or other document referred to herein (or
therein) are not necessarily complete, and in each instance reference is made to
the copy of such contract or other document filed as an exhibit to the
Registration Statement, each such statement being qualified in all respects by
such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed with the Commission pursuant
to the Exchange Act (File No. 1-8826), are incorporated herein by reference and
made a part of this Prospectus:
1. The Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1996.
2. The Company's Definitive Proxy Statement for the 1997 Annual
Meeting of Shareholders to be held May 14, 1997.
3. The Company's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1997.
4. The Company's Current Reports on Form 8-K filed January 31, 1997,
as amended by Form 8-K/A dated April 11, 1997, and Form 8-K filed March 10,
1997.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the Offering shall be deemed to be incorporated by reference
into this Prospectus and to be a part hereof from the respective dates of filing
of such documents. Any statement contained in a document or information
incorporated or deemed to be incorporated herein by reference shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any subsequently filed document that also is,
or is deemed to be, incorporated herein by reference, modifies or supersedes
such statement. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company undertakes to provide, without charge, to each person,
including any beneficial owner, to whom a copy of this Prospectus is delivered,
upon the written or oral request of such person, a copy of any and all of the
documents or information referred to above that have been or may be incorporated
by reference in this Prospectus (excluding exhibits to such documents unless
such exhibits are specifically incorporated by reference). Requests should be
directed to the corporate secretary, DI Industries, Inc., 10370 Richmond Avenue,
Suite 600, Houston, Texas 77042, telephone (713) 435-6100.
80
<PAGE> 82
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
DI INDUSTRIES, INC.
Independent Auditors' Report................................ F-2
Independent Auditors' Report................................ F-3
Consolidated Balance Sheets as of March 31, 1997
(unaudited), December 31, 1996 and 1995................... F-4
Consolidated Statements of Operations for the Three Months
Ended March 31, 1997 and March 31, 1996 (unaudited), Years
Ended December 31, 1996 and 1995, and the Nine Months
Ended December 31, 1994................................... F-5
Consolidated Statements of Shareholders' Equity for the
Three Months Ended March 31, 1997 and March 31, 1996
(unaudited), Years Ended December 31, 1996 and 1995, and
the Nine Months Ended December 31, 1994................... F-6
Consolidated Statements of Cash Flows for the Three Months
Ended March 31, 1997 and March 31, 1996 (unaudited), Years
Ended December 31, 1996 and 1995, and the Nine Months
Ended December 31, 1994................................... F-7
Notes to Consolidated Financial Statements.................. F-9
GREY WOLF DRILLING COMPANY
Report of Independent Public Accountants.................... F-22
Balance Sheets as of January 31, 1997 (unaudited), October
31, 1996 and 1995......................................... F-23
Statements of Operations for the Three Months Ended January
31, 1997 and 1996 (unaudited) and the Years Ended October
31, 1996, 1995 and 1994................................... F-24
Statements of Shareholders' Investment for the Three Months
Ended January 31, 1997 (unaudited) and the Years Ended
October 31, 1996, 1995 and 1994........................... F-25
Statements of Cash Flows for the Three Months Ended January
31, 1997 and 1996 (unaudited) and the Years Ended October
31, 1996, 1995 and 1994................................... F-26
Notes to Financial Statements............................... F-27
</TABLE>
F-1
<PAGE> 83
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
of DI Industries, Inc.:
We have audited the accompanying consolidated balance sheet of DI
Industries, Inc. and Subsidiaries as of December 31, 1996, and the related
consolidated statements of operations, changes in shareholders' equity, and cash
flows for the year then ended. In connection with our audit of the consolidated
financial statements, we have also audited the financial statement schedule for
the year ended December 31, 1996. These consolidated financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of DI
Industries, Inc. and Subsidiaries as of December 31, 1996, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles. Also in our opinion, the related
financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all
material respects the information set forth therein.
KPMG PEAT MARWICK LLP
Houston, Texas
March 14, 1997
F-2
<PAGE> 84
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
of DI Industries, Inc.:
We have audited the accompanying consolidated balance sheet of DI
Industries, Inc. and its Subsidiaries (the "Company") as of December 31, 1995
and the related consolidated statements of operations, cash flows and
shareholders' equity for the year ended December 31, 1995 and the nine months
ended December 31, 1994. Our audits also included the financial statement
schedule listed in the Index. These financial statements and the financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company at December 31,
1995 and the results of its operations and its cash flows for the year then
ended and the nine months ended December 31, 1994 in conformity with generally
accepted accounting principles. Also, in our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
DELOITTE & TOUCHE LLP
Houston, Texas
March 28, 1996
F-3
<PAGE> 85
DI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, --------------------
1997 1996 1995
----------- -------- --------
(UNAUDITED)
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents............. $ 3,693 $ 6,162 $ 1,859
Restricted cash -- insurance
deposits........................... 250 1,000 1,612
Accounts receivable, net of allowance
of $1,310, $1,333 and $1,951,
respectively....................... 25,395 15,866 19,423
Rig inventory and supplies............ 428 936 2,498
Assets held for sale.................. 557 557 2,398
Prepaids and other current assets..... 4,054 3,690 3,806
-------- -------- --------
Total current assets.......... 34,377 28,211 31,596
-------- -------- --------
Property and equipment:
Land, buildings and improvements...... 5,042 4,312 3,523
Drilling and well service equipment... 141,916 95,059 39,039
Furniture and fixtures................ 1,208 1,088 1,136
Less: accumulated depreciation and
amortization....................... (14,159) (11,983) (17,788)
-------- -------- --------
Net property and equipment.... 134,007 88,476 25,910
-------- -------- --------
Other noncurrent assets................. 1,044 1,132 277
-------- -------- --------
$169,428 $117,819 $ 57,783
======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term
debt............................... $ 1,997 $ 613 $ 1,315
Accounts payable -- trade............. 14,050 11,826 12,529
Accrued workers' compensation......... 2,164 1,502 3,357
Payroll and related employee costs.... 4,422 3,340 3,172
Customer advances..................... 777 2,466 116
Taxes payable......................... 1,083 845 --
Other accrued liabilities............. 810 1,424 3,604
-------- -------- --------
Total current liabilities..... 25,303 22,016 24,093
-------- -------- --------
Long-term debt net of current
maturities............................ 32,071 26,846 11,146
Other long-term liabilities and minority
interest.............................. 3,177 3,299 1,950
Deferred income taxes................... 10,109 248 --
Series A preferred stock -- mandatory
redeemable............................ 726 764 900
Commitments and contingent
liabilities........................... -- -- --
Shareholders' equity:
Series B Preferred stock, $1 par
value; 10,000 shares authorized,
4,000 shares subscribed............ -- -- 4,000
Common stock, $.10 par value;
300,000,000, 300,000,000 and
75,000,000 shares authorized;
137,524,034, 125,043,234 and
38,669,378 issued and outstanding,
respectively....................... 13,752 12,504 3,867
Additional paid-in capital............ 129,135 99,301 46,458
Cumulative translation adjustments.... (404) (404) --
Accumulated deficit................... (44,441) (46,755) (34,631)
-------- -------- --------
Total shareholders' equity.... 98,042 64,646 19,694
-------- -------- --------
$169,428 $117,819 $ 57,783
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 86
DI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS
MARCH 31, YEAR ENDED YEAR ENDED ENDED
------------------ DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1996 1995 1994
-------- ------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Contract drilling..................... $ 35,975 $20,102 $ 81,767 $ 94,709 $50,987
Costs and expenses:
Drilling operations................... 28,792 18,936 80,388 93,825 48,988
Depreciation and amortization......... 2,207 1,097 4,689 4,832 2,377
General and administrative............ 1,654 720 4,274 3,555 2,074
Non-recurring charges................. -- 602 6,131 -- --
Provision for asset impairment........ -- -- -- 5,290 --
-------- ------- -------- -------- -------
Total costs and expenses........... 32,653 21,355 95,482 107,502 53,439
-------- ------- -------- -------- -------
Operating income (loss)................. 3,322 (1,253) (13,715) (12,793) (2,452)
Other income (expense):
Interest income....................... 92 11 505 292 353
Gain on sale of assets................ 30 15 3,078 466 277
Interest expense...................... (672) (262) (1,220) (1,472) (332)
Minority interest..................... 202 (2) 475 (56) 17
Foreign currency gains................ -- -- -- 888 --
Other, net............................ 2 -- -- -- (123)
-------- ------- -------- -------- -------
Other income (expense), net........ (346) (238) 2,838 118 192
-------- ------- -------- -------- -------
Income (loss) from continuing
operations............................ 2,976 (1,491) (10,877) (12,675) (2,260)
Discontinued operations:
Income (loss) from oil and gas
operations......................... -- -- -- (4) 51
Loss from sale of oil and gas
properties......................... -- -- -- (768) --
-------- ------- -------- -------- -------
Income (loss) from discontinued
operations....................... -- -- -- (772) 51
-------- ------- -------- -------- -------
Income (loss) before income taxes....... 2,976 (1,491) (10,877) (13,447) (2,209)
Income taxes............................ 662 -- 845 -- --
-------- ------- -------- -------- -------
Net income (loss)....................... 2,314 (1,491) (11,722) (13,447) (2,209)
Series A preferred stock redemption
premium............................... (22) -- (13) -- --
Series B preferred stock subscription
dividend requirement.................. -- (150) (402) -- --
-------- ------- -------- -------- -------
Net income (loss) applicable to common
stock................................. $ 2,292 $(1,641) $(12,137) $(13,447) $(2,209)
======== ======= ======== ======== =======
Income (loss) per common share from
continuing operations................. $ .02 $ (.04) $ (.18) $ (.33) $ (.06)
Income (loss) per common share from
discontinued operations............... -- -- -- (.02) --
-------- ------- -------- -------- -------
Net income (loss) per common share...... $ .02 $ (.04) $ (.18) $ (.35) $ (.06)
======== ======= ======== ======== =======
Weighted average common and common
equivalent shares outstanding......... 133,334 38,669 67,495 38,669 38,641
======== ======= ======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 87
DI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES B
PREFERRED COMMON
STOCK STOCK ADDITIONAL CUMULATIVE
$1 PAR $.10 PAR PAID-IN TRANSLATION
VALUE VALUE CAPITAL DEFICIT ADJUSTMENTS TOTAL
--------- -------- ---------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Balance, March 31, 1994........ $ -- $ 3,842 $ 46,283 $(18,975) $ -- $ 31,150
Issuance of common stock..... -- 25 175 -- -- 200
Net loss..................... -- -- -- (2,209) -- (2,209)
------- ------- -------- -------- -------- --------
Balance, December 31, 1994..... -- 3,867 46,458 (21,184) -- 29,141
Series B preferred stock
subscribed................ 4,000 -- -- -- -- 4,000
Net loss..................... -- -- -- (13,447) -- (13,447)
------- ------- -------- -------- -------- --------
Balance, December 31, 1995..... 4,000 3,867 46,458 (34,631) -- 19,694
Issuance of shares in Merger
transactions.............. -- 7,885 41,673 -- -- 49,558
Issuance of shares in Mesa
transaction............... -- 550 6,985 -- -- 7,535
Issuance of shares in Wexford
transaction............... -- 175 3,945 -- -- 4,120
Exercise of stock options.... -- 27 253 -- -- 280
Redemption of Series A
preferred stock........... -- -- (13) -- -- (13)
Series B preferred stock
dividend requirement...... 402 -- -- (402) -- --
Recision of Series B
preferred stock
subscription.............. (4,402) -- -- -- -- (4,402)
Unrealized translation
loss...................... -- -- -- -- (404) (404)
Net loss..................... -- -- -- (11,722) -- (11,722)
------- ------- -------- -------- -------- --------
Balance, December 31, 1996..... -- 12,504 99,301 (46,755) (404) 64,646
Issuance of shares in
Flournoy transaction
(unaudited)............... -- 1,243 29,823 -- -- 31,066
Exercise of stock options
(unaudited)............... -- 5 33 -- -- 38
Redemption of Series A
preferred stock
(unaudited)............... -- -- (22) -- -- (22)
Net income (unaudited)....... -- -- -- 2,314 -- 2,314
------- ------- -------- -------- -------- --------
Balance at March 31, 1997
(unaudited).................. $ -- $13,752 $129,135 $(44,441) $ (404) $ 98,042
======= ======= ======== ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 88
DI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS
MARCH 31, YEAR ENDED YEAR ENDED ENDED
------------------- DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1996 1995 1994
-------- -------- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................. $ 2,314 $(1,491) $(11,722) $(13,447) $(2,209)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation and amortization................... 2,207 1,097 4,689 4,832 2,377
Provision for deferred income taxes............. 424 -- -- -- --
Non-recurring charges........................... -- -- 2,497 -- --
Provision for asset impairment.................. -- -- -- 5,290 --
Gain on sale of assets.......................... (30) (15) (3,078) (466) (277)
Discontinued operations -- Loss from sale of oil
and gas properties........................... -- -- -- 768 --
Provision for doubtful accounts................. -- -- 302 291 122
(Increase) Decrease in restricted cash............ 750 (250) 612 (1,612) --
(Increase) Decrease in accounts and notes
receivable...................................... (9,529) 1,634 3,255 (3,558) (5,334)
(Increase) Decrease in inventory.................. 508 (404) 1,190 1,152 (1,214)
(Increase) Decrease in assets held for sale....... -- -- 1,841 118 --
(Increase) Decrease in other current assets....... (364) 991 116 274 (2,222)
Increase (Decrease) in accounts payable........... 2,224 (2,283) (703) 5,289 3,244
Increase (Decrease) in accrued workers'
compensation.................................... 662 (685) (1,855) 394 (800)
Increase (Decrease) in customer advances.......... (1,689) (56) 2,350 (1,233) 985
Increase (Decrease) in other current
liabilities..................................... (376) 1,115 (1,167) 4,288 503
Increase (Decrease) in minority interest.......... (201) 2 1,047 (131) (17)
Increase (Decrease) in other...................... 1,249 822 (813) (179) 1,799
(Increase) Decrease in discontinued operations.... -- -- -- 419 1,134
------- ------- -------- -------- -------
Cash provided by (used in) operating
activities................................... (1,851) 477 (1,439) 2,489 (1,909)
------- ------- -------- -------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Property and equipment additions.................. (7,247) (921) (38,436) (5,657) (9,250)
Proceeds from sales of equipment.................. 42 19 4,917 737 323
Proceeds from sale of discontinued operations..... -- -- -- 4,200 --
------- ------- -------- -------- -------
Cash used in investing activities............... (7,205) (902) (33,519) (720) (8,927)
------- ------- -------- -------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term debt...................... 6,910 167 31,542 2,066 18,703
Repayments of long-term debt...................... (301) (605) (16,544) (5,490) (8,576)
Repayments of long-term debt-discontinued
operations...................................... -- -- -- (2,114) (321)
Proceeds from issuance of common stock............ -- -- 28,678 -- --
Proceeds from exercise of stock options........... 38 -- 280 -- --
Redemption of Series A Preferred Stock............ (60) -- (149) -- --
Sale (recession) of preferred stock
subscriptions................................... -- -- (4,402) 4,000 --
------- ------- -------- -------- -------
Cash provided by (used in) financing activities... 6,587 (438) 39,405 (1,538) 9,806
------- ------- -------- -------- -------
EFFECT OF EXCHANGE RATE CHANGES ON CASH........... -- -- (144) -- --
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS..................................... (2,469) (863) 4,303 231 (1,030)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.... 6,162 1,859 1,859 1,628 2,658
------- ------- -------- -------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD.......... $ 3,693 $ 996 $ 6,162 $ 1,859 $ 1,628
======= ======= ======== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-7
<PAGE> 89
DI INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED YEAR YEAR NINE MONTHS
MARCH 31, ENDED ENDED ENDED
-------------- DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1996 1995 1994
------- ---- ------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
SUPPLEMENTAL CASH FLOW DISCLOSURE
CASH PAID FOR INTEREST:.................... $ 672 $262 $ 1,220 $1,472 $ 332
======= ==== ======= ====== ======
CASH PAID FOR TAXES:....................... -- -- -- -- --
======= ==== ======= ====== ======
NON CASH TRANSACTIONS:
Issuance of common stock in Flournoy
Transaction
Change in property and equipment
additions............................. 40,503 -- -- -- --
Change in issuance of common stock....... 31,066 -- -- -- --
Change in deferred tax liability......... 9,437 -- -- -- --
Issuance of common stock for Oliver/Mullen
rigs
Change in property and equipment
additions............................. -- -- 25,000 -- --
Change in issuance of common stock....... -- -- 25,000 -- --
Issuance of common stock for Mesa rigs
Change in property and equipment
additions............................. -- -- 7,783 -- --
Change in issuance of common stock.... -- -- 7,535 -- --
Change in deferred tax liability...... -- -- 248 -- --
An-Son rig acquisition
Change in property and equipment
additions............................. -- -- -- -- 3,800
Change in acquisition note payable....... -- -- -- -- 1,900
Change in Series A Preferred Stock....... -- -- -- -- 1,900
McRae Energy rig acquisition
Change in property and equipment
additions............................. -- -- -- -- 1,300
Change in notes payable.................. -- -- -- -- 1,300
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE> 90
DI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation. The consolidated
financial statements include the accounts of DI Industries, Inc. and its
majority-owned subsidiaries ("the Company" or "DI"). All significant
intercompany accounts and transactions are eliminated in consolidation.
Accumulated earnings of the minority interest owners are shown as a separate
item in the consolidated financial statements. Prior to June 1994, American
Premier Underwriters, Inc. ("American Premier"), owned 20,690,105 shares
(approximately 54%) of common stock of DI Industries, Inc. In June 1994, Norex
Drilling Ltd. ("Norex Drilling"), a wholly-owned subsidiary of Norex Industries,
Inc. ("Norex Industries"), completed the purchase of all shares of the Company's
common stock owned by American Premier. Shortly thereafter and in accordance
with regulatory filings made at the time of the purchase transaction, Norex
Drilling reduced its ownership to 18,730,105 shares, or less than 50%, of the
outstanding shares of the Company's common stock. As a result of the merger
transactions, effected in 1996 (discussed further in Footnote 2), Norex
Drilling's shares now represent 13.6% of the outstanding ownership of the
Company's common stock and Somerset Drilling Associates owns 29,962,223 shares
or approximately 21.8% of the outstanding ownership of the Company's common
stock.
Effective December 31, 1994, the Company changed its fiscal year end from
March 31 to December 31 to enhance the comparability of the Company's results of
operations with other drilling companies. Accordingly, the accompanying
financial statements include the results of the Company's operations for the
years ended December 31, 1996 and 1995, and the nine months ended December 31,
1994.
Inventory. Inventory consists primarily of drilling and support equipment
and is stated at the lower of specifically identified cost or market.
Assets Held for Sale. Assets held for sale are primarily comprised of
drilling rigs and equipment and is stated at the Company's net book value.
Management believes the carrying value is less than net realizable value on the
basis of purchase offers received in 1995 and 1996 and recent appraisals.
Property and Equipment. Property and equipment is stated at cost.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets between three and twelve years. The Company's
producing oil and gas properties were sold on August 9, 1995. Such properties
were recorded using the full-cost method of accounting. Under this method, all
costs incurred in connection with the exploration for and development of oil and
gas were capitalized. Depreciation, depletion and amortization of oil and gas
properties was computed on the basis of physical units, with oil and gas
converted to a common unit of measure based on the approximate relative energy
content. Unamortized costs were compared to the present value of estimated
future net revenues and any excess was charged to expense during the period in
which the excess occurred.
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,"
effective for years beginning after December 15, 1995. As the FASB encouraged
earlier application, the Company adopted the provisions of SFAS No. 121 during
the fourth quarter of 1995. This accounting standard requires certain assets be
reviewed for impairment whenever events or circumstances indicate the carrying
amount may not be recoverable. During 1995, the Company provided a provision of
$5.3 million for certain drilling rigs and equipment due to market indications
that the carrying amounts were not fully recoverable. Net realizable value was
determined based upon appraisal, comparable sale data and management estimates.
Revenue Recognition. Revenue from turnkey drilling contracts is recognized
using the percentage-of-completion method based upon costs incurred to date and
estimated total contract costs. Revenue from daywork, footage and hourly
drilling contracts is recognized based upon the provisions of the contract.
Provision is made currently for anticipated losses, if any, on uncompleted
contracts.
F-9
<PAGE> 91
DI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
Foreign Currency Translation. Assets and liabilities of foreign
subsidiaries have been translated into United States dollars at the applicable
rate of exchange in effect at the end of the period reported. Revenues and
expenses have been translated at the applicable weighted average rates of
exchange in effect during the period reported. Translation adjustments are
reflected as a separate component of shareholders' equity. Any transaction gains
and losses are included in net income. During 1996, the Company recorded an
unrealized translation loss of $404,000 as a reduction of shareholders' equity.
Net Income (Loss) per Share. Loss per share of common stock is based upon
the weighted average number of shares of common stock outstanding. The Company's
outstanding stock options and warrants are considered common stock equivalents
but are not included in the computation since their inclusion would be either
insignificant or antidilutive during the periods presented in the accompanying
financial statements.
Income Taxes. The Company accounts for income taxes based upon Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS
109") which requires recognition of deferred income tax liabilities and assets
for the expected future tax consequences of events that have been recognized in
the Company's financial statements or tax returns. Under this method, deferred
income tax liabilities and assets are determined based on the temporary
differences between the financial statement carrying amounts and the tax bases
of existing assets and liabilities and available tax credit carryforwards.
Fair Value of Financial Instruments. The carrying amount of the Company's
cash and short-term investments approximates fair value because of the short
maturity of those instruments. The carrying amount of the Company's long-term
debt approximates fair value as the interest is indexed to the prime rate or
LIBOR.
Cash Flow Information. Cash flow statements are prepared using the indirect
method. The Company considers all unrestricted highly liquid investments with a
maturity of three months or less at the time of purchase to be cash equivalents.
Restricted Cash. Restricted cash consists of investments in interest
bearing certificates of deposit totaling $250,000, $1.0 million and $1.6 million
at March 31, 1997 (unaudited), December 31, 1996 and 1995, respectively, as
collateral for a letter of credit securing insurance deposits. The carrying
value of the investments approximates the current market value.
Use of Estimates. Management of the Company has made a number of estimates
and assumptions relating to the reporting of assets and liabilities and the
disclosure of contingent assets and liabilities to prepare these financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
(2) SIGNIFICANT PROPERTY TRANSACTIONS
Effective September 1, 1994 as part of the Company's expansion into the
international markets, the Company purchased the Venezuelan drilling operations
of An-Son Drilling Company of Colombia S.A. ("An-Son"). This acquisition
included two oil and gas drilling rigs, two workover rigs, certain other oil
field equipment, operating contracts for each of the rigs and a labor contract
to operate one drilling rig. The purchase price for this transaction was
$4,100,000 consisting of $300,000 in cash, an acquisition note payable of
$1,900,000 (the "Acquisition Note"), of which $1,700,000 was paid during 1995,
and the remainder by issuance during 1995 of the Company's Series A redeemable
preferred stock (the "Series A Preferred") valued at $1,900,000. Pursuant to the
acquisition agreement, the Company conducted a post-closing audit of the
acquired companies in 1995 and settled claims for a purchase price credit from
An-Son in March, 1996 with the Company receiving credits of $1,213,000. During
March 1996, 100,000 shares of Series A Preferred, totaling $1,000,000, were
returned to the Company in settlement of asserted claims. At December 31, 1995,
$200,000 of the Acquisition Note that remained unpaid which was offset against
the settlement with the
F-10
<PAGE> 92
DI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
remaining credit of $1,013,000 recorded as reductions in the appropriate
accounts in the accompanying financial statements.
In September 1994, the Company purchased three drilling rigs from McRae
Energy Corporation for a total purchase price of $1,500,000. The Company paid a
cash down payment of $200,000 with the remaining $1,300,000 to be paid from cash
flow as defined in the purchase agreement. The three rigs were refurbished by
the Company in 1994 with two of the drilling rigs being added to the Company's
drilling fleet in Argentina and one drilling rig being added to the Company's
drilling fleet in Venezuela.
On May 7, 1996, the Company entered into two separate definitive merger
agreements (the "Mergers") to effect a $25.0 million equity infusion and the
acquisition of deep drilling equipment. These Mergers were closed on August 29,
1996.
Under the first agreement, R.T. Oliver, Inc. ("RTO") and Land Rig
Acquisition Corporation ("LRAC") merged with a new subsidiary of the Company
with the capital stock of RTO and LRAC being exchanged for 39,423,978 shares of
the Company's common stock. In addition, warrants were issued to acquire up to
1,720,000 additional shares of DI common stock, the exercise of which is
contingent upon the occurrence of certain events. As result of certain events
which have occurred at March 31, 1997 (unaudited), 581,400 warrants remained
outstanding, and the remainder have been canceled. These Mergers resulted in the
acquisition of 18 inactive, deep capacity land drilling rigs which included five
3,000 horsepower and nine 2,000 horsepower land rigs which are rated for depths
of 25,000 feet or greater. The Company believes that these rigs can be brought
up to operating condition within a reasonable time on an economic basis and that
this group of rigs represents a significant concentration of the relatively
small number of such deep drilling land rigs currently available in the market.
The Company placed one of these rigs in operation during 1996.
Under the second agreement, a subsidiary of Somerset Drilling Associates,
L.L.C. ("Somerset"), a privately-held investment limited liability company, was
merged into the Company. The stock of the subsidiary was exchanged for
39,423,978 shares of DI common stock and warrants to acquire up to 1,720,000
shares of DI common stock, the exercise of which is contingent upon the
occurrence of certain events. As a result of certain events which have occurred
at March 31, 1997 (unaudited), 581,400 warrants remained outstanding, and the
remainder were canceled. This merger transaction resulted in a $25.0 million
equity infusion into the Company.
A definitive proxy statement was mailed to shareholders of record as of
July 15, 1996, and the Mergers were approved by the shareholders at a meeting on
August 27, 1996. These Mergers resulted in an ownership change in the Company as
defined by Section 382 of the Internal Revenue Code which limits the ultimate
utilization of the Company's net operating loss carryforward (see footnote 3).
As part of the Merger agreements, the 1995 subscription by Norex Drilling
for 4,000 shares of Series B Preferred Stock and related Series B Warrants was
rescinded. The $4.0 million subscription plus accrued dividends were repaid to
Norex Drilling by the Company with the proceeds from a term loan that was made
by Norex Drilling to the Company. The Norex Drilling $4.0 million term loan was
paid in full on December 30, 1996 from the proceeds of a private placement of
the Company's common stock (see below). Interest accrued at 12% per annum and
was payable on the last business day of each calendar quarter.
On June 24, 1996, the Company closed a transaction whereby it sold all of
the operational assets of Western Oil Well Service Co. ("Western"), a
wholly-owned subsidiary of the Company, for $3.95 million in cash. Western
provided oil and gas well workover services principally in Montana, Utah and
North Dakota. Pursuant to the sale, the buyer assumed all of Western's existing
leases, primarily for vehicles, which totaled $251,000 at closing. The Company
recorded a gain of $2.8 million in the second quarter of 1996 as a result of
this sale.
F-11
<PAGE> 93
DI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
On October 3, 1996, the Company acquired of all the South Texas operating
assets of Mesa Drilling, Inc. ("Mesa") in exchange for 5,500,000 shares of the
Company's common stock. The assets acquired consisted of six diesel electric SCR
drilling rigs, three of which are currently operating in South Texas. The other
three rigs are currently stacked.
On December 31, 1996, the Company completed the acquisition of all the
South Texas operating assets of Diamond M Onshore, Inc., a wholly owned
subsidiary of Diamond Offshore Drilling, Inc. The assets were acquired for
approximately $26.0 million in cash and consisted of ten land drilling rigs, all
of which are currently operating, 19 hauling trucks, a yard facility in Alice,
Texas and various other equipment and drill pipe. DI hired the majority of the
personnel operating the assets.
Also on December 31, 1996, the Company closed a loan facility (the
"Facility") with Bankers Trust Company, ING (US) Capital Corporation and
NordlandsBanken AS which provided the funds to acquire the assets of Diamond M
Onshore, Inc. The Facility provides for an initial $35.0 million revolving line
of credit which reduces by $5.0 million each year until the December 31, 1999
maturity date. The Facility is secured by substantially all of the Company's
assets and calls for quarterly interest payments on the outstanding balance at
either LIBOR plus 3% or prime plus 2%. The Facility contains customary
affirmative and negative covenants.
In connection with closing the Facility, DI also completed a private
placement of 1,750,000 shares of DI common stock for approximately $4,120,000 to
four funds managed by Wexford Management LLC. The proceeds generated from this
private placement were utilized to repay a $4,000,000 Norex Drilling term note.
DI also agreed to issue more shares to the extent the Wexford funds hold value
less than $4,120,000 on the one-year anniversary date of the issuance. Immediate
shelf registration rights were also granted by DI in connection with the share
issuance. These shares were subsequently registered.
Each of the Company's acquisitions have been accounted for using purchase
accounting. As such all revenues and expenses have been recorded by the Company
beginning at the date of acquisition.
(3) INCOME TAXES
The Company and its domestic subsidiaries file a consolidated U.S. federal
income tax return. The Company's foreign owned subsidiaries file tax returns in
the country where they are domiciled. The Company records current income taxes
based upon its estimated tax liability in the United States and foreign
countries for the year. In 1996, the Company recorded $845,000 of current tax
expense based its estimate of taxes payable in Venezuela. The Company recorded a
current tax provision of $238,000 and a deferred tax provision of $424,000 for
the three months ended March 31, 1997 (unaudited).
The Company follows Statement of Financial Accounting Standard No. 109
("SFAS No. 109") which requires the balance sheet approach of income tax
accounting whereby deferred income taxes are provided at the balance sheet date
for the (a) differences existing in the tax basis of assets and liabilities and
their financial statement carrying amounts plus (b) operating loss and tax
credit carryforwards.
At December 31, 1996, the Company had U.S. net operating loss ("NOL")
carryforwards of approximately $23.0 million and investment tax credit ("ITC")
carryforwards of approximately $2.4 million which expire at various times
through 2010 and 2000, respectively. The NOL and ITC carryforwards are subject
to annual limitations because of the changes in ownership of the Company in
1989, 1994 and 1996.
For financial accounting purposes, approximately $21.0 million of the NOL
carryforwards was utilized to offset the book versus tax basis differential in
the recording of the assets acquired in the Mergers and the Mesa acquisition.
F-12
<PAGE> 94
DI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
Deferred tax liabilities of approximately $5.5 million existed at December
31, 1996, and are comprised of temporary differences between federal income tax
and financial accounting practices for the Company's property and equipment.
Deferred tax benefits of $3.7 million existed at December 31, 1996, attributable
to costs that were expended for financial reporting purposes that will be
deducted in future years for income tax purposes. These items are comprised of
workmens' compensation and bad debt reserves as well as the current year net
operating loss. These items were augmented by the $2.4 million of investment tax
credit carryforwards. A net deferred tax benefit of $.6 million was not
recognized in 1996 as a valuation allowance was provided against it, as the
recognition criteria set forth in SFAS No. 109 for a deferred tax asset, had not
been met. At March 31, 1997, deferred tax assets and deferred tax liabilities
were $8.0 million and $9.6 million respectively and were primarily attributable
to the same items noted above (unaudited). At December 31, 1995, deferred tax
assets and deferred tax liabilities were $14.6 million and $5.3 million
respectively and were also primarily attributable to the same items noted above.
In the Company's Venezuelan subsidiary, no temporary differences exist as
of March 31, 1997 (unaudited) and December 31, 1996. In the Company's other
foreign subsidiaries, the Company's net operating loss carryforwards and other
timing differences will not be recoverable since the Company is exiting these
markets.
The following summarizes the differences between the statutory tax rates
applicable in each year and the Company's effective tax rate (amounts in
thousands):
<TABLE>
<CAPTION>
NINE
YEAR YEAR MONTHS
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Tax at statutory rate.................. $(3,986) $(4,572) $ (751)
Increase (decrease) in taxes resulting
from:
Change in valuation allowance........ 1,169 4,572 751
Loss of foreign deductions........... 3,662 -- --
------- ------- ------
Provision for income taxes............. $ 845 $ -- $ --
======= ======= ======
</TABLE>
F-13
<PAGE> 95
DI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
(4) LONG-TERM DEBT
Long-term debt consists of the following (amounts in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
MARCH 31, -----------------
1997 1996 1995
--------- ------- -------
(UNAUDITED)
<S> <C> <C> <C>
$35,000 reducing revolving line of credit between the
Company and Bankers Trust Company, ING(US) Capital
Corporation and NordlandsBanken AS, secured by
substantially all of the Company's assets; bearing
interest at either LIBOR plus 3% or prime plus 2% due
quarterly............................................. $31,500 $25,000 $ --
$10,000 term loan agreement between the Company and
NordlandsBanken AS, secured by most of the Company's
U.S. domestic oil and gas drilling equipment; bearing
interest at prime plus 2 1/8% (fixed at 8% through
June 12, 1996), with 36 equal monthly principal
installments beginning June 12, 1995 (Amended October
1, 1995, bearing interest at LIBOR plus 2 1/8% with 36
equal monthly installments beginning January 1997).
The Company had the option to pay interest quarterly
and/or semi-annually.................................. -- -- 9,444
Note to McRae Energy Corporation, payable from available
cash flow, as defined, matures September 1998......... 1,300 1,300 1,300
$2,500 revolving line of credit, which converted to a
term loan in 1995, with a bank, secured by the
Company's accounts receivable, bearing interest at the
bank's prime rate plus 1% (9.75% at December 31,
1995)................................................. -- -- 575
Capital leases, secured by transportation and other
equipment, bearing interest at 10% to 14%............. 1,185 858 733
Insurance premium financed over 12 months with certain
insurance agencies due in equal monthly
installments.......................................... 61 264 270
Promissory note payable secured by trust deed to certain
land and building, bearing interest at 4%, due in
monthly installments.................................. -- -- 47
Promissory note payable secured by trust deed to certain
land and building, bearing interest at 9.75%, due in
equal monthly installments through September 1,
1997.................................................. 22 37 92
------- ------- -------
34,068 27,459 12,461
------- ------- -------
Less current maturities................................. 1,997 613 1,315
------- ------- -------
Long-term debt.......................................... $32,071 $26,846 $11,146
======= ======= =======
Discontinued Operations:
$3,000 term note with a bank, secured by all the
Company's oil and gas producing properties, bearing
interest at the bank's prime rate plus 1.25% (10% at
December 31, 1995) payable in monthly installments
equal to 75% of the net proceeds from production
subject to minimum semi-annual payments through March
10, 1997. This loan was paid in full during 1995...... $ -- $ -- $ 2,114
======= ======= =======
</TABLE>
F-14
<PAGE> 96
DI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
On December 31, 1996, the Company closed a $35.0 million reducing revolving
line of credit with Bankers Trust Company, ING (US) Capital Corporation and
NordlandsBanken AS. The Facility reduces by $5.0 million each year until the
December 31, 1999 maturity date. The facility is secured by substantially all
the Company's assets and calls for quarterly interest payments on the
outstanding balance at either LIBOR plus 3% or prime plus 2% (8.75% and 8.625%
at March 31, 1997 (unaudited) and December 31, 1996, respectively). The Facility
also contains customary affirmative and negative covenants with which the
Company was in compliance.
On April 30, 1997, the Facility was amended and restated to increase the
line of credit to $50.0 million and to revise certain other terms and covenants,
including the elimination of the mandatory $5.0 million reductions in January
1998 and 1999 and a conversion of the interest rate to a sliding variable rate
based on certain financial ratios of either LIBOR plus 1.75% to 2.5% or prime
plus 0.75% to 1.5% (unaudited).
In connection with entering into the new Facility, the $10.0 million term
loan agreement between the Company and NordlandsBanken was paid in full out of
existing working capital on December 31, 1996.
On August 28, 1996, the Company entered into a $4.0 million term loan with
Norex Drilling. The term loan was due on August 29, 1997 and bore interest at
12% per annum. The loan was paid in full from the proceeds of a private
placement of the Company's common stock on December 31, 1996.
The revolving $2,500,000 bank line of credit was converted to a term loan
in 1995 with the balance of $575,000 at December 31, 1995 being paid in monthly
installments through June 1996. The weighted average outstanding balance for the
year ended December 31, 1995 was $867,000 bearing weighted average interest of
10% per annum.
During 1995, the Company issued 190,000 shares, out of 200,000 authorized,
of Series A Preferred stock valued at $1,900,000. The Series A Preferred is
redeemable in cash at a redemption price payable from available cumulative
Venezuelan positive net cash flows, as defined, commencing the first fiscal
quarter following the original issuance date. The Company may redeem, at any
time, the Series A Preferred upon consent of the holders or upon written notice
commencing five years from the original issuance date. At the election of the
Company, dividends may be declared and payable in common stock equivalent to the
value of the dividends. Each Series A Preferred holder of record has no voting
right on any matters voted on by stockholders of the Company. As referred to in
Note 2, during March 1996, 100,000 shares of Series A Preferred, totaling
$1,000,000, were returned to the Company in settlement of asserted claims
against An-Son. At December 31, 1995, the balance of the Series A Preferred had
been adjusted to reflect this settlement. During 1996, the Company voluntarily
redeemed 13,500 shares of Series A Preferred leaving 76,500 shares outstanding
at December 31, 1996. During the first quarter of 1997, the Company redeemed an
additional 3,825 shares of Series A Preferred leaving 72,675 outstanding at
March 31, 1997 (unaudited).
Annual maturities of the debt outstanding at March 31, 1997 are as follows
(unaudited): 1997 -- $1,997,000; 1998 -- $6,671,000; 1999 -- $25,301,000;
2000 -- $96,000; and 2001 -- $3,000.
(5) CAPITAL STOCK AND STOCK OPTION PLANS
During the fourth quarter of 1995, Norex Drilling subscribed to and paid
$4,000,000 for a new Company issue of Series B Preferred Stock (the "Series B
Preferred"), to be issued subsequent to December 31, 1995. This subscription was
in the form of 4,000 shares (10,000 authorized) of Series B 15% Senior
Cumulative Redeemable Preferred, par value $1.00. This stock had annual
dividends of 15% per annum, payable through the issuance of additional preferred
shares for the first three years. On August 28, 1996 the $4,000,000 subscription
price plus accrued dividends was repaid to Norex Drilling by the Company with
the proceeds from a term loan that was made by Norex Drilling to the Company.
F-15
<PAGE> 97
DI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
The Company's 1982 Stock Option and Long-Term Incentive Plan for Key
Employees (the "1982 Plan") reserves 2,500,000 shares of the Company's common
stock for issuance upon the exercise of options. At March 31, 1997 (unaudited)
and December 31, 1996, options to purchase 1,871,800 shares of common stock were
available for grant under the 1982 Plan. The Company's 1987 Stock Option Plan
for Non-Employee Directors (the "1987 Director Plan") reserves 250,000 shares of
common stock for issuance upon the exercise of options and provides for the
automatic grant of options to purchase shares of common stock to any
non-employee who becomes a director of the Company. At March 31, 1997
(unaudited) and December 31, 1996, options under the 1987 Director Plan to
purchase 212,800 shares of common stock were available for grant until June 30,
1997. The Company's 1996 Employee Stock Option Plan (the "1996 Plan") reserves
7,000,000 shares of the Company's common stock for issuance upon the exercise of
options. At March 31, 1997 (unaudited) and December 31, 1996, options under the
1996 Plan to purchase 4,650,000 and 5,205,000, respectively, shares of common
stock were available for grant until July 29, 2006. The exercise price of stock
options under the 1982 Plan, the 1987 Director Plan and the 1996 Plan
approximates the fair market value of the stock at the time the option is
granted. The Company had 2,410,000 shares reserved for other Incentive Stock
Option Agreements between the Company and its executive officers and directors.
Two million of the shares were reserved for the Company's President 50,000 were
reserved for the Company's Chief Financial Officer and the remaining shares are
reserved for non-employee directors. At March 31, 1997, 2,360,000 shares were
reserved for other Incentive Stock Option Agreements as the Chief Financial
Officer exercised options (unaudited). Options become exercisable in varying
increments over four- to five-year periods and the majority of the options
expire on the tenth anniversary of the inception of the plans. Stock option
activity for all plans was as follows (number of shares in thousands):
<TABLE>
<CAPTION>
NUMBER OPTION
OF SHARES PRICE RANGE
--------- -------------
<S> <C> <C>
Outstanding March 31, 1994: 2,035 $0.88 - $2.38
Granted................................................... 103 $0.88 - $0.94
Exercised................................................. (2) $0.88
Canceled.................................................. (148) $0.88 - $1.63
Outstanding December 31, 1994: 1,988 $0.88 - $2.38
Granted................................................... 253 $0.69 - $0.88
Canceled.................................................. (267) $0.94 - $2.38
Outstanding December 31, 1995: 1,974 $0.69 - $1.63
Granted................................................... 50 $0.69 - $1.00
3,700 $1.13 - $1.75
475 $2.56 - $2.88
Exercised................................................. (232) $0.69 - $1.00
(44) $1.25 - $1.75
Canceled.................................................. (1,282) $0.69 - $1.00
(132) $1.25 - $1.75
Outstanding December 31, 1996: 276 $0.69 - $1.00
3,758 $1.13 - $1.63
475 $2.56 - $2.88
Granted (unaudited)....................................... 555 $2.81 - $3.13
Exercised (unaudited)..................................... (55) $ .69 - $ .94
Canceled (unaudited)...................................... (1) $ .69 - $ .94
(20) $2.56
Outstanding March 31, 1997 (unaudited): 220 $ .69 - $1.00
3,758 $1.13 - $1.63
1,010 $2.56 - $3.13
Exercisable at March 31, 1997 (unaudited): 809 $0.69 - $1.75
</TABLE>
F-16
<PAGE> 98
DI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
At December 31, 1996, the Company has three stock-based compensation plans,
which were described above. The Company applies APB Opinion 25 and related
interpretations in accounting for its plans. Accordingly, no compensation cost
has been recognized. Had compensation cost for the Company's three stock-based
compensation plans been determined on the fair value at the grant dates for
awards under those plans consistent with the method of Statement of Financial
Accounting Standards No. 123, the Company's net income and earnings per share
would have been reduced to the pro forma amounts indicated below (amounts in
thousands, except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Net loss
As reported............................................... $(12,124) $(13,447)
Pro forma................................................. $(13,723) $(13,447)
Earnings per share
As reported............................................... $ (.18) $ (.35)
Pro forma................................................. $ (.20) $ (.35)
</TABLE>
For purposes of determining compensation costs using the provisions of SFAS
No. 123, the fair value of option grants were determined using the Black-Scholes
option-valuation model. The key input variables used in valuing the options
were: risk-free interest rate based on the five year Treasury strips of 7.8%;
dividend yield of zero; stock price volatility of 60%; expected option lives of
five years.
(6) GEOGRAPHIC AREA INFORMATION
The following table sets forth the Company's operations based on the
geographic areas in which it operates (amounts in thousands).
<TABLE>
<CAPTION>
YEAR YEAR NINE MONTHS
ENDED ENDED ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Revenues:
Domestic..................................... $ 52,495 $ 44,797 $ 40,515
Mexico....................................... 3,504 12,617 1,706
South America................................ 25,768 37,295 8,766
-------- -------- --------
$ 81,767 $ 94,709 $ 50,987
======== ======== ========
Operating income (loss):
Domestic..................................... $ (4,002) $ (4,093) $ (2,095)
Mexico....................................... (3,818) 238 (77)
South America................................ (5,895) (8,938) (280)
-------- -------- --------
$(13,715) $(12,793) $ (2,452)
======== ======== ========
Identifiable assets:
Domestic..................................... $103,608 $ 39,069 $ 47,524
Mexico....................................... 1,500 4,008 3,470
South America................................ 12,711 14,706 11,866
-------- -------- --------
$117,819 $ 57,783 $ 62,860
======== ======== ========
</TABLE>
F-17
<PAGE> 99
DI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
During the three months ended March 31, 1997, one unaffiliated customer
accounted for approximately 18% of the Company's consolidated revenues
(unaudited). During the three months ended March 31, 1996 (unaudited), the years
ended December 31, 1996 and 1995, and the nine months ended December 31, 1994,
no customer accounted for more than 10% of the Company's consolidated revenues.
(7) RELATED-PARTY TRANSACTIONS
Prior to June 2, 1994, certain of the Company's insurance coverage,
including workers' compensation and excess liability coverage, was arranged by
American Premier as part of a program which American Premier provided to its
subsidiaries. Subsequent to the sale of the Company's common shares by American
Premier, the Company obtained workers' compensation, excess liability coverage
and certain other insurance from other sources. The Company and American Premier
entered into an agreement pursuant to which the Company agreed to reimburse
American Premier for all amounts advanced by American Premier from time to time
on behalf of the Company in connection with American Premier's administration of
the Company's workers' compensation and certain other insurance programs for the
periods between July 20, 1989 and the closing of the common stock transaction.
The amount reimbursable to American Premier at December 31, 1995 relating to
this program was $1,900,000. All amounts outstanding under the program were paid
in full during 1996.
During the year ended March 31, 1994, Thermal Drilling, Inc. ("Thermal"),
the minority interest owner of the Company's majority-owned subsidiary,
DI/Perfensa Inc. ("DI/Perfensa"), borrowed and repaid with interest certain sums
from DI/Perfensa. At March 31, 1997 (unaudited) and December 31, 1996 and 1995,
$60,000 was due to DI/Perfensa from the President of Thermal.
As part of the Merger agreements, the 1995 subscription by Norex Drilling
for 4,000 shares of Series B preferred Stock and related Series B Warrants was
rescinded. The $4,000,000 subscription plus accrued dividends was repaid to
Norex Drilling by the Company with the proceeds from a term loan that was made
by Norex Drilling to the Company. Interest accrued at 12% per annum and was
payable on the last business day of each calendar quarter. The note payable was
paid in full on December 31,1996 using the proceeds from a private placement of
the Company's common stock.
On June 10, 1996, Norex Drilling advanced $1,000,000 to the Company
pursuant to a Promissory Note (the "Norex Note") and Commercial Security
Agreement. The Norex Note provided for interest at 12% per annum, and matured on
the Closing Date of the Merger transactions. The Company's domestic accounts
receivable were pledged under the security agreement. The Company repaid this
loan, plus accrued interest, in early July 1996 with the proceeds from the sale
of the assets discussed in footnote 2.
A consulting fee of $10,000 per month has been paid by the Company under a
consulting arrangement with the Company's Chairman of the Board.
One of the Company's directors is a partner in a law firm that performed
legal services for the Company. During 1996, the Company paid the firm $200,000.
(8) LEASE COMMITMENTS
The Company leases certain office space under noncancellable lease
agreements accounted for as operating leases. At December 31, 1996, lease
commitments under noncancellable operating leases with an initial term of more
than one year are $96,000 for the year ended December 31, 1996. Rental expense
under operating leases was $43,000 and $23,000 for the three months ended March
31, 1997 and 1996 (unaudited), $109,000 and $101,000 for the years ended
December 31, 1996 and 1995, and $77,000 for the nine months ended December 31,
1994. The Company's future lease commitments are approximately $264,000 per year
through 2002.
F-18
<PAGE> 100
DI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
Capital leases for the Company's field trucks and automobiles are included
in long-term debt.
(9) CONTINGENCIES
The Company was proceeding against Charlestown Industries, Inc. (a 50%
"Partner"), who was a co-defendant, along with the Company, in the joint venture
to recover their respective portion ($1,800,000) of the OFS 1987, Mid-Year et.
al. v DI Exploration lawsuit. In 1994, a judgment was rendered in favor of the
Company against the Partner in the state of Oklahoma. The Partner, subsequent to
the judgement, filed for protection under the US Bankruptcy Act and the
Company's claim was ruled on by the bankruptcy court in October of 1996. The
bankruptcy court ruled against the Company. The Company has determined not to
pursue other appeals. Since the future recovery of the amount and term of
recovery was uncertain no amount had been recorded by the Company.
The Company is involved in litigation incidental to the conduct of its
business, none of which management believes is, individually or in the
aggregate, material to the Company's consolidated financial condition or results
of operations.
Substantially all of the Company's contract drilling activities are
conducted with independent and major oil and gas companies in the United States
or with national utility or national petroleum companies in Venezuela.
Historically, the Company has not required collateral or other security for the
related receivables from such customers. However, the Company has required
certain customers to deposit funds in escrow prior to the commencement of
drilling. Actions typically taken by the Company in the event of nonpayment
include filing a lien on the customer's producing properties and filing suit
against the customer.
(10) EMPLOYEE BENEFIT PLAN
The Company has a defined contribution employee benefit plan covering
substantially all of its employees. The Company matches individual employee
contributions up to 2% of the employee's compensation. Employer matching
contributions under the plan totaled $141,000 and $31,000 for the three months
ended March 31, 1997 and 1996 (unaudited), $104,000 and $144,000 for the years
ended December 31, 1996 and 1995, and $55,000 for the nine months ended December
31, 1994. Employer matching contributions vest over a five-year period.
Effective January 1, 1997, the Company increased the matching provisions to
include matching 100% of the first 3% of individual employee contributions and
50% of the next 3% of individual employee contributions. Other provisions of
plans were also amended.
(11) NON-RECURRING CHARGES
During the year ended December 31, 1996, the Company recorded non-recurring
charges of $6.1 million which included $1.1 million in employment severance
costs, $4.6 million in cost to exit the Argentine and Mexican markets and
$400,000 of other non-recurring charges. The employment severance cost includes
$602,000 in contractual severance pay to be paid over a two year period to the
Company's former President and Chief Executive Officer and the transfer to him
of certain drilling equipment with a net book value of $535,000 in settlement of
a dispute over stock options to purchase the Company's common stock. As a result
of the Company's desire to redeploy assets to more profitable markets, the
Company decided to withdraw from both the Argentine and Mexican markets. As a
result, the Company has recorded estimated exit costs of $1.3 million for Mexico
which primarily consists of the forfeiture of a performance bond and other costs
to be incurred to close the office and exit the market and exit costs of
$800,000 for Argentina which primarily consists of costs expected to be incurred
during the period necessary to close the office and exit the market. In
addition, the Company has tentatively agreed to sell three of the six drilling
rigs and certain other assets located in Argentina for $1.5 million. As a
result, the Company recorded a write down of rig equipment and other assets of
$2.5 million. The remaining Argentina rigs will be mobilized to the United
States or possibly
F-19
<PAGE> 101
DI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
Venezuela where they will be refurbished and returned to service. Mobilization
costs will be expensed as they are incurred during 1997.
(12) SUBSEQUENT EVENTS
On January 31, 1997, the Company acquired the operating assets of Flournoy
Drilling Company ("Flournoy") for 12,426,000 shares of DI common stock and
$800,000 in cash. The assets acquired include 13 drilling rigs, 17 rig hauling
trucks, a yard and office facility in Alice, Texas and various other equipment
and drill pipe. With respect to one-half of the shares to be issued in the
transaction, DI agreed to issue additional shares if the shareholders of
Flournoy hold value less than $2 per share one year from closing.
In March 1997, the Company entered into an agreement to acquire by merger
Grey Wolf Drilling Company ("Grey Wolf") for up to $61.6 million in cash and
approximately 14.0 million shares of the Company's common stock. The number of
shares to be issued in the merger is subject to decrease or increase if the
average trading price of DI's common stock ten days prior to the three days
before the merger is greater than $4.00 or less than $3.00 per share.
Additionally, the merger agreement calls for the decrease of the cash
consideration and a corresponding increase in the number of shares issued so
that at least 45% of the value of the merger consideration consists of the
Company's common stock. An escrow will be established for certain post-closing
contingencies with $5 million of the cash consideration. The Merger is subject
to obtaining regulatory and Grey Wolf shareholder's approval and certain other
conditions. The Company expects this merger to close by the end of the second
quarter of 1997. The Company expects to issue $125.0 million of public
debentures due in the year 2007 to fund the cash portion of the Grey Wolf
acquisition to repay outstanding debt under the Facility and for general
corporate purposes.
The March 31, 1997, (unaudited) consolidated balance sheet includes the
effect of the Mergers, the Diamond M acquisition, the Mesa acquisition, the
private placement, the new credit facility and the Flournoy acquisition. The
unaudited proforma balance sheet assumes the Grey Wolf acquisition and related
common stock issuance occurred on March 31, 1997. The rigs acquired in the
Mergers had no historical operations as they were stacked while owned by RTO and
LRAC. The following unaudited consolidated proforma results of operations assume
the Mergers, the Diamond M acquisition, the Mesa acquisition, the Flournoy
acquisition, the Grey Wolf acquisition, the private placement and the new credit
facility had occurred at January 1, 1996, and do not purport to be indicative of
what would have occurred had the transactions occurred at those dates or of
results which may occur in the future. The unaudited proforma results of
operations shown below include the operations of Diamond M, Mesa, Flournoy, and
Grey Wolf additional expenses for storing the rigs acquired in the Mergers and
the placement of the Senior Notes (in thousands, except per share amounts):
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1997
--------------
<S> <C> <C>
Working capital....................................... $ 37,236
Total assets.......................................... 346,272
Shareholders' equity.................................. 140,042
</TABLE>
<TABLE>
<CAPTION>
FOR THE THREE FOR THE
MONTHS ENDED YEAR ENDED
MARCH 31, 1997 DECEMBER 31, 1996
-------------- -----------------
<S> <C> <C>
Total revenue......................................... $55,709 $205,316
Net income (loss) applicable to common stock.......... 801 (26,311)
Net income (loss) per share........................... .01 (.17)
</TABLE>
F-20
<PAGE> 102
DI INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(INCLUDING NOTES APPLICABLE TO THE UNAUDITED PERIODS)
(13) QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized quarterly financial data for the three months ended March 31,
1997, years ended December 31, 1996 and 1995, and the nine months ended December
31, 1994 are set forth below (amounts in thousands, except per share amounts).
<TABLE>
<CAPTION>
QUARTER
ENDED
MARCH
1997
-------
<S> <C> <C> <C> <C>
Revenues.................................. $35,975
Gross profit (loss)(1).................... 7,183
Operating loss............................ 3,322
Loss-continuing operations................ 2,976
Discontinued operations................... --
Net income................................ 2,314
Net loss per common share................. .02
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------
MARCH JUNE SEPTEMBER DECEMBER
1996 1996 1996 1996
------- ------- --------- --------
<S> <C> <C> <C> <C>
Revenues.................................. $20,102 $19,183 $22,031 $ 20,451
Gross profit (loss)(1).................... 1,166 (199) 3,144 (2,732)
Operating loss............................ (1,253) (2,398) 1,108 (11,172)
Loss-continuing operations................ (1,491) 524 808 (10,718)
Discontinued operations................... -- -- -- --
Net income (loss)......................... (1,491) 524 808 (11,563)
Net income (loss) per common share........ (.04) .01 .01 (.09)
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------
MARCH JUNE SEPTEMBER DECEMBER
1995 1995 1995 1995
------- ------- --------- --------
<S> <C> <C> <C> <C>
Revenues.................................. $22,344 $23,151 $27,106 $ 22,108
Gross profit(1)........................... (180) 1,075 448 (459)
Operating loss............................ (1,946) (814) (1,565) (8,468)
Loss-continuing operations................ (2,219) (1,122) (1,234) (8,100)
Discontinued operations................... (11) (543) (116) (102)
Net loss.................................. (2,230) (1,665) (1,350) (8,202)
Net loss per common share................. (.06) (.04) (.03) (.22)
</TABLE>
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------
JUNE SEPTEMBER DECEMBER
1994 1994 1994
------- --------- --------
<S> <C> <C> <C> <C>
Revenues.................................. $14,331 $17,215 $ 19,441
Gross profit(1)........................... 29 545 1,425
Operating income (loss)................... (1,292) (837) (323)
Income (loss)-continuing operations....... (935) (872) (453)
Discontinued operations................... 14 49 (12)
Net income (loss)......................... (921) (823) (465)
Net loss per common share................. (.03) (.02) (.01)
</TABLE>
- ---------------
(1) Gross Profit is computed as consolidated revenues less operating expenses
(which excludes expenses for Depreciation and Amortization, General and
Administrative and Non-Recurring Charges).
F-21
<PAGE> 103
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
Grey Wolf Drilling Company:
We have audited the accompanying balance sheets of Grey Wolf Drilling
Company (a Texas corporation) as of October 31, 1996 and 1995, and the related
statements of operations, shareholders' investment and cash flows for each of
the three years in the period ended October 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Grey Wolf Drilling Company
as of October 31, 1996 and 1995, and the results of its operations and its cash
flows for each of the three years in the period ended October 31, 1996, in
conformity with generally accepted accounting principles.
As explained in Note 2 to the financial statements, the Company has given
retroactive effect to the change in accounting for turnkey and footage drilling
contracts from the completed-contract method to the percentage-of-completion
method.
ARTHUR ANDERSEN LLP
Houston, Texas
January 13, 1997
F-22
<PAGE> 104
GREY WOLF DRILLING COMPANY
BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
OCTOBER 31,
JANUARY 31, ----------------------
1997 1996 1995
----------- -------- ----------
(UNAUDITED) (RESTATED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.................................................... $ 899 $ 482 $ 62
Accounts receivable, net of allowance for uncollectible
accounts of $63, $169, and $134, respectively........ 7,334 7,639 7,371
Contracts in progress..................................... 518 2,238 437
Prepaid expenses.......................................... 1,524 1,089 778
-------- -------- --------
Total current assets............................ 10,275 11,448 8,648
-------- -------- --------
Property and equipment, at cost:
Drilling rigs and equipment............................. 47,316 46,256 43,558
Drill pipe and collars.................................. 6,267 6,141 4,592
Other................................................... 2,143 2,144 1,594
-------- -------- --------
55,726 54,541 49,744
Less: accumulated depreciation and amortization........... (37,300) (36,705) (34,617)
-------- -------- --------
Net property and equipment...................... 18,426 17,836 15,127
-------- -------- --------
Other assets.............................................. 345 345 129
-------- -------- --------
Total assets.................................... $ 29,046 $ 29,629 $ 23,904
======== ======== ========
LIABILITIES AND SHAREHOLDERS' INVESTMENT
Current liabilities:
Current maturities of long-term debt.................... $ 8 $ 8 $ 744
Accounts payable and accrued liabilities................ 8,483 10,005 6,192
-------- -------- --------
Total current liabilities....................... 8,491 10,013 6,936
-------- -------- --------
Post-retirement benefits obligation....................... 381 385 --
Long-term debt, net of current maturities................. 1,484 1,971 4,815
Deferred income taxes..................................... 2,933 2,874 1,181
Commitments and contingencies (Note 7)
Shareholders' investment:
Common stock, no par value; 10,000,000 shares
authorized; 2,987,379 shares issued; and 2,983,579
shares outstanding................................... 6,553 6,553 6,553
Deferred compensation................................... (25) (34) (68)
Treasury stock, 3,800 shares............................ (8) (8) (8)
Retained earnings....................................... 9,237 7,875 4,495
-------- -------- --------
Total shareholders' investment.................. 15,757 14,386 10,972
-------- -------- --------
Total liabilities and shareholders'
investment.................................... $ 29,046 $ 29,629 $ 23,904
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-23
<PAGE> 105
GREY WOLF DRILLING COMPANY
STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31, YEAR ENDED OCTOBER 31,
------------------- ---------------------------------
1997 1996 1996 1995 1994
-------- -------- ------- ---------- ----------
(UNAUDITED) (RESTATED) (RESTATED)
<S> <C> <C> <C> <C> <C>
Revenues:
Contract drilling.............................. $15,863 $13,761 $56,537 $46,463 $50,740
Costs and expenses:
Drilling operations............................ 12,219 10,960 44,518 38,395 42,914
Depreciation and amortization.................. 626 453 2,163 1,425 745
General and administrative..................... 974 977 4,036 2,792 2,816
------- ------- ------- ------- -------
Total costs and expenses............... 13,819 12,390 50,717 42,612 46,475
------- ------- ------- ------- -------
Operating income................................. 2,044 1,371 5,820 3,851 4,265
------- ------- ------- ------- -------
Other income (expense):
Gain on disposition of assets.................. 235 133 368 1,223 --
Interest income................................ 8 1 2 43 44
Interest expense............................... (42) (113) (394) (242) (431)
Provision for uncollectible accounts
receivable.................................. (41) (8) (217) (374) (397)
Other, net..................................... 66 49 66 54 397
------- ------- ------- ------- -------
226 62 (175) 704 (387)
------- ------- ------- ------- -------
Income before income taxes....................... 2,270 1,433 5,645 4,555 3,878
Provision for income taxes....................... 908 572 2,265 1,669 686
------- ------- ------- ------- -------
Net income....................................... $ 1,362 $ 861 $ 3,380 $ 2,886 $ 3,192
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-24
<PAGE> 106
GREY WOLF DRILLING COMPANY
STATEMENTS OF SHAREHOLDERS' INVESTMENT
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON RETAINED DEFERRED TREASURY
STOCK EARNINGS COMPENSATION STOCK TOTAL
------ -------- ------------ -------- -------
<S> <C> <C> <C> <C> <C>
Balance, October 31, 1993, as previously
reported................................. $6,553 $(1,686) $(136) $-- $ 4,731
Adjustment for the cumulative effect of
retroactively applying the
percentage-of-completion method of
accounting for turnkey and footage
contracts (Note 2).................... -- 103 -- -- 103
------ ------- ----- --- -------
Balance, October 31, 1993, as restated..... 6,553 (1,583) (136) -- 4,834
Net income, as restated.................. -- 3,192 -- -- 3,192
Acquisition of treasury shares........... -- -- -- (8) (8)
Deferred compensation earned............. -- -- 34 -- 34
------ ------- ----- --- -------
Balance, October 31, 1994.................. 6,553 1,609 (102) (8) 8,052
Net income, as restated.................. -- 2,886 -- -- 2,886
Deferred compensation earned............. -- -- 34 -- 34
------ ------- ----- --- -------
Balance, October 31, 1995.................. 6,553 4,495 (68) (8) 10,972
Net income............................... -- 3,380 -- -- 3,380
Deferred compensation earned............. -- -- 34 -- 34
------ ------- ----- --- -------
Balance, October 31, 1996.................. 6,553 7,875 (34) (8) 14,386
Net income............................... -- 1,362 -- -- 1,362
Deferred compensation earned............. -- -- 9 -- 9
------ ------- ----- --- -------
Balance, January 31, 1997 (unaudited)...... $6,553 $ 9,237 $ (25) $(8) $15,757
====== ======= ===== === =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-25
<PAGE> 107
GREY WOLF DRILLING COMPANY
STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JANUARY 31, YEAR ENDED OCTOBER 31,
------------------- ---------------------------------
1997 1996 1996 1995 1994
-------- -------- ------- ---------- ----------
(UNAUDITED) (RESTATED) (RESTATED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income............................... $ 1,362 $ 861 $ 3,380 $ 2,886 $ 3,192
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation and amortization......... 626 453 2,163 1,425 745
Rig restoration costs recouped through
operations.......................... -- -- -- 633 1,303
Restricted stock compensation
earned.............................. 9 9 34 34 34
Gains on dispositions of assets....... (235) (133) (368) (1,223) --
Deferred income taxes................. 59 572 1,693 1,240 487
Changes in operating assets and
liabilities:
(Increase) decrease in accounts
receivable.......................... 305 (136) (334) 181 (1,912)
(Increase) decrease in contracts in
progress............................ 1,720 (2,497) (1,801) 1,469 (738)
(Increase) decrease in prepaid
expenses............................ (435) (82) (311) 1,263 24
Increase (decrease) in accounts
payable and accrued liabilities..... (1,522) 3,445 3,813 (2,536) (824)
Increase (decrease) in post-retirement
benefits obligation................. (4) 98 345 -- --
(Increase) decrease in long-term
equipment lease collateral.......... -- -- -- 151 (151)
------- ------- ------- ------- -------
Net cash provided by operating
activities..................... 1,885 2,590 8,614 5,523 2,160
------- ------- ------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of property and
equipment............................. 242 213 467 1,288 --
Property and equipment additions......... (1,223) (1,322) (4,747) (4,222) (1,180)
Advances for rig restoration............. -- -- -- (183) (634)
Other.................................... -- -- (111) (60) (58)
------- ------- ------- ------- -------
Net cash used in investing
activities..................... (981) (1,109) (4,391) (3,177) (1,872)
------- ------- ------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of debt........................ (487) (1,244) (3,945) (2,599) --
Accrued interest on capital lease
obligation............................ -- 36 142 -- --
Acquisition of treasury stock............ -- -- -- -- (8)
------- ------- ------- ------- -------
Net cash used in financing
activities..................... (487) (1,208) (3,803) (2,599) (8)
------- ------- ------- ------- -------
INCREASE (DECREASE) IN CASH................ 417 273 420 (253) 280
CASH, beginning of period.................. 482 62 62 315 35
------- ------- ------- ------- -------
CASH, end of period........................ $ 899 $ 335 $ 482 $ 62 $ 315
======= ======= ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the period for
interest.............................. $ 182 $ 61 $ 245 $ 249 $ 487
======= ======= ======= ======= =======
Cash paid during the period for income
taxes................................. $ -- $ -- $ 430 $ 479 $ 79
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-26
<PAGE> 108
GREY WOLF DRILLING COMPANY
NOTES TO FINANCIAL STATEMENTS
(1) ORGANIZATION AND NATURE OF OPERATIONS
Grey Wolf Drilling Company (the Company) is a Texas corporation with
offices in Houston, Texas, and Lafayette, Louisiana. The Company operates land
drilling rigs which are used in contract drilling operations primarily in
Louisiana and Texas.
The Company's results of operations and its financial condition have
historically been adversely affected by the depression in the domestic oil and
gas exploration industry which commenced in 1982. This market condition resulted
in depressed rates received for contract drilling services and reduced the
number of active rigs in domestic drilling operations on an industry-wide basis.
The Company had profitable results between 1990 and 1996 (excluding 1993), after
a prolonged period of negative results (1982 - 1989).
Demand for drilling equipment is dependent on the exploration and
development programs of oil and gas companies, which are in turn influenced by
the financial conditions of such companies, by general economic conditions, by
prices of oil and gas and, from time to time, by political considerations and
policies. The Company's business operations are subject to the risks associated
with a business having a limited number of customers for which it can operate at
any given time. A decrease in the drilling programs of customers in the areas
where the Company is employed may adversely affect the Company's revenues. The
contracts under which the Company operates its drilling rigs are obtained either
through individual negotiations with the customer or by submitting proposals in
competition with other drilling contractors and vary in their terms and
conditions. The Company competes with several other drilling contractors, most
of which are substantially larger than the Company and possess appreciably
greater financial and other resources. Price competition is generally the most
important factor in the drilling industry, but the technical capability of
specialized drilling equipment and personnel at the time and place required by
customers is also important. Other competitive factors include work force
experience, rig suitability, efficiency, condition of equipment, reputation and
customer relations. The Company believes that it competes favorably with respect
to these factors.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Interim Data. The financial statements and related information as of
January 31, 1997, and for the three-month periods ended January 31, 1997 and
1996, have been prepared by the Company without audit pursuant to the rules and
regulations of the Securities and Exchange Commission. Such statements reflect
all adjustments (consisting only of normal recurring entries) which are, in the
opinion of management, necessary for a fair presentation of the financial
position, results of operations, cash flows and changes in shareholders'
investment at and for such periods. Interim period results are not necessarily
indicative of the results to be achieved for an entire year.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Property and Equipment. The costs of drilling rigs and equipment, drill
pipe and collars, other property and equipment and major replacements which
extend the useful lives of property and equipment are capitalized. Replaced
units are retired by removing the cost and related accumulated depreciation.
Maintenance and repairs and minor replacements are expensed as incurred. Gains
or losses resulting from sales, dispositions or retirements are included in
other income.
Depreciation is provided for financial reporting purposes using the
straight-line method over estimated useful lives of seven years for drilling
rigs and equipment, three years for drill pipe and collars and from five to 30
years for other property and equipment.
F-27
<PAGE> 109
GREY WOLF DRILLING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Prepaid Expenses. Prepaid expenses primarily consist of insurance deposits
which are held by the carrier and are released at the expiration of the
applicable policy and prepaid premiums which are amortized over the life of the
applicable policy.
Recognition of Operating Revenues and Expenses. Operating revenues and
expenses are recognized on the basis of contract terms as follows:
Turnkey and Footage Contracts -- In 1996, the Company changed its
method of accounting for turnkey and footage contracts from the
completed-contract method to the percentage-of-completion method. The
percentage-of-completion method of accounting, which is generally the
preferred accounting, was adopted to more closely approximate the concept
of accrual-based recognition of revenues and profit as earned. Under the
percentage-of-completion method, revenues, costs and estimated profits for
turnkey and footage contracts are recognized based upon the percentage of
completion of the individual contracts in progress at year-end. All
information available through the date of the financial statements is
considered in determining the estimated costs and profits upon completion
of an in-progress contract. The percentage of completion for an in-progress
contract is based upon the days worked compared to total expected days
under the performance of the contract. Any estimated contract losses are
charged to earnings when identified.
As required for a change in the method of recognizing contract revenues,
all prior years have been restated to reflect the change. The effect of the
accounting change on net income for 1996 and on net income previously reported
in 1995 and 1994 was approximately $600,000, $(199,000) and $169,000,
respectively. The balance of retained earnings as of October 31, 1993, has been
adjusted for the effect (net of income taxes) of applying retroactively the new
method of accounting.
Day work Contracts -- Revenues and expenses are recognized as the work
progresses.
Combination Contracts -- Revenues and expenses are recognized in
accordance with the turnkey, footage or day work terms of the contracts as
described above.
Income Taxes. The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes," whereby deferred income taxes are provided at the balance sheet
date, based upon enacted tax laws, for all differences between the tax basis of
assets and liabilities and their respective carrying amounts for financial
statement purposes. See Note 4 for additional discussion.
Earnings Per Share. The Company is a closely held private company, thus
earnings per share amounts are not meaningful and, accordingly, not presented.
F-28
<PAGE> 110
GREY WOLF DRILLING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(3) LONG-TERM DEBT
The long-term debt of the Company is as follows (amounts in thousands):
<TABLE>
<CAPTION>
OCTOBER 31
JANUARY 31, ---------------
1997 1996 1995
----------- ------ ------
(UNAUDITED)
<S> <C> <C> <C>
Bank debt, due March 31, 1998, interest at prime plus
1 1/4%................................................ $1,275 $ 300 $2,100
Capital lease obligation, including accrued interest.... -- 1,460 2,715
Property mortgage, due monthly through February 21,
2006, interest at 8 1/2%.............................. 217 219 --
Notes payable, due February 1, 1996, interest at 10%.... -- -- 718
Notes payable to shareholders, due February 1, 1996,
interest at 10%....................................... -- -- 26
------ ------ ------
1,492 1,979 5,559
Less-Current maturities................................. 8 8 744
------ ------ ------
Total long-term debt.......................... $1,484 $1,971 $4,815
====== ====== ======
</TABLE>
Bank Debt. During 1991, the Company secured a $3.0 million revolving credit
facility with a bank (the Bank) which was increased to $4.5 million effective
February 28, 1995. On May 31, 1996, the Company entered into an amended and
restated loan agreement (the Agreement) with the Bank which combined the
existing $4.5 million revolving credit facility and a new $3.0 million capital
credit facility (the Facilities). Under the revolving credit facility, the
maximum amount of borrowings is subject to a borrowing base limitation of up to
75 percent of eligible accounts receivable, as defined. At October 31, 1996, the
borrowing base limitation amount exceeded the $4.5 million maximum line of
credit. The revolving credit facility provides for a maturity date of March 31,
1998. The capital credit facility terminates June 15, 1998, with the entire
principal balance due on March 15, 2001. The Company is required to pay a
commitment fee of 1/2 percent on the unfunded portion of the Facilities. The
outstanding portion of the Facilities bears interest at 1 1/4 percent above the
Bank's prime rate (8.25 percent at October 31, 1996), payable monthly. As any
borrowings under the Facilities bear interest at market-responsive rates, the
carrying value of borrowings outstanding approximates fair value. All of the
Company's property and equipment and accounts receivable are pledged as security
on the loan.
The Agreement contains certain restrictive covenants regarding future
borrowings, capital expenditures and payment of cash dividends. In addition, the
Company must meet certain reporting requirements and maintain the following
financial covenants, as defined by the agreement: (a) a current ratio (as
defined) of 1.0:1.0, (b) a minimum net worth of $10.0 million at the end of any
quarter commencing with the quarter ended October 31, 1995, increasing by the
sum of 50 percent of quarterly net income thereafter, which resulted in a
minimum net worth requirement of approximately $11.7 million at November 1,
1996, and (c) a cash flow (as defined) of $2.5 million for the year ended
October 31, 1995, and $2.5 million for the 12 months ended at each subsequent
fiscal quarter thereafter. As of October 31, 1996, the Company was not in
compliance with certain of these restrictive covenants, for which waivers were
obtained.
Capital Lease Obligation. On March 1, 1995, the Company entered into a
lease agreement with L&GW, Inc., to lease a 50 percent interest in six rigs, a
25 percent interest in a seventh rig and certain other assets. The Company
presently owns the remaining interest in these assets. Reference is made to Note
8 for further discussion of this agreement. The lease payments are contingent
based upon cash flows from the rigs, as defined, and equal from 50 percent to 75
percent of such cash flows. The agreement provides the Company a purchase option
through April 2000. The purchase option at the date of the lease agreement,
March 1, 1995, is $3.0 million, which increases over time based upon a defined
interest factor (12.7 percent per annum which generally accrues in full
beginning April 30, 1997, and defined lesser amounts prior to such time), and
F-29
<PAGE> 111
GREY WOLF DRILLING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
decreases over time by the lease payments made by the Company. The Company
intends to acquire the leased assets through the exercise of the purchase
option.
Property and equipment includes $3.0 million of costs capitalized relating
to the capital lease obligation.
During 1996 and 1995, interest expense accrued on the option price was
$142,000 and $ -- , and lease payments totaling $1,397,000 and $285,000 were
made, thereby reducing the purchase option amount to $1,460,000 at October 31,
1996.
Property Mortgage. During 1996, the Company acquired certain real estate
property in Texas for a purchase price of approximately $300,000. The Company
entered into a note payable with a bank to finance $224,000 of the purchase
price. The note payable bears interest at 8 1/2 percent and is repayable in
equal monthly installments through February 21, 2006. The note is secured by the
real estate purchased. The $224,000 mortgage financing has been excluded from
the statement of cash flows as it is a noncash transaction. As the interest rate
on this note payable approximates the effective market-responsive rate for
borrowings under the Facilities, the carrying value of this note payable
approximates fair value.
Notes Payable and Notes Payable to Shareholders. Notes payable originated
in the purchase of the common stock of a predecessor company in 1978 with
interest at 10 percent. During 1991, a group of shareholders purchased $552,000
of the above-described notes payable from the original noteholders. Under the
amended terms of the notes payable, the Company was required to make annual
repayments of principal equal to 35 percent of excess cash flow (as defined).
Repayments were required to be made 83 percent to the original noteholder and 17
percent to the shareholders. At October 31, 1996, all amounts outstanding under
the notes payable have been repaid.
(4) INCOME TAXES
The components of the Company's income tax provision are as follows
(amounts in thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ----
<S> <C> <C> <C>
Current.................................................... $ 572 $ 429 $199
Deferred................................................... 1,693 1,240 487
------ ------ ----
Total $2,265 $1,669 $686
====== ====== ====
</TABLE>
The difference between taxes computed at the U.S. federal statutory rate
and the Company's reported income tax expense is as follows (amounts in
thousands):
<TABLE>
<CAPTION>
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Federal income tax at the statutory rate of 34%.......... $1,919 $1,549 $1,318
Nondeductible costs...................................... 207 174 208
State income tax, less federal benefit................... 107 75 69
Change in valuation allowance............................ -- (279) (834)
Other, net............................................... 32 150 (75)
------ ------ ------
Total income tax provision..................... $2,265 $1,669 $ 686
====== ====== ======
</TABLE>
F-30
<PAGE> 112
GREY WOLF DRILLING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company's deferred tax position is comprised of the following as of
October 31, 1996 and 1995 (amounts in thousands):
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Deferred tax assets --
Investment tax credit carryforwards....................... $ 101 $ 595
Alternative minimum tax credits........................... 87 296
Accrued liabilities....................................... 225 137
Post-retirement benefits obligation....................... 131 --
Other..................................................... 89 75
------- -------
633 1,103
------- -------
Deferred tax liabilities --
Depreciation of property and equipment.................... (3,044) (2,168)
Contracts in progress..................................... (348) (38)
State taxes, net of loss carryforwards.................... (115) (78)
------- -------
(3,507) (2,284)
------- -------
Valuation allowance......................................... -- --
------- -------
Deferred income tax asset (liability)....................... $(2,874) $(1,181)
======= =======
</TABLE>
The Company has federal investment tax credit (ITC) carryforwards totaling
$101,000 which expire as follows (amounts in thousands):
<TABLE>
<S> <C>
1999........................................................ $ 88
2000........................................................ 7
2001........................................................ 6
----
$101
====
</TABLE>
The alternative minimum tax credits may be carried forward indefinitely. No
valuation allowance has been provided for the ITC carryforwards as management
believes that it is more likely than not that such carryforwards will be
utilized prior to their respective expiration dates.
(5) PROFIT-SHARING PLAN
The Company's profit-sharing plan for the benefit of employees provides for
Company contributions from net income and accumulated retained earnings as
determined by the Company's board of directors, limited to 15 percent of the
participants' annual compensation. No contributions have been made to the plan
since fiscal 1982. Effective October 1, 1996, the Company adopted a 401(k) plan
in which certain Company employees have been named as trustee. As a result of
adopting the 401(k) plan, management currently does not intend to make any
future contributions to the profit-sharing plan.
Under the 401(k) plan, participating employees may elect to contribute up
to $9,500, with the Company matching 50 percent of the employee contributions up
to 6 percent of their salaries for a maximum contribution by the Company of up
to 3 percent of each employee's salary for the year ended December 31, 1996.
Participating employees vest in the Company's contributions over a period of
seven years. Total expense recognized for the Company's contributions to the
401(k) plan in 1996 was approximately $8,000.
(6) GREY WOLF DRILLING COMPANY EMPLOYEE HEALTH PLAN AND TRUST
The Grey Wolf Drilling Company Employee Health Plan and Trust (the Plan) is
a defined contribution plan that provides certain health care benefits to its
active employees. Effective July 15, 1996, the Company
F-31
<PAGE> 113
GREY WOLF DRILLING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
amended the Plan allowing retired employees to continue health care coverage for
themselves and their spouses from the age of 60 to 65. To be eligible for this
health care benefit, the employee must be under the age of 65, but at least age
60, with at least 25 years of service as a full-time employee.
As of October 31, 1996, the accumulated post-retirement benefit obligation
(APBO) totals approximately $40,000, which relates to prior service costs. The
Company has recognized the APBO as of October 31, 1996, and will amortize the
prior service cost over the estimated service life of the remaining active
employees along with the annual benefit costs. Actuarial assumptions include a 6
percent health care cost trend and a 7 1/2 percent discount rate. The Company
does not currently intend to pre-fund these obligations.
(7) COMMITMENTS AND CONTINGENCIES
Minimum Lease Payments. Aggregate minimum rental payments required under
noncancelable operating leases having lease terms greater than one year are as
follows as of October 31, 1996 (amounts in thousands):
<TABLE>
<S> <C>
1997........................................................ $320
1998........................................................ 154
1999........................................................ 72
2000........................................................ 21
2001........................................................ --
</TABLE>
Rent expense for 1996, 1995 and 1994 was approximately $339,000, $340,000
and $289,000, respectively.
Insurance. The Company has commercial insurance coverage for workers'
compensation which contains a deductible of $100,000 per claim ($50,000 per
claim in 1995 and 1994). The Company also provides certain group medical
benefits to its employees for which it is self-insured under a plan in which
certain Company employees have been named as trustee; however, the Company has
acquired a stop-loss policy limiting its exposure to $100,000 per claim ($50,000
per claim in 1995 and 1994) and $783,000 in the aggregate ($699,000 and $687,000
in 1995 and 1994, respectively). See Note 6 for additional discussion of the
plan. As of October 31, 1996, the Company had executed a letter of credit in the
amount of $500,000 to an insurance carrier as security for its obligations under
the insurance fund.
Pending Litigation. The Company is named as defendant in a lawsuit styled
TEPCO, Inc. v. Grey Wolf Drilling Company, Cause No. 96-49194, in the 164th
Judicial District Court of Harris County, Texas. In its petition filed on
September 26, 1996, the plaintiff alleged that the Company breached alleged
contractual obligations to TEPCO, Inc. (TEPCO), by failing to drill an oil or
gas well or wells for TEPCO in the Treasure Isle Field, located in Galveston
County, Texas. The plaintiff also alleges that it lost alleged rights under an
oil and gas lease as a consequence of failure to drill such well or wells,
allegedly causing the plaintiff to suffer money damages asserted in the
plaintiff's petition to amount to "many tens of millions of dollars." The
Company believes that the claims asserted by the plaintiff are unfounded. Prior
to filing of TEPCO's suit, the Company had filed lien claims against two wells
which the Company had drilled for TEPCO, for unpaid statements for services or
materials provided prior to the time when the Company ceased further work for
TEPCO, and the Company has filed a counterclaim in the TEPCO suit seeking
recovery of approximately $250,000 with respect to such statements and interest
and attorneys' fees. Discovery is in progress in the TEPCO suit, and the Company
is vigorously defending the action. It is the opinion of the management that the
ultimate resolution of the suit will not have a material adverse effect on the
Company's financial position.
In the normal course of business, the Company becomes involved in
litigation incident to operations. Management is of the opinion that ultimate
resolution of all matters of litigation and dispute will not have a material
adverse effect on the Company's financial position.
F-32
<PAGE> 114
GREY WOLF DRILLING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(8) DISSOLUTION OF L&GW VENTURE AND LEASE AGREEMENT
In May 1987, the Company entered into the L&GW Venture (the Venture) with
an entity controlled by a major shareholder. The Company's interest in the
Venture was 1 percent until payout, as defined in the Venture agreement. The
entity controlled by this shareholder contributed drilling equipment to the
Venture. The Company acted as co-manager of the Venture and was reimbursed by
the Joint Venture for costs and expenses incurred on behalf of the Joint Venture
(approximately $45,000 was invoiced for the year ended October 31, 1994).
In 1990, an agreement was reached whereby the Company would restore six
drilling rigs owned by the Venture to operating condition and subsequently would
operate the rigs. Pursuant to the agreement, the Company and its joint venture
partner were each entitled to one-half of the net cash receipts from the rigs,
generally defined as cash receipts in excess of operating costs, after the
Company recouped the total cost paid to restore the rigs to production,
including interest. The costs incurred to restore the rigs were deferred and,
prior to recoupment, the Company was entitled to 100 percent of the net cash
flow. The Company's operating revenues and expenses, therefore, included 100
percent of the activity related to these six rigs, and profit was eliminated
until recoupment of restoration costs. As of February 28, 1995, unrecovered
advances for rig restoration totaled $1,995,000, and the gross revenues from the
six rigs recognized by the Company (100 percent) for the four months of 1995 and
for 1994 totaled approximately $4,477,000 and $14,304,000, respectively.
On March 1, 1995, the Venture, owner of 100 percent interest in six rigs
and a 50 percent interest in one rig, was dissolved. As a result of the
dissolution, the Company and L&GW, Inc., each acquired 50 percent of the
Venture's interest in the subject rigs and the Company acquired the Venture's
100 percent interest in certain other assets with no further obligations with
respect thereto. Upon completion of the dissolution, Grey Wolf converted its
advances for rig restoration and settled payables to the Venture into its basis
for the acquired interests ($1,641,000). Such basis is classified as property
and equipment.
Additionally, on March 1, 1995, the Company entered into a lease agreement
with L&GW, Inc., to lease from L&GW, Inc., its interest in the subject rigs. The
lease of the subject rig interests from L&GW, Inc., is being accounted for as a
capital lease (see Note 3). Property and equipment was recorded in the amount of
$3.0 million based on the present purchase option in the lease agreement with an
assumption of $3.0 million of long-term debt to finance such acquisition. The
purchase option at the date of the lease agreement, March 1, 1995, was $3.0
million. Such purchase option increases over time based upon a defined interest
factor (12.7 percent per annum which generally accrues in full beginning April
30, 1997, and defined lesser amounts prior to such time) and decreases over time
by the amounts of any lease payments made by the Company.
The combination of the Venture dissolution and capital lease arrangement
resulted in the Company acquiring a 100 percent interest in the Venture's assets
(seven rigs and certain other related assets). The costs assigned and
consideration given is shown as follows (amounts in thousands):
<TABLE>
<S> <C>
Costs assigned to Venture assets............................ $ 4,641
Capital lease obligation.................................... (3,000)
Unrecovered rig restoration costs........................... (1,995)
Payable to Venture settled.................................. 354
-------
Cash paid......................................... $ --
=======
</TABLE>
The above transaction has been excluded from the statement of cash flows
because it is a noncash transaction.
F-33
<PAGE> 115
GREY WOLF DRILLING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
(9) COMPENSATION ARRANGEMENTS
On March 17, 1992, the board of directors passed a resolution to grant Mr.
James K. B. Nelson, president and a shareholder of the Company, 130,769 shares
of restricted common stock. The restricted stock agreement, in general,
prohibits the transfer of these shares to anyone for a period of five years.
This transfer restriction terminates as to 20 percent of the shares (26,153) at
the end of each year on March 17, 1993, through March 17, 1997. The agreement
also provides that, if Mr. Nelson ceases to be employed by the Company within
such five-year period (other than by reason of death or disability or discharge
without good cause), remaining stock subject to such transfer restriction will
be reassigned to the Company.
The deferred compensation related to the restricted stock is deducted from
shareholders' investment and is charged to compensation expense over the vesting
period.
In 1994, the Company entered into a split-dollar life insurance arrangement
with the trustee of the James K. B. Nelson Family Trust (the Trust). Under the
terms of the arrangement, the Company pays the annual premiums on two whole-life
insurance policies owned by the Trust and receives the equivalent premium of
comparable term policies for the year. Under certain events, the Company would
be reimbursed for aggregate premiums paid and, in other events, the cash
surrender value of the policies. Premium payments are recorded in other assets,
limited to the cash surrender value of the policies ($157,000 and $63,000 at
October 31, 1996 and 1995, respectively), or compensation expense ($-, $21,000
and $21,000 for the years ended October 31, 1996, 1995 and 1994, respectively),
as appropriate. As of October 31, 1996 and 1995, a receivable of $8,000 and
$14,000, respectively, is due from the Trust for reimbursement of equivalent
term rates.
During 1996, the Company entered into retirement agreements with two
employees. Under the retirement agreements, the Company will pay a fixed amount
per month for up to 10 years. Additionally, the Company will continue to fund
life insurance policies with benefits payable to the employees. The Company has
accrued the obligation for the estimated net present value of these payments of
approximately $384,000 and has included the related expense in general and
administrative expense.
(10) SIGNIFICANT CUSTOMERS
During the year ended October 31, 1996, Texas Meridian Resources
Exploration, Inc. and Union Pacific Resources Company accounted for
approximately 12 percent and 11 percent, respectively, of the Company's contract
drilling revenues. During the year ended October 31, 1995, Black Stone Oil
Company and Union Pacific Resources Company accounted for approximately 14
percent and 12 percent, respectively, of the Company's contract drilling
revenues. During the year ended October 31, 1994, there were no customers that
accounted for more than 10% of the Company's contract drilling revenues.
(11) EVENTS (UNAUDITED) SUBSEQUENT TO DATE OF AUDITORS' REPORT
On March 7, 1997, the Company entered into a definitive agreement to be
acquired by DI Industries, Inc. (DI), for up to $61.6 million in cash and
approximately 14.0 million shares of DI common stock. The terms of the agreement
call for the Company to merge with and into Drillers, Inc., a subsidiary of DI,
subject to obtaining regulatory and Company shareholder approval and certain
other conditions. The number of shares of DI common stock to be issued in the
merger is subject to decrease or increase if the average trading price of DI
common stock in the 10 trading days prior to the merger is greater than $4.00 or
less than $3.00 per share. Additionally, the merger agreement calls for the
decrease of cash consideration and a corresponding increase in the number of
shares issued so that at least 45 percent of the value of the merger
consideration consists of DI common stock. An escrow will be established for
contingencies relating to the TEPCO litigation with $5.0 million of the cash
consideration. In certain events, if the merger is terminated by the Company, a
$2.0 million termination fee is payable to DI, and if the merger is terminated
by DI, a $2.0 million termination fee is payable to the Company.
F-34
<PAGE> 116
GREY WOLF DRILLING COMPANY
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The merger agreement provides that prior to closing, the Company will
establish an irrevocable trust (the Employee Trust) for the benefit of certain
of the Company's employees. The Company will contribute $2.4 million to the
Employee Trust and Mr. James K. B. Nelson, president of the Company and a
Company shareholder, will contribute $1.65 million to the Employee Trust. The
employees vest in Employee Trust amounts one year from the establishment of the
Employee Trust and earlier in certain events.
F-35
<PAGE> 117
======================================================
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFERING OF SECURITIES MADE HEREBY AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, THE UNDERWRITERS OR ANY OTHER PERSON. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL, NOR A SOLICITATION OF AN OFFER TO BUY, ANY
SECURITIES IN ANY JURISDICTION TO OR FROM ANY PERSON TO OR FROM WHOM IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREAFTER
SHALL UNDER ANY CIRCUMSTANCE CREATE ANY IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 9
Forward-Looking Statements............. 15
Use of Proceeds........................ 16
Capitalization......................... 17
Unaudited Pro Forma Consolidated
Financial Data....................... 18
Selected Financial Data................ 24
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 26
Business............................... 35
Management............................. 49
Description of Notes................... 51
Description of Bank Credit Facility.... 75
Underwriting........................... 78
Legal Matters.......................... 79
Experts................................ 79
Available Information.................. 79
Incorporation of Certain Documents by
Reference............................ 80
Index to Financial Statements.......... F-1
</TABLE>
======================================================
======================================================
$125,000,000
DI LOGO
DI INDUSTRIES, INC.
% SENIOR NOTES DUE 2007
-------------------------
PROSPECTUS
-------------------------
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
BT SECURITIES CORPORATION
ING BARINGS
, 1997
======================================================
<PAGE> 118
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses payable by the Company in connection with the
offering of the Notes to be registered and offered hereby are as follows:
<TABLE>
<S> <C>
Commission Registration Fee................................. $37,879
NASD Fee....................................................
Printing Expenses...........................................
Legal Fees and Expenses.....................................
Blue Sky Fees and Expenses..................................
Rating Agency Fees..........................................
Accounting Fees and Expenses................................
Trustee Fees and Expenses...................................
Miscellaneous...............................................
-------
Total..................................................... $
=======
</TABLE>
All such expenses are estimated except for the Commission registration fee
and the NASD fee.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Article 1302-7.06 of the Texas Miscellaneous Corporation Laws Act,
the articles of incorporation of a Texas corporation may provide that a director
of that corporation shall not be liable, or shall be liable only to the extent
provided in the articles of incorporation, to the corporation or its
shareholders for monetary damages for acts or omissions in the director's
capacity as a director, except that the articles of incorporation cannot provide
for the elimination or limitation of liability of a director to the extent that
the director is found liable for (i) a breach of the director's duty of loyalty
to the corporation or its shareholders, (ii) acts or omissions not in good faith
that constitute a breach of duty of the director to the corporation or an act or
omission that involves intentional misconduct or a knowing violation of the law,
(iii) any transaction from which the director received an improper benefit, or
(iv) an act or omission for which the liability of a director is expressly
provided by an applicable statute. Article XII of the Registrant's Articles of
Incorporation, as amended, states that a director of the Registrant shall not be
liable to the Registrant or its shareholders for monetary damages except to the
extent otherwise expressly provided by the statutes of the State of Texas.
In addition, Article 2.02-1 of the Texas Business Corporation Act (the
"TBCA") authorizes a Texas corporation to indemnify a person who was, is, or is
threatened to be made a named defendant or respondent in a proceeding, including
any threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, arbitrative, or investigative because the person is or
was a director. The TBCA provides that unless a court of competent jurisdiction
determines otherwise, indemnification is permitted only if it is determined that
the person (1) conducted himself in good faith; (2) reasonably believed (a) in
the case of conduct in his official capacity as a director of the corporation,
that his conduct was in the corporation's best interests; and (b) in all other
cases, that his conduct was at least not opposed to the corporation's best
interests; and (3) in the case of any criminal proceeding, had no reasonable
cause to believe his conduct was unlawful. A person may be indemnified under
Article 2.02-1 of the TBCA against judgments, penalties (including excise and
similar taxes), fines, settlements, and reasonable expenses actually incurred by
the person (including court costs and attorneys' fees), but if the person is
found liable to the corporation or is found liable on the basis that personal
benefit was improperly received by him, the indemnification is limited to
reasonable expenses actually incurred and shall not be made in respect of any
proceeding in which the person has been found liable for willful or intentional
misconduct in the performance of his duty to the corporation. A corporation is
obligated under Article 2.02-1 of the TBCA to indemnify a director or officer
II-1
<PAGE> 119
against reasonable expenses incurred by him in connection with a proceeding in
which he is named defendant or respondent because he is or was a director or
officer if he has been wholly successful, on the merits or otherwise, in the
defense of the proceeding. Under Article 2.02-1 of the TBCA a corporation may
(i) indemnify and advance expenses to an officer, employee, agent or other
persons who are or were serving at the request of the corporation as a director,
officer, partner venturer, proprietor, trustee, employee, agent or similar
functionary of another entity to the same extent that it may indemnify and
advance expenses to its directors, (ii) indemnify and advance expenses to
directors and such other persons identified in (i) to such further extent,
consistent with law, as may be provided in the corporation's articles of
incorporation, bylaws, action of its board of directors, or contract or as
permitted by common law and (iii) purchase and maintain insurance or another
arrangement on behalf of directors and such other persons identified in (i)
against any liability asserted against him and incurred by him in such a
capacity or arising out of his status as such a person.
The Bylaws of the Registrant set forth specific provisions for
indemnification of directors, officers, agents and other persons which are
substantially identical to the provisions of Article 2.02-1 of the TBCA
described above.
The Registrant maintains directors' and officers' insurance.
ITEM 21. EXHIBITS
The exhibits listed in the Exhibit Index below are filed as part of the
Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1+ -- Underwriting Agreement dated , among DI
Industries, Inc., Donaldson, Lufkin & Jenrette Securities
Corporation, BT Securities Corporation and ING Barings.
2.1 -- Agreement and Plan of Merger dated May 7, 1996, among DI
Industries, Inc., DI Merger Sub, Inc., Roy T. Oliver,
Jr., Mike L. Mullen, R.T. Oliver, Inc. and Land Rig
Acquisition Corp. (incorporated herein by reference to
Exhibit 2.1 to Registration Statement No. 333-6077).
2.1.1 -- Amendment to Agreement and Plan of Merger dated May 7,
1996, among DI Industries, Inc., DI Merger Sub, Inc., Roy
T. Oliver, Jr., Mike L. Mullen, R.T. Oliver, Inc. and
Land Rig Acquisition Corp. (incorporated herein by
reference to Exhibit 2.1.1 to Registration Statement No.
333-6077).
2.1.2 -- Second Amendment to Agreement and Plan of Merger dated
July 26, 1996, among DI Industries, Inc., DI Merger Sub,
Inc., Roy T. Oliver, Jr., Mike L. Mullen, R.T. Oliver,
Inc. and Land Rig Acquisition Corp. (incorporated herein
by reference to Exhibit 2.1.2 to Amendment No. 1 to
Registration Statement No. 333-6077).
2.2 -- Agreement and Plan of Merger dated May 7, 1996, among DI
Industries, Inc. and Somerset Investment Corp.
(incorporated herein by reference to Exhibit 2.2 to
Registration Statement No. 333-6077).
2.2.1 -- Amendment to Agreement and Plan of Merger dated May 7,
1996, among DI Industries, Inc. and Somerset Investment
Corp. (incorporated herein by reference to Exhibit 2.2.1
to Registration Statement No. 333-6077).
2.2.2 -- Second Amendment to Agreement and Plan of Merger dated
July 26, 1996, among DI Industries, Inc. and Somerset
Investment Corp. (incorporated herein by reference to
Exhibit 2.2.2 to Amendment No. 1 to Registration
Statement No. 333-6077).
</TABLE>
II-2
<PAGE> 120
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.3 -- Asset Purchase Agreement dated October 3, 1996, by and
between the Registrant and Meritus, Inc., a Texas
corporation, Mesa Rig 4 L.L.C., a Texas limited liability
company, Mesa Venture, a Texas general partnership, and
Mesa Drilling, Inc., a Texas corporation (incorporated
herein by reference to Exhibit 2.1 to Registration
Statement No. 333-14783).
2.4.1 -- Asset Purchase Agreement dated November 12, 1996, between
Diamond M Onshore, Inc. and Drillers, Inc. (incorporated
herein by reference to Exhibit 2.1 to Form 8-K dated
December 30, 1996).
2.4.2 -- Letter Agreement dated December 31, 1996, between Diamond
M Onshore and Drillers, Inc. amending the Asset Purchase
Agreement (incorporated herein by reference to Exhibit
2.2 to Form 8-K dated December 30, 1996).
2.5.1 -- Asset Purchase Agreement dated December 31, 1996, by and
between Flournoy Drilling Company and Drillers, Inc.
(incorporated herein by reference to Exhibit 2.1 to Form
8-K dated January 31, 1996).
2.5.2 -- Form of Shareholder Agreement entered into January 31,
1997, by DI Industries, Inc., Drillers, Inc., and Lucien
Flournoy, Maxine E. Flournoy, Betty Louise Flournoy
Fields, Helen Ruth Flournoy Pope, Mary Anne Flournoy
Guthrie, F.C. West, Gregory M. Guthrie, Byhron W. Fields,
John B. Pope, the Flournoy First, Second and Third Fields
Grandchild Trusts, the Flournoy First, Second and Third
Pope Grandchild Trusts, and the Flournoy First, Second,
Third, Fourth and Fifth Guthrie Grandchild Trusts
(incorporated herein by reference to Exhibit 10.22 to
Registration Statement No. 333-20423).
2.6.1 -- Agreement and Plan of Merger dated March 7, 1997, by and
among DI Industries, Inc., Drillers Inc., and Grey Wolf
Drilling Company including form of Escrow Agreement, form
of Trust Under Grey Wolf Drilling Company Deferred
Corporation Plan, and form of Grey Wolf Drilling Company
Deferred Compensation Plan (incorporated herein by
reference to Exhibit 10.1 to Form 8-K dated March 10,
1997).
2.6.2 -- Voting and Support Agreement dated March 7, 1997, of
Sheldon B. Lubar (incorporated herein by reference to
Exhibit 10.2 to Form 8-K dated March 10, 1997).
2.6.3 -- Voting and Support Agreement dated March 7, 1997, of
Felicity Ventures, Ltd. (incorporated herein by reference
to Exhibit 10.3 to Form 8-K dated March 10, 1997).
2.6.4 -- Voting and Support Agreement dated March 7, 1997, of
James K. B. Nelson (incorporated herein by reference to
Exhibit 10.4 to Form 8-K dated March 10, 1997).
2.6.5 -- Indemnification Agreement dated as of March 6, 1997, by
and between Grey Wolf Drilling Company and James K. B.
Nelson (incorporated herein by reference to Exhibit 10.5
to Form 8-K dated March 10, 1997).
2.6.6 -- Indemnification Agreement dated as of March 6, 1997, by
and between Grey Wolf Drilling Company and Billy G.
Emanis (incorporated herein by reference to Exhibit 10.6
to Form 8-K dated March 10, 1997).
2.6.7 -- Indemnification Agreement dated as of March 6, 1997, by
and between Grey Wolf Drilling Company and Bill Brannon
(incorporated herein by reference to Exhibit 10.7 to Form
8-K dated March 10, 1997).
</TABLE>
II-3
<PAGE> 121
<TABLE>
<C> <S>
2.6.8 -- Indemnification Agreement dated as of March 6, 1997, by and between Grey Wolf Drilling
Company and Tom L. Ferguson (incorporated herein by reference to Exhibit 10.8 to Form
8-K dated March 10, 1997).
2.6.9 -- Indemnification Agreement dated as of March 6, 1997, by and between Grey Wolf Drilling
Company and John D. Peterson (incorporated herein by reference to Exhibit 10.9 to Form
8-K dated March 10, 1997).
2.6.10 -- Indemnification Agreement dated as of March 6, 1997, by and between Grey Wolf Drilling
Company and Janet V. Campbell (incorporated herein by reference to Exhibit 10.10 to
Form 8-K dated March 10, 1997).
2.6.11 -- Indemnification Agreement dated as of March 6, 1997, by and between Grey Wolf Drilling
Company and Sheldon B. Lubar (incorporated herein by reference to Exhibit 10.11 to Form
8-K dated March 10, 1997).
2.6.12 -- Indemnification Agreement dated as of March 6, 1997, by and between Grey Wolf Drilling
Company and Robert P. Probst (incorporated herein by reference to Exhibit 10.12 to Form
8-K dated March 10, 1997).
2.6.13 -- Indemnification Agreement dated as of March 6, 1997, by and between Grey Wolf Drilling
Company and Uriel E. Dutton (incorporated herein by reference to Exhibit 10.13 to Form
8-K dated March 10, 1997).
2.7 -- Agreement between Pool Company and Western Oil Well Service Co. executed May 31, 996
(incorporated by reference to Exhibit 2.1 to Form 8-K dated June 24, 1996).
4.1 -- Specimen certificate for Notes (included as part of Section of Exhibit 4.2).
4.2+ -- Form of Trust Indenture relating to the % Senior Notes due 2007 of DI Industries,
Inc. and , as Trustee.
5.1+ -- Opinion of Porter & Hedges, L.L.P.
10.1* -- Amended and Restated Senior Secured Revolving Credit Agreement dated as of April 30,
1997, among DI Industries, Inc. and Drillers, Inc. (as borrowers), DI International,
Inc. (as guarantor), Bankers Trust Company, as Agent, ING (US) Capital Corporation, as
Co-Agent, and various financial institutions, as Lenders.
11.1 -- Statement regarding computation of per share earnings for the years ended December 31,
1996 and 1995 and for the three months ended March 31, 1997 and 1996 (incorporated
herein by reference to Exhibit 11.1 to Form 10-K filed March 27, 1997 and Exhibit 11.1
to Form 10-Q filed May , 1997, respectively).
12.1* -- Statement regarding computation of historical and pro forma earnings to fixed charges
ratio.
23.1* -- Consent of KPMG Peat Marwick, LLP
23.2* -- Consent of Deloitte & Touche LLP.
23.3* -- Consent of Arthur Andersen LLP.
23.4+ -- Consent of Porter & Hedges, L.L.P. (included in their opinion filed as Exhibit 5.1
hereto.)
</TABLE>
II-4
<PAGE> 122
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
23.5* -- Consent of James K. B. Nelson to being named as a
director-nominee in this Registration Statement.
23.6* -- Consent of William T. Donovan to being named as a
director-nominee in this Registration Statement.
24* -- Power of Attorney (included on the signature page
hereto).
26+ -- Form T-1 Statement of Eligibility and Qualification of
to act as Trustee of the Notes.
27 -- Financial Data Schedule (incorporated by reference to
Exhibit 27 to Form 10-K filed March 27, 1997 and Exhibit
27 to Form 10-Q filed May 5, 1997).
</TABLE>
- ---------------
* Filed herewith.
+ To be filed by amendment.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange
Act (and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Exchange Act) that is incorporated by
reference in the registration statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that (1) for purposes of
determining any liability under the Securities Act, the information omitted from
the form of prospectus filed as part of a registration statement in reliance
upon Rule 430A and contained in the form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be
deemed to be part of the registration statement as of the time it was declared
effective, and (2) for the purpose of determining any liability under the
Securities Act, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-5
<PAGE> 123
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned directors and
officers of DI Industries, Inc., do hereby constitute and appoint Ivar Siem,
Thomas P. Richards and T. Scott O'Keefe, or any of them, our true and lawful
attorneys and agents, to do any and all acts and things in our name and on our
behalf in our capacities as directors and officers, and to execute any and all
instruments for us and in our names in the capacities indicated below, which
said attorneys and agents, or either of them, may deem necessary or advisable to
enable said corporation to comply with the Securities Act and any rules,
regulations and requirements of the Commission, in connection with the filing of
this Registration Statement, including specifically without limitation, power
and authority to sign for any of us, in our names in the capacities indicated
below, any and all amendments hereto; and we do each hereby ratify and confirm
all that the said attorneys and agents, or either of them, shall do or cause to
be done by virtue hereof.
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, on May 5, 1997.
DI INDUSTRIES, INC.
By: /s/ THOMAS P. RICHARDS
----------------------------------
Thomas P. Richards,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated
on May 5, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <C>
/s/ THOMAS P. RICHARDS President and Chief Executive Officer
- -----------------------------------------------------
Thomas P. Richards
Chairman of the Board and Director
- -----------------------------------------------------
Ivar Siem
/s/ T. SCOTT O'KEEFE Senior Vice President and Chief Financial
- ----------------------------------------------------- Officer
T. Scott O'Keefe
/s/ DAVID W. WEHLMANN Vice President and Controller
- -----------------------------------------------------
David W. Wehlmann
/s/ LUCIEN FLOURNOY Director
- -----------------------------------------------------
Lucien Flournoy
/s/ PETER M. HOLT Director
- -----------------------------------------------------
Peter M. Holt
/s/ ROY T. OLIVER, JR. Director
- -----------------------------------------------------
Roy T. Oliver, Jr.
/s/ STEVEN A. WEBSTER Director
- -----------------------------------------------------
Steven A. Webster
/s/ WILLIAM R. ZIEGLER Director
- -----------------------------------------------------
William R. Ziegler
</TABLE>
II-6
<PAGE> 124
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned directors and
officers of Drillers, Inc. do hereby constitute and appoint Thomas P. Richards,
T. Scott O'Keefe and David W. Wehlmann, or any of them, our true and lawful
attorneys and agents, to do any and all acts and things in our name and on our
behalf in our capacities as directors and officers, and to execute any and all
instruments for us and in our names in the capacities indicated below, which
said attorneys and agents, or either of them, may deem necessary or advisable to
enable said corporation to comply with the Securities Act and any rules,
regulations and requirements of the Commission, in connection with the filing of
this Registration Statement, including specifically without limitation, power
and authority to sign for any of us, in our names in the capacities indicated
below, any and all amendments hereto; and we do each hereby ratify and confirm
all that the said attorneys and agents, or either of them, shall do or cause to
be done by virtue hereof.
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, on May 5, 1997.
DRILLERS, INC.
By: /s/ THOMAS P. RICHARDS
----------------------------------
Thomas P. Richards,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated
on May 5, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <C>
/s/ THOMAS P. RICHARDS President, Chief Executive Officer and Director
- -----------------------------------------------------
Thomas P. Richards
/s/ T. SCOTT O'KEEFE Senior Vice President, Chief Financial Officer
- ----------------------------------------------------- and Director
T. Scott O'Keefe
/s/ DAVID W. WEHLMANN Vice President and Controller
- -----------------------------------------------------
David W. Wehlmann
/s/ TERRELL L. SADLER Director
- -----------------------------------------------------
Terrell L. Sadler
/s/ RONNIE E. MCBRIDE Director
- -----------------------------------------------------
Ronnie E. McBride
</TABLE>
II-7
<PAGE> 125
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned directors and
officers of DI International, Inc. do hereby constitute and appoint Thomas P.
Richards, T. Scott O'Keefe and David W. Wehlmann, or any of them, our true and
lawful attorneys and agents, to do any and all acts and things in our name and
on our behalf in our capacities as directors and officers, and to execute any
and all instruments for us and in our names in the capacities indicated below,
which said attorneys and agents, or either of them, may deem necessary or
advisable to enable said corporation to comply with the Securities Act and any
rules, regulations and requirements of the Commission, in connection with the
filing of this Registration Statement, including specifically without
limitation, power and authority to sign for any of us, in our names in the
capacities indicated below, any and all amendments hereto; and we do each hereby
ratify and confirm all that the said attorneys and agents, or either of them,
shall do or cause to be done by virtue hereof.
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, on May 5, 1997.
DI INTERNATIONAL, INC.
By: /s/ THOMAS P. RICHARDS
----------------------------------
Thomas P. Richards,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated
on May 5, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <C>
/s/ THOMAS P. RICHARDS President, Chief Executive Officer and Director
- -----------------------------------------------------
Thomas P. Richards
/s/ T. SCOTT O'KEEFE Senior Vice President, Chief Financial Officer
- ----------------------------------------------------- and Director
T. Scott O'Keefe
/s/ DAVID W. WEHLMANN Vice President and Controller
- -----------------------------------------------------
David W. Wehlmann
/s/ FORREST M. CONLEY, JR. Director
- -----------------------------------------------------
Forrest M. Conley, Jr.
</TABLE>
II-8
<PAGE> 126
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned directors and
officers of DI Energy, Inc. do hereby constitute and appoint Thomas P. Richards,
T. Scott O'Keefe and David W. Wehlmann, or any of them, our true and lawful
attorneys and agents, to do any and all acts and things in our name and on our
behalf in our capacities as directors and officers, and to execute any and all
instruments for us and in our names in the capacities indicated below, which
said attorneys and agents, or either of them, may deem necessary or advisable to
enable said corporation to comply with the Securities Act and any rules,
regulations and requirements of the Commission, in connection with the filing of
this Registration Statement, including specifically without limitation, power
and authority to sign for any of us, in our names in the capacities indicated
below, any and all amendments hereto; and we do each hereby ratify and confirm
all that the said attorneys and agents, or either of them, shall do or cause to
be done by virtue hereof.
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, on May 5, 1997.
DI ENERGY, INC.
By: /s/ THOMAS P. RICHARDS
----------------------------------
Thomas P. Richards,
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated
on May 5, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <C>
/s/ THOMAS P. RICHARDS President, Chief Executive Officer and Director
- -----------------------------------------------------
Thomas P. Richards
/s/ T. SCOTT O'KEEFE Senior Vice President, Chief Financial Officer
- ----------------------------------------------------- and Director
T. Scott O'Keefe
/s/ DAVID W. WEHLMANN Vice President and Controller and Director
- -----------------------------------------------------
David W. Wehlmann
</TABLE>
II-9
<PAGE> 127
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
1.1+ -- Underwriting Agreement dated , among DI
Industries, Inc., Donaldson, Lufkin & Jenrette Securities
Corporation, BT Securities Corporation and ING Barings.
2.1 -- Agreement and Plan of Merger dated May 7, 1996, among DI
Industries, Inc., DI Merger Sub, Inc., Roy T. Oliver,
Jr., Mike L. Mullen, R.T. Oliver, Inc. and Land Rig
Acquisition Corp. (incorporated herein by reference to
Exhibit 2.1 to Registration Statement No. 333-6077).
2.1.1 -- Amendment to Agreement and Plan of Merger dated May 7,
1996, among DI Industries, Inc., DI Merger Sub, Inc., Roy
T. Oliver, Jr., Mike L. Mullen, R.T. Oliver, Inc. and
Land Rig Acquisition Corp. (incorporated herein by
reference to Exhibit 2.1.1 to Registration Statement No.
333-6077).
2.1.2 -- Second Amendment to Agreement and Plan of Merger dated
July 26, 1996, among DI Industries, Inc., DI Merger Sub,
Inc., Roy T. Oliver, Jr., Mike L. Mullen, R.T. Oliver,
Inc. and Land Rig Acquisition Corp. (incorporated herein
by reference to Exhibit 2.1.2 to Amendment No. 1 to
Registration Statement No. 333-6077).
2.2 -- Agreement and Plan of Merger dated May 7, 1996, among DI
Industries, Inc. and Somerset Investment Corp.
(incorporated herein by reference to Exhibit 2.2 to
Registration Statement No. 333-6077).
2.2.1 -- Amendment to Agreement and Plan of Merger dated May 7,
1996, among DI Industries, Inc. and Somerset Investment
Corp. (incorporated herein by reference to Exhibit 2.2.1
to Registration Statement No. 333-6077).
2.2.2 -- Second Amendment to Agreement and Plan of Merger dated
July 26, 1996, among DI Industries, Inc. and Somerset
Investment Corp. (incorporated herein by reference to
Exhibit 2.2.2 to Amendment No. 1 to Registration
Statement No. 333-6077).
2.3 -- Asset Purchase Agreement dated October 3, 1996, by and
between the Registrant and Meritus, Inc., a Texas
corporation, Mesa Rig 4 L.L.C., a Texas limited liability
company, Mesa Venture, a Texas general partnership, and
Mesa Drilling, Inc., a Texas corporation (incorporated
herein by reference to Exhibit 2.1 to Registration
Statement No. 333-14783).
2.4.1 -- Asset Purchase Agreement dated November 12, 1996, between
Diamond M Onshore, Inc. and Drillers, Inc. (incorporated
herein by reference to Exhibit 2.1 to Form 8-K dated
December 30, 1996).
2.4.2 -- Letter Agreement dated December 31, 1996, between Diamond
M Onshore and Drillers, Inc. amending the Asset Purchase
Agreement (incorporated herein by reference to Exhibit
2.2 to Form 8-K dated December 30, 1996).
2.5.1 -- Asset Purchase Agreement dated December 31, 1996, by and
between Flournoy Drilling Company and Drillers, Inc.
(incorporated herein by reference to Exhibit 2.1 to Form
8-K dated January 31, 1996).
</TABLE>
<PAGE> 128
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
2.5.2 -- Form of Shareholder Agreement entered into January 31,
1997, by DI Industries, Inc., Drillers, Inc., and Lucien
Flournoy, Maxine E. Flournoy, Betty Louise Flournoy
Fields, Helen Ruth Flournoy Pope, Mary Anne Flournoy
Guthrie, F.C. West, Gregory M. Guthrie, Byhron W. Fields,
John B. Pope, the Flournoy First, Second and Third Fields
Grandchild Trusts, the Flournoy First, Second and Third
Pope Grandchild Trusts, and the Flournoy First, Second,
Third, Fourth and Fifth Guthrie Grandchild Trusts
(incorporated herein by reference to Exhibit 10.22 to
Registration Statement No. 333-20423).
2.6.1 -- Agreement and Plan of Merger dated March 7, 1997, by and
among DI Industries, Inc., Drillers Inc., and Grey Wolf
Drilling Company including form of Escrow Agreement, form
of Trust Under Grey Wolf Drilling Company Deferred
Corporation Plan, and form of Grey Wolf Drilling Company
Deferred Compensation Plan (incorporated herein by
reference to Exhibit 10.1 to Form 8-K dated March 10,
1997).
2.6.2 -- Voting and Support Agreement dated March 7, 1997, of
Sheldon B. Lubar (incorporated herein by reference to
Exhibit 10.2 to Form 8-K dated March 10, 1997).
2.6.3 -- Voting and Support Agreement dated March 7, 1997, of
Felicity Ventures, Ltd. (incorporated herein by reference
to Exhibit 10.3 to Form 8-K dated March 10, 1997).
2.6.4 -- Voting and Support Agreement dated March 7, 1997, of
James K. B. Nelson (incorporated herein by reference to
Exhibit 10.4 to Form 8-K dated March 10, 1997).
2.6.5 -- Indemnification Agreement dated as of March 6, 1997, by
and between Grey Wolf Drilling Company and James K. B.
Nelson (incorporated herein by reference to Exhibit 10.5
to Form 8-K dated March 10, 1997).
2.6.6 -- Indemnification Agreement dated as of March 6, 1997, by
and between Grey Wolf Drilling Company and Billy G.
Emanis (incorporated herein by reference to Exhibit 10.6
to Form 8-K dated March 10, 1997).
2.6.7 -- Indemnification Agreement dated as of March 6, 1997, by
and between Grey Wolf Drilling Company and Bill Brannon
(incorporated herein by reference to Exhibit 10.7 to Form
8-K dated March 10, 1997).
2.6.8 -- Indemnification Agreement dated as of March 6, 1997, by
and between Grey Wolf Drilling Company and Tom L.
Ferguson (incorporated herein by reference to Exhibit
10.8 to Form 8-K dated March 10, 1997).
2.6.9 -- Indemnification Agreement dated as of March 6, 1997, by
and between Grey Wolf Drilling Company and John D.
Peterson (incorporated herein by reference to Exhibit
10.9 to Form 8-K dated March 10, 1997).
2.6.10 -- Indemnification Agreement dated as of March 6, 1997, by
and between Grey Wolf Drilling Company and Janet V.
Campbell (incorporated herein by reference to Exhibit
10.10 to Form 8-K dated March 10, 1997).
2.6.11 -- Indemnification Agreement dated as of March 6, 1997, by
and between Grey Wolf Drilling Company and Sheldon B.
Lubar (incorporated herein by reference to Exhibit 10.11
to Form 8-K dated March 10, 1997).
2.6.12 -- Indemnification Agreement dated as of March 6, 1997, by
and between Grey Wolf Drilling Company and Robert P.
Probst (incorporated herein by reference to Exhibit 10.12
to Form 8-K dated March 10, 1997).
</TABLE>
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2.6.13 -- Indemnification Agreement dated as of March 6, 1997, by and between Grey Wolf Drilling
Company and Uriel E. Dutton (incorporated herein by reference to Exhibit 10.13 to Form
8-K dated March 10, 1997).
2.7 -- Agreement between Pool Company and Western Oil Well Service Co. executed May 31, 996
(incorporated by reference to Exhibit 2.1 to Form 8-K dated June 24, 1996).
4.1 -- Specimen certificate for Notes (included as part of Section of Exhibit 4.2).
4.2+ -- Form of Trust Indenture relating to the % Senior Notes due 2007 of DI Industries,
Inc. and , as Trustee.
5.1+ -- Opinion of Porter & Hedges, L.L.P.
10.1* -- Amended and Restated Senior Secured Revolving Credit Agreement dated as of April 30,
1997, among DI Industries, Inc. and Drillers, Inc. (as borrowers), DI International,
Inc. (as guarantor), Bankers Trust Company, as Agent, ING (US) Capital Corporation, as
Co-Agent, and various financial institutions, as Lenders.
11.1 -- Statement regarding computation of per share earnings for the years ended December 31,
1996 and 1995 and for the three months ended March 31, 1997 and 1996 (incorporated
herein by reference to Exhibit 11.1 to Form 10-K filed March 27, 1997 and Exhibit 11.1
to Form 10-Q filed May , 1997, respectively).
12.1* -- Statement regarding computation of historical and pro forma earnings to fixed charges
ratio.
23.1* -- Consent of KPMG Peat Marwick, LLP
23.2* -- Consent of Deloitte & Touche LLP.
23.3* -- Consent of Arthur Andersen LLP.
23.4+ -- Consent of Porter & Hedges, L.L.P. (included in their opinion filed as Exhibit 5.1
hereto.)
23.5* -- Consent of James K. B. Nelson to being named as a director-nominee in this Registration
Statement.
23.6* -- Consent of William T. Donovan to being named as a director-nominee in this Registration
Statement.
24* -- Power of Attorney (included on the signature page hereto).
26+ -- Form T-1 Statement of Eligibility and Qualification of to act as Trustee
of the Notes.
27 -- Financial Data Schedule (incorporated by reference to Exhibit 27 to Form 10-K filed
March 27, 1997 and Exhibit 27 to Form 10-Q filed May 5, 1997).
</TABLE>
- ---------------
* Filed herewith.
+ To be filed by amendment.
<PAGE> 1
EXHIBIT 10.1
===============================================================================
AMENDED AND RESTATED
SENIOR SECURED REVOLVING CREDIT AGREEMENT
among
DI INDUSTRIES, INC., AS BORROWER,
DRILLER, INC., AS BORROWER,
THE SUBSIDIARY GUARANTORS NAMED HEREIN,
THE LENDING INSTITUTIONS LISTED HEREIN,
BANKERS TRUST COMPANY,
AS AGENT AND ADMINISTRATIVE AGENT,
and
ING (US) CAPITAL CORPORATION,
AS CO-AGENT AND DOCUMENTATION AGENT.
--------------
Dated as of December 31, 1996,
as amended and restated as of April 30, 1997
--------------
$50,000,000
===============================================================================
<PAGE> 2
TABLE OF CONTENTS
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SECTION 1. Amount and Terms of Credit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01. Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02. Minimum Borrowing Amounts, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.03. Notice of Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.04. Disbursement of Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.05. Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.06. Conversions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
1.07. Pro Rata Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.08. Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.09. Interest Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
1.10. Increased Costs, Illegality, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
1.11. Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
1.12. Change of Lending Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
1.13. Replacement of Lenders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
1.14. Joint and Several Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
1.15. Amendment and Restatement Effective Date;
Effect of Amendment and Restatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
SECTION 2. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.01. Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
2.02. Letter of Credit Requests; Notices of Issuance . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.03. Agreement to Repay Letter of Credit Drawings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.04. Letter of Credit Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.05. Increased Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
SECTION 3. Fees; Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.01. Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
3.02. Voluntary Termination or Reduction of Total
Unutilized Revolving Loan Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
3.03. Mandatory Reduction of Revolving Loan Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 4. Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.01. Voluntary Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.02. Mandatory Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
4.03. Method and Place of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.04. Net Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
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SECTION 5. Conditions Precedent. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.01. Execution of Agreement; Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.02. No Default; Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5.03. Officer's Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.04. Opinions of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.05. Corporate Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
5.06. Adverse Change, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.07. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.08. Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.09. Consummation of the Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5.10. [deleted] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.11. Security Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
5.12. Payment of Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.13. Existing Indebtedness Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
5.14. Solvency Certificate; Evidence of Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.15. Rig Appraisals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.16. Environmental Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.17. Pro Forma Balance Sheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.18. Notice of Borrowing; Letter of Credit Request . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
SECTION 6. Representations, Warranties and Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
6.01. Corporate Status . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.02. Corporate Power and Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.03. No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
6.04. Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.05. Use of Proceeds; Margin Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.06. Governmental Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.07. Investment Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.08. Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.09. True and Complete Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.10. Financial Condition; Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.11. Security Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.12. Acquisition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.13. Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.14. Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.15. Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
6.16. Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.17. Compliance with Statutes, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.18. Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
6.19. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
6.20. Labor Relations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.21. Tax Returns and Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
6.22. Existing Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
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SECTION 7. Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.01. Information Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
7.02. Books, Records and Inspections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.03. Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
7.04. Payment of Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
7.05. Corporate Franchises . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
7.06. Compliance with Statutes, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
7.07. Compliance with Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
7.08. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
7.09. Good Repair . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
7.10. End of Fiscal Years; Fiscal Quarters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
7.11. Additional Security; Further Assurances;
Appraisals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
7.12. Register . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
SECTION 8. Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
8.01. Changes in Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
8.02. Consolidation, Merger, Sale or Purchase of Assets, etc. . . . . . . . . . . . . . . . . . . . . . . . 59
8.03. Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
8.04. Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
8.05. Advances, Investments and Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
8.06. Dividends, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
8.07. Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
8.08. Working Capital; Minimum Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
8.09. Asset Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
8.10. Interest Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
8.11. Leverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
8.12. Limitation on Voluntary Payments and Modifications
of Indebtedness; Modifications of
Certificate of Incorporation, By-Laws and
Certain Other Agreements; Issuances of
Capital Stock; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
8.13. Limitation on Certain Restrictions on Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . 70
8.14. Limitation on the Creation of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
SECTION 9. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
9.01. Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
9.02. Representations, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
9.03. Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
9.04. Default Under Other Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
9.05. Bankruptcy, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
9.06. ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
9.07. Security Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
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9.08. Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
9.09. Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
9.10. Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
SECTION 10. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
SECTION 11. The Agent and Co-Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
11.01. Appointment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 97
11.02. Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
11.03. Exculpatory Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98
11.04. Reliance by Agent and Co-Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
11.05. Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 99
11.06. Nonreliance on Agent and Co-Agent and Other Lenders . . . . . . . . . . . . . . . . . . . . . . . . 99
11.07. Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100
11.08. Agent or Co-Agent in Its Individual Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
11.09. Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 101
11.10. Resignation of the Agent or Co-Agent; Successor Agent or Co-Agent . . . . . . . . . . . . . . . . . 102
SECTION 12. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
12.01. Payment of Expenses, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102
12.02. Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103
12.03. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
12.04. Benefit of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104
12.05. No Waiver; Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
12.06. Payments Pro Rata . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 106
12.07. Calculations; Computations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 107
12.08. Governing Law; Submission to Jurisdiction; Venue . . . . . . . . . . . . . . . . . . . . . . . . . . 108
12.09. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108
12.10. Effectiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
12.11. Headings Descriptive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
12.12. Amendment or Waiver; etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 109
12.13. Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110
12.14. Domicile of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
12.15. Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
12.16. Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
SECTION 13. Subsidiary Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
13.01. The Subsidiary Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 111
13.02. Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
13.03. Nature of Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114
13.04. Independent Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
13.05. Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115
</TABLE>
-iv-
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<TABLE>
<CAPTION>
Page
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<S> <C>
13.06. Reliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116
13.07. Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
13.08. Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117
</TABLE>
ANNEX I List of Lenders and Commitments
ANNEX II Lender Addresses
ANNEX III Existing Letters of Credit
ANNEX IV Drilling Rigs
ANNEX V Existing Investments
ANNEX VI Subsidiaries
ANNEX VII Existing Indebtedness
ANNEX VIII Insurance
ANNEX IX Existing Liens
ANNEX X Assets Held For Sale
SCHEDULE 6.04 Litigation
SCHEDULE 6.10 Financial Condition
SCHEDULE 6.18 Environmental Matters
EXHIBIT A-1 -- Form of Notice of Borrowing
EXHIBIT A-2 -- Form of Letter of Credit Request
EXHIBIT B -- Form of Revolving Note
EXHIBIT C -- Form of Section 4.04(b)(ii) Certificate
EXHIBIT D-1 -- Form of Opinion of Company's Counsel
EXHIBIT D-2 -- Form of Opinion of Cahill Gordon & Reindel
EXHIBIT E -- Form of Officers' Certificate
EXHIBIT F -- Form of Pledge Agreement
EXHIBIT G -- Form of Security Agreement
EXHIBIT H -- [intentionally omitted]
EXHIBIT I -- Form of Solvency Certificate
EXHIBIT K -- Form of Assignment and Assumption Agreement
EXHIBIT L -- Form of Compliance Certificate
EXHIBIT M -- Form of Collateral Report
-v-
<PAGE> 7
This AMENDED AND RESTATED SENIOR SECURED REVOLVING CREDIT
AGREEMENT, dated as of December 31, 1996 (the "Agreement"), among DI
INDUSTRIES, INC., a Texas corporation (the "Company"), DRILLERS, INC., a Texas
corporation ("DI" and, with the Company, the "Borrowers"), each of the
Subsidiary Guarantors party hereto (the "Subsidiary Guarantors"), the lending
institutions from time to time party hereto (each a "Lender" and, collectively,
the "Lenders") and BANKERS TRUST COMPANY, as Agent and Administrative Agent,
and ING (US) CAPITAL CORPORATION, as Co-Agent and Documentation Agent. Unless
otherwise defined herein, all capitalized terms used herein and defined in
Section 10 are used herein as so defined.
W I T N E S S E T H :
WHEREAS, the Company, DI, the Subsidiary Guarantors, the
Lenders, Bankers Trust Company, as Agent, and ING (US) Capital Corporation, as
Co-Agent, are parties to a Senior Secured Reducing Revolving Credit Agreement
dated as of December 31, 1996 (the "Existing Credit Agreement"), pursuant to
which the Lenders made available to the Borrowers a loan facility in an
aggregate amount up to $35,000,000;
WHEREAS, the Borrowers desire to incur additional Loans from
the Lenders, the proceeds of which will be applied, to the extent necessary, to
repay existing debt, to provide ongoing working capital to the Borrowers and
for general corporate purposes;
WHEREAS, the parties hereto desire to amend and restate the
Existing Credit Agreement in order to, among other things, increase the Total
Commitment to $50,000,000; and
WHEREAS, subject to and upon the terms and conditions herein
set forth, the Lenders are willing to make Revolving Loans to the Borrowers and
issue Letters of Credit for the purposes described herein;
NOW, THEREFORE, in consideration of the premises and the
agreements, provisions and covenants herein, each of the Borrowers, the
Subsidiary Guarantors, the Lenders, the Agent and the Co-Agent hereby agrees as
follows:
SECTION 1. Amount and Terms of Credit.
1.01. Commitments. Subject to and upon the terms and
conditions herein set forth, each Lender severally agrees, at any time and from
time to time on and after the Initial
<PAGE> 8
-2-
Borrowing Date and prior to the Final Maturity Date, to make a revolving loan
or loans (each a "Revolving Loan" and, collectively, the "Revolving Loans") to
the Borrowers, which Revolving Loans: (i) shall be denominated in U.S.
Dollars, (ii) except as hereinafter provided, shall, at the option of the
Borrowers, be incurred and maintained as and/or converted into Base Rate Loans
or Eurodollar Loans; and further provided that all Revolving Loans made as part
of the same Borrowing shall, unless otherwise specifically provided herein,
consist of Revolving Loans of the same Type, (iii) may be repaid and reborrowed
in accordance with the provisions hereof and (iv) shall not exceed for any
Lender at any time outstanding that aggregate principal amount which, when
combined with Letter of Credit Outstandings (exclusive of Unpaid Drawings
relating to Letters of Credit which are repaid with the proceeds of, and
simultaneously with the incurrence of, the respective incurrence of Revolving
Loans) at such time, equals the Revolving Loan Commitment of such Lender at
such time.
1.02. Minimum Borrowing Amounts, etc. The aggregate
principal amount of each Borrowing of Loans shall not be less than the Minimum
Borrowing Amount applicable to such Loans. More than one Borrowing may be
incurred on any day; provided that at no time shall there be outstanding more
than five Borrowings of Eurodollar Loans.
1.03. Notice of Borrowing. (a) Whenever a Borrower desires
to incur Revolving Loans hereunder, it shall give the Agent at the Notice
Office, prior to 10:00 A.M. (New York time), at least three Business Days'
prior written notice (or telephonic notice promptly confirmed in writing) of
each Borrowing of Eurodollar Loans and at least one Business Day's prior
written notice (or telephonic notice promptly confirmed in writing) of each
Borrowing of Base Rate Loans to be made hereunder. Each such notice (each a
"Notice of Borrowing") shall, except as provided in Section 1.10, be
irrevocable, and, in the case of each written notice and each confirmation of
telephonic notice, shall be in the form of Exhibit A-1, appropriately completed
to specify (i) the aggregate principal amount of the Revolving Loans to be made
pursuant to such Borrowing, (ii) the date of such Borrowing (which shall be a
Business Day) and (iii) whether the respective Borrowing shall consist of Base
Rate Loans or, to the extent permitted hereunder, Eurodollar Loans and, if
Eurodollar Loans, the Interest Period to be initially applicable thereto. The
Agent shall promptly give each Lender written notice (or telephonic notice
promptly confirmed in writing) of each proposed Borrowing, of such
<PAGE> 9
-3-
Lender's proportionate share thereof and of the other matters covered by the
Notice of Borrowing.
(b) Without in any way limiting the obligation of the
Borrowers to confirm in writing any telephonic notice permitted to be given
hereunder, the Agent or the Letter of Credit Issuer (in the case of the
issuance of Letters of Credit), as the case may be, may prior to receipt of
written confirmation act without liability upon the basis of such telephonic
notice, believed by the Agent or the Letter of Credit Issuer, as the case may
be, in good faith to be from an Authorized Officer of a Borrower. The Agent's
or the Letter of Credit Issuer's record of the terms of such telephonic notice
shall be final, conclusive and binding absent manifest error.
1.04. Disbursement of Funds. (a) Not later than 1:00 P.M.
(New York time) on the date specified in each Notice of Borrowing, each Lender
will make available its pro rata share, if any, of each Borrowing requested to
be made on such date in the manner provided below. All amounts shall be made
available to the Agent in U.S. Dollars and in immediately available funds at
the Payment Office and the Agent promptly will make available to the applicable
Borrower by depositing to its account at the Payment Office the aggregate of
the amounts so made available in the type of funds received. Unless the Agent
shall have been notified by any Lender prior to the date of Borrowing that such
Lender does not intend to make available to the Agent its portion of the
Borrowing or Borrowings to be made on such date, the Agent may assume that such
Lender has made such amount available to the Agent on such date of Borrowing,
and the Agent, in reliance upon such assumption, may (in its sole discretion
and without any obligation to do so) make available to the applicable Borrower
a corresponding amount. If such corresponding amount is not in fact made
available to the Agent by such Lender and the Agent has made available same to
the applicable Borrower, the Agent shall be entitled to recover such
corresponding amount from such Lender. If such Lender does not pay such
corresponding amount forthwith upon the Agent's demand therefor, the Agent
shall promptly notify the Borrowers, and the Borrowers shall immediately pay
such corresponding amount to the Agent, which payment may be made, subject to
the terms and conditions of this Agreement, from the proceeds of a Loan. The
Agent shall also be entitled to recover from the Lender or the Borrowers, as
the case may be, interest on such corresponding amount in respect of each day
from the date such corresponding amount was made available by the Agent to the
Borrowers to the date such corresponding amount is recovered by the Agent, at a
rate per annum equal to (x) if
<PAGE> 10
-4-
paid by such Lender, the overnight Federal Funds Rate or (y) if paid by the
Borrowers, the then applicable rate of interest, calculated in accordance with
Section 1.08.
(b) Nothing herein shall be deemed to relieve any Lender from
its obligation to fulfill its commitments hereunder or to prejudice any rights
which the Borrowers may have against any Lender as a result of any default by
such Lender hereunder.
1.05. Notes. (a) The Borrowers' obligation to pay the
principal of, and interest on, all the Loans made to it by each Lender shall be
evidenced in the case of Revolving Loans, by a promissory note substantially in
the form of Exhibit B-1 with blanks appropriately completed in conformity
herewith (each a "Revolving Note" and, collectively, the "Revolving Notes").
(b) The Revolving Note issued to each Lender shall (i) be
executed by the Borrowers, (ii) be payable to such Lender or its registered
assigns and be dated the Initial Borrowing Date, (iii) be in a stated principal
amount equal to the Revolving Loan Commitment of such Lender and be payable in
the principal amount of the outstanding Revolving Loans evidenced thereby, (iv)
mature on the Final Maturity Date, (v) bear interest as provided in the
appropriate clause of Section 1.08 in respect of the Base Rate Loans and
Eurodollar Loans, as the case may be, evidenced thereby, (vi) be subject to
voluntary prepayment as provided in Section 4.01, and mandatory repayment as
provided in Section 4.02, and (vii) be entitled to the benefits of the Credit
Documents.
(c) Each Lender will note on its internal records the amount
of each Loan made by it and each payment in respect thereof and will prior to
any transfer of any of its Notes endorse on the reverse side thereof the
outstanding principal amount of Loans evidenced thereby. Failure to make any
such notation shall not affect the Borrowers' obligations in respect of such
Loans.
1.06. Conversions. The Borrowers shall have the option to
convert on any Business Day occurring on or after the Initial Borrowing Date,
all or a portion at least equal to the applicable Minimum Borrowing Amount of
the outstanding principal amount of Revolving Loans made pursuant to one or
more Borrowings of one or more Types of Revolving Loans into a Borrowing or
Borrowings of another Type of Revolving Loan; provided that (i) except as
otherwise provided in Section 1.10(b), no partial conversion of a Borrowing of
Eurodollar Loans shall
<PAGE> 11
-5-
reduce the outstanding principal amount of the Eurodollar Loans made pursuant
to such Borrowing to less than the Minimum Borrowing Amount applicable thereto,
(ii) Base Rate Loans may only be converted into Eurodollar Loans if no payment
Default, or Event of Default, is in existence on the date of the conversion,
and (iii) Borrowings of Eurodollar Loans resulting from this Section 1.06 shall
be limited in number as provided in Section 1.02. Each such conversion shall
be effected by the applicable Borrower by giving the Agent at the Notice
Office, prior to 10:00 A.M. (New York time), at least two Business Days' (or
one Business Day's in the case of a conversion into Base Rate Loans) prior
written notice (or telephonic notice promptly confirmed in writing) (each a
"Notice of Conversion") specifying the Revolving Loans to be so converted, the
Borrowing(s) pursuant to which the Revolving Loans were made and, if to be
converted into a Borrowing of Eurodollar Loans, the Interest Period to be
initially applicable thereto. The Agent shall give each Lender prompt notice
of any such proposed conversion affecting any of its Revolving Loans.
1.07. Pro Rata Borrowings. All Borrowings of Revolving Loans
under this Agreement shall be made by the Lenders pro rata on the basis of
their Revolving Loan Commitments. It is understood that no Lender shall be
responsible for any default by any other Lender of its obligation to make
Revolving Loans hereunder and that each Lender shall be obligated to make the
Revolving Loans to be made by it hereunder, regardless of the failure of any
other Lender to fulfill its commitments hereunder.
1.08. Interest. (a) The unpaid principal amount of each
Base Rate Loan shall bear interest from the date of the Borrowing thereof until
the earlier of (i) the maturity (whether by acceleration or otherwise) of such
Base Rate Loan and (ii) the conversion of such Base Rate Loan to a Eurodollar
Loan pursuant to Section 1.06, at a rate per annum which shall at all times be
the Applicable Base Rate Margin in excess of the Base Rate in effect from time
to time.
(b) The unpaid principal amount of each Eurodollar Loan shall
bear interest from the date of the Borrowing thereof until the earlier of (i)
the maturity (whether by acceleration or otherwise) of such Eurodollar Loan and
(ii) the conversion of such Eurodollar Loan to a Base Rate Loan pursuant to
Section 1.06, 1.09 or 1.10(b), as applicable, at a rate per annum which shall
at all times be the Applicable Eurodollar Margin in excess of the relevant
Eurodollar Rate.
<PAGE> 12
-6-
(c) Overdue principal and, to the extent permitted by law,
overdue interest in respect of each Loan shall bear interest at a rate per
annum equal to the greater of (x) the rate which is 2% in excess of the rate
then borne by such Loans and (y) the rate which is 2% in excess of the rate
otherwise applicable to Base Rate Loans from time to time. Interest which
accrues under this Section 1.08(c) shall be payable on demand.
(d) Interest shall accrue from and including the date of any
Borrowing to but excluding the date of any repayment thereof (determined in
accordance with Section 4.03) and shall be payable (i) in respect of each Base
Rate Loan, quarterly in arrears on each Quarterly Payment Date, (ii) in respect
of each Eurodollar Loan, on (x) the date of any prepayment or repayment thereof
(on the amount prepaid or repaid), (y) the date of any conversion into a Base
Rate Loan pursuant to Section 1.06, 1.09 or 1.10(b), as applicable (on the
amount so converted) and (z) the last day of each Interest Period applicable
thereto and, in the case of an Interest Period in excess of three months, on
each date occurring at three month intervals after the first day of such
Interest Period and (iii) in respect of each Loan, at maturity (whether by
acceleration or otherwise) and, after such maturity, on demand.
(e) All computations of interest hereunder shall be made in
accordance with Section 12.07(b).
(f) The Agent, upon determining the interest rate for any
Borrowing of Eurodollar Loans for any Interest Period, shall promptly notify
the Borrowers and the Lenders thereof.
1.09. Interest Periods. At the time a Borrower gives a
Notice of Borrowing or Notice of Conversion in respect of the making of, or
conversion into, a Borrowing of Eurodollar Loans (in the case of the initial
Interest Period applicable thereto) or prior to 10:00 A.M. (New York time) on
the second Business Day prior to the expiration of an Interest Period
applicable to a Borrowing of Eurodollar Loans, such Borrower shall have the
right to elect by giving the Agent written notice (or telephonic notice
promptly confirmed in writing) of the Interest Period applicable to such
Borrowing, which Interest Period shall, at the option of such Borrower (but
otherwise subject to clause (y) of the proviso to Section 1.01(a)(ii)), be a
one, two, three or six month period. Notwithstanding anything to the contrary
contained above:
(i) all Eurodollar Loans comprising a single Borrowing
shall have the same Interest Period;
<PAGE> 13
-7-
(ii) the initial Interest Period for any Borrowing of
Eurodollar Loans shall commence on the date of such Borrowing
(including the date of any conversion from a Borrowing of Base Rate
Loans) and each Interest Period occurring thereafter in respect of
such Borrowing shall commence on the day on which the next preceding
Interest Period expires;
(iii) if any Interest Period begins on a day for which
there is no numerically corresponding day in the calendar month at the
end of such Interest Period, such Interest Period shall end on the
last Business Day of such calendar month;
(iv) if any Interest Period would otherwise expire on a
day which is not a Business Day, such Interest Period shall expire on
the next succeeding Business Day; provided that if any Interest Period
would otherwise expire on a day which is not a Business Day but is a
day of the month after which no further Business Day occurs in such
month, such Interest Period shall expire on the next preceding
Business Day;
(v) no Interest Period shall be elected which extends
beyond the Final Maturity Date;
(vi) no Interest Period may be elected at any time when a
payment Default or any Event of Default is then in existence;
provided, however, that at any time when a non-payment Default is in
existence, only a one- month Interest Period may be elected; and
(vii) no Interest Period in respect of any Borrowing of
Eurodollar Loans shall be elected which extends beyond any date upon
which a mandatory prepayment of Revolving Loans is required to be made
under Section 4.02(a), as a result of reductions to the Total
Revolving Loan Commitment pursuant to Section 3.03(b), unless the
aggregate principal amount of Revolving Loans which are maintained as
Base Rate Loans or which have Interest Periods which will expire on or
before such date will be sufficient to make such required payment.
If, upon the expiration of any Interest Period applicable to a Borrowing of
Eurodollar Loans, the Borrowers have failed to elect, or are not permitted to
elect by virtue of the application of clause (vi) above, a new Interest Period
to be applicable to the respective Borrowing of Eurodollar Loans as
<PAGE> 14
-8-
provided above, the Borrowers shall be deemed to have elected to convert such
Borrowing into a Borrowing of Base Rate Loans effective as of the expiration
date of such current Interest Period.
1.10. Increased Costs, Illegality, etc. (a) In the event
that (x) in the case of clause (i) below, the Agent or (y) in the case of
clauses (ii) and (iii) below, any Lender, shall have determined (which
determination shall, absent manifest error, be final and conclusive and binding
upon all parties hereto):
(i) on any date for determining the Eurodollar Rate for
any Interest Period, that, by reason of any changes arising after the
date of this Agreement affecting the interbank Eurodollar market,
adequate and fair means do not exist for ascertaining the applicable
interest rate on the basis provided for in the definition of
Eurodollar Rate; or
(ii) at any time, that such Lender shall incur increased
costs or reductions in the amounts received or receivable hereunder
with respect to any Eurodollar Loans (other than any increased cost or
reduction in the amount received or receivable resulting from the
imposition of or a change in the rate of net income taxes or similar
charges) because of (x) any change since the date of this Agreement in
any applicable law, governmental rule, regulation, guideline, order or
request (whether or not having the force of law), or in the
interpretation or administration thereof and including the
introduction of any new law or governmental rule, regulation,
guideline, order or request (such as, for example, but not limited to,
a change in official reserve requirements, but, in all events,
excluding reserves required under Regulation D to the extent included
in the computation of the Eurodollar Rate) and/or (y) other
circumstances affecting such Lender, the interbank Eurodollar market
or the position of such Lender in such market; or
(iii) at any time since the date of this Agreement, that
the making or continuance of any Eurodollar Loan has become unlawful
by compliance by such Lender in good faith with any law, governmental
rule, regulation, guideline or order (or would conflict with any such
governmental rule, regulation, guideline or order not having the force
of law but with which such Lender customarily complies even though
the failure to comply therewith would not be
<PAGE> 15
-9-
unlawful), or has become impracticable as a result of a contingency
occurring after the date of this Agreement which materially and
adversely affects the interbank Eurodollar market;
then, and in any such event, such Lender (or the Agent in the case of clause
(i) above) shall (x) within five Business Days after any such event and (y)
within five Business Days of the date on which such event no longer exists give
notice (by telephone confirmed in writing) to the Borrowers and (except in the
case of clause (i)) to the Agent of such determination (which notice the Agent
shall promptly transmit to each of the other Lenders). Thereafter, (x) in the
case of clause (i) above, Eurodollar Loans shall no longer be available until
such time as the Agent notifies the Borrowers and the Lenders that the
circumstances giving rise to such notice by the Agent no longer exist (which
notice the Agent shall endeavor to give promptly after any determination
thereof by the Agent), and any Notice of Borrowing or Notice of Conversion
given by a Borrower with respect to Eurodollar Loans which have not yet been
incurred shall be deemed rescinded by the Borrowers, (y) in the case of clause
(ii) above, the Borrowers agree to pay to such Lender, upon written demand
therefor (accompanied by the written notice referred to below), such additional
amounts (in the form of an increased rate of, or a different method of
calculating, interest or otherwise as such Lender in its sole discretion shall
determine) as shall be required to compensate such Lender for such increased
costs or reductions in amounts received or receivable hereunder (a written
notice as to the additional amounts owed to such Lender, showing the basis for
the calculation thereof, submitted to the Borrowers by such Lender shall,
absent manifest error, be final and conclusive and binding upon all parties
hereto) and (z) in the case of clause (iii) above, the Borrowers shall take one
of the actions specified in Section 1.10(b) as promptly as possible and, in any
event, within the time period required by law.
(b) At any time that any Eurodollar Loan is affected by the
circumstances described in Section 1.10(a)(ii) or (iii), the Borrowers may (and
in the case of a Eurodollar Loan affected pursuant to Section 1.10(a)(iii) the
Borrowers shall) either (i) if the affected Eurodollar Loan is then being made
pursuant to a Borrowing, cancel said Borrowing by giving the Agent telephonic
notice (confirmed promptly in writing) thereof on the same date that a Borrower
was notified by a Lender pursuant to Section 1.10(a)(ii) or (iii)), or (ii) if
the affected Eurodollar Loan is then outstanding, upon at least two Business
Days' notice to the Agent, require the affected Lender to
<PAGE> 16
-10-
convert each such Eurodollar Loan into a Base Rate Loan (which conversion, in
the case of the circumstances described in Section 1.10(a)(iii), shall occur no
later than the last day of the Interest Period then applicable to such
Eurodollar Loan (or such earlier date as shall be required by applicable law));
provided that if more than one Lender is affected at any time, then all
affected Lenders must be treated the same pursuant to this Section 1.10(b).
(c) If any Lender shall have determined that the adoption or
effectiveness of any applicable law, rule or regulation regarding capital
adequacy, or any change therein, or any change in the interpretation or
administration thereof by any governmental authority, central bank or
comparable agency charged with the interpretation or administration thereof, or
compliance by such Lender or any corporation controlling such Lender with any
request or directive regarding capital adequacy (whether or not having the
force of law) of any such authority, central bank or comparable agency, in each
case, after the date of this Agreement, has or would have the effect of
reducing the rate of return on such Lender's or such other corporation's
capital or assets as a consequence of such Lender's Revolving Loan Commitment
or obligations hereunder to a level below that which such Lender or such other
corporation could have achieved but for such adoption, effectiveness, change or
compliance (taking into consideration such Lender's or such other corporation's
policies with respect to capital adequacy), then from time to time, upon
written demand by such Lender (with a copy to the Agent), accompanied by the
notice referred to in the last sentence of this clause (c), the Borrowers shall
pay to such Lender such additional amount or amounts as will compensate such
Lender or such other corporation for such reduction. Each Lender, upon
determining in good faith that any additional amounts will be payable pursuant
to this Section 1.10(c), will give prompt written notice thereof to the
Borrowers, which notice shall set forth the basis of the calculation of such
additional amounts, although the failure to give any such notice shall not
release or diminish the Borrowers' obligations to pay additional amounts
pursuant to this Section 1.10(c) upon the subsequent receipt of such notice.
1.11. Compensation. The Borrowers shall compensate each
Lender, promptly upon its written request (which request shall set forth the
basis for requesting such compensation), for all reasonable losses, expenses
and liabilities (including, without limitation, any loss, expense or liability
incurred by reason of the liquidation or reemployment of deposits or other
funds required by such Lender to fund its Eurodollar Loans but
<PAGE> 17
-11-
excluding loss of anticipated profit with respect to any Eurodollar Loans)
which such Lender may sustain: (i) if for any reason (other than a default by
such Lender or the Agent) a Borrowing of Eurodollar Loans does not occur on a
date specified therefor in a Notice of Borrowing or Notice of Conversion
(whether or not withdrawn by the Borrowers or deemed withdrawn pursuant to
Section 1.10(a) or (b)); (ii) if any repayment (including any repayment made
pursuant to Section 4.01 or 4.02 or as a result of an acceleration of the Loans
pursuant to Section 9) or conversion of any Eurodollar Loans occurs on a date
which is not the last day of an Interest Period applicable thereto; (iii) if
any prepayment of any Eurodollar Loans is not made on any date specified in a
notice of prepayment given by a Borrower; or (iv) as a consequence of (x) any
other default by the Borrowers to repay Eurodollar Loans when required by the
terms of this Agreement or (y) an election made pursuant to Section 1.10(b).
Calculation of all amounts payable to a Lender under this Section 1.11 shall be
made as though that Lender had actually funded its relevant Eurodollar Loan
through the purchase of a Eurodollar deposit bearing interest at the Eurodollar
Rate in an amount equal to the amount of that Loan, having maturity comparable
to the relevant Interest Period and through the transfer of such Eurodollar
deposit from an offshore office of that Lender to a domestic office of that
Lender in the United States of America; provided, however, that each Lender may
fund each of its Eurodollar Loans in any manner it sees fit and the foregoing
assumption shall be utilized only for the calculation of amounts payable under
this Section 1.11. It is further understood and agreed that if any repayment
of Eurodollar Loans pursuant to Section 4.01 or any conversion of Eurodollar
Loans pursuant to Section 1.06 in either case occurs on a date which is not the
last day of an Interest Period applicable thereto, such repayment or conversion
shall be accompanied by any amounts owing to any Lender pursuant to this
Section 1.11.
1.12. Change of Lending Office. Each Lender agrees that,
upon the occurrence of any event giving rise to the operation of Section
1.10(a)(ii) or (iii), 1.10(c), 2.05 or 4.04 with respect to such Lender, it
will, if requested by the Company, use reasonable efforts (subject to overall
policy considerations of such Lender) to designate another lending office for
any Loans or Letters of Credit affected by such event; provided that such
designation is made on such terms that, in the sole judgment of such Lender,
such Lender and its lending office suffer no economic, legal or regulatory
disadvantage, with the object of avoiding the consequences of the event giving
rise to the operation of any such Section. Nothing in this Section 1.12 shall
affect or postpone any of the obligations of
<PAGE> 18
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the Borrowers or the right of any Lender provided in Section 1.10, 2.05 or
4.04.
1.13. Replacement of Lenders. (x) If any Lender becomes a
Defaulting Lender, (y) upon the occurrence of any event giving rise to the
operation of Section 1.10(a)(ii) or (iii), Section 1.10(c), Section 2.05 or
Section 4.04 with respect to any Lender which results in such Lender charging
to the Borrowers increased costs in excess of those being generally charged by
the other Lenders or (z) in the case of a refusal by a Lender to consent to a
proposed change, waiver, discharge or termination with respect to this
Agreement which has been approved by the Required Lenders as provided in
Section 12.12(b) the Borrowers shall have the right, if no Default or Event of
Default then exists or, in the case of clause (z) above, would exist after
giving effect to such replacement, to replace such Lender (the "Replaced
Lender") with one or more other Eligible Transferee or Transferees, none of
whom shall constitute a Defaulting Lender at the time of such replacement
(collectively, the "Replacement Lender") and each of whom shall be acceptable
to the Agent; provided that (i) at the time of any replacement pursuant to this
Section 1.13, the Replacement Lender shall enter into one or more Assignment
and Assumption Agreements pursuant to Section 12.04(b) (and with all fees
payable pursuant to said Section 12.04(b) to be paid by the Replacement Lender)
pursuant to which the Replacement Lender shall acquire the Revolving Loan
Commitment and outstanding Revolving Loans of, and in each case participations
in Letters of Credit by, the Replaced Lender and, in connection therewith,
shall pay to (x) the Replaced Lender in respect thereof an amount equal to the
sum of (A) an amount equal to the principal of, and all accrued interest on,
all outstanding Revolving Loans of the Replaced Lender, (B) an amount equal to
all Unpaid Drawings that have been funded by (and not reimbursed to) such
Replaced Lender, together with all then unpaid interest with respect thereto at
such time and (C) an amount equal to all accrued, but theretofore unpaid, Fees
owing to the Replaced Lender pursuant to Section 3.01, (y) each Letter of
Credit Issuer an amount equal to such Replaced Lender's Percentage of any
Unpaid Drawing relating to Letters of Credit issued by such Letter of Credit
Issuer (which at such time remains an Unpaid Drawing) to the extent such
amount was not theretofore funded by such Replaced Lender and (ii) all
obligations of the Borrowers then owing to the Replaced Lender (other than
those specifically described in clause (i) above in respect of which the
assignment purchase price has been, or is concurrently being, paid, but
including all amounts, if any, owing under Section 1.11) shall be paid in full
to such Replaced Lender concurrently with such
<PAGE> 19
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replacement. Upon the execution of the respective Assignment and Assumption
Agreements, the payment of amounts referred to in clauses (i) and (ii) above,
recordation of the assignment on the Register by the Agent pursuant to Section
7.12 and, if so requested by the Replacement Lender of the appropriate
Revolving Note or Revolving Notes executed by the Borrowers, the Replacement
Lender shall become a Lender hereunder and the Replaced Lender shall cease to
constitute a Lender hereunder, except with respect to indemnification
provisions under this Agreement (including, without limitation, Sections 1.10,
1.11, 2.05, 4.04, 12.01 and 12.06), which shall survive as to such Replaced
Lender.
1.14. Joint and Several Liability. (a) The Borrowers shall
have joint and several liability in respect of all Obligations hereunder and
under any other Credit Document to which any Borrower is a party, without
regard to any defense (other than the defense that payment in full has been
made), set-off or counterclaim which may at any time be available to or be
asserted by any other Credit Party against the Lenders, or by any other
circumstance whatsoever (with or without notice to or knowledge of the
Borrowers) which constitutes, or might be construed to constitute, an equitable
or legal discharge of the Borrowers' liability hereunder, in bankruptcy or in
any other instance, and the Obligations of the Borrowers hereunder shall not be
conditioned or contingent upon the pursuit by the Lenders or any other Person
at any time of any right or remedy against the Borrowers or against any other
Person which may be or become liable in respect of all or any part of the
Obligations or against any Collateral or guarantee therefor or right of offset
with respect thereto. The Borrowers hereby acknowledge that this Agreement is
the independent and several obligation of each Borrower (regardless of which
Borrower shall have delivered a Notice of Borrowing) and may be enforced
against each Borrower separately, whether or not enforcement of any right or
remedy hereunder has been sought against the other Borrower. Each Borrower
hereby expressly waives, with respect to any of the Loans made to the other
Borrower hereunder and any of the amounts owing hereunder by such other Credit
Parties in respect of such Loans, diligence, presentment, demand of payment,
protest and all notices whatsoever, and any requirement that the Agent or any
Lender exhaust any right, power or remedy or proceeds against such other Credit
Parties under this Agreement or the Notes or any other agreement or instrument
referred to herein or therein, or against any other Person under any other
guarantee of, or security for, any of such amounts owing hereunder.
<PAGE> 20
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(b) Notwithstanding any other provisions of this Agreement or
the other Credit Documents, the maximum aggregate amount for which a Borrower
shall be liable hereunder with respect to Loans to the other Borrower and other
Obligations of the other Borrower shall not exceed the maximum aggregate amount
of Obligations which does not render this Section 1.14, as it relates to such
Borrower, void or voidable under applicable laws relating to fraudulent
conveyance or fraudulent transfer. Subject to the preceding sentence, each
Borrower shall be liable for payment of Obligations when due and not for
collection thereof and each Lender may, from time to time, enforce this
provision against any Borrower up to the full amount of the Obligations owed to
such Lender without proceeding against the other Borrower, against any security
for the Obligations, against any Subsidiary Guarantor or under any Subsidiary
Guarantee covering the Obligations.
(c) The Borrowers hereby agree, as between themselves, that
if any Borrower (an "Excess Funding Borrower") shall pay amounts in excess of
the portion of the then outstanding Obligations which have arisen in respect of
extensions of credit to or for the benefit of the Excess Funding Borrower the
other Borrower shall, on demand (but subject to the next sentence hereof), pay
to the Excess Funding Borrower an amount equal to such excess. The payment
obligation of any Borrower to any Excess Funding Borrower under this Section
1.14(c) shall be subordinate in right of payment to, and subject to, the prior
payment and satisfaction in full of the Obligations of such Borrower under the
other provisions of this Agreement and the other Credit Documents and such
Excess Funding Borrower shall not exercise any right or remedy with respect to
such excess until payment and satisfaction in full of all of the Obligations;
in addition, no Borrower shall be obligated to pay to the Excess Funding
Borrower an amount under this Section 1.14(c) greater than the amount which,
when taken together with the aggregate of the amounts paid by it under this
Credit Agreement and all other payments under this Section 1.14, would exceed
the portion of the then outstanding Obligations which have arisen in respect
of extensions of credit to or for the benefit of such Borrower.
1.15. Amendment and Restatement Effective Date; Effect of
Amendment and Restatement. (a) This Agreement shall become effective as
provided in Section 12.10.
(b) Upon the effectiveness of this Agreement in accordance
with the terms hereof:
<PAGE> 21
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(i) the terms and conditions of the Existing Credit
Agreement shall be restated in their entirety, but only with respect
to the rights, duties and obligations among the Agent, the Co-Agent,
the Lenders, the Guarantors and the Borrowers accruing from and after
the Amendment and Restatement Effective Date;
(ii) this Agreement shall not in any way release or impair
the rights, duties, obligations or Liens created pursuant to the
Existing Credit Agreement or any other Credit Document or affect the
relative priorities thereof, in each case to the extent in force and
effect hereunder and thereunder as of the Amendment and Restatement
Effective Date and except as modified hereby or thereby or by
documents, instruments and agreements executed and delivered in
connection herewith or therewith, and all of such rights, duties,
obligations and Liens are ratified and affirmed by the parties hereto;
(iii) notwithstanding any other provisions of this
Agreement, all indemnification obligations of the Borrowers under the
Existing Credit Agreement and any other Credit Document shall survive
the execution and delivery of this Agreement and shall continue in
full force and effect for the benefit of the Agent, the Co- Agent and
the Lenders;
(iv) the obligations incurred under the Existing Credit
Agreement shall, to the extent outstanding on the Amendment and
Restatement Effective Date, continue to be outstanding under this
Agreement and shall not be deemed to be paid, released, discharged or
otherwise satisfied by the execution of this Agreement, and this
Agreement shall not be deemed to constitute a refinancing,
substitution or novation of such obligations;
(v) all of the outstanding loans under the Existing
Credit Agreement immediately prior to the Closing Date of each Lender
which shall be a party to this Agreement shall thereafter constitute a
portion of the Revolving Loans in the amounts set forth on Schedule I;
(vi) the execution, delivery and effectiveness of this
Agreement shall not operate as a waiver of any right, power or remedy
of any of the Lenders or the Agent or Co-Agent under the Existing
Credit Agreement, nor constitute a waiver of any covenant, agreement
or obligation of the Borrowers under the Existing Credit Agreement,
except to
<PAGE> 22
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the extent that any such covenant, agreement or obligation is no
longer set forth in this Agreement or is modified hereby;
(vii) any and all references in the Credit Documents to the
Existing Credit Agreement shall, without further action of the
parties, be deemed a reference to the Existing Credit Agreement as
amended and restated by this Agreement (including all references in
the Security Agreement and Pledge Agreement to "$35,000,000" are
hereby replaced with references to "$50,000,000"), and as this
Agreement shall be further amended or amended and restated from time
to time hereafter; and
(viii) on the Amendment and Restatement Effective Date, the
Lenders holding notes (each an "Existing Lender" and together, the
"Existing Lenders") executed and delivered under the Existing Credit
Agreement (the "Existing Notes") shall surrender such Existing Notes
to the Borrowers; upon the Agent's receipt of such Existing Notes from
each Existing Lender, the Borrowers shall execute and deliver to the
Agent for delivery to each Existing Lender a Revolving Note in the
principal amount of such Lender's Revolving Loan Commitment in
accordance with the provisions of Section 1.01.
SECTION 2. Letters of Credit.
2.01. Letters of Credit. (a) Subject to and upon the terms
and conditions herein set forth, the Borrowers may request the Letter of Credit
Issuer at any time and from time to time on or after the Initial Borrowing Date
and prior to the Business Day preceding the Final Maturity Date to issue, for
the account of the Borrowers and in support of, on a standby basis, L/C
Supportable Indebtedness of the Borrowers or any Subsidiary of either Borrower
to any other Person, irrevocable letters of credit in such form as may be
approved by such Letter of Credit Issuer (each such letter of credit, a "Letter
of Credit" and, collectively, the "Letters of Credit"). Notwithstanding the
foregoing, no Letter of Credit Issuer shall be under any obligation to issue
any Letter of Credit if at the time of such issuance:
(i) any order, judgment or decree of any governmental
authority or arbitrator shall purport by its terms to enjoin or
restrain such Letter of Credit Issuer from issuing such Letter of
Credit or any requirement of law
<PAGE> 23
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applicable to such Letter of Credit Issuer or any request or directive
(whether or not having the force of law) from any governmental
authority with jurisdiction over such Letter of Credit Issuer shall
prohibit, or request that such Letter of Credit Issuer refrain from,
the issuance of letters of credit generally or such Letter of Credit
in particular or shall impose upon such Letter of Credit Issuer with
respect to such Letter of Credit any restriction or reserve or capital
requirement (for which such Letter of Credit Issuer is not otherwise
compensated pursuant to the terms hereof) not in effect on the date
hereof, or any unreimbursed loss, cost or expense which was not
applicable, in effect or known to such Letter of Credit Issuer as of
the date hereof and which such Letter of Credit Issuer in good faith
deems material to it; or
(ii) such Letter of Credit Issuer shall have received
notice from the Borrowers or the Required Lenders prior to the
issuance of such Letter of Credit of the type described in clause (vi)
of Section 2.01(b).
(b) Notwithstanding the foregoing, (i) no Letter of Credit
shall be issued the Stated Amount of which, when added to the Letter of Credit
Outstandings (exclusive of Unpaid Drawings which are repaid on the date of, and
prior to the issuance of, the respective Letter of Credit) at such time, would
exceed either (x) the Letter of Credit Sublimit or (y) when added to the
aggregate principal amount of all Revolving Loans then outstanding, the Total
Revolving Loan Commitment at such time; (ii) each Letter of Credit shall have
an expiry date occurring not later than one year after such Letter of Credit's
date of issuance; provided that any such Letter of Credit may be automatically
extendable for periods of up to one year so long as such Letter of Credit
provides that the respective Letter of Credit Issuer retains an option,
satisfactory to such Letter of Credit Issuer, to terminate such Letter of
Credit within a specified period of time prior (but not less than 30 days) to
each scheduled extension date; provided, further, that each Letter of Credit
shall state and shall provide that it shall, in no event, expire no later than
five Business Days prior to the Final Maturity Date; (iii) each Letter of
Credit shall be denominated in U.S. Dollars; (iv) each Letter of Credit shall
provide that the Stated Amount of each Letter of Credit shall not be less than
$100,000 or such lesser amount as is acceptable to the respective Letter of
Credit Issuer; (v) no Letter of Credit Issuer will issue any Letter of Credit
after it has received written notice from a Borrower or the Required Lenders
stating that a Default or an Event of Default exists until such
<PAGE> 24
-18-
time as such Letter of Credit Issuer shall have received a written notice of
(x) rescission of such notice from the party or parties originally delivering
the same or (y) a waiver of such Default or Event of Default by the Required
Lenders and (vi) no Letter of Credit in support of L/C Supportable Indebtedness
of a Foreign Subsidiary shall be issued the Stated Amount of which, when added
to the Letter of Credit Outstandings (exclusive of Unpaid Drawings which are
repaid on the date of, and prior to the issuance of, the respective Letter of
Credit) in support of L/C Supportable Indebtedness of Foreign Subsidiaries at
such time, would exceed $1 million.
(c) Notwithstanding the foregoing, in the event a Lender
Default exists, no Letter of Credit Issuer shall be required to issue any
Letter of Credit unless the respective Letter of Credit Issuer has entered into
arrangements satisfactory to it and the Borrowers to eliminate such Letter of
Credit Issuer's risk with respect to the participation in Letters of Credit of
the Defaulting Lender or Lenders, including by cash collateralizing such
Defaulting Lender's or Lenders' Percentage of the Letter of Credit
Outstandings, as the case may be. No such arrangement shall prejudice the
right of the Borrowers or the Letter of Credit Issuer to pursue any available
remedies it may have against any Defaulting Lender.
2.02. Letter of Credit Requests; Notices of Issuance. (a)
Whenever the Borrowers desires that a Letter of Credit be issued, a Borrower
shall give the Agent and the respective Letter of Credit Issuer written notice
(or notice by facsimile) thereof prior to 12:00 Noon (New York time) at least
two Business Days (or such shorter period as may be acceptable to the
respective Letter of Credit Issuer) prior to the proposed date of issuance
(which shall be a Business Day) which written notice shall be in the form of
Exhibit A-2 (each, a "Letter of Credit Request"). Each Letter of Credit
Request shall include any other documents as such Letter of Credit Issuer
customarily requires in connection therewith.
(b) Each Letter of Credit Issuer shall, promptly after each
issuance of, or amendment or modification to, a Letter of Credit issued by it,
give the Agent, each Lender and the Borrowers written notice of the issuance
of, or amendment or modification to, such Letter of Credit, accompanied by a
copy of the Letter of Credit or Letters of Credit issued by it and each such
amendment or modification thereto.
2.03. Agreement to Repay Letter of Credit Drawings. (a) The
Borrowers hereby agree to reimburse each Letter of
<PAGE> 25
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Credit Issuer, by making payment to the Agent in immediately available funds at
the Payment Office, for any payment or disbursement made by such Letter of
Credit Issuer under any Letter of Credit issued by it (each such amount so paid
or disbursed until reimbursed, an "Unpaid Drawing") no later than one Business
Day following the date of such payment or disbursement, with interest on the
amount so paid or disbursed by such Letter of Credit Issuer, to the extent not
reimbursed prior to 1:00 P.M. (New York time) on the date of such payment or
disbursement, from and including the date paid or disbursed to but not
including the date such Letter of Credit Issuer is reimbursed therefor at a
rate per annum which shall be the Applicable Base Rate Margin in excess of the
Base Rate as in effect from time to time (plus an additional 2% per annum if
not reimbursed by the third Business Day after the date of such payment or
disbursement), such interest also to be payable on demand. Each Letter of
Credit Issuer shall provide the Borrowers prompt notice of any payment or
disbursement made by it under any Letter of Credit issued by it, although the
failure of, or delay in, giving any such notice shall not release or diminish
the obligations of the Borrowers under this Section 2.03(a) or under any other
Section of this Agreement.
(b) The Borrowers' obligation under this Section 2.03 to
reimburse the respective Letter of Credit Issuer with respect to Unpaid
Drawings (including, in each case, interest thereon) shall be absolute and
unconditional under any and all circumstances and irrespective of any setoff,
counterclaim or defense to payment which the Borrowers or any of its
Subsidiaries may have or have had against such Letter of Credit Issuer, the
Agent or any Lender, including, without limitation, any defense based upon the
failure of any drawing under a Letter of Credit issued by it to conform to the
terms of the Letter of Credit or any nonapplication or misapplication by the
beneficiary of the proceeds of such drawing; provided, however, that the
Borrowers shall not be obligated to reimburse such Letter of Credit Issuer for
any wrongful payment made by such Letter of Credit Issuer under a Letter of
Credit issued by it as a result of acts or omissions that have been found to
constitute willful misconduct or gross negligence on the part of such Letter of
Credit Issuer.
2.04. Letter of Credit Participations. (a) Immediately upon
the issuance by a Letter of Credit Issuer of any Letter of Credit, such Letter
of Credit Issuer shall be deemed to have sold and transferred to each other
Lender, and each such Lender (each a "Participant") shall be deemed irrevocably
and unconditionally to have purchased and received from such
<PAGE> 26
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Letter of Credit Issuer, without recourse or warranty, an undivided interest
and participation, to the extent of such Participant's Percentage, in such
Letter of Credit, each substitute Letter of Credit, each drawing made
thereunder and the obligations of the Borrowers under this Agreement with
respect thereto (although Letter of Credit Fees shall be payable directly to
the Agent for the account of the Lenders as provided in Section 3.01(b) and the
Participants shall have no right to receive any portion of any Facing Fees with
respect to such Letters of Credit) and any security therefor or guaranty
pertaining thereto. Upon any change in the Revolving Loan Commitments of the
Lenders pursuant to Section 1.13 or 12.04(b), it is hereby agreed that, with
respect to all outstanding Letters of Credit and Unpaid Drawings with respect
thereto, there shall be an automatic adjustment to the participations pursuant
to this Section 2.04 to reflect the new Percentages of the assigning and
assignee Lender.
(b) In determining whether to pay under any Letter of Credit,
no Letter of Credit Issuer shall have any obligation relative to the
Participants other than to determine that any documents required to be
delivered under such Letter of Credit have been delivered and that they appear
to substantially comply on their face with the requirements of such Letter of
Credit. Any action taken or omitted to be taken by any Letter of Credit Issuer
under or in connection with any Letter of Credit issued by it if taken or
omitted in the absence of such a finding of gross negligence or willful
misconduct, shall not create for such Letter of Credit Issuer any resulting
liability.
(c) In the event that any Letter of Credit Issuer makes any
payment under any Letter of Credit issued by it and the Borrowers shall not
have reimbursed such amount in full to the Letter of Credit Issuer pursuant to
Section 2.03(a), such Letter of Credit Issuer shall promptly notify the Agent,
and the Agent shall promptly notify each Participant of such failure, and each
such Participant shall promptly and unconditionally pay to the Agent for the
account of such Letter of Credit Issuer, the amount of such Participant's
Percentage of such payment in U.S. Dollars and in same day funds; provided,
however, that no Participant shall be obligated to pay to the Agent its
Percentage of such unreimbursed amount for any wrongful payment made by such
Letter of Credit Issuer under a Letter of Credit issued by it as a result of
acts or omissions that have been found to constitute willful misconduct or
gross negligence on the part of such Letter of Credit Issuer. If the Agent so
notifies any Participant required to fund a payment
<PAGE> 27
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under a Letter of Credit prior to 11:00 A.M. (New York time) on any Business
Day, such Participant shall make available to the Agent for the account of the
respective Letter of Credit Issuer such Participant's Percentage of the amount
of such payment on such Business Day in same day funds (and, to the extent such
notice is given after 11:00 A.M. (New York time) on any Business Day, such
Participant shall make such payment on the immediately following Business Day).
If and to the extent such Participant shall not have so made its Percentage of
the amount of such payment available to the Agent for the account of the
respective Letter of Credit Issuer, such Participant agrees to pay to the Agent
for the account of such Letter of Credit Issuer, forthwith on demand such
amount, together with interest thereon, for each day from such date until the
date such amount is paid to the Agent for the account of the Letter of Credit
Issuer at the overnight Federal Funds Rate. The failure of any Participant to
make available to the Agent for the account of the respective Letter of Credit
Issuer its Percentage of any payment under any Letter of Credit issued by it
shall not relieve any other Participant of its obligation hereunder to make
available to the Agent for the account of such Letter of Credit Issuer its
applicable Percentage of any payment under any such Letter of Credit on the
date required, as specified above, but no Participant shall be responsible for
the failure of any other Participant to make available to the Agent for the
account of such Letter of Credit Issuer such other Participant's Percentage of
any such payment.
(d) Whenever any Letter of Credit Issuer receives a payment
of a reimbursement obligation as to which the Agent has received for the
account of such Letter of Credit Issuer any payments from the Participants
pursuant to clause (c) above, such Letter of Credit Issuer shall pay to the
Agent and the Agent shall promptly pay to each Participant which has paid its
Percentage thereof, in U.S. Dollars and in same day funds, an amount equal to
such Participant's Percentage of the principal amount thereof and interest
thereon accruing after the purchase of the respective participations.
(e) The obligations of the Participants to make payments to
the Agent for the account of the respective Letter of Credit Issuer with
respect to each Letter of Credit issued by it shall be irrevocable and not
subject to counterclaim, set-off or other defense or any other qualification or
exception whatsoever and shall be made in accordance with the terms and
conditions of this Agreement under all circumstances, including, without
limitation, any of the following circumstances:
<PAGE> 28
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(i) any lack of validity or enforceability of this
Agreement or any of the other Credit Documents;
(ii) the existence of any claim, set-off, defense or other
right which the Borrowers or any of their Subsidiaries may have at any
time against a beneficiary named in a Letter of Credit, any transferee
of any Letter of Credit (or any Person for whom any such transferee
may be acting), the Agents, any Letter of Credit Issuer, any Lender,
or other Person, whether in connection with this Agreement, any Letter
of Credit, the transactions contemplated herein or any unrelated
transactions (including any underlying transaction between the
Borrowers, or any of their Subsidiaries and the beneficiary named in
any such Letter of Credit);
(iii) any draft, certificate or other document presented
under the Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect or any statement therein being untrue
or inaccurate in any respect;
(iv) the surrender or impairment of any security for the
performance or observance of any of the terms of any of the Credit
Documents; or
(v) the occurrence of any Default or Event of Default.
2.05. Increased Costs. If the adoption or effectiveness of
any applicable law, rule or regulation, or any change therein, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Letter of Credit Issuer or any
Participant with any request or directive (whether or not having the force of
law) by any such authority, central bank or comparable agency, in each case,
after the date hereof, shall either (i) impose, modify or make applicable any
reserve, deposit, capital adequacy or similar requirement against Letters of
Credit issued by such Letter of Credit Issuer or such Participant's
participation therein, or (ii) impose on any Letter of Credit Issuer or any
Participant any other conditions affecting this Agreement, any Letter of Credit
or such Participant's participation therein; and the result of any of the
foregoing is to increase the cost to such Letter of Credit Issuer or such
Participant of issuing, maintaining or participating in any Letter of Credit,
or to reduce the amount of any sum
<PAGE> 29
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received or receivable by such Letter of Credit Issuer or such Participant
hereunder, then, upon written demand to the Borrowers by such Letter of Credit
Issuer or such Participant (a copy of which notice shall be sent by such Letter
of Credit Issuer or such Participant to the Agent), accompanied by the
certificate described in the last sentence of this Section 2.05, the Borrowers
shall pay to such Letter of Credit Issuer or such Participant such additional
amount or amounts as will compensate such Letter of Credit Issuer or such
Participant for such increased cost or reduction. A certificate submitted to
the Borrowers by such Letter of Credit Issuer or such Participant, as the case
may be (a copy of which certificate shall be sent by such Letter of Credit
Issuer or such Participant to the Agent), setting forth the basis for the
determination of such additional amount or amounts necessary to compensate such
Letter of Credit Issuer or such Participant as aforesaid shall be final and
conclusive and binding on the Borrowers absent manifest error, although the
failure to deliver any such certificate shall not release or diminish the
Borrowers' obligations to pay additional amounts pursuant to this Section 2.05
upon subsequent receipt of such certificate.
SECTION 3. Fees; Commitments.
3.01. Fees. (a) The Borrowers shall pay to the Agent for
distribution to each Non-Defaulting Lender a commitment fee (the "Commitment
Fee") for the period from and including the Effective Date to but not including
the Final Maturity Date (or such earlier date as the Total Revolving Loan
Commitment shall have been terminated), computed at a rate for each day equal
to .50% per annum on the daily average Unutilized Revolving Loan Commitment of
such Lender. Accrued Commitment Fees shall be due and payable on a pro rata
basis quarterly in arrears on each Quarterly Payment Date and the date upon
which the Total Revolving Loan Commitment is terminated.
(b) The Borrowers shall pay to the Agent for the account of
the Lenders pro rata on the basis of their Percentages, a fee in respect of
each Letter of Credit (the "Letter of Credit Fee") computed at a rate per annum
equal to the Applicable Eurodollar Margin then in effect on the daily Stated
Amount of such Letter of Credit. Accrued Letter of Credit Fees shall be due
and payable quarterly in arrears on each Quarterly Payment Date and upon and
until the first day on or after the termination of the Total Revolving Loan
Commitment upon which no Letters of Credit remain outstanding.
<PAGE> 30
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(c) The Borrowers shall pay to the Agent for the account of
each Letter of Credit Issuer a fee in respect of each Letter of Credit issued
by such Letter of Credit Issuer (the "Facing Fee") computed at the rate of 1/4
of 1% per annum on the daily Stated Amount of such Letter of Credit; provided
that in no event shall the annual Facing Fee with respect to each Letter of
Credit be less than $500; it being agreed that, on the date of issuance of any
Letter of Credit and on each anniversary thereof prior to the termination of
such Letter of Credit, if $500 will exceed the amount of Facing Fees that will
accrue with respect to such Letter of Credit for the immediately succeeding
12-month period, the full $500 shall be payable on the date of issuance of such
Letter of Credit and on each such anniversary thereof prior to the termination
of such Letter of Credit. Except as provided in the immediately preceding
sentence, accrued Facing Fees shall be due and payable quarterly in arrears on
each Quarterly Payment Date and upon the first day on or after the termination
of the Total Revolving Loan Commitment upon which no Letters of Credit remain
outstanding.
(d) The Borrowers shall pay directly to the Letter of Credit
Issuer upon each payment under, and/or amendment of, a Letter of Credit issued
by the Letter of Credit Issuer such amount as shall at the time of such payment
or amendment be the administrative charge which the Letter of Credit Issuer is
customarily charging for payments under, or amendments of, letters of credit
issued by it.
(e) The Borrowers shall pay to the Agent and Co-Agent such
fees as may be agreed to from time to time between the Borrowers and the Agent
and Co-Agent when and as due.
(f) All computations of Fees shall be made in accordance with
Section 12.07(b).
3.02. Voluntary Termination or Reduction of Total Unutilized
Revolving Loan Commitment. Upon at least two Business Days' prior written
notice (or telephonic notice promptly confirmed in writing) to the Agent at the
Notice Office (which notice the Agent shall promptly transmit to each of the
Lenders), the Borrowers shall have the right, without premium or penalty, to
terminate or partially reduce the Total Unutilized Revolving Loan Commitment;
provided that (x) any such termination or partial reduction shall apply to
proportionately and permanently reduce the Revolving Loan Commitment of each of
the Lenders and (y) any partial reduction pursuant to this Section 3.02(a)
shall be in the amount of at least $1,000,000.
<PAGE> 31
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3.03. Mandatory Reduction of Revolving Loan Commitments. (a)
The Total Revolving Loan Commitment shall be permanently reduced on each date
on which the Company or any of its Subsidiaries receives Net Cash Proceeds from
any sales of Collateral in excess of $1,000,000 individually or $2,000,000 in
the aggregate in any consecutive twelve month period to the extent of the Net
Cash Proceeds so received.
(b) The Total Revolving Loan Commitment (and the Revolving
Loan Commitment of each Lender) shall terminate in its entirety on the Final
Maturity Date.
(c) Each reduction to the Total Revolving Loan Commitment
pursuant to this Section 3.03 shall apply proportionately to reduce the
Revolving Loan Commitment of each Lender.
SECTION 4. Payments.
4.01. Voluntary Prepayments. The Borrowers shall have the
right to prepay the Loans, in whole or in part, without premium or penalty
except as otherwise provided in this Agreement, from time to time on the
following terms and conditions: (i) a Borrower shall give the Agent at the
Notice Office written notice (or telephonic notice promptly confirmed in
writing) of its intent to prepay the Loans, the amount of such prepayment and
(in the case of Eurodollar Loans) the specific Borrowing(s) pursuant to which
such Loans were made, which notice shall be given by a Borrower prior to 11:00
A.M. (New York time) (x) at least one Business Day prior to the date of such
prepayment in the case of Revolving Loans maintained as Base Rate Loans and (y)
at least three Business Days prior to the date of such prepayment in the case
of Eurodollar Loans, which notice shall promptly be transmitted by the Agent to
each of the Lenders; (ii) each prepayment shall be in an aggregate principal
amount of at least $1,000,000; provided that no partial payment of Eurodollar
Loans made pursuant to a Borrowing shall reduce the aggregate principal amount
of the Eurodollar Loans outstanding pursuant to such Borrowing to an amount
less than the Minimum Borrowing Amount applicable thereto; and (iii) each
prepayment in respect of any Revolving Loans made pursuant to a Borrowing shall
be applied pro rata among such Revolving Loans; provided that such prepayment
shall not be applied to any Revolving Loans of a Defaulting Lender.
4.02. Mandatory Prepayments. (a) If on any date the sum of
(i) the aggregate outstanding principal amount of Revolving Loans (after giving
effect to all other repayments thereof on such date) plus (ii) the Letter of
Credit
<PAGE> 32
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Outstandings on such date exceeds the Total Revolving Loan Commitment as then
in effect, the Borrowers shall repay on such date the principal of Revolving
Loans in an aggregate amount equal to such excess. If, after giving effect to
the prepayment of all outstanding Revolving Loans, the aggregate amount of
Letter of Credit Outstandings exceeds the Total Revolving Loan Commitment as
then in effect, the Company shall pay to the Agent on such date an amount in
cash and/or Cash Equivalents equal to such excess (up to the aggregate amount
of Letter of Credit Outstandings at such time) and the Agent shall hold such
payment as security for the obligations of the Borrowers hereunder pursuant to
a cash collateral agreement to be entered into in form and substance reasonably
satisfactory to the Agent (which shall permit certain investments in Cash
Equivalents reasonably satisfactory to the Agent until the proceeds are applied
to the secured obligations); provided that any such Cash collateral shall be
released to the Borrowers at any time at which such excess shall no longer
exist.
(b) In addition to any other mandatory prepayments pursuant
to this Section 4.02, on each date on or after the Initial Borrowing Date on
which the Company or any of its Subsidiaries receives Net Cash Proceeds from an
Asset Sale or Sales, disregarding for purposes of this Section 4.02(b) clause
(iii) of the definition of "Asset Sale", in excess of $500,000 individually or
$1,000,000 in the aggregate in any consecutive twelve month period, any
Borrowings and Letter of Credit Outstandings shall be reduced by an amount
equal to 100% of such excess Net Cash Proceeds so received.
(c) In addition to any other mandatory prepayments pursuant
to this Section 4.02, on each date on or after the Initial Borrowing Date on
which the Company or any of its Subsidiaries receives any cash proceeds from
any incurrence of Indebtedness (other than Indebtedness permitted to be
incurred pursuant to Section 8.04) by the Company or any of its Subsidiaries,
any Borrowings and Letter of Credit Outstandings shall be reduced by an amount
equal to 100% of the cash proceeds (net of all underwriting discounts, fees
and commissions and other costs and expenses associated therewith) of the
respective incurrence of Indebtedness.
(d) In addition to any other mandatory prepayments pursuant
to this Section 4.02, on each date on or after the Initial Borrowing Date on
which the Company or any of its Subsidiaries receives any cash proceeds, from
any sale or issuance of preferred or common equity of (or cash capital
contributions to) the Company or any of its Subsidiaries (other than proceeds
<PAGE> 33
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received from (x) issuances of options to purchase the Company Common Stock to
management, directors, non-employee consultants, and employees of the Company
and its Subsidiaries, (y) issuances of the Company Common Stock (including as a
result of the exercise of any options with regard thereto) to management,
directors, non-employee consultants, and employees of the Company and its
Subsidiaries and (z) equity contributions to any Subsidiary of the Company made
by the Company or any other Subsidiary of the Company), any Borrowings and
Letter of Credit Outstandings shall be reduced by an amount equal to 100% of
such cash proceeds (net of all underwriting discounts, fees and commissions and
other costs and expenses associated therewith) of the respective equity
issuance or capital contribution.
(e) In addition to any other mandatory prepayments pursuant
to this Section 4.02, within 10 days following each date on or after the
Initial Borrowing Date on which the Company or any of its Subsidiaries receives
proceeds from any insurance on any assets of either of the Borrowers and such
proceeds are in excess of $500,000 individually or $1,000,000 in the aggregate
in any consecutive twelve month period, and such proceeds are not otherwise
reinvested (or contractually committed to be reinvested) in like assets within
90 days of receipt, any Borrowings and Letter of Credit Outstandings shall be
reduced by an amount equal to 100% of such excess insurance proceeds; provided,
however, that any proceeds in excess of $2 million shall be deposited in a cash
collateral account, pursuant to documentation acceptable to the Agent, pending
application of such proceeds in accordance herewith.
(f) With respect to each repayment of Revolving Loans
required by this Section 4.02, the Borrowers may designate the Types of
Revolving Loans which are to be repaid and, in the case of Eurodollar Loans,
the specific Borrowing(s) pursuant to which such Loans were made; provided that
(i) Eurodollar Loans may be designated for repayment pursuant to this Section
4.02 only on the last day of an Interest Period applicable thereto unless all
Eurodollar Loans with Interest Periods ending on such date of required
prepayment and all Base Rate Loans have been paid in full; (ii) if any
repayment of Eurodollar Loans made pursuant to a single Borrowing shall reduce
the outstanding Eurodollar Loans to an amount less than the Minimum Borrowing
Amount, such Borrowing shall be immediately converted into Base Rate Loans; and
(iii) each repayment of any Revolving Loans made pursuant to a Borrowing shall
be applied pro rata among such Revolving Loans. In the absence of a
designation by the Borrowers as described in the preceding
<PAGE> 34
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sentence, the Agent shall, subject to the above, make such designation in its
sole discretion with a view, but no obligation, to minimize breakage costs
owing under Section 1.11.
(g) Notwithstanding anything to the contrary contained
elsewhere in this Agreement, all then outstanding Revolving Loans and Letter of
Credit Outstandings shall be repaid in full on the Final Maturity Date.
4.03. Method and Place of Payment. Except as otherwise
specifically provided herein, all payments under this Agreement or under any
Note shall be made to the Agent for the ratable account of the Lenders entitled
thereto, not later than 2:00 P.M. (New York time) on the date when due and
shall be made in immediately available funds and in U.S. Dollars at the Payment
Office, it being understood that written, telex or facsimile transmission
notice by a Borrower to the Agent to make a payment from the funds in such
Borrower's account at the Payment Office shall constitute the making of such
payment to the extent of such funds held in such account. Any payments under
this Agreement or under any Note which are made later than 2:00 P.M. (New York
time) shall be deemed to have been made on the next succeeding Business Day.
Whenever any payment to be made hereunder or under any Note shall be stated to
be due on a day which is not a Business Day (unless otherwise provided herein),
the due date thereof shall be extended to the next succeeding Business Day and,
with respect to payments of principal, interest shall be payable during such
extension at the applicable rate in effect immediately prior to such extension.
4.04. Net Payments. (a) All payments made by the Borrowers
hereunder or under any Note will be made without setoff, counterclaim or other
defense (which payment shall not be deemed a waiver by the Borrowers of any
claims arising under this Agreement). Except as provided in Section 4.04(b),
all such payments will be made free and clear of, and without deduction or
withholding for, any present or future taxes, levies, imposts, duties, fees,
assessments or other charges of whatever nature now or hereafter imposed by any
jurisdiction or by any political subdivision or taxing authority thereof or
therein with respect to such payment (but excluding, except as provided in the
second succeeding sentence, any tax (including any franchise tax) imposed on or
measured by the net income or net profits of a Lender pursuant to the laws of
the jurisdiction in which it is organized or the jurisdiction in which the
principal office or applicable lending office of such Lender is located or any
subdivision thereof or therein) and all interest, penalties or similar
liabilities with respect thereto (all
<PAGE> 35
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such nonexcluded taxes, levies, imposts, duties, fees, assessments or other
charges being referred to collectively as "Taxes"). If any Taxes are so levied
or imposed, the Borrowers agree to pay the full amount of such Taxes, and such
additional amounts as may be necessary so that every payment of all amounts due
under this Agreement or under any Note, after withholding or deduction for or
on account of any Taxes, will not be less than the amount provided for herein
or in such Note. If any amounts are payable in respect of Taxes pursuant to
the preceding sentence, the Borrowers agree to reimburse each Lender, upon the
written request of such Lender, for taxes imposed on or measured by the net
income or net profits of such Lender pursuant to the laws of the jurisdiction
in which the principal office or applicable lending office of such Lender is
located or under the laws of any political subdivision or taxing authority of
any such jurisdiction in which the principal office or applicable lending
office of such Lender is located and for any withholding of taxes as such
Lender shall determine are payable by, or withheld from, such Lender in respect
of such amounts so paid to or on behalf of such Lender pursuant to the
preceding sentence and in respect of any amounts paid to or on behalf of such
Lender pursuant to this sentence; provided, however, that no such reimbursement
shall be required unless such Lender determines that the amount of such Taxes
exceeds the amount of any credit, allowance or deduction allowable to such
Lender as an offset against any Taxes payable on behalf of such Lender and in
such event reimbursement shall not be required in any amount greater than such
excess. The Borrowers will furnish to the Agent within 45 days after the date
the payment of any Taxes is due pursuant to applicable law certified copies of
tax receipts evidencing such payment by the Borrowers. The Borrowers agree,
jointly and severally, to indemnify and hold harmless each Lender and the
Agent, and reimburse such Lender and the Agent upon their written request, for
the amount of any Taxes so levied or imposed and paid by such Lender or the
Agent. A certificate as to the amount of any such required indemnification
payment prepared by such Lender or the Agent shall be final, conclusive and
binding for all purposes absent manifest error.
(b) Each Lender that is not a United States person (as such
term is defined in Section 7701(a)(30) of the Code) agrees to deliver to the
Borrowers and the Agent on or prior to the Effective Date, or in the case of a
Lender that is an assignee or transferee of an interest under this Agreement
pursuant to Section 1.13 or 12.04 (unless the respective Lender was already a
Lender hereunder immediately prior to such assignment or transfer), on the date
of such assignment or transfer to
<PAGE> 36
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such Lender, (i) two accurate and complete original signed copies of Internal
Revenue Service Form 4224 or 1001 (or successor forms) certifying to such
Lender's entitlement to a complete exemption from United States withholding tax
with respect to payments to be made under this Agreement and under any Note, or
(ii) if the Lender is not a "bank" within the meaning of Section 881(c)(3)(A)
of the Code and cannot deliver either Internal Revenue Service Form 1001 or
4224 pursuant to clause (i) above, (x) a certificate substantially in the form
of Exhibit C (any such certificate, a "Section 4.04(b)(ii) Certificate") and
(y) two accurate and complete original signed copies of Internal Revenue
Service Form W-8 (or successor form) certifying to such Lender's entitlement to
a complete exemption from United States withholding tax with respect to
payments of interest to be made under this Agreement and under any Note. In
addition, each Lender agrees that from time to time after the Effective Date,
when a lapse in time or change in circumstances renders the previous
certification obsolete or inaccurate in any material respect, it will deliver
promptly to the Borrowers and the Agent two new accurate and complete original
signed copies of Internal Revenue Service Form 4224 or 1001, or Form W-8 and a
Section 4.04(b)(ii) Certificate, as the case may be, and such other forms as
may be required in order to confirm or establish the entitlement of such Lender
to a continued exemption from or reduction in United States withholding tax
with respect to payments under this Agreement and any Note, or it shall
immediately notify the Borrowers and the Agent of its inability to deliver any
such Form or Certificate in which case such Lender shall not be required to
deliver any such Form or Certificate pursuant to this Section 4.04(b).
Notwithstanding anything to the contrary contained in Section 4.04(a), but
subject to Section 12.04(b) and the immediately succeeding sentence, (x) the
Borrowers shall be entitled, to the extent they are required to do so by law,
to deduct or withhold income or similar taxes imposed by the United States (or
any political subdivision or taxing authority thereof or therein) from
interest, fees or other amounts payable hereunder for the account of any Lender
which is not a United States person (as such term is defined in Section
7701(a)(30) of the Code) for U.S. Federal income tax purposes to the extent
that such Lender has not provided to the Borrowers U.S. Internal Revenue
Service Forms that establish a complete exemption from such deduction or
withholding and (y) the Borrowers shall not be obligated pursuant to Section
4.04(a) hereof to gross-up payments to be made to a Lender in respect of income
withholding or similar taxes imposed by the United States if (I) such Lender
has not provided to the Borrowers the Internal Revenue Service Forms required
to be provided to the Borrowers pursuant to this Section 4.04(b) or
<PAGE> 37
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(II) in the case of a payment, other than interest, to a Lender described in
clause (ii) above, to the extent that such Forms do not establish a complete
exemption from withholding of such taxes. Notwithstanding anything to the
contrary contained in the preceding sentence or elsewhere in this Section 4.04
and except as set forth in Section 12.04(b), the Company agrees to indemnify
each Lender and the Agent in the manner set forth in Section 4.04(a) (without
regard to the identity of the jurisdiction requiring the deduction or
withholding) in respect of any amounts deducted or withheld by it as described
in the immediately preceding sentence as a result of any changes after the
Effective Date in any applicable law, treaty, governmental rule, regulation,
guideline or order, or in the interpretation thereof, relating to the deducting
or withholding of income or similar Taxes.
SECTION 5. Conditions Precedent. The obligation of each
Lender to make each Loan to a Borrower hereunder, and the obligation of the
Letter of Credit Issuer to issue each Letter of Credit hereunder, is subject,
at the time of each such Credit Event (except as otherwise hereinafter
indicated), to the satisfaction of the following conditions:
5.01. Execution of Agreement; Notes. (a) On or prior to the
Initial Borrowing Date, (i) the Effective Date shall have occurred and (ii)
there shall have been delivered to the Agent for the account of each Lender the
appropriate Revolving Note executed by the Borrowers.
(b) On or prior to the Amendment and Restatement Effective
Date, (i) this Agreement shall have become effective as provided in Section
12.10 and (ii) there shall have been delivered to the Agent for the account of
each Lender the appropriate Revolving Note executed by the Borrowers and in the
amount, maturity and as otherwise provided herein.
5.02. No Default; Representations and Warranties. At the
time of each Credit Event and also after giving effect thereto, (i) there
shall exist no Default or Event of Default and (ii) all representations and
warranties contained herein and in the other Credit Documents in effect at such
time shall be true and correct in all material respects with the same effect as
though such representations and warranties had been made on and as of the date
of such Credit Event, unless stated to relate to a specific earlier date, in
which case such representations and warranties shall be true and correct in all
material respects as of such earlier date.
<PAGE> 38
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5.03. Officer's Certificate. (a) On the Initial Borrowing
Date, the Agent and Co-Agent shall have received a certificate dated such date
signed by an appropriate officer of the Company stating that all of the
applicable conditions set forth in Sections 5.02, 5.06, 5.07, 5.08, 5.09
(deleting the reference to the Agent and Co- Agent therein), 5.10(a) and (b)
(deleting the reference to the Agent and Co-Agent therein), 5.14, exist as of
such date.
(b) On the Amendment and Restatement Effective Date, the
Agent and Co-Agent shall have received a certificate dated such date signed by
an appropriate officer of the Company stating that all of the applicable
conditions set forth in Sections 5.02, 5.06, 5.07, 5.08 and 5.14 exist as of
such date.
5.04. Opinions of Counsel. On the Initial Borrowing Date and
on the Amendment and Restatement Effective Date, the Agent and Co-Agent shall
have received opinions, addressed to the Agent and Co-Agent and each of the
Lenders and dated the Initial Borrowing Date, from Porter & Hedges, L.L.P.,
counsel to the Credit Parties, in the form of Exhibit D-1, which opinion shall
cover such matters incident to the transactions contemplated herein and in the
other Credit Documents as the Agent and Co-Agent may reasonably request and
shall be in form and substance reasonably satisfactory to the Agent and
Co-Agent.
5.05. Corporate Proceedings. (a) On the Initial Borrowing
Date and on the Amendment and Restatement Effective Date, the Agent and
Co-Agent shall have received from each Credit Party a certificate, dated the
Initial Borrowing Date, signed by the chairman, a vice chairman, the president
or any vice-president of such Credit Party, and attested to by the secretary or
any assistant secretary of such Credit Party, in the form of Exhibit E with
appropriate insertions, together with copies of the Certificate of
Incorporation and By-Laws of such Credit Party and the resolutions of such
Credit Party referred to in such certificate and all of the foregoing
(including each such Certificate of Incorporation and By-Laws) shall be
reasonably satisfactory to the Agent and Co-Agent.
(b) On the Initial Borrowing Date, all corporate and legal
proceedings and all instruments and agreements in connection with the
transactions contemplated by the Credit Documents shall be reasonably
satisfactory in form and substance to the Agent and Co-Agent, and the Agent
and Co-Agent shall have received all information and copies of all
certificates, documents and papers, including good standing certificates,
bring-down certificates and any other records of corporate
<PAGE> 39
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proceedings and governmental approvals, if any, which the Agent and Co-Agent
reasonably may have requested in connection therewith, such documents and
papers, where appropriate, to be certified by proper corporate or governmental
authorities.
5.06. Adverse Change, etc. At the time of each Credit Event
and after giving effect thereto, nothing shall have occurred since September
30, 1996 (and neither the Lenders nor the Agent and Co-Agent shall have become
aware of any facts or conditions not previously known) which (a) have, or could
reasonably be expected to have, a material adverse effect on the rights or
remedies of the Lenders or the Agent and Co-Agent, or on the ability of any
Credit Party to perform its obligations to them hereunder or under any other
Credit Document or (b) have, or could reasonably be expected to have, a
Material Adverse Effect.
5.07. Litigation. At the time of each Credit Event and after
giving effect thereto, there shall be no actions, suits or proceedings pending
or threatened (a) with respect to this Agreement or any other Document or the
Acquisition or (b) which could reasonably be expected to (i) have a Material
Adverse Effect or (ii) have a material adverse effect on the Acquisition, the
rights or remedies of the Lenders or the Agent or Co-Agent hereunder or under
any other Credit Document or on the ability of any Credit Party to perform its
respective obligations to the Lenders or the Agent or Co-Agent hereunder or
under any other Credit Document.
5.08. Approvals. On or prior to the Initial Borrowing Date,
all necessary governmental (domestic and foreign) and third party approvals in
connection with the Acquisition, the transactions contemplated by the Credit
Documents and otherwise referred to herein or therein shall have been obtained
and remain in effect, and all applicable waiting periods shall have expired
without any action being taken by any competent authority which restrains,
prevents or imposes materially adverse conditions upon the consummation of the
Acquisition, the transactions contemplated by the Documents and otherwise
referred to herein or therein. Additionally, there shall not exist any
judgment, order, injunction or other restraint issued or filed or a hearing
seeking injunctive relief or other restraint pending or notified prohibiting or
imposing materially adverse conditions upon the consummation of the
Acquisition or the making of Loans.
5.09. Consummation of the Acquisition. On the Initial
Borrowing Date, DI shall have consummated the Acquisition
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in accordance with the terms and conditions of the Acquisition Agreement,
without amendment thereto or the waiver of any of the conditions to closing
therein other than any amendment or waiver satisfactory to the Agent and the
Co-Agent.
5.10. [deleted]
5.11. Security Documents. (a) On the Initial Borrowing
Date, each Credit Party shall have duly authorized, executed and delivered a
Pledge Agreement in the form of Exhibit F (as modified, amended or supplemented
from time to time in accordance with the terms thereof and hereof, the "Pledge
Agreement") and shall have delivered to the Collateral Agent, as pledgee
thereunder, all of the Pledged Securities referred to therein accompanied by
executed and undated stock powers in the case of capital stock, and the Pledge
Agreement shall be in full force and effect.
(b) On the Initial Borrowing Date, each Credit Party shall
have duly authorized, executed and delivered a Security Agreement in the form
of Exhibit G (as modified, amended or supplemented from time to time in
accordance with the terms thereof and hereof, the "Security Agreement")
covering all of the Security Agreement Collateral, together with:
(A) executed copies of Financing Statements (Form UCC-1)
or appropriate local equivalent in appropriate form for filing under
the UCC or appropriate local equivalent of each jurisdiction as may be
necessary to perfect the security interests purported to be created by
the Security Agreement;
(B) certified copies of Requests for Information or
Copies (Form UCC-11), or equivalent reports, each of a recent date
listing all effective financing statements that name the Company or
any of its Domestic Subsidiaries as debtor and that are filed in the
jurisdictions referred to in clause (A) above, together with copies of
such financing statements that name the Company or any of its Domestic
Subsidiaries as debtor (none of which shall cover the Collateral
except (x) those with respect to which appropriate termination
statements executed by the secured lender thereunder have been
delivered to the Agent and Co-Agent and (y) to the extent evidencing
Permitted Liens);
(C) evidence of the completion of all other recordings
and filings of, or with respect to, the Security Agreement as may be
necessary or, in the reasonable
<PAGE> 41
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opinion of the Collateral Agent, desirable, to perfect the security
interests purported to be created by the Security Agreement; and
(D) evidence that all other actions necessary or, in the
reasonable opinion of the Collateral Agent, desirable, to perfect the
security interests purported to be created by the Security Agreement
have been taken;
and the Security Agreement shall be in full force and effect; and
(c) On the Amendment and Restatement Effective Date, each
Credit Party shall have executed and delivered amendments (Form UCC-3) to the
UCC-1s, in form and substance satisfactory to the Agent.
5.12. Payment of Fees. On or before the Initial Borrowing
Date and thereafter on the Amendment and Restatement Effective Date and at the
time of each Credit Event and after giving effect thereto, all costs, fees and
expenses, and all other compensation related to the transactions contemplated
by this Agreement due to the Agent or Co- Agent or the Lenders (including,
without limitation, legal fees and expenses) shall have been paid to the extent
then due.
5.13. Existing Indebtedness Agreements. On or prior to the
Initial Borrowing Date, there shall have been delivered to the Agent or
Co-Agent copies, certified as true and correct by an appropriate officer of the
Company, of:
(a) all agreements evidencing or relating to the Existing
Indebtedness that are to remain in effect after giving effect to the
consummation of the Acquisition (collectively, the "Existing
Indebtedness Agreements"); and
(b) all agreements and documents relating to the Acquisition
(collectively, the "Transaction Documents");
all of which agreements and documents shall be (x) in form and substance
satisfactory to the Agent or Co-Agent and (y) in full force and effect on the
Initial Borrowing Date.
Prior to the Initial Borrowing Date, the Norex Loan shall have
been paid in full and all debts thereunder permanently retired. The agreements
and documents reflecting such payments and termination of the Norex Loan shall
be (x) in form and substance satisfactory to the Agent and Co-Agent and
<PAGE> 42
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(y) delivered to the Agent and in full force and effect on the Initial
Borrowing Date.
5.14. Solvency Certificate; Evidence of Insurance. On the
Initial Borrowing Date and on the Amendment and Restatement Effective Date, the
Agent and Co-Agent shall have received:
(a) one or more solvency certificates in the form of Exhibit
I from the chief financial officer of the Company and of DI and dated
the Initial Borrowing Date or dated the Amendment and Restatement
Effective Date, as the case may be, in each case, addressed to the
Agent and Co-Agent and each Lender, and reciting that, both prior to
(in the case of the Initial Borrowing Date)and after giving effect to
the Acquisition and post-Initial Borrowing Date acquisitions, as the
case may be, and the incurrence of all financings contemplated herein,
the Company and DI (on a stand-alone basis) are not and will not be
rendered insolvent or inadequately capitalized for the respective
businesses they intend to conduct and have not and will not have
incurred debts beyond their ability to pay as they mature and that,
(x) the total assets of the Company and DI exceed the amount necessary
to pay all of their liabilities and to pay any distribution
preference on any outstanding preferred stock upon dissolution and (y)
the amount by which the total assets of the Company and DI exceeds and
will exceed their liabilities is no less than their stated capital;
and that neither the Company nor any of its Subsidiaries is entering
into this Agreement with the intent to hinder, delay or defraud any
creditor of the Company or any of its Subsidiaries; and
(b) (i) a report from a third party, in form and substance
satisfactory to the Agent and Co-Agent, regarding the adequacy of the
insurance coverage on the assets of the Company and its Subsidiaries
and (ii) evidence of insurance complying with the requirements of
Section 7.03 for the business and properties of the Company and its
Subsidiaries, in scope, form and substance reasonably satisfactory to
the Agent and Co- Agent and naming the Collateral Agent as an
additional insured and/or loss payee, and stating that such insurance
shall not be canceled or revised without at least 30 days' (or 10
days' in the case of non-payment of premium) prior written notice by
the insurer to the Collateral Agent.
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5.15. Rig Appraisals. On or prior to the Initial Borrowing
Date, the Agent and Co-Agent shall have received an appraisal of the value of
each rig owned by the Company and its Subsidiaries, in form and substance
satisfactory to the Agent and Co-Agent, from an Approved Appraiser. A complete
record of all drilling rigs, as of the Amendment and Restatement Effective
Date, including location, owned by the Company and its Subsidiaries is set
forth in Annex IV hereto.
5.16. Environmental Report. On or prior to the Initial
Borrowing Date, the Agent and Co-Agent shall have received a Phase I
environmental report pertaining to the Real Properties of the Company and its
Subsidiaries, in form and substance satisfactory to the Agent and Co-Agent.
5.17. Pro Forma Balance Sheet. On or prior to the Initial
Borrowing Date, there shall have been delivered to the Agent and Co-Agent an
unaudited pro forma consolidated balance sheet of the Company and its
Subsidiaries as of December 31, 1996 after giving effect to the Acquisition and
the borrowings to occur on the Initial Borrowing Date, together with a related
funds flow statement, which pro forma balance sheet and funds flow statement
shall be reasonably satisfactory in form and substance to the Agent and
Co-Agent and the Required Lenders.
5.18. Notice of Borrowing; Letter of Credit Request. The
Agent shall have received a Notice of Borrowing satisfying the requirements of
Section 1.03 with respect to each incurrence of Loans; and the Agent and the
Letter of Credit Issuer shall have received a Letter of Credit Request
satisfying the requirements of Section 2.02 with respect to each issuance of a
Letter of Credit.
The acceptance of the benefits of each Credit Event shall
constitute a representation and warranty by each Credit Party to the Agent and
Co-Agent and each of the Lenders that all of the applicable conditions
specified above exist as of the date of such Credit Event. All of the
certificates, legal opinions and other documents and papers referred to in this
Section 5, unless otherwise specified, shall be delivered to the Agent at the
Notice Office for the account of each of the Lenders and, except for the Notes,
in sufficient counterparts for each of the Lenders and shall be reasonably
satisfactory in form and substance to the Agent and Co-Agent and the Required
Lenders.
SECTION 6. Representations, Warranties and Agreements. In
order to induce the Lenders to enter into this
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Agreement and to make the Loans and issue and/or participate in the Letters of
Credit provided for herein, the Borrowers, jointly and severally, make the
following representations, warranties and agreements with the Lenders, all of
which shall survive the execution and delivery of this Agreement, the making of
the Loans and the issuance of the Letters of Credit (with the occurrence of the
Initial Borrowing Date, the Amendment and Restatement Effective Date and each
Credit Event being deemed to constitute a representation and warranty that the
matters specified in this Section 6 are true and correct in all material
respects on and as of the date of each such Credit Event, unless stated to
relate to a specific earlier date in which case such representations and
warranties shall be true and correct in all material respects as of such
earlier date):
6.01. Corporate Status. Each of the Company and its
Subsidiaries (i) is a duly organized and validly existing corporation in good
standing under the laws of the jurisdiction of its organization, (ii) has the
requisite corporate power and authority to own its property and assets and to
transact the business in which it is engaged and presently proposes to engage
and (iii) is duly qualified and is authorized to do business and is in good
standing in all jurisdictions where it is required to be so qualified and
where the failure to be so qualified would have a Material Adverse Effect.
6.02. Corporate Power and Authority. Each Credit Party has
the requisite corporate power and authority to execute, deliver and carry out
the terms and provisions of the Credit Documents to which it is a party and has
taken all necessary corporate action to authorize the execution, delivery and
performance of the Credit Documents to which it is a party. Each Credit Party
has duly executed and delivered each Credit Document to which it is a party and
each such Credit Document constitutes the legal, valid and binding obligation
of such Credit Party enforceable in accordance with its terms, except to the
extent that the enforceability thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws generally affecting
creditors' rights and by equitable principles (regardless of whether
enforcement is sought in equity or at law).
6.03. No Violation. Neither the execution, delivery or
performance by any Credit Party of the Credit Documents to which it is a party
nor compliance by any Credit Party with the terms and provisions thereof, nor
the consummation of the transactions contemplated herein or therein, (i) will
contravene any applicable provision of any law, statute, rule or
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regulation, or any order, writ, injunction or decree of any court or
governmental instrumentality, (ii) will conflict or be inconsistent with or
result in any breach of, any of the terms, covenants, conditions or provisions
of, or constitute a default under, or (other than pursuant to the Security
Documents) result in the creation or imposition of (or the obligation to create
or impose) any Lien upon any of the property or assets of the Company or any of
its Subsidiaries pursuant to the terms of any indenture, mortgage, deed of
trust, loan agreement, credit agreement or any other agreement or instrument to
which the Company or any of its Subsidiaries is a party or by which it or any
of its property or assets are bound or to which it may be subject, other than
such conflicts, inconsistencies, breaches, defaults or impositions which could
not, individually or in the aggregate, have a Material Adverse Effect or (iii)
will violate any provision of the Certificate of Incorporation or By-Laws of
the Company or any of its Subsidiaries.
6.04. Litigation. There are no actions, suits or proceedings
pending or, to the knowledge of the Company or any of its Subsidiaries,
threatened, with respect to the Company or any of its Subsidiaries (i) that are
likely to have a Material Adverse Effect, except as set forth on Schedule
6.04, or (ii) that could reasonably be expected to have a material adverse
effect on the rights or remedies of the Agent or Co-Agent or the Lenders or on
the ability of any Credit Party to perform its respective obligations to the
Agent or Co-Agent or the Lenders hereunder and under the other Credit Documents
to which it is, or will be, a party. Additionally, there does not exist any
judgment, order or injunction prohibiting or imposing material adverse
conditions upon the occurrence of any Credit Event.
6.05. Use of Proceeds; Margin Regulations. (a) The proceeds
of the Loans shall be utilized (I) on the Initial Borrowing Date to (i)
consummate the Acquisition, (ii) pay existing debt and (iii) pay fees and
expenses in connection with the Acquisition and (II) on and after the Initial
Borrowing Date (subject to the terms and conditions contained in the Credit
Documents) (i) to make other land rig acquisitions and (ii) for the general
corporate purposes of the Company and its Subsidiaries.
(b) Neither the making of any Loan, nor the use of the
proceeds thereof, will violate the provisions of Regulation G, T, U or X of the
Board of Governors of the Federal Reserve System and no part of the proceeds of
any Loan will be used to
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purchase or carry any Margin Stock or to extend credit for the purpose of
purchasing or carrying any Margin Stock.
6.06. Governmental Approvals. Except for filings with
applicable governmental authority contemplated by the Security Documents, all
of which shall be made in accordance with such Security Documents, no order,
consent, approval, license, authorization, or validation of, or filing,
recording or registration with, or exemption by, any foreign or domestic
governmental or public body or authority, or any subdivision thereof, is
required to authorize or is required in connection with (i) the execution,
delivery and performance of any Credit Document or (ii) the legality, validity,
binding effect or enforceability of any Credit Document.
6.07. Investment Company Act. Neither the Company nor any of
its Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
6.08. Public Utility Holding Company Act. Neither the
Company nor any of its Subsidiaries is a "holding company," or a "subsidiary
company" of a "holding company," or an "affiliate" of a "holding company" or of
a "subsidiary company" of a "holding company," within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
6.09. True and Complete Disclosure. All factual information
(taken as a whole) heretofore or contemporaneously furnished by or on behalf of
the Company or any of its Subsidiaries in writing to the Agent, Co-Agent or any
Lender (including, without limitation, all information contained in the Credit
Documents) for purposes of or in connection with the Credit Documents or any
transaction contemplated therein is, and all other such factual information
(taken as a whole) hereafter furnished by or on behalf of any such Persons in
writing to the Agent, Co-Agent or any Lender will be, true and accurate in all
material respects on the date as of which such information is dated or
certified and not incomplete by omitting to state any material fact necessary
to make such information (taken as a whole) not misleading at such time.
6.10. Financial Condition; Financial Statements. (a) On and
as of the Initial Borrowing Date, on a pro forma basis after giving effect to
the Acquisition and to all Indebtedness incurred, and to be incurred, and Liens
created, and to be created, by each Credit Party in connection therewith, (x)
the sum of the assets, at a fair valuation (i.e., the
<PAGE> 47
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amount that may be realized within a reasonable time, considered to be six
months to one year, either through collection or sale at the regular market
value, conceiving the latter as the amount that would be obtained for such
assets within such period by a capable and diligent businessman from an
interested buyer who is willing to purchase under ordinary selling conditions),
of each of the Company and its Subsidiaries (on a consolidated basis) and DI
(on a stand-alone basis) will exceed its debts, (y) each Credit Party has not
incurred nor intended to, nor believes that it will, incur debts beyond its
ability to pay such debts as such debts mature and (z) each Credit Party will
have sufficient capital with which to conduct its business. For purposes of
this Section 6.10, "debt" means any liability on a claim, and "claim" means (i)
right to payment whether or not such a right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured or unsecured or (ii) right to an
equitable remedy for breach of performance if such breach gives rise to a
payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured
or unsecured; provided that to the extent any such "claim" is not fixed, the
amount thereof shall equal the Company's good faith estimate of the likely
maximum amount thereof.
(b) The annual and interim financial statements included in
the Company's Proxy Statement mailed on or about August 2, 1996, as
supplemented by the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996 and the Company's current report on Form 8-K dated
November 4, 1996 (both as to the Company and as to its Subsidiaries on a
combined basis) (including statements of income and cash flows and changes in
shareholders' equity), present fairly in all material respects the financial
condition of the relevant Persons at the dates of said statements and the
results for the periods covered thereby. All such financial statements have
been prepared in accordance with GAAP consistently applied (except as therein
noted) and the financial statements as of and for the fiscal years have been
audited by and accompanied by the opinion of Deloitte & Touche, LLP or KPMG
Peat Marwick, independent public accountants.
(c) Since September 30, 1996 and except as disclosed to the
Agent and the Co-Agent in a memorandum dated December 6, 1996 (the
"Memorandum"), nothing has occurred that has had or could reasonably be
expected to have a Material Adverse Effect.
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(d) Except as fully reflected in the financial statements
described in Section 6.10(b) and the Indebtedness incurred under this Agreement
and except as set forth in Schedule 6.10 hereto, (i) there were as of the
Initial Borrowing Date (and after giving effect to any Loans made on such
date), no liabilities or obligations (excluding obligations or liabilities (x)
incurred in the ordinary course of business, which, individually or in the
aggregate, could not reasonably be expected to have a Material Adverse Effect
and (y) disclosed to the Agent and the Co- Agent in the Memorandum) with
respect to the Company or any of its Subsidiaries of any nature whatsoever
(whether absolute, accrued, contingent or otherwise and whether or not due),
and (ii) neither the Company nor any of its Subsidiaries knows of any basis for
the assertion against the Company or any of its Subsidiaries of any such
liability or obligation which, either individually or in the aggregate, has, or
could be reasonably likely to have, a Material Adverse Effect.
6.11. Security Interests. On and after the Initial Borrowing
Date, each of the Security Documents creates (or after the execution and
delivery thereof and, where applicable, filing and/or recording thereof will
create), as security for the Obligations, a valid and enforceable perfected
security interest in and Lien on all of the Collateral subject thereto,
superior to and prior to the rights of all third Persons, and subject to no
Liens other than Prior Liens and Liens permitted under the Security Documents.
No filings or recordings are required in order to perfect the security
interests created under any Security Document except for filings or recordings
required in connection with any such Security Document which shall have been
made on or prior to the Initial Borrowing Date as contemplated by Section
5.11(b) or on or prior to the execution and delivery thereof as contemplated by
Sections 7.11 and 8.14.
6.12. Acquisition. At the time of consummation of the
Acquisition, all consents and approvals of, and filings and registrations with,
and all other actions in respect of, all governmental agencies, authorities or
instrumentalities required to make or consummate the Acquisition shall have
been obtained, given, filed or taken or waived and are or will be in full force
and effect (or effective judicial relief with respect thereto has been
obtained) except where the failure to obtain, give, file, or take would not
reasonably be expected to have a Material Adverse Effect. All applicable
waiting periods with respect thereto have or, prior to the time when required,
will have, expired without, in all such cases, any action being taken by any
competent authority which restrains, prevents, or
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imposes material adverse conditions upon the Acquisition. Additionally, there
does not exist any judgment, order or injunction prohibiting or imposing
material adverse conditions upon the Acquisition, or the occurrence of any
Credit Event or the performance by the Company and its Subsidiaries of their
obligations under the Documents and all applicable laws. The Acquisition has
been consummated in accordance with the Acquisition Agreement and all
applicable laws.
6.13. Compliance with ERISA. (a) The Company, its
respective Subsidiaries and its respective ERISA Affiliates are in compliance
with all applicable provisions of ERISA and the Code and the published
regulations and interpretations thereunder with respect to all employee benefit
plans (as defined in Section 3(3) of ERISA); no Reportable Event has occurred
with respect to a Plan; no Plan is insolvent or in reorganization; no Plan has
an Unfunded Current Liability; no Plan has an accumulated or waived funding
deficiency, has permitted decreases in its funding standard account or has
applied for a waiver of the minimum funding standard or an extension of any
amortization period within the meaning of Section 412 of the Code; all
contributions required to be made with respect to a Plan and a Foreign Pension
Plan have been timely made; neither the Company nor any Subsidiary of the
Company nor any ERISA Affiliate has incurred any liability to or on account of
a Plan pursuant to Section 409, 502(i), 502(l), 515, 4062, 4063, 4064, 4069,
4201, 4204 or 4212 of ERISA or Section 401(a)(29), 4971, 4975 or 4980 of the
Code or reasonably expects to incur any liability (including any indirect,
contingent or secondary liability) under any of the foregoing Sections with
respect to any Plan (other than liabilities of any ERISA Affiliate which could
not, by operation of law or otherwise, become a liability of the Company or any
of its Subsidiaries); no proceedings have been instituted to terminate, or to
appoint a trustee to administer, any Plan; no condition exists which presents a
material risk to the Company or any Subsidiary of the Company or any ERISA
Affiliate of incurring a liability to or on account of a Plan pursuant to the
foregoing provisions of ERISA and the Code; using actuarial assumptions and
computation methods consistent with subpart 1 of subtitle E of Title IV of
ERISA, the aggregate liabilities of the Company and its Subsidiaries and its
ERISA Affiliates to all Multiemployer Plans in the event of a complete
withdrawal therefrom, as of the close of the most recent fiscal year of each
such Plan ended prior to the date of the most recent Credit Event, would not,
singly or in the aggregate, result in a Material Adverse Effect; no lien
imposed under the Code or ERISA on the assets of the Company or any Subsidiary
of the Company or any ERISA Affiliate exists or is reasonably likely
<PAGE> 50
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to arise on account of any Plan; and the Company and its Subsidiaries do not
maintain or contribute to any employee welfare benefit plan (as defined in
Section 3(1) of ERISA) which provides benefits to retired employees or other
former employees (other than as required by Section 601 of ERISA) or any
employee pension benefit plan (as defined in Section 3(2) of ERISA) the
obligations with respect to which could reasonably be expected, singly or in
the aggregate, to have a Material Adverse Effect.
(b) Notwithstanding the foregoing, the representations,
warranties and agreements contained in this Section 6.13 are qualified such
that a breach or failure thereof shall not be treated as such unless the
circumstances of such breach or failure have resulted in or are reasonably
expected to result in either (i) a Material Adverse Effect or (ii) the
imposition of a lien on the assets of the Company or any Subsidiary.
6.14. Capitalization. On the Initial Borrowing Date, the
authorized capital stock of the Company shall consist of (i) 300,000,000 shares
of common stock, $.10 par value per share (the "Company Common Stock"), of
which approximately 123,283,934 shares are issued and outstanding as of
December 26, 1996 (plus up to 1,750,000 shares to be issued in connection with
the cancellation of the Norex Loan) and (ii) 10,000 shares of Series B
Preferred Stock, $1.00 par value per share, none of which are outstanding. All
outstanding shares of the Company Common Stock have been duly and validly
issued, and are fully paid and nonassessable. The Company does not have
outstanding any securities convertible into or exchangeable for its capital
stock or outstanding any rights to subscribe for or to purchase, or any options
for the purchase of, or any agreement providing for the issuance (contingent or
otherwise) of, or any calls, commitments or claims of any character relating
to, its capital stock except for options to purchase the Company Common Stock
issued or to be issued to certain officers, employees and directors and
consultants of the Company and its Subsidiaries and except for approximately
720,000 shares of mandatorily redeemable Series A Preferred Stock of the
Company.
6.15. Subsidiaries. On and as of the Amendment and
Restatement Effective Date, the Company has no Subsidiaries other than those
Subsidiaries listed on Annex VI. Annex VI correctly sets forth, as of the
Amendment and Restatement Effective Date the percentage ownership (direct and
indirect) of the Company in each class of capital stock of each of its
Subsidiaries and also identifies the direct owner thereof. The
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Company owns all of the issued and outstanding capital stock of DI, and no
other Person has any securities convertible into or exchangeable for any
capital stock of DI, or any rights to subscribe for or to the purchase, or any
options for the purchase of, or any calls, commitments or claims relating to,
any of DI's capital stock.
6.16. Intellectual Property. Each of the Company and each of
its Subsidiaries owns or holds a valid license to use all the patents,
trademarks, permits, service marks, trade names, technology, know-how and
formulas or other rights with respect to the foregoing, free from restrictions
that are adverse to the use thereof, that are used in the operation of the
business of the Company and each of its Subsidiaries as presently conducted,
except where any failure to do so or restrictions could, individually or in the
aggregate, have a Material Adverse Effect.
6.17. Compliance with Statutes, etc. Each of the Company and
each of its Subsidiaries is in compliance with all applicable statutes,
regulations and orders of, and all applicable restrictions imposed by, all
governmental bodies, domestic or foreign, in respect of the conduct of its
business and the ownership of its property (provided, however, that this
Section 6.17 does not apply to (i) compliance with respect to Environmental
Laws, as to which no representation is made in this Section 6.17, but which is
covered by Section 6.18 hereof, (ii) compliance with respect to Taxes, as to
which no representation is made in this Section 6.17, but which is covered by
Section 6.21 hereof, (iii) compliance with respect to ERISA, as to which no
representation is made in this Section 6.17, but which is covered by Section
6.13 hereof, and (iv) compliance with respect to labor relations matters, as to
which no representation is made in this Section 6.17, but which is covered by
Section 6.20), except such non-compliance as is not likely to, individually or
in the aggregate, have a Material Adverse Effect.
6.18. Environmental Matters. Except as set forth in Schedule
6.18:
(a) Each of the Company and each of its Subsidiaries, and
their respective businesses and Real Property, has complied with, and
on the date of each Credit Event is in compliance with, all applicable
Environmental Laws and the requirements of any permits, licenses or
other authorizations issued under such Environmental Laws. There are
no pending or past or, to the best knowledge of
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the Company and its Subsidiaries, threatened Environmental Claims
against the Company or any of its Subsidiaries or any Real Property
currently or formerly owned or operated by the Company or any of its
Subsidiaries. There are no facts, circumstances, conditions or
occurrences on any Real Property currently or formerly owned or
operated by the Company or any of its Subsidiaries or, to the best
knowledge of the Company and its Subsidiaries, on any property
adjoining or in the vicinity of any such Real Property that would
reasonably be expected (i) to form the basis of an Environmental Claim
against the Company or any of its Subsidiaries or any such Real
Property or (ii) to cause any such Real Property to be subject to any
restrictions on the ownership, occupancy, use or transferability of
such Real Property by the Company or any of its Subsidiaries under
any applicable Environmental Law.
(b) Hazardous Materials have not at any time been generated,
used, treated or stored on, or transported to or from, any Real
Property currently or formerly owned or operated by the Company or any
of its Subsidiaries where such generation, use, treatment or storage
has violated or could reasonably be expected to violate any
Environmental Law. Hazardous Materials have not at any time been
Released on or from any Real Property currently or formerly owned or
operated by the Company or any of its Subsidiaries. There are not now
any underground storage tanks or related piping located on any Real
Property currently or formerly owned or operated by the Company or any
of its Subsidiaries.
(c) Notwithstanding anything to the contrary in this Section
6.18, the representations made in this Section 6.18 shall only be
untrue if either the individual or aggregate effect of all conditions,
failures, noncompliances, Environmental Claims, Releases and presence
of underground storage tanks or related piping, in each case of the
types described above, could reasonably be expected to have a Material
Adverse Effect.
6.19. Properties. Each of the Company and each of its
Subsidiaries has good and marketable title to, or a validly subsisting
leasehold interest in, all material properties owned or leased by it, including
all Real Property reflected in the financial statements referred to in Section
6.10(b), free and clear of all Liens, other than Prior Liens and Permitted
Liens.
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6.20. Labor Relations. Neither the Company nor any of its
Subsidiaries is engaged in any unfair labor practice that could reasonably be
expected to have a Material Adverse Effect. There is (i) no unfair labor
practice complaint pending against the Company or any of its Subsidiaries or
threatened against any of them, before the National Labor Relations Board, and
no grievance or arbitration proceeding arising out of or under any collective
bargaining agreement is so pending against the Company or any of its
Subsidiaries or, to the best knowledge of the Company, threatened against any
of them, (ii) no strike, labor dispute, slowdown or stoppage pending against
the Company or any of its Subsidiaries or, to the best knowledge of the
Company, threatened against the Company or any of its Subsidiaries and (iii) no
union representation question existing with respect to the employees of the
Company or any of its Subsidiaries and no union organizing activities are
taking place, except (with respect to any matter specified in clause (i), (ii)
or (iii) above, either individually or in the aggregate) such as is not
reasonably likely to have a Material Adverse Effect.
6.21. Tax Returns and Payments. All Federal, state and other
material returns, statements, forms and reports for taxes (the "Returns")
required to be filed by or with respect to the income, properties or operations
of the Company and/or any of its Subsidiaries have been timely filed with the
appropriate taxing authority. The Returns accurately reflect all liability for
taxes of the Company and its Subsidiaries for the periods covered thereby. The
Company and each of its Subsidiaries have paid all taxes payable by them other
than immaterial taxes and other taxes which are not yet due and payable, and
other than taxes contested in good faith and for which adequate reserves have
been established in accordance with GAAP. Except as disclosed in the financial
statements referred to in Section 6.10(b), (a) there is no material action,
suit, proceeding, investigation, audit or claim now pending or threatened by
any authority regarding any taxes relating to the Company or any of its
Subsidiaries and (b) neither the Company nor any of its Subsidiaries (nor any
other person on their behalf or as part of a consolidated group) has entered
into an agreement or waiver or been requested to enter into an agreement or
waiver extending any statute of limitations relating to the payment or
collection of taxes of the Company or any of its Subsidiaries, or is aware of
any circumstances that would cause the taxable years or other taxable periods
of the Company or any of its Subsidiaries not to be subject to the normally
applicable statute of limitations. Neither the Company nor any of its
Subsidiaries (nor any other person on their behalf or as part of a
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consolidated group) has provided, with respect to themselves or property held
by them, any consent under Section 341 of the Code. Neither the Company nor
any of its Subsidiaries has incurred, or will incur, any material tax liability
in connection with the Acquisition and the other transactions contemplated
hereby.
6.22. Existing Indebtedness. Annex VII sets forth a true and
complete list of all Indebtedness of the Company and its Subsidiaries (other
than (i) Indebtedness consisting of Capital Lease Obligations related to motor
vehicles not in excess of $1,500,000 in the aggregate and (ii) other
Indebtedness which in the aggregate does not exceed $50,000) as of the
Amendment and Restatement Effective Date and which is to remain outstanding and
the incurrence of Loans on such date (excluding the Loans and the Letters of
Credit, the "Existing Indebtedness"), in each case showing the aggregate
principal amount thereof and the name of the respective borrower and any other
entity which directly or indirectly guaranteed such debt. Annex III sets forth
a true and complete list of all Existing Letters of Credit (the "Existing
Letters of Credit") of the Company and its Subsidiaries as of the Amendment and
Restatement Effective Date.
SECTION 7. Affirmative Covenants. The Borrowers, jointly and
severally, hereby covenant and agree that as of the Initial Borrowing Date and
thereafter for so long as this Agreement is in effect and until the Total
Revolving Loan Commitment has terminated, no Letters of Credit or Notes are
outstanding and the Loans and Unpaid Drawings, together with interest, Fees and
all other Obligations (other than any indemnities described in Section 12.13
which are not then due and payable) incurred hereunder, are paid in full:
7.01. Information Covenants. The Company will furnish to
each Lender:
(a) Monthly Reports. (i) Within 45 days after the end of
each fiscal month of the Company, the consolidated balance sheet of
the Company and its Subsidiaries as at the end of such fiscal month
and the related consolidated statements of income and statements of
cash flows for such fiscal month and for the elapsed portion of the
fiscal year ended with the last day of such fiscal month, in each case
setting forth comparable budgeted figures for the current fiscal month
and year-to-date results, all of which shall be certified by the chief
financial officer or other Authorized Officer of the Company, subject
to normal
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year-end audit adjustments and the absence of footnotes, (ii) within
15 days after the end of each fiscal month of the Company, a report as
of the last day of such month detailing the status of all operating
Drilling Rigs including (x) the location of each such Drilling Rig,
(y) the projected term of, type of and parties to any contract
relating to each such Drilling Rig and (z) the day rates under such
contract for each such Drilling Rig and (iii) within 15 days after the
end of each fiscal month of the Company, a Collateral Report in the
form of Exhibit M hereto.
(b) Quarterly Financial Statements. Within 45 days after the
close of each of the first three quarterly accounting periods in each
fiscal year of the Company, the consolidated balance sheet of the
Company and its Subsidiaries as at the end of such quarterly
accounting period and the related consolidated statements of income,
statements of changes in stockholders equity and statements of cash
flows for such quarterly accounting period and for the elapsed portion
of the fiscal year ended with the last day of such quarterly
accounting period; all of which shall be in the form such information
is submitted to the SEC if the Company is a reporting company, and, if
not, in the same form as would have been submitted to the SEC and
accompanied by a certification by the chief financial officer or other
Authorized Officer of the Company that they fairly present in all
material respects the financial condition of the Company and its
Subsidiaries as of the dates indicated and the results of their
operations and changes in their cash flows for the periods indicated,
subject in all cases to normal year-end audit adjustments and the
absence of footnotes.
(c) Annual Financial Statements. Within 90 days after the
close of each fiscal year of the Company, the consolidated balance
sheet of the Company and its Subsidiaries as at the end of such fiscal
year and the related consolidated statements of income, statements of
changes in stockholders equity and statements of cash flows for such
fiscal year and certified by KPMG Peat Marwick or such other
independent certified public accountants of recognized national
standing, in each case to the effect that such statements fairly
present in all material respects the financial condition of the
Company and its Subsidiaries as of the dates indicated and the results
of their operations and cash flows, together with a certificate of
such accounting firm stating that in the course of its
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regular audit of the business of the Company and its Subsidiaries,
which audit was conducted in accordance with generally accepted
auditing standards, no Default or Event of Default which has occurred
and is continuing has come to their attention insofar as such Default
or Event of Default relates to financial and accounting matters or, if
such a Default or an Event of Default has come to their attention a
statement as to the nature thereof.
(d) Budgets, etc. Except for the 1997 budget which shall be
delivered before January 31, 1997, no later than the commencement of
each fiscal year of the Company, budgets of and for the Company and
its Subsidiaries in reasonable detail for each month of the
succeeding fiscal year, as customarily prepared by management for its
internal use setting forth, with appropriate discussion, the principal
assumptions upon which such budgets are based.
(e) Officer's Certificates. At the time of the delivery of
the financial statements provided for in Section 7.01(b) and (c), a
certificate of the chief financial officer or other Authorized Officer
of the Company to the effect than no Default or Event of Default
exists or, if any Default or Event of Default does exist, specifying
the nature and extent thereof, which certificate shall set forth the
calculations required to establish whether the Company and its
Subsidiaries were in compliance with the provisions of Sections
8.04(d) and (g), 8.08, 8.09, 8.10 and 8.11, as at the end of such
fiscal quarter or fiscal year, as the case may be.
(f) Notice of Default or Litigation. Promptly, and in any
event within five Business Days (or 10 Business Days in the case of
clause (y) below) after any executive or senior officer of the Company
obtains actual knowledge thereof, notice of (x) the occurrence of any
event which constitutes a Default or an Event of Default, which notice
shall specify the nature thereof, the period of existence thereof and
what action the Company proposes to take with respect thereto and (y)
the commencement of, or threat of, any litigation or governmental
proceeding pending against the Company or any of its Subsidiaries
which is reasonably likely to have a Material Adverse Effect, or a
material adverse effect on the ability of any Credit Party to perform
its respective obligations hereunder or under any other Credit
Document.
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(g) Auditors' Reports. Promptly upon receipt thereof, a copy
of each report or "management letter" submitted to the Company or any
of its Subsidiaries by its independent accountants in connection with
any annual, interim or special audit made by them of the books of the
Company or any of its Subsidiaries.
(h) Environmental Matters. Promptly, and in any event,
within five Business Days after obtaining knowledge of any of the
following (but only to the extent that any of the following, either
individually or in the aggregate, could have a Material Adverse
Effect), written notice of:
(i) any pending or threatened Environmental Claim
against the Company or any of its Subsidiaries or any Real
Property currently or formerly owned or operated by the
Company or any of its Subsidiaries;
(ii) any condition or occurrence on any Real
Property currently or formerly owned or operated by the
Company or any of its Subsidiaries that (x) results in
material noncompliance by the Company or any of its
Subsidiaries with any applicable Environmental Law or (y)
could reasonably be anticipated to form the basis of an
Environmental Claim against the Company or any of its
Subsidiaries or any such Real Property;
(iii) any condition or occurrence on any Real
Property currently or formerly owned or operated by the
Company or any of its Subsidiaries that could reasonably be
anticipated to cause such Real Property to be subject to any
material restrictions on the ownership, occupancy, use or
transferability by the Company or its Subsidiary, as the case
may be, of its interest in such Real Property under any
Environmental Law; and
(iv) the taking of any material removal, remedial
corrective or other response action in response to the actual
or alleged presence of any Hazardous Material on any Real
Property currently or formerly owned or operated by the
Company or any of its Subsidiaries.
All such notices shall describe in reasonable detail the nature of the
claim, investigation, condition, occurrence or removal, remedial,
corrective or other response action
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and the Company's response thereto. In addition, the Company agrees
to provide the Lenders with copies of all material written
communications by or to the Company or any of its Subsidiaries with or
from any Person, government or governmental agency relating to any of
the matters set forth in clauses (i)-(iv) above, and such detailed
reports relating to any of the matters set forth in clauses (i)-(iv)
above as may reasonably be requested by the Agent, Co-Agent or the
Required Lenders.
(i) Other Information. Promptly upon transmission thereof,
copies of any filings and registrations with, and reports to, the SEC
by the Company or any of its Subsidiaries and copies of all financial
statements, proxy statements, notices and reports as the Company or
any of its Subsidiaries shall send generally to analysts or the
holders of their capital stock in their capacity as such holders (to
the extent not theretofore delivered to the Lenders pursuant to this
Agreement) and, with reasonable promptness, such other information or
documents (financial or otherwise) as the Agent or Co-Agent on their
own behalf or on behalf of the Required Lenders may reasonably request
from time to time.
7.02. Books, Records and Inspections. The Company will, and
will cause each of its Subsidiaries to, permit, upon notice to the chief
financial officer or other Authorized Officer of the Company, officers and
designated representatives of the Agent, Co-Agent or the Required Lenders to
visit and inspect any of the properties or assets of the Company and any of its
Subsidiaries in whomsoever's possession, and to examine the books of account of
the Company and of any of its Subsidiaries and discuss the affairs, finances
and accounts of the Company and of any of its Subsidiaries with, and be advised
as to the same by, their officers and independent accountants, all at such
reasonable times and intervals and to such reasonable extent as the Agent,
Co-Agent or the Required Lenders may desire.
7.03. Insurance. The Company will, and will cause each of
its Subsidiaries to, at all times maintain in full force and effect insurance
with reputable and solvent insurance carriers in such amount, covering such
risks and liabilities and with such deductibles or self-insured retentions as
are in accordance with past practice of the Company and its Subsidiaries. The
Company will furnish to the Agent on the Initial Borrowing Date (see Annex VIII
hereto) and on each such later date as the Agent, Co-Agent or the Required
Lenders may reasonably request a summary of the insurance carried in respect of
the
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Company and its Subsidiaries and the assets of the Company and its Subsidiaries
together with certificates of insurance and other evidence of such insurance,
if any, naming the Collateral Agent as an additional insured and/or loss payee
as required pursuant to the next paragraph of this Section 7.03.
Each policy or certificate with respect to insurance of the
Pledged Collateral shall be endorsed to Collateral Agent's satisfaction for the
benefit of Collateral Agent (including, without limitation, by naming
Collateral Agent as an additional named insured or sole loss payee, as
required by Collateral Agent) and such policy or certificate shall be delivered
to Collateral Agent. Each such policy shall state that it cannot be canceled
without 30 days' prior written notice to Collateral Agent. At least 10 days
prior to the expiration of any such policy of insurance, the appropriate Credit
Party shall deliver to Collateral Agent an extension or renewal policy or an
insurance certificate evidencing renewal or extension of such policy. If any
such Credit Party shall fail to insure such Pledged Collateral in accordance
with this Section 7.03 or if any Credit Party shall fail to so endorse and
deposit, or to extend or renew, all such insurance policies or certificates
with respect thereto, Collateral Agent shall have the right (but shall be under
no obligation) to advance funds to procure or renew or extend such insurance
and each Credit Party agrees to reimburse Collateral Agent for all costs and
expenses thereof, with interest on all such funds from the date advanced until
paid in full at the highest rate then in effect under the Credit Agreement.
Collateral Agent agrees that it shall provide notice to the applicable Credit
Party that it has advanced funds on its behalf pursuant to this Section 7.03.
7.04. Payment of Taxes. The Company will pay and discharge,
and will cause each of its Subsidiaries to pay and discharge, all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income or profits, or upon any properties belonging to it, prior to the date on
which material penalties attach thereto, and all lawful claims for sums that
have become due and payable which, if unpaid, might become a Lien not otherwise
permitted under Section 8.03(a) or charge upon any properties of the Company or
any of its Subsidiaries; provided that neither the Company nor any of its
Subsidiaries shall be required to pay any such tax, assessment, charge, levy or
claim which is being contested in good faith and by proper proceedings if it
has maintained adequate reserves with respect thereto in accordance with GAAP.
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7.05. Corporate Franchises. The Company will do, and will
cause each of its Subsidiaries to do, or cause to be done, all things necessary
to preserve and keep in full force and effect its existence and its material
rights, franchises and authority to do business; provided, however, that any
transaction permitted by Section 8.02 will not constitute a breach of this
Section 7.05.
7.06. Compliance with Statutes, etc. The Company will, and
will cause each of its Subsidiaries to, comply with all applicable statutes,
regulations and orders of, and all applicable restrictions imposed by, all
governmental bodies, domestic or foreign, in respect of the conduct of its
business and the ownership of its property (provided, however, that this
Section 7.06 does not apply to applicable statutes, regulations, orders and
restrictions relating to environmental standards and controls, as to which no
covenant is made in this Section 7.06, but which are referred to in Section
7.07 hereof) except for such noncompliance as would not, singly or in the
aggregate, have a Material Adverse Effect or a material adverse effect on the
ability of any Credit Party to perform its obligations under any Credit
Document to which it is a party.
7.07. Compliance with Environmental Laws. (a) The Company
will pay, and will cause each of its Subsidiaries to pay, all costs and
expenses incurred by it in keeping in compliance in all material respects with,
and avoiding liability under, all Environmental Laws, and will keep or cause to
be kept all Real Properties owned or operated by the Company or any of its
Subsidiaries free and clear of any Liens imposed pursuant to such Environmental
Laws; and (b) neither the Company nor any of its Subsidiaries will generate,
use, treat, store, release or dispose of, or permit the generation, use,
treatment, storage, release or disposal of, Hazardous Materials on any Real
Property owned or operated by the Company or any of its Subsidiaries, or
transport or permit the transportation of Hazardous Materials to or from any
such Real Property, where the failure to comply with clause (a) or clause (b)
above, either individually or in the aggregate, could reasonably be expected to
result in a Material Adverse Effect. If the Company or any of its
Subsidiaries, or any tenant or occupant of any Real Property owned or operated
by the Company or any of its Subsidiaries, causes or permits any intentional or
unintentional act or omission resulting in, or otherwise discovers, the
presence or Release of any Hazardous Material (except in compliance with
applicable Environmental Laws), the Company agrees to undertake, and/or to
cause any of its Subsidiaries, tenants or occupants to undertake, promptly and
at their sole
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expense, any clean up, investigation, removal, remedial, corrective or other
action required pursuant to Environmental Laws to investigate, remove or
cleanup any Hazardous Materials from any Real Property where the failure to do
so, either individually or in the aggregate, could reasonably be expected to
result in a Material Adverse Effect; provided that neither the Company nor any
of its Subsidiaries shall be required to comply with any such order or
directive which is being contested in good faith and by proper proceedings so
long as it has maintained adequate reserves with respect to such compliance to
the extent required in accordance with GAAP.
7.08. ERISA. As soon as possible and, in any event, within
30 days after the Company knows or has reason to know of the occurrence of any
of the following events to the extent that one or more of such events is
reasonably likely to result in a material liability to the Company or any
Subsidiary of the Company, the Company will deliver to each of the Lenders a
certificate of the chief financial officer or other Authorized Officer of the
Company setting forth details as to such occurrence and the action, if any,
which the Company, such Subsidiary or such ERISA Affiliate is required or
proposes to take, together with any notices required or proposed to be given to
or filed with or by the Company, the Subsidiary, the ERISA Affiliate, the PBGC,
a Plan participant or the Plan administrator with respect thereto: that a
Reportable Event has occurred; that an accumulated funding deficiency (as such
term is defined in Section 412(a) of the Code) has been incurred or an
application is reasonably expected to be or has been made to the Secretary of
the Treasury for a waiver or modification of the minimum funding standard
(including any required installment payments) or an extension of any
amortization period under Section 412 of the Code with respect to a Plan; that
a contribution required to be made to a Plan or Foreign Pension Plan has not
been timely made; that a Plan has been or is reasonably expected to be
terminated, reorganized, partitioned or declared insolvent under Title IV of
ERISA; that a Plan has an Unfunded Current Liability giving rise to a lien
under ERISA or the Code; that proceedings are reasonably expected to be or have
been instituted to terminate or appoint a trustee to administer a Plan; that a
proceeding has been instituted pursuant to Section 515 of ERISA to collect a
delinquent contribution to a Plan; that the Company, any Subsidiary of the
Company or any ERISA Affiliate will or is reasonably expected to incur any
material liability (including any contingent or secondary liability) to or on
account of the termination of or withdrawal from a Plan under Section 4062,
4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or with respect to a Plan under
Section 401(a)(29),
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4971, 4975 or 4980 of the Code or Section 409, 502(i) or 502(l) of ERISA; or
that the Company or any Subsidiary of the Company has or is reasonably expected
to incur any material liability under any employee welfare benefit plan (within
the meaning of Section 3(l) of ERISA) that provides benefits to retired
employees or other former employees (other than as required by Section 601 of
ERISA) or any employee pension benefit plan (as defined in Section 3(2) of
ERISA). At the request of any Lender, the Company will deliver to such Lender
a complete copy of the annual report (Form 5500) of each Plan required to be
filed with the Internal Revenue Service. In addition to any certificates or
notices delivered to the Lenders pursuant to the first sentence hereof, at the
request of the Agent and Co-Agent or any Lender, copies of annual reports and
any notices received by the Company or any Subsidiary of the Company or any
ERISA Affiliate with respect to any Plan or Foreign Pension Plan shall be
delivered to the Lenders no later than 30 days after the date such report has
been filed with the Internal Revenue Service or received by the Company or the
Subsidiary or the ERISA Affiliate.
7.09. Good Repair. The Company will, and will cause each of
its Subsidiaries to, ensure that its material properties, its operating
drilling rigs and other equipment used in its business are kept in good repair,
working order and condition, normal wear and tear and damage by casualty
excepted, and that from time to time there are made in such properties and
equipment all needful and proper repairs, renewals, replacements, extensions,
additions, betterments and improvements thereto, to the extent and in the
manner useful or customary for companies in similar businesses.
7.10. End of Fiscal Years; Fiscal Quarters. The Company
will, for financial reporting purposes, cause (i) its fiscal years to end on or
about December 31 of each year and (ii) its fiscal quarters to end on or about
March 31, June 30 and September 30 of each year; provided that the Company may
change such fiscal year to any other fiscal year period of twelve consecutive
months with the consent of the Agent and Co-Agent.
7.11. Additional Security; Further Assurances; Appraisals.
(a) Promptly, and in any event within 30 days after the acquisition of assets
of the type that would have constituted Collateral (if the person acquiring
such assets had executed an appropriate Security Document on the Initial
Borrowing Date) at the Initial Borrowing Date (the "Additional Collateral"),
the Company will, and will cause each of the Guarantors
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to, at the request of the Collateral Agent following consultation with the
Company as to the value of any such Additional Collateral, take all necessary
action, including entering into the appropriate security documents and filing
the appropriate financing statements under the provisions of the UCC or
applicable foreign, domestic or local laws, rules or regulations in each of
the offices where such filing is necessary or appropriate to grant the
Collateral Agent a perfected Lien in such Collateral (or comparable interest
under foreign law in the case of foreign Collateral) pursuant to and to the
full extent required by the Security Documents and this Agreement; provided
that no such action will be required by the Company or any Guarantor to the
extent that any such Additional Collateral is subject to a preexisting
agreement which prohibits the granting of any additional liens; provided
further that such preexisting agreement was not entered into in connection
with, or in anticipation of or contemplation of, the acquisition of such assets
by the Company or any of its Subsidiaries. In the event that the Company or a
Guarantor acquires an interest in Real Property with a value in excess of $3
million, the Company or such Guarantor, as the case may be, will take such
actions and execute such documents as the Collateral Agent shall require to
create a mortgage on such Real Property for the benefit of the Lenders. All
actions taken by the parties in connection with the pledge of Additional
Collateral, including, without limitation, costs of counsel for the Collateral
Agent, shall be for the account of the Company, which shall pay all sums due on
demand.
(b) The Company will, and will cause each of the Guarantors
to, at the expense of the Company, make, execute, endorse, acknowledge, file
and/or deliver to the Collateral Agent from time to time such vouchers,
invoices, schedules, confirmatory assignments, conveyances, financing
statements, transfer endorsements, powers of attorney, certificates, real
property surveys, reports and other assurances or instruments and take such
further steps relating to the Collateral covered by any of the Security
Documents as the Collateral Agent may reasonably require. Furthermore, the
Company shall cause to be delivered to the Collateral Agent such opinions of
counsel, title insurance and other related documents as may be reasonably
requested by the Collateral Agent to assure itself that this Section 7.11 has
been complied with.
(c) The Company will provide to the Agent and Co-Agent a
formal Appraisal of Fair Market Value, which shall be in form and substance
reasonably satisfactory to the Agent and Co-Agent, prepared in respect of the
Drilling Rigs and Related
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Equipment constituting Collateral, with such appraisals to be provided (x)
annually (within 45 days after the end of each fiscal year beginning at the end
of fiscal year 1997) at the Company's expense, (y) upon request from the Agent
on behalf of the Lenders one additional time per year at the Company's expense
and (z) at any time at the Lenders' expense. Any such appraisal requested
pursuant to (y) or (z) in the preceding sentence shall be supplied to the Agent
and Co-Agent within 30 days of such request.
(d) The Company agrees that each action required above by
Section 7.11(a) and (b) shall be completed within 60 days after such action is
either requested to be taken by the Agent or the Required Lenders or required
to be taken by the Company or any Subsidiary Guarantor pursuant to the terms of
this Section 7.11; provided that in no event shall the Company or any of its
Subsidiaries be required to take any action, other than using its best efforts,
to obtain consents from third parties with respect to its compliance with this
Section 7.11.
7.12. Register. The Borrower hereby designates the Agent to
serve as the Borrower's agent, solely for purposes of this Section 7.12, to
maintain a register (the "Register") on which they will record the Revolving
Loan Commitment from time to time of each of the Lenders, the Revolving Loans
made by each of the Lenders and each repayment in respect of the principal
amount of the Revolving Loans of each Lender. Failure to make any such
recordation, or any error in such recordation shall not affect the Borrower's
obligations in respect of such Revolving Loans. With respect to any Lender,
the transfer of the Revolving Loan Commitment of such Lender and the rights to
the principal of, and interest on, any Revolving Loan made pursuant to such
Revolving Loan Commitment shall not be effective until such transfer is
recorded on the Register maintained by the Agent with respect to ownership of
such Revolving Loan Commitment and Revolving Loans and prior to such
recordation all amounts owing to the transferor with respect to such Revolving
Loan Commitment and Revolving Loans shall remain owing to the transferor. The
registration of assignment or transfer of all or part of any Revolving Loan
Commitment and Revolving Loans shall be recorded by the Agent on the Register
only upon the acceptance by the Agent of a properly executed and delivered
Assignment and Assumption Agreement pursuant to Section 12.04(b). Coincident
with the delivery of such an Assignment and Assumption Agreement to the Agent
for acceptance and registration of assignment or transfer of all or part of a
Revolving Loan, or as soon thereafter as practicable, the assigning or
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transferor Lender shall surrender the Revolving Note evidencing such Revolving
Loan, and thereupon one or more new Revolving Notes in the same aggregate
principal amount shall be issued to the assigning or transferor Lender and/or
the new Lender. The Borrower agrees to indemnify the Agent from and against
any and all losses, claims, damages and liabilities of whatsoever nature which
may be imposed on, asserted against or incurred by the Agent in performing its
duties under this Section 7.12, except to the extent that any such losses,
claims, damages or liabilities are found to have resulted from the gross
negligence or willful misconduct of the Agent.
SECTION 8. Negative Covenants. The Borrowers, jointly and
severally, hereby covenant and agree that as of the Initial Borrowing Date and
thereafter for so long as this Agreement is in effect and until the Total
Revolving Loan Commitment has terminated, no Letters of Credit or Notes are
outstanding and the Loans, together with interest, Fees and all other
Obligations (other than any indemnities described in Section 12.13 which are
not then due and payable) incurred hereunder, are paid in full:
8.01. Changes in Business. The Company and its Subsidiaries
will not engage in any business other than the businesses in which the Company
and its Subsidiaries are engaged in as of the Effective Date and activities
incidental thereto, and similar or related businesses.
8.02. Consolidation, Merger, Sale or Purchase of Assets, etc.
The Company will not, and will not permit any of its Subsidiaries to, wind up,
liquidate or dissolve its affairs or enter into any transaction of merger or
consolidation, or convey, sell, lease or otherwise dispose of (or agree to do
any of the foregoing at any future time) all or any part of its property or
assets (other than sales, transfers or other dispositions of inventory in the
ordinary course of business, including sales of inventory on consignment in the
ordinary course of business), or enter into any partnerships, joint ventures or
sale-leaseback transactions, or purchase or otherwise acquire (in one or a
series of related transactions) any part of the property or assets (other than
purchases or other acquisitions of inventory, materials and equipment in the
ordinary course of business) of any Person, except that the following shall be
permitted:
(a) the Company and its Subsidiaries may, as lessee or
lessor, enter into operating leases in the ordinary
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course of business with respect to real or personal property;
(b) the advances, investments and loans permitted pursuant to
Section 8.05;
(c) the Company and its Subsidiaries may sell or discount, in
each case without recourse, accounts receivable arising in the
ordinary course of business, but only in connection with the
compromise or collection thereof;
(d) without limitation to clause (c), the Company and its
Subsidiaries may sell or exchange specific items of machinery or
equipment, so long as the proceeds of each such sale or exchange is
used (or contractually committed to be used) to acquire (and results
within 180 days of such sale or exchange in the acquisition of)
replacement items of machinery or equipment which are the functional
equivalent of the item of equipment so sold or exchanged;
(e) the Company and its Subsidiaries may, in the ordinary
course of business, license, as licensor or licensee, patents,
trademarks, copyrights and know-how to third Persons and to one
another, so long as any such license by the Company or its
Subsidiaries in its capacity as licensor is permitted to be assigned
pursuant to the Security Agreement (to the extent that a security
interest in such patents, trademarks, copyrights and know-how is
granted thereunder) and does not otherwise prohibit the granting of a
Lien by the Company or any of its Subsidiaries pursuant to the
Security Agreement in the intellectual property covered by such
license;
(f) the assets of any Foreign Subsidiary of the Company may
be transferred to the Company or any of its Subsidiaries, and any
Foreign Subsidiary of the Company may be merged with and into, or be
dissolved or liquidated into, the Company or any of its Subsidiaries
so long as the Company or such Subsidiary is the surviving corporation
of any such merger, dissolution or liquidation;
(g) any Domestic Subsidiary of the Company (other than DI)
may transfer assets to the Company or to any other Domestic Subsidiary
of the Company, so long as (i) if the transferee is a Subsidiary, such
Subsidiary is a Credit Party and (ii) the security interests granted
to the Collateral Agent for the benefit of the Secured Creditors
pursuant to the Security Documents in the assets so
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transferred shall remain in full force and effect and perfected (to
at least the same extent as in effect immediately prior to such
transfer);
(h) any Domestic Subsidiary of the Company (other than DI)
may merge with and into, or be dissolved or liquidated into, the
Company so long as (i) the Company is the surviving corporation of any
such merger, dissolution or liquidation and (ii) the security
interests granted to the Collateral Agent for the benefit of the
Secured Creditors pursuant to the Security Documents in the assets of
such Domestic Subsidiary shall remain in full force and effect and
perfected (to at least the same extent as in effect immediately prior
to such merger, dissolution or liquidation);
(i) any Domestic Subsidiary of the Company (other than DI)
may merge with and into, or be dissolved or liquidated into, any
Domestic Subsidiary of the Company so long as (i) such Domestic
Subsidiary is a Credit Party and is the surviving corporation of any
such merger, dissolution or liquidation and (ii) the security
interests granted to the Collateral Agent for the benefit of the
Secured Creditors pursuant to the Security Documents in the assets of
such Domestic Subsidiary shall remain in full force and effect and
perfected (to at least the same extent as in effect immediately prior
to such merger, dissolution or liquidation);
(j) so long as no Default or Event of Default then exists or
would result therefrom (including giving pro forma effect to such
acquisition and any additional Indebtedness resulting therefrom or
incurred or assumed in connection therewith as if such acquisition had
occurred and such Indebtedness had been incurred as of the first day
of the most recently completed Test Period (including any other
Permitted Acquisition that occurred, and related Indebtedness that was
incurred, during such Test Period)), the Company and its Wholly-Owned
Subsidiaries may acquire assets or the capital stock of any Person
(any such acquisition permitted by this clause (j), a "Permitted
Acquisition"); provided that (i) such Person (or the assets so
acquired) was, immediately prior to such acquisition, engaged (or
used) primarily in the business permitted pursuant to Section 8.01,
(ii) if such acquisition is structured as a stock or other equity
acquisition, then either (A) the Person so acquired becomes a
Wholly-Owned Subsidiary of the Company or (B) such Person is merged
with and
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into the Company or a Wholly-Owned Subsidiary of the Company (with the
Company or such Wholly-Owned Subsidiary being the surviving
corporation of such merger), and in any case, all of the provisions of
Section 8.14 have been complied with in respect of such Person and
(iii) any Liens or Indebtedness assumed or issued in connection with
such acquisition is otherwise permitted under Section 8.03 or 8.04, as
the case may be; provided, however, that in connection with Permitted
Acquisitions effected by Foreign Subsidiaries or involving the direct
or indirect acquisition of assets located outside the continental
United States or the stock of an entity incorporated in any
jurisdiction which is not part of the United States, the aggregate
consideration (other than Indebtedness incurred or assumed in
connection with such Permitted Acquisitions) for all such Permitted
Acquisitions shall not exceed $1 million; and provided, further, that
the Company shall have delivered to the Agent and Co-Agent a
certificate of the Chief Financial Officer of the Company showing
compliance (in reasonable detail as to pro forma calculations) with
all of the provisions of this paragraph (j);
(k) leases or subleases granted by the Company or any of its
Subsidiaries to third Persons not interfering in any material respect
with the business of the Company or any of its Subsidiaries;
(l) "inactive" or "shell" Subsidiaries may be dissolved or
otherwise liquidated; and
(m) sales of those assets listed on Annex X hereto.
To the extent the Required Lenders waive the provisions of this Section 8.02
with respect to the sale or other disposition of any Collateral, or any
Collateral is sold or otherwise disposed of as permitted by this Section 8.02,
such Collateral in each case shall be sold or otherwise disposed of free and
clear of the Liens created by the Security Documents and the Collateral Agent
shall take such actions as are appropriate in connection therewith.
8.03. Liens. The Company will not, and will not permit any
Subsidiary to, create, incur, assume or suffer to exist any Lien upon or with
respect to any item constituting Collateral except for the Lien of the Security
Documents relating thereto, the Prior Liens applicable thereto and other Liens
expressly permitted by such Security Documents. The Company will not, and
will not permit any of its Subsidiaries to,
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create, incur, assume or suffer to exist any Lien upon or with respect to any
property or assets of the Company or such Subsidiary which does not constitute
Collateral, whether now owned or hereafter acquired, or sell any such property
or assets subject to an understanding or agreement, contingent or otherwise, to
repurchase such property or assets or assign any right to receive income, or
file or permit the filing of any financing statement under the UCC or any other
similar notice of Lien under any similar recording or notice statute, except
the following (collectively referred to as "Permitted Liens"):
(a) inchoate Liens for taxes, assessments or governmental
charges of levies not yet due or Liens for taxes, assessments or
governmental charges or levies being contested in good faith and by
appropriate proceedings for which adequate reserves have been
established in accordance with GAAP;
(b) Liens in respect of property or assets of the Company or
any of its Subsidiaries imposed by law which were incurred in the
ordinary course of business or in connection with any Capital
Expenditure permitted by the terms of this Agreement and which have
not arisen to secure Indebtedness for borrowed money, such as
carriers', warehousemen's and mechanics' Liens, statutory landlord's
Liens, and other similar Liens arising in the ordinary course of
business, and which either (x) do not in the aggregate materially
detract from the value of such property or assets or materially impair
the use thereof in the operation of the business of the Company or any
of its Subsidiaries or (y) are being contested in good faith by
appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property or asset subject to
such Lien;
(c) Liens in existence on the Initial Borrowing Date which
are listed, and the property subject thereto described, in Annex IX,
and extensions, renewals or related refinancings thereof, provided
that such extensions, renewals or related refinancings pursuant to
Section 8.04(b) (x) do not increase the obligations so secured and (y)
do not apply to additional assets not subject to the lien being
extended or renewed;
(d) Liens arising from judgments, decrees or attachments in
circumstances not constituting an Event of Default under Section 9.09;
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(e) Liens incurred or deposits made (x) in the ordinary
course of business in connection with workers' compensation,
unemployment insurance and other types of social security, or to
secure the performance of tenders, statutory obligations, surety and
appeal bonds, bids, government contracts, performance and
return-of-money bonds and other similar obligations incurred in the
ordinary course of business (exclusive of obligations in respect of
the payment for borrowed money); and (y) to secure the performance of
leases of Real Property, to the extent incurred or made in the
ordinary course of business consistent with past practices;
(f) licenses, leases or subleases granted to third Persons
not interfering in any material respect with the business of the
Company or any of its Subsidiaries;
(g) easements, zoning restrictions, rights-of-way,
restrictions, minor defects or irregularities in title and other
similar charges or encumbrances not interfering in any material
respect with the ordinary conduct of the business of the Company or
any of its Subsidiaries;
(h) Liens arising from precautionary UCC financing statements
regarding operating leases permitted by this Agreement;
(i) any interest or title of a licensor, lessor or sublessor
under any license or lease permitted by this Agreement;
(j) Liens created pursuant to Capital Leases permitted
pursuant to Section 8.04(d);
(k) Liens arising pursuant to purchase money mortgages or
security interests securing Indebtedness representing the purchase
price (or financing of the purchase price within 90 days after the
respective purchase) of assets acquired after the Initial Borrowing
Date; provided that (i) any such Liens attach only to the assets so
purchased, (ii) the Indebtedness secured by any such Lien (including
refinancings thereof) does not exceed 100% of the lesser of the fair
market value or the purchase price of the property being purchased at
the time of the incurrence of such Indebtedness and (iii) the
Indebtedness secured thereby is permitted to be incurred pursuant to
Section 8.04(d);
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(l) Liens on property or assets acquired pursuant to a
Permitted Acquisition, or on property or assets of a Subsidiary of the
Company in existence at the time such Subsidiary is acquired pursuant
to a Permitted Acquisition; provided that (i) any Indebtedness that is
secured by such Liens is permitted to exist under Section 8.04(i), and
(ii) such Liens are not incurred in connection with, or in
contemplation or anticipation of, such Permitted Acquisition and do
not attach to any other asset of the Company or any of its
Subsidiaries;
(m) Liens granted with respect to Indebtedness incurred
pursuant to Section 8.04(g); provided that the collateral subject to
such Lien is Cash or Cash Equivalents and does not have an aggregate
value in excess of $250,000; and
(n) additional Liens (on assets other than the Collateral)
incurred by the Company and its Subsidiaries so long as the aggregate
value of the property subject to such Liens, and the Indebtedness and
other obligations secured thereby, do not exceed $350,000.
8.04. Indebtedness. The Company will not, and will not
permit any of its Subsidiaries to, contract, create, incur, assume or suffer to
exist any Indebtedness, except:
(a) Indebtedness incurred pursuant to this Agreement and the
other Credit Documents;
(b) Existing Indebtedness outstanding on the Amendment and
Restatement Effective Date and listed on Annex VII, including any
extensions, refinancings, replacements or restructurings thereof,
provided that the then outstanding principal amount thereof is not
increased nor the maturity thereof shortened;
(c) Indebtedness under Interest Rate Protection Agreement and
Other Hedging Agreements permitted by Section 8.05(d);
(d) Capitalized Lease Obligations and Indebtedness of the
Company and its Subsidiaries incurred pursuant to purchase money Liens
permitted under Section 8.03(k); provided that the sum of (x) the
aggregate Capitalized Lease Obligations (excluding up to $1,500,000 of
Motor Vehicle Capitalized Lease Obligations) outstanding at any time
plus (y) the aggregate principal amount of such purchase
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money Indebtedness (excluding therefrom any insurance premiums paid in
monthly installments) outstanding at such time shall not exceed
$500,000 (including Capital Lease Obligations referred to on Annex
VII);
(e) Indebtedness constituting Intercompany Loans to the
extent permitted by Section 8.05(g);
(f) Indebtedness consisting of guaranties (x) by the Company
of Indebtedness, leases and other contractual obligations permitted to
be incurred by Subsidiaries of the Company that are Guarantors and (y)
by Foreign Subsidiaries of the Company of Indebtedness, leases and
other contractual obligations permitted to be incurred by the Company
and its Subsidiaries;
(g) third party letters of credit to support the workmens
compensation obligations of the Company and its Domestic Subsidiaries
in an aggregate face amount not to exceed $2 million and only secured
by Liens permitted pursuant to Section 8.03(m);
(h) additional third party unsecured letters of credit in an
aggregate face amount not to exceed $1 million; and
(i) additional Indebtedness of the Company and its
Subsidiaries not otherwise permitted hereunder not exceeding $1
million in aggregate principal amount at any time outstanding.
8.05. Advances, Investments and Loans. The Company will not,
and will not permit any of its Subsidiaries to, lend money or credit or make
advances to any Person, or purchase or acquire any stock, obligations or
securities of, or any other interest in, or make any capital contribution to,
any Person, or purchase or own a futures contract or otherwise become liable
for the purchase or sale of currency or other commodities at a future date in
the nature of a futures contract, or hold any cash, Cash Equivalents
(collectively, "Investments"), except:
(a) the Company and its Subsidiaries may invest in Cash and
Cash Equivalents, and the Company's Foreign Subsidiaries may invest in
Foreign Cash Equivalents;
(b) the Company and its Subsidiaries may acquire and hold
receivables owing to it, if created or acquired in
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the ordinary course of business and payable or dischargeable in
accordance with customary trade terms (including the dating of
receivables) of the Company or such Subsidiary;
(c) the Company and its Subsidiaries may acquire and own
investments (including debt obligations) received in connection with
the bankruptcy or reorganization of suppliers and customers and in
settlement of delinquent obligations of, and other disputes with,
customers and suppliers arising in the ordinary course of business;
(d) Interest Rate Protection Agreements entered into to
protect the Company against fluctuations in interest rates in respect
of the Obligations and other Hedging Agreements;
(e) advances, loans and investments in existence on the
Initial Borrowing Date and listed on Annex V shall be permitted,
without giving effect to any additions thereto or replacements thereof
(except those additions or replacements which are existing obligations
as of the Initial Borrowing Date but only to the extent such further
obligations are described on such Annex V);
(f) deposits made in the ordinary course of business
consistent with past practices to secure the performance of leases or
other contractual arrangements shall be permitted;
(g) the Company may make intercompany loans and advances to
any of its Subsidiaries that are Guarantors and any Subsidiary of the
Company may make intercompany loans and advances to the Company or any
other Subsidiary of the Company that is a Guarantor (collectively,
"Intercompany Loans");
(h) loans and advances by the Company and its Subsidiaries to
employees of the Company and its Subsidiaries for moving and travel
expenses and other similar expenses or in connection with stock
purchases in each case incurred in the ordinary course of business and
consistent with past practices shall be permitted in an aggregate
principal amount not to exceed $100,000 at any one time outstanding;
(i) the Company and its Subsidiaries may acquire and hold
promissory notes and/or equity securities issued by
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the purchaser or purchasers in connection with the sale of receivables
to the extent permitted under Section 8.02(c); and
(j) the Company may contribute cash to one or more of its
Subsidiaries that are or become Guarantors formed after the Initial
Borrowing Date in accordance with Section 8.14 so long as such
Subsidiary remains a Guarantor.
8.06. Dividends, etc. The Company will not, and will not
permit any of its Subsidiaries to, declare or pay any dividends (other than
dividends payable solely in common stock of the Company or any such Subsidiary,
as the case may be) or return any capital to, its stockholders or authorize or
make any other distribution, payment or delivery of property or cash to its
stockholders as such, or redeem, retire, purchase or otherwise acquire,
directly or indirectly, for any consideration, any shares of any class of its
capital stock, now or hereafter outstanding (or any warrants for or options or
stock appreciation rights (other than such rights as are granted only to
employees as compensation for their employment) in respect of any of such
shares), or set aside any funds for any of the foregoing purposes, and the
Company will not permit any of its Subsidiaries to purchase or otherwise
acquire for consideration any shares of any class of the capital stock of the
Company or any Subsidiary of the Company now or hereafter outstanding (or any
options or warrants or such stock appreciation rights issued by such Person
with respect to its capital stock) (all of the foregoing "Dividends", it being
understood that the payments made in accordance with the clauses contained in
the proviso of Section 8.07 shall not be deemed to be Dividends), except that
any Subsidiary of the Company may pay Dividends to the Company or any
Wholly-Owned Subsidiary of the Company.
8.07. Transactions with Affiliates. The Company will not,
and will not permit any of its Subsidiaries to, enter into any transaction or
series of transactions with any Affiliate other than in the ordinary course of
business and on terms and conditions substantially as favorable to the Company
or such Subsidiary as would be reasonably expected to be obtainable by the
Company or such Subsidiary at the time in a comparable arm's-length transaction
with a Person other than an Affiliate; provided that the following shall in any
event be permitted: (i) the Acquisition, (ii) transactions between or among
the Company and its Subsidiaries to the extent that such transactions are
otherwise specifically permitted under this Agreement, (iii) all transactions
between or among the Credit Parties and (iv) all immaterial transactions with
Affiliates.
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8.08. Working Capital; Minimum Net Worth. The Company shall
not permit its Working Capital (excluding for the purposes of this Section 8.08
the current portion of Indebtedness under this Agreement) on the last day of
any fiscal quarter to be less than $5 million.
The Company will not permit Consolidated Net Worth at any time
to be less than the Minimum Net Worth.
8.09. Asset Coverage Ratio. The Company shall at all times
maintain an Asset Coverage Ratio greater than 2.0:1.0.
8.10. Interest Coverage Ratio. The Company will not permit
the Interest Coverage Ratio to be less than 3.0:1.0.
8.11. Leverage Ratio. The Company will not permit the
Leverage Ratio at any time to be greater than .60.
8.12. Limitation on Voluntary Payments and Modifications of
Indebtedness; Modifications of Certificate of Incorporation, By-Laws and
Certain Other Agreements; Issuances of Capital Stock; etc. The Company will
not, and will not permit any of its Subsidiaries to:
(i) make (or give any notice in respect of) any voluntary
or optional payment or prepayment on or redemption or acquisition for
value of (including, without limitation, by way of depositing with the
trustee with respect thereto or any other Person money or securities
before due for the purpose of paying when due) any Indebtedness,
including any Existing Indebtedness;
(ii) amend or modify in any material respect or in any
manner adverse to the Company or the Lenders, or permit such an
amendment or modification of, any provision of the Existing
Indebtedness;
(iii) amend, modify or change in any way adverse to the
interests of the Lenders, its Certificate of Incorporation (including,
without limitation, by the filing or modification of any certificate
of designation) or By-Laws; and
(iv) issue any class of capital stock other than common
stock.
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8.13. Limitation on Certain Restrictions on Subsidiaries.
The Company will not, and will not permit any of its Subsidiaries to, directly
or indirectly, create or otherwise cause or suffer to exist or become effective
any encumbrance or restriction on the ability of any such Subsidiary to (a) pay
dividends or make any other distributions on its capital stock or any other
interest or participation in its profits owned by the Company or any Subsidiary
of the Company, or pay any Indebtedness owed to the Company or a Subsidiary of
the Company, (b) make loans or advances to the Company or any of the Company's
Subsidiaries or (c) transfer any of its properties or assets to the Company or
any of its Subsidiaries, except for such encumbrances or restrictions existing
under or by reason of (i) applicable law, (ii) the Credit Documents, (iii)
customary provisions restricting subletting or assignment of any lease
governing a leasehold interest of the Company or a Subsidiary of the Company,
(iv) customary provisions restricting assignment of any licensing agreement
entered into by the Company or a Subsidiary of the Company in the ordinary
course of business, (vi) customary provisions restricting the transfer of
assets pursuant to Liens permitted under Section 8.03(j), (k), (l), (m) or (n)
and (vii) restrictions or encumbrances pursuant to Indebtedness of a Subsidiary
acquired pursuant to a Permitted Acquisition (or Indebtedness assumed at the
time of a Permitted Acquisition) or on an asset securing such Indebtedness,
provided that such Indebtedness was not incurred in connection with, or in
anticipation or contemplation of, such Permitted Acquisition, and provided,
further, that such restrictions or encumbrances apply solely to such Subsidiary
or asset so acquired.
8.14. Limitation on the Creation of Subsidiaries.
Notwithstanding anything to the contrary contained in this Agreement, the
Company will not, and will not permit any of its Subsidiaries to, establish,
create or acquire after the Initial Borrowing Date any Subsidiary; provided
that the Company and its Wholly-Owned Subsidiaries shall be permitted to
establish or create Subsidiaries as a result of investments made pursuant to
Section 8.05(j) or Section 8.02(g) so long as, in each case, (i) at least 15
days' prior written notice thereof is given to the Agent (or such shorter
period of time as is acceptable to the Agent), (ii) unless otherwise consented
to by the Agent because such Subsidiary is a Foreign Subsidiary, the capital
stock of such new Subsidiary is promptly pledged pursuant to, and to the extent
required by, this Agreement and the Pledge Agreement and the certificates, if
any, representing such stock, together with stock powers duly executed in
blank, are delivered to the Collateral Agent, (iii) unless otherwise consented
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to by the Agent because such Subsidiary is a Foreign Subsidiary, such new
Subsidiary promptly executes a counterpart of the Guaranty, the Pledge
Agreement and the Security Agreement, and (iv) to the extent requested by the
Agent, the Co- Agent or the Required Lenders, takes all actions required
pursuant to Section 7.11, provided that no such action will be required by any
new Subsidiary (that is not a Wholly-Owned Subsidiary) to the extent such new
Subsidiary is a party to a preexisting agreement which prohibits such new
Subsidiary from executing a Guaranty; provided, further, such preexisting
agreement was not entered into for the purpose of avoiding the requirements of
Section 8.14 and the restrictions contained therein are no more adverse to the
Company and its Subsidiaries than to the other equity owners in such new
Subsidiary. In addition, each new Subsidiary that is required to execute any
Credit Document shall execute and deliver, or cause to be executed and
delivered, all other relevant documentation of the type described in Section 5
as such new Subsidiary would have had to deliver if such new Subsidiary were a
Credit Party on the Initial Borrowing Date.
SECTION 9. Events of Default. Upon the occurrence of any of
the following specified events (each an "Event of Default"):
9.01. Payments. The Borrowers shall (i) default in the
payment when due of any principal of the Loans or (ii) default, and such
default shall continue for two or more Business Days, in the payment when due
of any Unpaid Drawing, any interest on the Loans or any Fees or any other
amounts owing hereunder or under any other Credit Document;
9.02. Representations, etc. Any representation, warranty or
statement made by any Credit Party in any Credit Document or in any statement
or certificate delivered pursuant thereto shall prove to be untrue in any
material respect on the date as of which made or deemed made; or
9.03. Covenants. Any Credit Party shall (a) default in the
due performance or observance by it of any term, covenant or agreement
contained in Section 8, or (b) default in the due performance or observance by
it of any term, covenant or agreement (other than those referred to in Section
9.01, 9.02 or clause (a) of this Section 9.03) contained in this Agreement and
such default shall continue unremedied for a period of at least 30 days after
notice to the defaulting party by the Agent, Co-Agent or the Required Lenders,
provided that if any such default covered by this clause (b) (i) is not capable
of
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being remedied within such 30-day period, (ii) is capable of being remedied
within an additional 30-day period and (iii) the Credit Party is diligently
pursuing such remedy during the periods contemplated by (i) and (ii) and has
advised the Agent as to the remedy thereof, the first 30-day period referred to
in this clause (b) shall be extended for an additional 30-day period but only
so long as (x) the Credit Party continues to diligently pursue such remedy and
(y) such default remains capable of being remedied within such period; or
9.04. Default Under Other Agreements. (a) The Company or
any of its Subsidiaries shall (i) default in any payment on or with respect to
any Indebtedness (other than the Obligations) beyond the period of grace, if
any, provided in the instrument or agreement under which such Indebtedness was
created or (ii) default in the observance or performance of any agreement or
condition relating to any such Indebtedness or contained in any instrument or
agreement evidencing, securing or relating thereto, or any other event shall
occur or condition exist, the effect of which default or other event or
condition is to cause, or to permit the holder or holders of such Indebtedness
(or a trustee or agent on behalf of such holder or holders) to cause, any such
Indebtedness to become due prior to its stated maturity; or (b) any
Indebtedness (other than the Obligations) of the Company or any of its
Subsidiaries shall be declared to be due and payable, or shall be required to
be prepaid other than by a regularly scheduled required prepayment or as a
mandatory prepayment (unless such required prepayment or mandatory prepayment
results from a default thereunder or an event of the type that constitutes an
Event of Default), prior to the stated maturity thereof; provided that it shall
not constitute an Event of Default pursuant to clause (a) or (b) of this
Section 9.04 unless the principal amount of any one issue of such Indebtedness,
or the aggregate amount of all such Indebtedness referred to in clauses (a) and
(b) above, exceeds $350,000 at any one time; or
9.05. Bankruptcy, etc. The Company or any of its
Subsidiaries shall commence a voluntary case concerning itself under Title 11
of the United States Code entitled "Bankruptcy," as now or hereafter in effect,
or any successor thereto (the "Bankruptcy Code"); or an involuntary case is
commenced against the Company or any of its Subsidiaries and the petition is
not controverted within 30 days, or is not dismissed within 60 days, after
commencement of the case; or a custodian (as defined in the Bankruptcy Code) is
appointed for, or takes charge of, all or substantially all of the property of
the Company or any of its Subsidiaries; or the Company or any of its
Subsidiaries
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commences any other proceeding under any reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or liquidation
or similar law of any jurisdiction whether now or hereafter in effect relating
to the Company or any of its Subsidiaries; or there is commenced against the
Company or any of its Subsidiaries any such proceeding which remains
undismissed for a period of 60 days; or the Company or any of its Subsidiaries
is adjudicated insolvent or bankrupt; or any order of relief or other order
approving any such case or proceeding is entered; or the Company or any of its
Subsidiaries suffers any appointment of any custodian or the like for it or any
substantial part of its property to continue undischarged or unstayed for a
period of 60 days; or the Company or any of its Subsidiaries makes a general
assignment for the benefit of creditors; or any corporate action is taken by
the Company or any of its Subsidiaries for the purpose of effecting any of the
foregoing; or
9.06. ERISA. (a) Any Plan shall fail to satisfy the minimum
funding standard required for any plan year or part thereof or a waiver of such
standard or extension of any amortization period is sought or granted under
Section 412 of the Code, any Plan shall have had or is likely to have a trustee
appointed to administer such Plan, any Plan is, shall have been or is likely to
be terminated or the subject of termination proceedings under ERISA, any Plan
shall have an Unfunded Current Liability, a contribution required to be made to
a Plan or a Foreign Pension Plan has not been timely made, the Company or any
Subsidiary of the Company or any ERISA Affiliate has incurred or is likely to
incur a liability to or on account of a Plan under Section 409, 502(i),
502(l), 515, 4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section
401(a)(2), 4971, 4975 or 4980 of the Code, or the Company or any Subsidiary of
the Company has incurred or is likely to incur liabilities pursuant to one or
more employee welfare benefit plans (as defined in Section 3(1) of ERISA) which
provide benefits to retired employees and other former employees (other than as
required by Section 601 of ERISA) or employee pension benefit plans (as defined
in Section 3(2) of ERISA) or Foreign Pension Plans; (b) there shall result from
any such event or events the imposition of a lien, the granting of a security
interest, or a liability or a material risk of imposition of a lien, granting
of a security interest or incurring a liability; and (c) which lien, security
interest or liability which arises from such event or events is reasonably
likely to have a Material Adverse Effect; or
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9.07. Security Documents. (a) Any Security Document shall
cease to be in full force and effect, or shall cease to give the Collateral
Agent the Liens, rights, powers and privileges purported to be created thereby
in favor of the Collateral Agent with respect to any portion of the Collateral
which is not de minimis, or (b) any Credit Party shall default in the due
performance or observance of any term, covenant or agreement on its part to be
performed or observed pursuant to any such Security Document and such default
shall continue beyond any cure or grace period specifically applicable thereto
pursuant to the terms of any such Security Document; or
9.08. Guarantees. The Guarantees or any provision thereof
shall cease to be in full force and effect, or any Guarantor or any Person
acting by or on behalf of such Guarantor shall deny or disaffirm such
Guarantor's obligations under any Guaranty or any Guarantor shall default in
the due performance or observance of any term, covenant or agreement on its
part to be performed or observed pursuant to any Guaranty; or
9.09. Judgments. One or more judgments or decrees shall be
entered against the Company or any of its Subsidiaries involving a liability
(to the extent not paid or not fully covered (which coverage has not been
denied) by insurance) in excess of $350,000 for all such judgments and decrees
and all such judgments or decrees shall not have been vacated, discharged or
stayed or bonded pending appeal within 60 days from the entry thereof; or
9.10. Ownership. A Change of Control Event shall have
occurred;
then, and in any such event, and at any time thereafter, if any Event of
Default shall then be continuing, the Agent may (and shall, upon the written
request of the Required Lenders), by written notice to the Borrowers, take any
or all of the following actions, without prejudice to the rights of the Agent
or Co-Agent or any Lender to enforce its claims against any Guarantor or the
Borrowers, except as otherwise specifically provided for in this Agreement
(provided that if an Event of Default specified in Section 9.05 shall occur
with respect to the Borrowers the result which would occur upon the giving of
written notice by the Agent as specified in clauses (i) and (ii) below shall
occur automatically without the giving of any such notice): (i) declare the
Total Revolving Loan Commitment terminated, whereupon the Revolving Loan
Commitment of each Lender shall forthwith terminate immediately and any
Commitment Fees shall forthwith become due and payable without any other notice
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of any kind; (ii) declare the principal of and any accrued interest in respect
of all Loans and all Obligations owing hereunder (including Unpaid Drawings) to
be, whereupon the same shall become, forthwith due and payable without
presentment, demand, protest or other notice of any kind, all of which are
hereby waived by the Borrowers; (iii) enforce, as Collateral Agent (or direct
the Collateral Agent to enforce), any or all of the Liens and security
interests created pursuant to the Security Documents; (iv) terminate any Letter
of Credit which may be terminated in accordance with its terms; and (v) direct
the Borrowers to pay (and the Borrowers hereby agree upon receipt of such
notice, or upon the occurrence of any Event of Default specified in Section
9.05, to pay) to the Collateral Agent at the Payment Office such additional
amounts of cash, to be held as security for the Borrowers' reimbursement
obligations in respect of Letters of Credit then outstanding, equal to the
aggregate Stated Amount of all Letters of Credit then outstanding.
SECTION 10. Definitions. As used herein, the following terms
shall have the meanings herein specified unless the context otherwise requires.
Defined terms in this Agreement shall include in the singular number the plural
and in the plural the singular:
"Acquisition" shall mean the acquisition of certain assets by
the Company of Diamond M Onshore, Inc. pursuant to the Acquisition Agreement.
"Acquisition Agreement" shall mean the Acquisition Agreement,
dated as of November 12, 1996, between DI and Diamond M Onshore, Inc.,
including the Exhibits and Schedules thereto.
"Affiliate" shall mean, with respect to any Person, any other
Person directly or indirectly controlling (including but not limited to all
directors and executive officers of such Person), controlled by, or under
direct or indirect common control with such Person. A Person shall be deemed
to control a corporation if such Person possesses, directly or indirectly, the
power (i) to vote 10% or more of the securities having ordinary voting power
for the election of directors of such corporation or (ii) to direct or cause
the direction of the management and policies of such corporation, whether
through the ownership of voting securities, by contract or otherwise.
"Agent" shall mean BTCo and shall include any successor
appointed pursuant to Section 11.10.
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"Agreement" shall mean this Amended and Restated Credit
Agreement, as the same may be from time to time modified, amended and/or
supplemented.
"Amendment and Restatement Effective Date" has the meaning
provided in Section 12.10.
"Applicable Base Rate Margin" and "Applicable Eurodollar
Margin" shall mean, at any time following the date upon which consolidated
financial results for four full fiscal quarters are provided pursuant to
Section 7.01, the applicable percentage set forth below opposite the Debt to
EBITDA Ratio:
<TABLE>
<CAPTION>
====================================================================================
Debt to EBITDA Ratio LIBOR Rate Loans ABR Loans
====================================================================================
<S> <C> <C>
Greater than 3.5 to 1.0 2.50% 1.50%
- ------------------------------------------------------------------------------------
Greater than 3.0 to 1.0 and 2.25% 1.25%
less than or equal to 3.5
to 1.0
- ------------------------------------------------------------------------------------
Greater than 2.5 to 1.0 and 2.00% 1.00%
less than or equal to 3.0
to 1.0
- ------------------------------------------------------------------------------------
Less than 2.5 to 1.0 1.75% .75%
====================================================================================
</TABLE>
"Appraisal of Fair Market Value" shall mean a report
establishing Fair Market Value of an asset or property. The values in such
appraisal shall be determined by using the market data approach. The market
data approach is that approach to value where recent sales and/or offering
prices of similar assets or property are analyzed to arrive at an indication of
the most probable selling price for the asset or property being appraised.
"Approved Appraiser" shall mean Superior Appraisals and Hadco
International, Inc. or any other appraiser acceptable to the Agent.
"Asset Coverage Ratio" shall mean the ratio of (i) the Fair
Market Value (as determined in the most recent Appraisal delivered pursuant to
Section 7.11(c)) of Domestic
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Drilling Rigs and Related Equipment to (ii) the Total Commitment.
"Asset Sale" shall mean any sale, transfer or other
disposition by the Company or any of its Subsidiaries to any Person of any
asset (including, without limitation, any capital stock or other securities of
another Person, but excluding the sale by such Person of its own capital stock)
of the Company or such Subsidiary other than (i) sales, transfers or other
dispositions of inventory made in the ordinary course of business, (ii) sales
of assets pursuant to, Sections 8.02(e), (f), (g), (h) and (i) and (iii) sales
of those assets listed on Annex X hereto.
"Assignment and Assumption Agreement" shall mean the
Assignment and Assumption Agreement substantially in the form of Exhibit K
(appropriately completed).
"Authorized Officer" shall mean any senior officer of a
Borrower designated as such in writing to the Agent and Co-Agent by the
Borrowers to the extent reasonably acceptable to the Agent and Co-Agent.
"Bankruptcy Code" shall have the meaning provided in Section
9.05.
"Base Rate" at any time shall mean the highest of (x) the
Prime Lending Rate and (y) the rate which is 1/2 of 1% in excess of the Federal
Funds Rate.
"Base Rate Loan" shall mean each Loan bearing interest at the
rates provided in Section 1.08(a).
"Borrower" and "Borrowers" shall have the meanings provided in
the first paragraph of this Agreement.
"Borrowing" shall mean and include the borrowing of one Type
of Revolving Loan from all of the Lenders on a given date (or resulting from
conversions on a given date), having in the case of Eurodollar Loans the same
Interest Period; provided that Base Rate Loans incurred pursuant to Section
1.10(b) shall be considered part of any related Borrowing of Eurodollar Loans.
"BTCo" shall mean Bankers Trust Company, in its individual
capacity, and any successor corporation thereto by merger, consolidation or
otherwise.
<PAGE> 84
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"Business Day" shall mean (i) for all purposes other than as
covered by clause (ii) below, any day excluding Saturday, Sunday and any day
which shall be in the City of New York a legal holiday or a day on which
banking institutions are authorized by law or other governmental actions to
close and (ii) with respect to all notices and determinations in connection
with, and payments of principal and interest on, Eurodollar Loans, any day
which is a Business Day described in clause (i) and which is also a day for
trading by and between banks in U.S. dollar deposits in the interbank
Eurodollar market.
"Capital Expenditures" shall mean, with respect to any Person,
all expenditures by such Person which should be added to the fixed assets
account on the consolidated balance sheet of such Person in accordance with
GAAP, including all such expenditures with respect to plant, property or
equipment (including, without limitation, expenditures for maintenance and
repairs which should be capitalized in accordance with GAAP).
"Capital Lease," as applied to any Person, shall mean any
lease of any property (whether real, personal or mixed) by that Person as
lessee which, in conformity with GAAP, should be accounted for as a capital
lease on the balance sheet of that Person.
"Capitalized Lease Obligations" shall mean all obligations
under Capital Leases of the Company or any of its Subsidiaries in each case
taken at the amount thereof that should be accounted for as liabilities in
accordance with GAAP.
"Cash" shall mean U.S. dollars.
"Cash Equivalents" shall mean (i) securities issued or
directly and fully guaranteed or insured by the United States of America or any
agency or instrumentality thereof (provided that the full faith and credit of
the United States of America is pledged in support thereof) having maturities
of not more than twelve months from the date of acquisition, (ii) U.S. dollar
denominated time deposits, certificates of deposit and banker acceptances of
(x) any Lender or (y) any bank whose short-term commercial paper rating from
S&P is at least A-1 or the equivalent thereof or from Moody's is at least P-1
or the equivalent thereof (any such bank or Lender, an "Approved Lender"), in
each case with maturities of not more than twelve months from the date of
acquisition, (iii) commercial paper issued by any Approved Lender or by the
parent company of any Approved Lender and commercial paper issued by, or
guaranteed
<PAGE> 85
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by, any industrial or financial company with a short-term commercial paper
rating of at least A-1 or the equivalent thereof by S&P or at least P-1 or the
equivalent thereof by Moody's, as the case may be, and in each case maturing
within twelve months after the date of acquisition, (iv) marketable direct
obligations issued by any state of the United States of America or any
political subdivision of any such state or any public instrumentality thereof
maturing within twelve months from the date of acquisition thereof and, at the
time of acquisition having one of the two highest ratings obtainable from
either S&P or Moody's, (v) any repurchase agreement entered into with any
Approved Lender which is secured by any obligation of the type described in any
of clauses (i) through (iii) and (vi) investments in money market funds
substantially all the assets of which are comprised of securities of the types
described in clauses (i) through (iv) above.
"Cash Proceeds" shall mean, with respect to any Asset Sale,
the aggregate cash payments (including any cash received by way of deferred
payment pursuant to a note receivable issued in connection with such Asset
Sale, other than the portion of such deferred payment constituting interest,
but only as and when so received) received by the Company and/or any of its
Subsidiaries from such Asset Sale.
"Change of Control Event" shall mean (a) the Company shall
cease to own directly 100% on a fully diluted basis of the economic and voting
interest in the capital stock of Drillers, Inc. and DI International, Inc. or
(b) any Person or "group" (within the meaning of Rules 13d-3 and 13d-5 under
the Securities Exchange Act of 1934, as in effect on the Effective Date), shall
have (A) acquired beneficial ownership of 30% or more on a fully diluted basis
of the voting and/or economic interest in the Company's capital stock or (B)
obtained the power (whether or not exercised) to elect a majority of the
Company's directors or (c) the Board of Directors of the Company shall cease to
consist of a majority of Continuing Directors or (d) Norex Drilling Ltd.,
Somerset Drilling Associates, L.L.C., and Somerset Capital Partners shall cease
to own or control at least 30% on a fully diluted basis of the voting interest
in the capital stock of the Company.
"Co-Agent" shall mean ING Capital and shall include any
successor to the Co-Agent appointed pursuant to Section 11.10.
"Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated
<PAGE> 86
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and ruling issued thereunder. Section references to the Code are to the Code,
as in effect at the date of this Agreement and any subsequent provisions of the
Code amendatory thereof, supplemental thereto or substituted therefor.
"Collateral" shall mean all of the Pledged Collateral and
Pledged Securities.
"Collateral Agent" shall mean BTCo acting as collateral agent
for the Lenders.
"Commitment Fee" shall have the meaning provided in Section
3.01(a).
"Company" shall have the meaning provided in the first
paragraph of this Agreement.
"Company Common Stock" shall have the meaning provided in
Section 6.14.
"Consolidated Current Assets" shall mean the current assets,
including the available Unutilized Revolving Loan Commitment, of the Company
and its Subsidiaries determined on a consolidated basis in accordance with
GAAP.
"Consolidated Current Liabilities" shall mean the current
liabilities of the Company and its Subsidiaries determined on a consolidated
basis in accordance with GAAP, but excluding the current portion of and the
accrued but unpaid interest on any Indebtedness under this Agreement.
"Consolidated Debt" shall mean, at any time, all Indebtedness
of the Company and its Subsidiaries determined on a consolidated basis;
provided that for purposes of this definition, the amount of Indebtedness in
respect of Interest Rate Protection Agreements and Other Hedging Agreements
shall be at any time equal to the unrealized net loss position, if any, of the
Company and/or its Subsidiaries thereunder on a marked to market basis
determined no more than one month prior to such time.
"Consolidated EBIT" shall mean, for any period, Consolidated
Net Income, before total interest expense (inclusive of amortization of
deferred financing fees, premiums on Interest Rate Protection Agreements and
any original issue discount) of the Company and its Subsidiaries determined on
a consolidated basis and provisions for taxes based on income, whether paid or
deferred.
<PAGE> 87
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"Consolidated EBITDA" shall mean, for any period, Consolidated
EBIT, adjusted by adding thereto the amount of all depreciation expense and
amortization expense plus non-cash compensation expenses relating to restricted
stock and stock-option grants, in each case, that were deducted in determining
Consolidated EBIT for such period, plus net earnings of any Person (other than
a consolidated Subsidiary that is a Guarantor) in which the Company or any
consolidated Subsidiary has an ownership interest to the extent such net
earnings shall have actually been received by the Company or such consolidated
Subsidiary in the form of cash distributions.
"Consolidated Interest Expense" shall mean, for any period,
total interest expense (including that attributable to (A) any rent paid in
respect of Capital Leases which is or should be allocable to interest expense
in accordance with GAAP and (B) interest capitalized during the construction of
any Capital Expenditure) of the Company and its Subsidiaries determined on a
consolidated basis with respect to all outstanding Indebtedness of the Company
and its Subsidiaries, including, without limitation, all commissions, discounts
and other fees and charges owed with respect to letters of credit and bankers'
acceptance financing and net costs or benefits under Interest Rate Protection
Agreements, but excluding, however, amortization of any payments made to obtain
any Interest Rate Protection Agreement and Other Hedging Agreements and
deferred financing costs and any interest expense on deferred compensation
arrangements to the extent included in total interest expense.
"Consolidated Net Income" shall mean, for any period, the net
income (or loss), after provisions for income taxes (other than with respect to
net income taxes attributable to items that are excluded from the calculation
of Consolidated Net Income in the period), of the Company and its Subsidiaries
on a consolidated basis for such period taken as a single accounting period in
conformity with GAAP but excluding in any event (a) any extraordinary gains
(net of extraordinary losses) but with giving effect to gains or losses from
sales of assets sold in the ordinary course of business; (b) net earnings of
any person (other than a consolidated Subsidiary that is a Guarantor) in which
the Company or any consolidated Subsidiary has an ownership interest unless
such net earnings shall have actually been received by the Company or such
consolidated Subsidiary in the form of cash distributions; (c) any portion of
the net earnings of any consolidated Subsidiary which is unavailable for
payment of dividends to the Company or any other consolidated Subsidiary by
reason of the provisions of any agreement or applicable law or regulation
(including, without
<PAGE> 88
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limitation, those agreements referred to in the exceptions set forth in Section
8.13); (d) earnings resulting from any reappraisal, revaluation or write-up of
assets; (e) the income (or loss) of any Person accrued prior to the date it
becomes a Subsidiary of such Person or is merged into or consolidated with such
Person or any of its Subsidiaries or that Person's assets are acquired by such
Person or any of its Subsidiaries; (f) the aggregate net gain (or loss) during
such period arising from the revaluation (but not sale) of readily marketable
securities; (g) the income (or loss) from discontinued operations; and (h)
non-cash charges relating to the Acquisition and repayment of Indebtedness
incurred under the Existing Credit Agreement.
"Consolidated Net Worth" shall mean, at any time, the net
worth of the Company and its Subsidiaries on a consolidated basis determined in
accordance with GAAP.
"Contingent Obligations" shall mean as to any Person any
obligation of such Person guaranteeing or intended to guarantee any
Indebtedness, leases, dividends or other obligations ("primary obligations") of
any other Person (the "primary obligor") in any manner, whether directly or
indirectly, including, without limitation, any obligation of such Person,
whether or not contingent, (a) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (b) to advance or
supply funds (x) for the purchase or payment of any such primary obligation or
(y) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (c) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligations of the ability of the primary obligor
to make payment of such primary obligation or (d) otherwise to assure or hold
harmless the owner of such primary obligation against loss in respect thereof;
provided, however, that the term Contingent Obligation shall not include
endorsements of instruments for deposit or collection or standard contractual
indemnities entered into, in each case in the ordinary course of business. The
amount of any Contingent Obligation shall be deemed to be an amount equal to
the stated or determinable amount of the primary obligation in respect of which
such Contingent Obligation is made or, if not stated or determinable, the
maximum reasonably anticipated liability in respect thereof (assuming such
Person is required to perform thereunder) as determined by such Person in good
faith.
<PAGE> 89
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"Continuing Directors" shall mean the directors of the Company
on the Initial Borrowing Date and each other director if such director's
nomination for the election to the Board of Directors of the Company is
recommended by a majority of the then Continuing Directors.
"Credit Documents" shall mean this Agreement, each of the
Notes and each Security Document.
"Credit Event" shall mean the making of a Loan or the issuance
of a Letter of Credit.
"Credit Party" shall mean the Borrowers and each Guarantor.
"Debt to EBITDA Ratio" shall mean the ratio of (a)
Consolidated Debt to (b) Consolidated EBITDA.
"Default" shall mean any event, act or condition which with
notice or lapse of time, or both, would constitute an Event of Default.
"Defaulting Lender" shall mean any Lender with respect to
which a Lender Default is in effect.
"Dividends" shall have the meaning provided in Section 8.07.
"Documents" shall mean the Credit Documents.
"Domestic Drilling Rigs and Related Equipment" shall mean
Drilling Rigs and Related Equipment owned by the Company or its Domestic
Subsidiaries and located in the 48 contiguous states.
"Domestic Subsidiary" shall mean each Subsidiary of the
Company incorporated or organized in the United States or any State or
territory thereof.
"Drilling Rig(s) and Related Equipment" shall mean all
drilling and workover rigs owned by the Company and its Subsidiaries, and all
pumps, drilling equipment, machinery, equipment, supplies, parts and other
goods of any description whatsoever installed on or affixed to or to be used in
connection with any such rig.
"Effective Date" shall mean December 31, 1996.
<PAGE> 90
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"Eligible Transferee" shall mean a commercial bank, financial
institution or other institutional "accredited investor" (as defined in
Regulation D of the Securities Act).
"Environmental Claims" shall mean any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, claims, liens,
notices of non-compliance, deficiency, liability or violation, investigations
or proceedings relating in any way to any violation or liability (or alleged
violation or liability) by the Company or any of its Subsidiaries under any
Environmental Law (hereafter "Claims") or any permit, license or other
authorization issued to the Company or any of its Subsidiaries under any such
law, including, without limitation, (a) any and all Claims by governmental or
regulatory authorities for enforcement, cleanup, removal, remedial, corrective,
response or other actions or damages pursuant to any Environmental Law, and (b)
any and all Claims by any third party seeking damages, contribution,
indemnification, cost recovery, compensation or injunctive relief resulting
from Hazardous Materials or arising from alleged injury or threat of injury to
health, safety or the environment.
"Environmental Law" shall mean any foreign, federal, state or
local policy, statute, law, rule, regulation, ordinance, code or rule of common
law now or hereafter in effect and in each case as amended, and any judicial or
administrative interpretation thereof, including any judicial or
administrative order, consent, decree or judgment (for purposes of this
definition (collectively, "Laws")), relating to the environment or Hazardous
Materials, or health and safety to the extent such health and safety issues
arise under the Occupational Safety and Health Act of 1970, as amended, or any
such similar Laws.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended from time to time, and the regulations promulgated and the
rulings issued thereunder. Section references to ERISA are to ERISA as in
effect at the date of this Agreement and any subsequent provisions of ERISA
amendatory thereof, supplemental thereto or substituted therefor.
"ERISA Affiliate" shall mean each person (as defined in
Section 3(9) of ERISA) which together with the Company or any Subsidiary of the
Company would be deemed to be a "single employer" within the meaning of Section
414(b) or (c) of the Code or (to the extent required by operation of Title IV
of ERISA or Section 412 of the Code or Section 302 of ERISA) Section 414(m) or
(o) of the Code.
<PAGE> 91
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"Eurodollar Loans" shall mean each Loan bearing interest at
the rates provided in Section 1.08(b).
"Eurodollar Rate" shall mean with respect to each Interest
Period for a Eurodollar Loan, (i) the arithmetic average (rounded to the
nearest 1/16 of 1%) of the offered quotation to first-class banks in the
interbank Eurodollar market by BTCo for U.S. dollar deposits of amounts in same
day funds generally comparable to the aggregate principal amount of the
Eurodollar Loan for which an interest rate is then being determined with
maturities comparable to the Interest Period to be applicable to such
Eurodollar Loan, determined as of 10:00 A.M. (New York time) on the date which
is two Business Days prior to the commencement of such Interest Period divided
(and rounded upward to the next whole multiple of 1/16 of 1%) by (ii) a
percentage equal to 100% minus the then stated maximum rate of all reserve
requirements (including, without limitation, any marginal, emergency,
supplemental, special or other reserves) applicable to any member bank of the
Federal Reserve System in respect of Eurocurrency liabilities as defined in
Regulation D (or any successor category of liabilities under Regulation D).
"Event of Default" shall have the meaning provided in Section
9.
"Existing Credit Agreement" shall have the meaning provided in
the Recitals hereto
"Existing Indebtedness" shall have the meaning provided in
Section 6.22.
"Existing Indebtedness Agreements" shall have the meaning
provided in Section 5.13.
"Existing Letters of Credit" shall have the meaning provided
in Section 6.22.
"Facing Fee" shall have the meaning provided in Section
3.01(c).
"Fair Market Value" shall mean with respect to any asset the
amount of Net Proceeds which could be expected upon a sale by a willing and
informed seller to a willing and informed buyer, both exercising prudent
judgment and not acting with undue haste.
"Federal Funds Rate" shall mean, for any period, a fluctuating
interest rate equal for each day during such period
<PAGE> 92
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to the weighted average of the rates on overnight Federal Funds transactions
with members of the Federal Reserve System arranged by Federal Funds brokers,
as published for such day (or, if such day is not a Business Day, for the next
preceding Business Day) by the Federal Reserve Lender of New York, or, if such
rate is not so published for any day which is a Business Day, the average of
the quotations for such day on such transactions received by the Agent and Co-
Agent from three Federal Funds brokers of recognized standing selected by the
Agent and Co-Agent.
"Fees" shall mean all amounts payable pursuant to, or referred
to in, Section 3.01.
"Final Maturity Date" shall mean April 30, 2000.
"Foreign Cash Equivalents" shall mean dollar denominated
certificates of deposit or bankers acceptances of any bank organized under the
laws of the jurisdiction of incorporation of a Foreign Subsidiary, provided
that the short-term commercial paper rating of such bank from S&P is at least
A-1 or the equivalent thereof or from Moody's is at least P-1 or the
equivalent thereof, in each case with maturities of not more than twelve months
from the date of acquisition.
"Foreign Subsidiary" shall mean each Subsidiary of the Company
other than a Domestic Subsidiary.
"GAAP" shall mean generally accepted accounting principles in
the United States of America as in effect from time to time; it being
understood and agreed that determinations in accordance with GAAP for purposes
of Section 8 and the definition of Interest Reduction Discount, including
defined terms as used therein, are subject (to the extent provided therein) to
Section 12.07(a).
"Guaranteed Creditors" shall mean and include each of the
Agent, the Co-Agent, the Collateral Agent, the Lenders and the Letter of Credit
Issuer.
"Guaranteed Obligations" shall mean the full and prompt
payment when due (whether at the stated maturity, by acceleration or otherwise)
of the principal and interest on each Note issued by the Borrowers to each
Lender, and Loans made, under this Agreement and all reimbursement obligations
and Unpaid Drawings with respect to Letters of Credit, together with all the
other obligations (including obligations which, but for the automatic stay
under Section 362(a) of the Bankruptcy Code,
<PAGE> 93
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would become due) and liabilities (including, without limitation, indemnities,
fees and interest thereon) of the Borrowers or any Guarantor to such Lender,
the Agent, the Co-Agent and the Collateral Agent now existing or hereafter
incurred under, arising out of or in connection with any Credit Document and
the due performance and compliance with all the terms, conditions and
agreements contained in each of the Credit Documents by the Borrowers.
"Guarantees" shall mean the Subsidiary Guarantees.
"Guarantors" shall mean the Subsidiary Guarantors.
"Hazardous Materials" shall mean (a) any petrochemical or
petroleum products or wastes (including crude oil or any fraction thereof),
radioactive materials, asbestos in any form that is or could become friable,
urea formaldehyde foam insulation, transformers or other equipment that contain
dielectric fluid containing levels of polychlorinated biphenyls, and radon gas;
and (b) any chemicals, materials or substances defined as or included in the
definition of "hazardous substances," "hazardous wastes," "hazardous
materials," "restricted hazardous materials," "extremely hazardous wastes,"
"restrictive hazardous wastes," "toxic substances," "toxic pollutants,"
"contaminants" or "pollutants," or words of similar meaning and regulatory
effect under any Environmental Law.
"Indebtedness" of any Person shall mean, without duplication,
(i) all indebtedness of such Person for borrowed money, (ii) the deferred
purchase price of assets or services payable to the sellers thereof or any of
such seller's assignees which in accordance with GAAP would be shown on the
liability side of the balance sheet of such Person but excluding deferred rent
as determined in accordance with GAAP, (iii) the face amount of all letters of
credit issued for the account of such Person and, without duplication, all
drafts drawn thereunder, (iv) all Indebtedness of a second Person secured by
any Lien on any property owned by such first Person, whether or not such
Indebtedness has been assumed; provided, however, that in the event that the
liability of such first Person is non-recourse to such Person and is recourse
only to specified assets of such Person, the amount of Indebtedness attributed
thereto shall not exceed the greater of the market value of such assets or the
book value of such assets, (v) all Capitalized Lease Obligations of such
Person, (vi) all obligations of such Person to pay a specified purchase price
for goods or services whether or not delivered or accepted, i.e., take-or-pay
and similar obligations, (vii) all obligations under
<PAGE> 94
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Interest Rate Protection Agreements and Other Hedging Agreements and (viii) all
Contingent Obligations of such Person; provided that Indebtedness shall not
include trade payables and accrued expenses, in each case arising and payable
in the ordinary course of business and consistent with past practice and in no
event 120 days past the invoice date (so long as so paid in the ordinary course
of business and consistent with past practice).
"ING Capital" shall mean ING (US) Capital Corporation, in its
individual capacity, and any successor corporation thereto by merger,
consolidation or otherwise.
"Initial Borrowing Date" shall mean the date upon which the
initial Borrowing of Loans occurs.
"Intercompany Loan" shall have the meaning provided in Section
8.05(g).
"Interest Coverage Ratio" shall mean, for the three-month
period most recently ended for which consolidated financial information is
available, commencing with March 31, 1997, the ratio of Consolidated EBITDA to
Consolidated Interest Expense for such period; provided, however, that for
purposes of calculating this ratio, interest expense on the Norex Loan shall
not constitute Consolidated Interest Expense.
"Interest Period," with respect to any Eurodollar Loan, shall
mean the interest period applicable thereto, as determined pursuant to Section
1.09.
"Interest Rate Protection Agreement" shall mean any interest
rate swap agreement, interest rate cap agreement, interest rate collar
agreement, interest rate hedging agreement or other similar agreement or
arrangement.
"L/C Supportable Indebtedness" shall mean (i) obligations of
the Company or its Subsidiaries incurred in the ordinary course of business
with respect to insurance obligations and workers' compensation, surety bonds
and other similar statutory obligations and (ii) such other obligations of the
Company or any of its Subsidiaries as are reasonably acceptable to the Agent
and the Letter of Credit Issuer and otherwise permitted to exist pursuant to
the terms of this Agreement.
"Lease" shall mean any lease, sublease, franchise agreement,
license, occupancy or concession agreement.
<PAGE> 95
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"Leasehold" of any Person shall mean all of the right, title
and interest of such Person as lessee or licensee in, to and under leases or
licenses of land, improvements and/or fixtures.
"Lender" shall have the meaning provided in the first
paragraph of this Agreement.
"Lender Default" shall mean (i) the refusal (which has not
been retracted) of a Lender to make available its portion of any Borrowing or
to fund its portion of any unreimbursed payment under Section 2.04(c) or (ii) a
Lender having notified the Agent and Co-Agent and/or the Company that it does
not intend to comply with the obligations under Section 1.01(a) or 2.04(c), in
the case of either clause (i) or (ii) above as a result of the appointment of a
receiver or conservator with respect to such Lender at the direction or
request of any regulatory agency or authority.
"Letter of Credit" shall have the meaning provided in Section
2.01(a).
"Letter of Credit Fees" shall have the meaning provided in
Section 3.01(b).
"Letter of Credit Issuer" shall mean BTCo.
"Letter of Credit Outstandings" shall mean, at any time, the
sum of, without duplication, (i) the aggregate Stated Amount of all outstanding
Letters of Credit and (ii) the aggregate amount of all Unpaid Drawings in
respect of all Letters of Credit.
"Letter of Credit Request" shall have the meaning provided in
Section 2.02(a).
"Letter of Credit Sublimit" shall mean $5,000,000.
"Leverage Ratio" shall mean, at any time, the ratio of (x)
Consolidated Debt on such date to (y) Total Capitalization.
"Lien" shall mean any mortgage, pledge, security interest,
encumbrance, lien or charge of any kind (including any agreement to give any of
the foregoing, any conditional sale or other title retention agreement, any
financing or similar statement or notice filed under the UCC or any similar
recording
<PAGE> 96
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or notice statute, and any lease having substantially the same effect as the
foregoing).
"Loan" shall mean each Revolving Loan.
"Margin Stock" shall have the meaning provided in Regulation
U.
"Material Adverse Effect" shall mean a material adverse effect
on the business, properties, assets, liabilities, condition (financial or
otherwise) or prospects of the Company and its Subsidiaries, taken as a whole
and after giving effect to the Acquisition.
"Minimum Borrowing Amount" shall mean for Revolving Loans,
$1,000,000.
"Minimum Net Worth" shall mean the sum of (x) $60 million, (y)
50% of Consolidated Net Income, if positive, for the period from and including
January 1, 1997 to and including the final day of the most recent period for
which consolidated financial information of the Company is available and (z)
50% of the increase to stockholders' equity of the Company attributable to the
issuance of Company Common Stock.
"Moody's" shall mean Moody's Investors Service, Inc.
"Motor Vehicle Capitalized Lease Obligations" shall mean
Capitalized Lease Obligations with respect to Capital Leases of motor vehicles.
"Multiemployer Plan" shall mean a Plan which is a
multiemployer plan (as defined in Section 4001(a)(3) of ERISA).
"Net Cash Proceeds" shall mean, with respect to any Asset
Sale, the Cash Proceeds resulting therefrom net of (a) cash expenses of sale
(including, without limitation, brokerage fees, if any, transfer taxes and
payment of principal, premium and interest of Indebtedness other than the Loans
required to be repaid as a result of such Asset Sale), (b) all foreign,
federal, state and local taxes to the extent payable as a direct consequence of
any such Asset Sale and (c) deduction of reasonable amounts, determined in
accordance with GAAP, required to be provided by the Company or such Subsidiary
as a reserve against any liabilities retained by the Company or any Subsidiary
of the Company associated with such assets after such Asset Sale, including,
without limitation, any indemnification, pension and other post-employment
benefit
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liabilities, workers compensation liabilities, liabilities associated with
retiree benefits and liabilities relating to environmental matters, except and
until such reserves are reversed, in which case the amount of such reversal
shall constitute Net Cash Proceeds.
"Non-Defaulting Lender" shall mean each Lender other than a
Defaulting Lender.
"Norex Loan" shall mean the $4,000,000 term loan to the
Company from Norex Drilling Ltd., dated August 29, 1996.
"Note" shall mean each Revolving Note.
"Notice of Borrowing" shall have the meaning provided in
Section 1.03(a).
"Notice of Conversion" shall have the meaning provided in
Section 1.06.
"Notice Office" shall mean the office of BTCo located at 130
Liberty Street, New York, New York 10006 or such other office as the BTCo may
designate to the Company and the Lenders from time to time.
"Obligations" shall mean all amounts, direct or indirect,
contingent or absolute, of every type or description, and at any time existing,
owing to the Agent, the Co-Agent, the Collateral Agent or any Lender pursuant
to the terms of any Credit Document.
"Other Hedging Agreements" shall mean any foreign exchange
contracts, currency swap agreements or other similar agreements or arrangements
designed to protect the Company and its Subsidiaries against fluctuations in
currency values.
"Participant" shall have the meaning provided in Section
2.04(a)(i).
"Payment Office" shall mean the office of BTCo located at 130
Liberty Street, New York, New York 10006 or such other office as BTCo may
designate to the Company and the Lenders from time to time.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established pursuant to Section 4002 of ERISA, or any successor thereto.
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"Percentage" shall mean, at any time for each Lender, the
percentage obtained by dividing such Lender's Revolving Loan Commitment at such
time by the Total Revolving Loan Commitment then in effect; provided that if
the Total Revolving Loan Commitment has been terminated, the Percentage of each
Lender shall be determined by dividing such Lender's Revolving Loan Commitment
as in effect immediately prior to such termination by the Total Revolving Loan
Commitment as in effect immediately prior to such termination.
"Permitted Acquisition" shall have the meaning provided in
Section 8.02(j).
"Permitted Liens" shall have the meaning provided in Section
8.03.
"Person" shall mean any individual, partnership, joint
venture, firm, corporation, limited liability company or partnership,
association, trust or other enterprise or any government or political
subdivision or any agency, department or instrumentality thereof.
"Plan" shall mean any multiemployer plan or single-employer
plan as defined in Section 4001 of ERISA, which is maintained or contributed to
by (or to which there is an obligation to contribute of) the Company, any of
its Subsidiaries or any ERISA Affiliate and each such plan for the five
calendar year period immediately following the latest date on which the
Company, any of its Subsidiaries or any ERISA Affiliate maintained, contributed
to or had an obligation to contribute to such plan or any such plan as to which
the Company, any of its Subsidiaries or any ERISA Affiliate may have any
liability, provided, however, the term "Plan" shall not include any Foreign
Pension Plan.
"Pledge Agreement" shall have the meaning provided in Section
5.11(a) and shall include any additional pledge agreement executed by the
Company or any of its Subsidiaries pursuant to Section 7.11.
"Pledge Agreement Collateral" shall mean all "Collateral" as
defined in the Pledge Agreements.
"Pledged Collateral" shall have the meaning assigned to such
term in the Security Agreements.
"Pledged Securities" shall mean all the Pledged Securities as
defined in the Pledge Agreements.
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"Prime Lending Rate" shall mean the rate which BTCo announces
from time to time as its prime lending rate, the Prime Lending Rate to change
when and as such prime lending rate changes. The Prime Lending Rate is a
reference rate and does not necessarily represent the lowest or best rate
actually charged to any customer. BTCo may make commercial loans or other
loans at rates of interest at, above or below the Prime Lending Rate.
"Prior Liens" shall mean Liens which, pursuant to the
provisions of any Security Document, are or may be superior to the Lien of such
Security Document.
"Quarterly Payment Date" shall mean the last Business Day of
each fiscal quarter (including the fourth fiscal quarter) of the Company.
"Real Property" of any Person shall mean all of the right,
title and interest of such Person in and to land, improvements and fixtures,
including Leaseholds.
"Register" shall have the meaning provided in Section 7.12.
"Regulation D" shall mean Regulation D of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or a portion thereof establishing reserve requirements.
"Regulation G" shall mean Regulation G of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or any portion thereof.
"Regulation T" shall mean Regulation T of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or any portion thereof.
"Regulation U" shall mean Regulation U of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or any portion thereof.
"Regulation X" shall mean Regulation X of the Board of
Governors of the Federal Reserve System as from time to time in effect and any
successor to all or any portion thereof.
"Release" means disposing, discharging, injecting, spilling,
pumping, leaking, leaching, dumping, emitting, escaping, emptying, seeping,
placing, pouring and the like, into or
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upon any land or water or air, or otherwise entering into the environment.
"Replaced Lender" shall have the meaning provided in Section
1.13.
"Reportable Event" shall mean an event described in Section
4043(c) of ERISA with respect to a Plan as to which the 30-day notice
requirement has not been waived by the PBGC by regulation.
"Required Lenders" shall mean collectively (and not
individually) Non-Defaulting Lenders the sum of whose Revolving Loan
Commitments (or, if after the Total Revolving Loan Commitment has been
terminated, outstanding Revolving Loans and Letter of Credit Outstandings)
constitute greater than 66-2/3% of the Total Revolving Loan Commitment less the
aggregate Revolving Loan Commitments of Defaulting Lenders (or, if after the
Total Revolving Loan Commitment has been terminated, the total outstanding
Revolving Loans of Non-Defaulting Lenders and Letter of Credit Outstandings at
such time).
"Returns" shall have the meaning provided in Section 6.21.
"Revolving Loan" shall have the meaning provided in Section
1.01(a).
"Revolving Loan Commitment" shall mean, with respect to each
Lender, the amount set forth opposite such Lender's name in Annex I directly
below the column entitled "Revolving Loan Commitment," as the same may be
reduced from time to time pursuant to Section 3.02, Section 3.03, Section 9
and/or the definition of "Total Revolving Loan Commitment."
"Revolving Note" shall have the meaning provided in Section
1.05(a).
"SEC" shall mean the Securities and Exchange Commission or any
successor thereto.
"Section 4.04(b)(ii) Certificate" shall have the meaning
provided in Section 4.04(b)(ii).
"Secured Creditors" shall have the meaning provided in the
Security Documents.
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"Security Agreement" shall have the meaning provided in
Section 5.11(b) and shall include any additional security agreement executed by
the Company or any of its Subsidiaries pursuant to Section 7.11.
"Security Documents" shall mean and include the Security
Agreements and the Pledge Agreements.
"S&P" shall mean Standard & Poors' Ratings Service.
"Stated Amount" of each Letter of Credit shall mean the
maximum amount available to be drawn thereunder (regardless of whether any
conditions for drawing could then be met).
"Subsidiary" of any Person shall mean and include (i) any
corporation more than 50% of whose stock of any class or classes having by the
terms thereof ordinary voting power to elect a majority of the directors of
such corporation (irrespective of whether or not at the time stock of any class
or classes of such corporation shall have or might have voting power by reason
of the happening of any contingency) is at the time owned by such Person
directly or indirectly through Subsidiaries and (ii) any partnership,
association, joint venture or other entity (other than a corporation) in which
such Person, directly or indirectly through Subsidiaries, has more than a 50%
equity interest at the time; provided, however, that for purposes of this
Agreement Indrillers LLC shall not be deemed to be a Subsidiary of the Company.
"Subsidiary Guarantee" shall mean the Guarantee contained in
Section 13 hereof.
"Subsidiary Guarantor" shall mean each Subsidiary of the
Company executing a Subsidiary Guarantee.
"Taxes" shall have the meaning provided in Section 4.04.
"Total Capitalization" shall mean on any date the sum of
Consolidated Debt and Consolidated Net Worth at such time.
"Total Revolving Loan Commitment" shall mean the sum of the
Revolving Loan Commitments of each of the Lenders it being understood that the
Total Revolving Loan Commitment as of the Amendment and Restatement Effective
Date shall be $50,000,000.
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"Total Revolving Outstandings" shall mean, at any time, the
sum of (i) the aggregate principal amount of all Revolving Loans outstanding at
such time and (ii) the aggregate amount of all Letter of Credit Outstandings at
such time.
"Total Unutilized Revolving Loan Commitment" shall mean, at
any time, (i) the Total Revolving Loan Commitment at such time less (ii) Total
Revolving Outstandings at such time.
"Type" shall mean any type of Revolving Loan determined with
respect to the interest option applicable thereto, i.e., a Base Rate Loan or a
Eurodollar Loan.
"UCC" shall mean the Uniform Commercial Code as in effect from
time to time in the relevant jurisdiction.
"Unfunded Current Liability" of any Plan shall mean the
amount, if any, by which the actuarial present value of the accumulated plan
benefits under the Plan as of the close of its most recent plan year exceeds
the fair market value of the assets allocable thereto, each determined in
accordance with Statement of Financial Accounting Standards No. 87, based upon
the actuarial assumptions used by the Plan's actuary in the most recent annual
valuation of the Plan.
"Unpaid Drawing" shall have the meaning provided in Section 2.03(a).
"Unutilized Revolving Loan Commitment" with respect to any
Lender at any time shall mean such Lender's Revolving Loan Commitment at such
time less the sum of (i) the aggregate then outstanding principal amount of all
Revolving Loans made by such Lender and (ii) such Lender's Percentage of the
then Letter of Credit Outstandings.
"U.S. Dollars" and the sign "$" shall each mean freely
transferable lawful money of the United States of America.
"Wholly-Owned Domestic Subsidiary" shall mean, as to any
Person, any Wholly-Owned Subsidiary of such Person which is a Domestic
Subsidiary.
"Wholly-Owned Foreign Subsidiary" shall mean, as to any
Person, any Wholly-Owned Subsidiary of such Person which is a Foreign
Subsidiary.
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"Wholly-Owned Subsidiary" shall mean, as to any Person, (i)
any corporation 100% of whose capital stock (other than director's qualifying
shares and/or other nominal amounts of shares required to be held other than by
such Person under applicable law) is at the time owned by such Person and/or
one or more Wholly-Owned Subsidiaries of such Person and (ii) any partnership,
association, joint venture or other entity in which such Person and/or one or
more Wholly-Owned Subsidiaries of such Person has a 100% equity interest at
such time.
"Working Capital" shall mean the excess of Consolidated
Current Assets over Consolidated Current Liabilities.
"Written" (whether lower or upper case) or "in writing" shall
mean any form of written communication or a communication by means of telex,
facsimile device, or telegraph or cable.
SECTION 11. The Agent and Co-Agent.
11.01. Appointment. Each Lender hereby irrevocably
designates and appoints BTCo as Agent and ING Capital as Co- Agent of such
Lender (such term to include for purposes of this Section 11, BTCo acting as
Collateral Agent) to act as specified herein and in the other Credit Documents,
and each such Lender hereby irrevocably authorizes BTCo as Agent and ING
Capital as Co-Agent to take such action on its behalf under the provisions of
the Credit Documents and to exercise such powers and perform such duties as are
expressly delegated to the Agent and Co-Agent by the terms of the Credit
Documents, together with such other powers as are reasonably incidental
thereto. The Agent and Co-Agent agree to act as such upon the express
conditions contained in this Section 11. Notwithstanding any provision to the
contrary elsewhere in any Credit Document, the Agent and Co-Agent shall not
have any duties or responsibilities, except those expressly set forth in the
Credit Documents, or any fiduciary relationship with any Lender, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities
shall be read into this Agreement or otherwise (including by operation of law)
to exist against the Agent or Co-Agent. The provisions of this Section 11 are
solely for the benefit of the Agent and Co-Agent and the Lenders, and neither
the Company nor any of its Subsidiaries or Affiliates shall have any rights as
a third party beneficiary of any of the provisions hereof. In performing its
functions and duties under this Agreement, the Agent and Co-Agent shall act
solely as agents of the Lenders and the Agent and Co-Agent do not assume and
shall not be deemed to have assumed any obligation or relationship
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of agency or trust with or for the Company or any of its Subsidiaries or
Affiliates.
11.02. Delegation of Duties. Each of the Agent and Co-Agent
may execute any of its duties under any Credit Document by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent and Co-Agent shall not be
responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by either of them with reasonable care except to the
extent otherwise required by Section 11.03.
11.03. Exculpatory Provisions. Neither of the Agent or
Co-Agent nor any of their Affiliates or any of their officers, directors,
employees, agents or attorneys-in-fact shall be (i) liable for any action
lawfully taken or omitted to be taken by it or such Person in its capacity as
Agent or Co-Agent under or in connection with any Credit Document (except to
the extent found to have resulted from such Person's own gross negligence or
willful misconduct) or (ii) responsible in any manner to any of the Lenders for
any recitals, statements, representations or warranties made by the Company,
any of its Subsidiaries or any of their respective officers contained in any
Credit Document, any other Document or in any certificate, report, statement or
other document referred to or provided for in, or received by the Agent or
Co-Agent under or in connection with, any Document or for any failure of the
Company or any of its Subsidiaries or any of their respective officers to
perform its obligations hereunder or thereunder. Neither the Agent or Co-Agent
shall be under any obligation to any Lender to ascertain or to inquire as to
the observance or performance of any of the agreements contained in, or
condition of, any Document, or to inspect the properties, books or records of
the Company or any of its Subsidiaries. The Agent and the Co-Agent shall not
be responsible to any Lender for the effectiveness, genuineness, validity,
enforceability, collectability or sufficiency of any Document or for any
representations, warranties, recitals or statements made herein or therein or
made in any written or oral statement or in any financial or other statements,
instruments, reports, certificates or any other documents in connection
herewith or therewith furnished or made by the Agent or Co-Agent to the Lenders
or by or on behalf of the Company or any of its Subsidiaries to the Agent or
Co-Agent or any Lender or be required to ascertain or inquire as to the
performance or observance of any of the terms, conditions, provisions,
covenants or agreements contained herein or therein or as to the use of the
proceeds of the Loans or of the existence or possible existence of any Default
or Event of Default.
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11.04. Reliance by Agent and Co-Agent. Each of the Agent and
Co-Agent shall be entitled to rely, and shall be fully protected in relying,
upon any note, writing, resolution, notice, consent, certificate, affidavit,
letter, cablegram, telegram, facsimile, telex or teletype message, statement,
order or other document or conversation reasonably believed by it to be genuine
and correct and to have been signed, sent or made by the proper Person or
Persons and upon advice and statements of legal counsel (including, without
limitation, counsel to the Company or any of its Subsidiaries), independent
accountants and other experts selected by the Agent or Co-Agent. Each of the
Agent and Co-Agent shall be fully justified in failing or refusing to take any
action under any Credit Document unless is shall first receive such advice or
concurrence of the Required Lenders as it deems appropriate or it shall first
be indemnified to its satisfaction by the Lenders against any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action. The Agent and Co-Agent shall in all cases be fully
protected in acting, or in refraining from acting, under any of the Credit
Documents in accordance with a request of the Required Lenders, and such
request and any action taken or failure to act pursuant thereto shall be
binding upon all the Lenders.
11.05. Notice of Default. The Agent and Co-Agent shall not
be deemed to have knowledge or notice of the occurrence of any Default or Event
of Default unless the Agent and Co-Agent have actually received notice from a
Lender or the Company referring to this Agreement, describing such Default or
Event of Default and stating that such notice is a "notice of default." In the
event that the Agent and Co-Agent receive such a notice, the Agent and Co-Agent
shall give prompt notice thereof to the Lenders. The Agent and Co-Agent shall
take such action with respect to such Default or Event of Default as shall be
reasonably directed by the Required Lenders; provided that, unless and until
the Agent and Co-Agent shall have received such directions, the Agent and
Co-Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Default or Event of Default as they
shall deem advisable in the best interests of the Lenders.
11.06. Nonreliance on Agent and Co-Agent and Other Lenders.
Each Lender expressly acknowledges that neither of the Agent or Co-Agent nor
any of their Affiliates nor any of their respective officers, directors,
employees, agents or attorneys-in-fact have made any representations or
warranties to them and that no act by the Agent or Co-Agent hereinafter
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taken, including any review of the affairs of the Company or any of its
Subsidiaries, shall be deemed to constitute any representation or warranty by
the Agent or Co-Agent or any such other Person to any Lender. Each Lender
represents to the Agent and Co-Agent that it has, independently and without
reliance upon the Agent or Co-Agent or any such other Person or any other
Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
assets, operations, property, financial and other condition, prospects and
creditworthiness of the Company and its Subsidiaries and made its own decision
to make its Loans hereunder and enter into this Agreement. Each Lender also
represents that it will, independently and without reliance upon the Agent or
Co- Agent or any such other Person or any other Lender, and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit analysis, appraisals and decisions in taking or not taking
action under this Agreement, and to make such investigation as it deems
necessary to inform itself as to the business, assets, operations, property,
financial and other condition, prospects and creditworthiness of the Company
and its Subsidiaries. The Agent and Co-Agent shall not have any duty or
responsibility to provide any Lender with any credit or other information
concerning the business, operations, assets, property, financial and other
condition, prospects or creditworthiness of the Company or any of its
Subsidiaries which may come into the possession of the Agent or Co-Agent or any
of their Affiliates or any of their officers, directors, employees, agents or
attorneys-in-fact.
11.07. Indemnification. The Lenders agree to indemnify each
of the Agent and Co-Agent in its capacity as such ratably according to their
respective "percentages" as used in determining the Required Lenders at such
time (with such "percentages" to be determined as if there are no Defaulting
Lenders), from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, reasonable expenses or
disbursements of any kind whatsoever which may at any time (including, without
limitation, at any time following the payment of the Obligations) be imposed
on, incurred by or asserted against the Agent or Co-Agent in its capacity as
such in any way relating to or arising out of any Credit Document, or any
documents contemplated by or referred to herein or therein, or the transactions
contemplated hereby or thereby or any action taken or omitted to be taken by
the Agent or Co-Agent under or in connection with any of the foregoing, but
only to the extent that any of the foregoing is not paid by the Company or any
of its Subsidiaries; provided that
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no Lender shall be liable to the Agent or Co-Agent for the payment of any
portion of such liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements to the extent found to have
resulted solely from the gross negligence or willful misconduct of such Agent
or Co-Agent. To the extent any Lender would be required to indemnify the Agent
or Co-Agent pursuant to the immediately preceding sentence but for the fact
that it is a Defaulting Lender, such Defaulting Lender shall not be entitled to
receive any portion of any payment or other distribution hereunder (including,
without limitation as to principal of or interest on any Loans) until each
other Lender shall have been reimbursed for the excess, if any, of the
aggregate amount paid by such Lender under this Section 11.07 over the
aggregate amount such Lender would have been obligated to pay had such first
Lender not been a Defaulting Lender. If any indemnity furnished to the Agent
or Co-Agent for any purpose shall, in the opinion of such Agent or Co-Agent be
insufficient or become impaired, the Agent or Co-Agent may call for additional
indemnity and cease, or not commence, to do the acts indemnified against until
such additional indemnity is furnished. The agreements in this Section 11.07
shall survive the payment of all Obligations.
11.08. Agent or Co-Agent in Its Individual Capacity. The
Agent or Co-Agent and their respective Affiliates may make loans to, accept
deposits from and generally engage in any kind of business with the Company and
its Subsidiaries and Affiliates as though the Agent or Co-Agent were not an
Agent or Co-Agent hereunder. With respect to the Loans made by it and all
Obligations owing to it, the Agent and Co-Agent shall have the same rights and
powers under this Agreement as any Lender and may exercise the same as though
it were not an Agent or Co-Agent and the terms "Lender" and "Lenders" shall
include each of the Agent or Co-Agent in its individual capacity.
11.09. Holders. The Agent or Co-Agent may deem and treat the
payee of any Note as the owner thereof for all purposes hereof unless and until
a written notice of the assignment, transfer or endorsement thereof, as the
case may be, shall have been filed with the Agent. Any request, authority or
consent of any Person or entity who, at the time of making such request or
giving such authority or consent, is the holder of any Note shall be conclusive
and binding on any subsequent holder, transferee, assignee or indorsee, as the
case may be, of such Note or of any Note or Notes issued in exchange therefor.
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11.10. Resignation of the Agent or Co-Agent; Successor Agent
or Co-Agent. The Agent or Co-Agent may resign as the Agent or Co-Agent upon 60
days' notice to the Lenders and the Company. Upon the resignation the Agent or
Co-Agent, the Required Lenders shall appoint from among the Lenders a
successor Agent or Co-Agent which is a bank or a trust company for the Lenders
subject to prior approval by the Company (such approval not to be unreasonably
withheld, provided that such approval shall not be required if a Default or an
Event of Default then exists), whereupon such successor agent shall succeed to
the rights, powers and duties of the Agent or Co-Agent, as the case may be, and
the term "Agent" or "Co-Agent" shall include such successor agent effective
upon its appointment, and the resigning Agent's or Co-Agent's rights, powers
and duties as the Agent or Co-Agent shall be terminated, without any other or
further act or deed on the part of such former Agent or Co-Agent or any of the
parties to this Agreement. After the resignation of the Agent or Co-Agent
hereunder, the provisions of this Section 11 shall inure to its benefit as to
any actions taken or omitted to be taken by it while it was the Agent or
Co-Agent under this Agreement.
SECTION 12. Miscellaneous.
12.01. Payment of Expenses, Etc. The Borrowers agree,
jointly and severally, to: (i) whether or not the transactions herein
contemplated are consummated, pay all out-of-pocket costs and expenses of each
of the Agent and Co-Agent (including, without limitation, the reasonable fees
and disbursements of Cahill Gordon & Reindel) in connection with the
negotiation, preparation, execution and delivery of the Credit Documents and
the documents and instruments referred to therein and any amendment, waiver or
consent relating thereto and in connection with the Agent's and Co- Agent's
syndication efforts with respect to this Agreement; (ii) pay all out-of-pocket
costs and expenses of each of the Agent and Co-Agent, each Letter of Credit
Issuer and each of the Lenders in connection with the enforcement of the Credit
Documents and the documents and instruments referred to therein and, after a
Default or an Event of Default shall have occurred and be continuing, the
protection of the rights of each of the Agent and Co-Agent, each Letter of
Credit Issuer and each of the Lenders thereunder (including, without
limitation, the fees and disbursements of counsel for each of the Agent and
Co-Agent, for each Letter of Credit Issuer and for each of the Lenders); (iii)
pay and hold each of the Lenders harmless from and against any and all present
and future stamp and other similar taxes with respect to the foregoing matters
and save each of the Lenders harmless
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from and against any and all liabilities with respect to or resulting from any
delay or omission (other than to the extent attributable to such Lender) to pay
such taxes; and (iv) indemnify each of the Agent, the Co-Agent, the
Collateral Agent, each Letter of Credit Issuer and each Lender and each of
their Affiliates, and each of their respective officers, directors, employees,
representatives and agents from and hold each of them harmless against any and
all losses, liabilities, claims, damages or expenses incurred by any of them as
a result of, or arising out of, or in any way related to, or by reason of, (a)
any investigation, litigation or other proceeding (whether or not any such
Person is a party thereto and whether or not any such investigation, litigation
or other proceeding is between or among any such Person, or any third Person or
otherwise) related to the entering into and/or performance of any Credit
Document or the use of the proceeds of any Loans hereunder or the consummation
of any other transactions contemplated in any Credit Document (but excluding
any such losses, liabilities, claims, damages or expenses to the extent found
to have been incurred by reason of the gross negligence or willful misconduct
of the Person to be indemnified), or (b) the actual or alleged presence of
Hazardous Materials in the air, surface water or groundwater or on the surface
or subsurface of any Real Property or any Environmental Claim, in each case,
including, without limitation, the reasonable fees and disbursements of counsel
and independent consultants incurred in connection with any such investigation,
litigation or other proceeding.
12.02. Right of Setoff. In addition to any rights now or
hereafter granted under applicable law or otherwise, and not by way of
limitation of any such rights, upon the occurrence of an Event of Default, each
of the Agent, the Co-Agent, each Letter of Credit Issuer and each Lender is
hereby authorized at any time or from time to time, without presentment,
demand, protest or any other notice of any kind to the Company or any of its
Subsidiaries or any Guarantor or any other Person, any such notice, to the full
extent permitted by applicable law, being hereby expressly waived, to set off
and to appropriate and apply any and all deposits (general or special) and any
other Indebtedness at any time held or owing by the Agent, Co-Agent, such
Letter of Credit Issuer or such Lender (including, without limitation, by
branches and agencies of the Agent, Co-Agent, such Letter of Credit Issuer and
such Lender wherever located) to or for the credit or the account of the
Borrowers or any Guarantor against and on account of the Obligations of the
Borrowers or any Guarantor to the Agent, Co-Agent, such Letter of Credit Issuer
or such Lender under this Agreement or under any of the other Credit Documents,
including, without
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limitation, all interests in Obligations of the Borrowers or any Guarantor
purchased by such Lender pursuant to Section 12.06(b), and all other claims of
any nature or description arising out of or connected with any Credit Document,
irrespective of whether or not such Agent, Co-Agent, such Letter of Credit
Issuer or such Lender shall have made any demand hereunder and although said
Obligations shall be contingent or unmatured.
12.03. Notices. Except as otherwise expressly provided
herein, all notices and other communications provided for hereunder shall be in
writing (including telegraphic, telex, facsimile or cable communication) and
mailed, telegraphed, telexed, telecopied, cabled or delivered, if to any Credit
Party, at the address specified opposite its signature below or in the other
relevant Credit Documents, as the case may be; if to any Lender, at its address
specified for such Lender on Annex II; or, at such other address as shall be
designated by any party in a written notice to the other parties hereto. All
such notices and communications shall be mailed, telegraphed, telexed,
telecopied or cabled or sent by overnight courier, and shall be effective when
received. For all purposes hereunder, notice delivered to one Borrower shall
be deemed to be notice to each Borrower.
12.04. Benefit of Agreement. (a) This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto; provided, however, neither the
Borrowers nor any Guarantor may assign or transfer any of its rights,
obligations or interest under any Credit Document without the prior written
consent of the Lenders; and provided, further, that, although any Lender may
transfer, assign or grant participations in its rights hereunder, such Lender
shall remain a "Lender" for all purposes hereunder (and may not transfer or
assign all or any portion of its Revolving Loan Commitment hereunder except as
provided in Section 12.04(b)) and the transferee, assignee or participant, as
the case may be, shall not constitute a "Lender" hereunder; and provided,
further, that no Lender shall transfer or grant any participation under which
the participant shall have rights to approve any amendment to or waiver of any
Credit Document except to the extent such amendment or waiver would (i) extend
the Final Maturity Date, or reduce the rate or extend the time of payment of
interest or Fees on Loans or Letters of Credit in which such participant is
participating (except in connection with a waiver of applicability of any
post-default increase in interest rates) or reduce the principal amount thereof
(it being understood that any amendment or
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modification to the financial definitions in this Agreement shall not
constitute a reduction in any rate of interest or fees for purposes of this
clause (i), or increase the amount of the participant's participation over the
amount thereof, or increase the amount of the participant's participation over
the amount thereof then in effect (it being understood that a waiver of any
Default or Event of Default or of a mandatory reduction in the Total Revolving
Loan Commitment shall not constitute a change in the terms of such
participation, and that an increase in any Revolving Loan Commitment or Loan
shall be permitted without the consent of any participant if the participant's
participation is not increased as a result thereof), (ii) consent to the
assignment or transfer by the Borrowers of any of their rights and obligations
under this Agreement or (iii) release all or substantially all of the
Collateral under all of the Security Documents (except as expressly provided in
the Credit Documents) supporting the Loans in which such participant is
participating. In the case of any such participation, the participant shall
not have any rights under any of the Credit Documents (the participant's rights
against such Lender in respect of such participation to be those set forth in
the agreement executed by such Lender in favor of the participant relating
thereto) and all amounts payable by the Borrowers hereunder shall be determined
as if such Lender had not sold such participation.
(b) Notwithstanding the foregoing, any Lender (or any Lender
together with one or more other Lenders) may (x) assign all or a portion of its
Revolving Loan Commitment (and related outstanding Obligations hereunder) to
any Affiliate of such Lender which is at least 50% owned by such Lender or its
parent company or to one or more Lenders or (y) assign all, or if less than
all, a portion equal to at least $2,000,000 in the aggregate for the assigning
Lender or assigning Lenders, of such Revolving Loan Commitment (and related
outstanding Obligations hereunder) to one or more Eligible Transferees, each of
which assignees shall become a party to this Agreement as a Lender by execution
of an Assignment and Assumption Agreement; provided that (i) at such time Annex
I shall be deemed modified to reflect the Revolving Loan Commitments of such
new Lender and of the existing Lenders, (ii) upon surrender of the old
Revolving Notes, new Revolving Notes will be issued, at the Borrowers' expense,
to such new Lender and to the assigning Lender, such new Revolving Notes to be
in conformity with the requirements of Section 1.05 (with appropriate
modifications) to the extent needed to reflect the revised Revolving Loan
Commitments, (iii) the consent of the Agent shall be required in connection
with any such assignment pursuant to
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clause (y) of this Section 12.04(b) and (iv) the Agent shall receive at the
time of each such assignment, from the assigning or assignee Lender, the
payment of a non-refundable assignment fee of $3,500; and provided, further,
that such transfer or assignment will not be effective until recorded by the
Agent on the Register pursuant to Section 7.12. To the extent of any
assignment pursuant to this Section 12.04(b), the assigning Lender shall be
relieved of its obligations hereunder with respect to its assigned Revolving
Loan Commitment. At the time of each assignment pursuant to this Section
12.04(b) to a Person which is not already a Lender hereunder and which is not a
United States person (as such term is defined in Section 7701(a)(30) of the
Code) for Federal income tax purposes, the respective assignee Lender shall
provide to the Borrowers and the Agent the appropriate Internal Revenue Service
Forms (and, if applicable, a Section 4.04(b)(ii) Certificate) described in
Section 4.04(b).
(c) Any Lender may at any time pledge or assign all or any
portion of its rights under this Agreement and the other loan documents to any
Federal Reserve Bank without notice to or consent of the Borrowers. No such
pledge or assignment shall release the transferor Lender from its obligations
hereunder.
12.05. No Waiver; Remedies Cumulative. No failure or delay
on the part of any party in exercising any right, power or privilege under any
Credit Document and no course of dealing between any Credit Party and the
Agent, Co- Agent or any Lender shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, power or privilege under any Credit
Document preclude any other or further exercise thereof or the exercise of any
other right, power or privilege hereunder or thereunder. The rights and
remedies herein expressly provided are cumulative and not exclusive of any
rights or remedies which any party would otherwise have. No notice to or
demand on any Credit Party in any case shall entitle any Credit Party to any
other or further notice or demand in similar or other circumstances or
constitute a waiver of the rights of the Agent, Co-Agent or the Lenders to any
other or further action in any circumstances without notice or demand.
12.06. Payments Pro Rata. (a) The Agent agrees that
promptly after its receipt of each payment from or on behalf of any Credit
Party in respect of any Obligations of such Credit Party, it shall, except as
otherwise provided in this Agreement, distribute such payment to the Lenders
(other than any Lender that has consented in writing to waive its pro rata
share of such payment) pro rata based upon their respective
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shares, if any, of the Obligations with respect to which such payment was
received.
(b) Each of the Lenders agrees that, if it should receive any
amount hereunder (whether by voluntary payment, by realization upon security,
by the exercise of the right of setoff or banker's lien, by counterclaim or
cross action, by the enforcement of any right under the Credit Documents, or
otherwise) which is applicable to the payment of the principal of, or interest
on, the Loans, Unpaid Drawings or Fees, of a sum which with respect to the
related sum or sums received by other Lenders is in a greater proportion than
the total of such Obligation then owed and due to such Lender bears to the
total of such Obligation then owed and due to all of the Lenders immediately
prior to such receipt, determined in accordance with the terms of this
Agreement, then such Lender receiving such excess payment shall purchase for
cash without recourse or warranty from the other Lenders an interest in the
Obligations of the respective Credit Party to such Lenders in such amount as
shall result in a proportional participation by all of the Lenders in such
amount; provided that if all or any portion of such excess amount is thereafter
recovered from such Lender, such purchase shall be rescinded and the purchase
price restored to the extent of such recovery, but without interest.
12.07. Calculations; Computations. (a) The financial
statements to be furnished to the Lenders pursuant hereto shall be made and
prepared in accordance with GAAP consistently applied throughout the periods
involved (except as set forth in the notes thereto or as otherwise disclosed in
writing by the Company to the Lenders); provided that except as otherwise
specifically provided herein, all computations determining compliance with
Sections 3.03 and 8, including definitions used therein shall, (x) in each
case, utilize accounting principles and policies in effect at the time of the
preparation of, and in conformity with those used to prepare, the 1996
financial statements delivered to the Lenders pursuant to Section 6.10(b), and
(y) to the extent any period covered by such computation (including any Test
Period) includes a period prior to the date of the consummation of the
Acquisition, such computation shall be made on a pro forma basis as if the
Acquisition had occurred at the beginning of such period.
(b) All computations of interest and Fees hereunder shall be
based on the actual number of days elapsed over a year of 360 days (except for
interest payable in respect of Base Rate Loans based on the Prime Lending
Rate, which shall be computed on the bases of a 365/66 day year).
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12.08. Governing Law; Submission to Jurisdiction; Venue. (a)
THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER AND (EXCEPT AS OTHERWISE EXPRESSLY STATED THEREIN)
THEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND BE GOVERNED BY THE LAW OF
THE STATE OF NEW YORK. Any legal action or proceeding with respect to this
Agreement or any other Credit Document may be brought in the courts of the
State of New York or of the United States for the Southern District of New
York, and, by execution and delivery of this Agreement, each Credit Party
hereby irrevocably accepts for itself and in respect of its property, generally
and unconditionally, the jurisdiction of the aforesaid courts. Each Credit
Party hereby further irrevocably waives any claim that any such courts lack
jurisdiction over such Credit Party, and agrees not to plead or claim, in any
legal action or proceeding with respect to any Credit Document brought in any
of the aforesaid courts, that any such court lacks jurisdiction over such
Credit Party. Each Credit Party irrevocably consents to the service of process
in any such action or proceeding by the mailing of copies thereof by registered
or certified mail, postage prepaid, to such Credit Party, at its address for
notices pursuant to Section 12.03, such service to become effective 30 days
after such mailing. Each Credit Party hereby irrevocably waives any objection
to such service of process and further irrevocably waives and agrees not to
plead or claim in any action or proceeding commenced under any Credit Document
that service of process was in any way invalid or ineffective. Nothing herein
shall affect the right of the Agent, Co-Agent, any Lender or the holder of any
Note to serve process in any other manner permitted by applicable law or to
commence legal proceedings or otherwise proceed against any Credit Party in any
other jurisdiction.
(b) Each Credit Party hereby irrevocably waives any objection
which it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection with any
Credit Document brought in the courts referred to in clause (a) above and
hereby further irrevocably waives and agrees not to plead or claim in any such
court that any such action or proceeding brought in any such court has been
brought in an inconvenient forum.
12.09. Counterparts. This Agreement may be executed in any
number of counterparts and by the different parties hereto on separate
counterparts, each of which when so executed and delivered shall be an
original, but all of which shall together constitute one and the same
instrument. A complete set
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of counterparts executed by all of the parties hereto shall be lodged with the
Borrower and the Agent.
12.10. Effectiveness. This Agreement shall become effective
on the date (the "Amendment and Restatement Effective Date") on which the
Borrowers, each Guarantor, the Agent, the Co-Agent and each of the Lenders
shall have signed a counterpart hereof (whether the same or different
counterparts) and shall have delivered the same to the Agent at the Notice
Office or, in the case of the Lenders, shall have given to the Agent telephonic
(confirmed in writing), written, telex or facsimile notice (actually received)
at such office that the same has been signed and mailed to it. The Agent will
give the Borrowers and each Lender prompt written notice of the occurrence of
the Amendment and Restatement Effective Date.
12.11. Headings Descriptive. The headings of the several
sections and subsections of this Agreement are inserted for convenience only
and shall not in any way affect the meaning or construction of any provision of
this Agreement.
12.12. Amendment or Waiver; etc. (a) Neither this Agreement
nor any other Credit Document nor any terms hereof or thereof may be changed,
waived, discharged or terminated unless such change, waiver, discharge or
termination is in writing signed by the respective Credit Parties party thereto
and the Required Lenders; provided that no such change, waiver, discharge or
termination shall, without the consent of each Lender (other than a Defaulting
Lender) (with Obligations being directly affected thereby in the case of the
following clause (i)), (i) extend the Final Maturity Date, or reduce the rate
or extend the time of payment of interest or Fees on any Loan or Letter of
Credit thereon, or reduce the principal amount thereof (it being understood
that any amendment or modification to the financial definitions in this
Agreement shall not constitute a reduction in any rate of interest or fees for
purposes of this clause (i)), (ii) release all or substantially all of the
Collateral (except as expressly provided in the Security Documents) under all
the Security Documents, or release any Guarantor (other than in connection with
a sale otherwise permitted hereby), (iii) amend, modify or waive any provision
of this Section 12.12, (iv) reduce the percentage specified in the definition
of Required Lenders (it being understood that, with the consent of the Required
Lenders, additional extensions of credit pursuant to this Agreement may be
included in the determination of the Required Lenders on substantially the same
basis as the extensions of Revolving Loan Commitments are included on the
Effective Date) or (v) consent to the assignment
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or transfer by the Borrowers of any of their rights and obligations under this
Agreement; provided, further, that no such change, waiver, discharge or
termination shall (w) increase the Revolving Loan Commitments of any Lender
over the amount thereof then in effect without the consent of such Lender (it
being understood that waivers or modifications of conditions precedent,
covenants, Defaults or Events of Default or of a mandatory reduction in the
Total Revolving Loan Commitment shall not constitute an increase of the
Revolving Loan Commitment of any Lender, and that an increase in the available
portion of any Revolving Loan Commitment of any Lender shall not constitute an
increase in the Revolving Loan Commitment of such Lender), (x) without the
consent of BTCo., amend, modify or waive any provision of Section 2 or alter
its rights or obligations with respect to Letters of Credit, (y) without the
consent of the Agent and Co-Agent, amend, modify or waive any provision of
Section 11 as the same applies to the Agent and Co-Agent or any other provision
as the same relates to the rights or obligations of the Agent and Co-Agent and
(z) without the consent of the Collateral Agent, amend, modify or waive any
provision relating to the rights or obligations of the Collateral Agent.
(b) If, in connection with any proposed change, waiver,
discharge or termination of any of the provisions of this Agreement as
contemplated by clauses (i) through (v), inclusive, of the first proviso to
Section 12.12(a), the consent of the Required Lenders is obtained but the
consent of one or more of such other Lenders whose consent is required is not
obtained, then the Borrowers shall have the right, so long as all
non-consenting Lenders whose individual consent is required are treated as
described below, to replace each such non-consenting Lender or Lenders with one
or more Replacement Lenders pursuant to Section 1.13 so long as at the time of
such replacement, each Replacement Lender consents to the proposed change,
waiver, discharge or termination; but only if, in each such case, such
Replacement Lender at the time of such action is acceptable to the Agent,
provided that the Borrowers shall not have the right to replace a Lender solely
as a result of the exercise of such Lender's rights (and the withholding of any
required consent by such Lender) pursuant to the second proviso to Section
12.12(a).
12.13. Survival. All indemnities set forth herein including,
without limitation, in Section 1.10, 1.11, 2.05, 4.04, 11.07 or 12.01, shall
survive the execution and delivery of this Agreement and the making and
repayment of the Loans.
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12.14. Domicile of Loans. Each Lender may transfer and carry
its Loans at, to or for the account of any branch office, subsidiary or
affiliate of such Lender; provided that the Company shall not be responsible
for costs arising under Section 1.10, 1.11, 2.05 or 4.04 resulting from any
such transfer (other than a transfer pursuant to Section 1.12) to the extent
such costs would not otherwise be applicable to such Lender in the absence of
such transfer.
12.15. Confidentiality. Each of the Lenders agrees that it
will use its reasonable efforts not to disclose without the prior consent of
the Company (other than to Affiliates of such Lenders and their respective
directors, employees, auditors, counsel or other professional advisors) any
confidential information with respect to the Company or any of its Subsidiaries
which is furnished pursuant to this Agreement; provided that any Lender may
disclose any such information (a) that is or has become generally available to
the public, (b) as may be required or appropriate (x) in any report, statement
or testimony submitted to any municipal, state or Federal or other governmental
regulatory body having or claiming to have jurisdiction over such Lender or to
the Federal Reserve Board or the Federal Deposit Insurance Corporation or
similar organizations (whether in the United States or elsewhere) or their
successors or (y) in connection with any request or requirement of any such
regulatory body, (c) as may be required or appropriate in response to any
summons or subpoena or in connection with any litigation, (d) to comply with
any law, order, regulation or ruling applicable to such Lender, and (e) to any
prospective transferee in connection with any contemplated transfer of any of
the Notes or any interest therein by such Lender; provided that such
prospective transferee agrees to be bound by this Section 12.15 to the same
extent as such Lender.
12.16. Waiver of Jury Trial. EACH OF THE PARTIES TO THIS
AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION,
PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE
OTHER CREDIT DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
SECTION 13. Subsidiary Guarantees.
13.01. The Subsidiary Guarantees. (a) In order to induce
the Lenders to enter into this Agreement and to extend credit hereunder and in
recognition of the direct and indirect benefits to be received by each
Subsidiary Guarantor from the proceeds of the Loans and the issuance of the
Letters of Credit, each Subsidiary Guarantor hereby agrees with the Lenders
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as follows: each Subsidiary Guarantor hereby unconditionally and irrevocably,
jointly and severally, guarantees, as primary obligor and not merely as surety
the full and prompt payment when due, whether upon maturity, acceleration or
otherwise, of any and all of the Guaranteed Obligations of the Borrowers to the
Guaranteed Creditors. If any or all of the Guaranteed Obligations of the
Borrowers to the Guaranteed Creditors becomes due and payable hereunder, each
Subsidiary Guarantor, jointly and severally, and unconditionally promises to
pay such indebtedness to the Guaranteed Creditors, or order, on demand,
together with any and all expenses (including reasonable legal fees and
expenses) which may be incurred by the Guaranteed Creditors in collecting or
enforcing any of the Guaranteed Obligations. If claim is ever made upon any
Guaranteed Creditor for repayment or recovery of any amount or amounts received
in payment or on account of any of the Guaranteed Obligations and any of the
aforesaid payees repays all or part of said amount by reason of (i) any
judgment, decree or order of any court or administrative body having
jurisdiction over such payee or any of its property or (ii) any settlement or
compromise of any such claim effected by such payee with any such claimant
(including the Borrowers), then and in such event each Subsidiary Guarantor
agrees that any such judgment, decree, order, settlement or compromise shall be
binding upon such Subsidiary Guarantor, notwithstanding any revocation of this
Subsidiary Guarantee or any other instrument evidencing any liability of the
Borrowers, and each Subsidiary Guarantor shall be and remain jointly and
severally liable to the aforesaid payees hereunder for the amount so repaid or
recovered to the same extent as if such amount had never originally been
received by any such payee. This is a guarantee of payment and not of
collection.
(b) Anything contained in this Subsidiary Guarantee to the
contrary notwithstanding, the obligations of each Subsidiary Guarantor
hereunder shall be limited to a maximum aggregate amount equal to the largest
amount that would not render its obligations and/or the grant of security
interests in Collateral to secure its Obligations hereunder subject to
avoidance as a fraudulent transfer or conveyance under Section 548 of the
Bankruptcy Code or any applicable provisions of comparable state law
(collectively, the "Fraudulent Transfer Laws"), in each case after giving
effect to all other liabilities of such Subsidiary Guarantor, contingent or
otherwise, that are relevant under the Fraudulent Transfer Laws (specifically
excluding, however, any liabilities of such Subsidiary Guarantor in respect of
intercompany Indebtedness to the Company or other Affiliates of the Company to
the extent that such Indebtedness would be discharged in an amount equal to the
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amount paid by such Subsidiary Guarantor hereunder, and after giving effect (x)
to the direct and indirect benefits received by such Subsidiary Guarantor as a
result of the Credit Documents and the Loans and (y) as assets to the value (as
determined under the applicable provisions of the Fraudulent Transfer Laws) of
any rights to subrogation, reimbursement, indemnification or contribution of
such Subsidiary Guarantor pursuant to applicable law or pursuant to the terms
of any agreement (including without limitation any such right of contribution
under Section 13.01(c)).
(c) Subsidiary Guarantors under this Subsidiary Guarantee
together desire to allocate among themselves in a fair and equitable manner
their obligations arising under this Subsidiary Guarantee. Accordingly, in the
event any payment or distribution is made on any date by any Subsidiary
Guarantor under this Subsidiary Guarantee (a "Funding Guarantor") that exceeds
its Fair Share (as defined below) as of such date, that Funding Guarantor shall
be entitled to a contribution from each of the other Subsidiary Guarantors in
the amount of such other Subsidiary Guarantor's Fair Share Shortfall (as
defined below) as of such date, with the result that all such contributions
will cause each Subsidiary Guarantor's Aggregate Payments (as defined below) to
equal its Fair Share as of such date. "Fair Share" means, with respect to a
Subsidiary Guarantor as of any date of determination, an amount equal to (i)
the ratio of (x) the Adjusted Maximum Amount (as defined below) with respect to
such Subsidiary Guarantor to (y) the aggregate of the Adjusted Maximum Amounts
with respect to all Subsidiary Guarantors, multiplied by (ii) the aggregate
amount paid or distributed on or before such date by all Funding Guarantors
under this Subsidiary Guarantee in respect of the obligations guaranteed.
"Fair Share Shortfall" means, with respect to a Subsidiary Guarantor as of any
date of determination, the excess, if any, of the Fair Share of such Subsidiary
Guarantor over the Aggregate Payments of such Subsidiary Guarantor. "Adjusted
Maximum Amount" means, with respect to a Guarantor as of any date of
determination, the maximum aggregate amount of the obligations of such
Subsidiary Guarantor under this Subsidiary Guarantee, determined as of such
date in accordance with this Section 13.01; provided that, solely for purposes
of calculating the "Adjusted Maximum Amount" with respect to any Subsidiary
Guarantor for purposes of this Section 13.01(c), any assets or liabilities of
such Subsidiary Guarantor arising by virtue of any rights to subrogation,
reimbursement or indemnification or any rights to or obligations of
contribution hereunder shall not be considered as assets or liabilities of such
Subsidiary Guarantor. "Aggregate Payments" means, with respect to a Subsidiary
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Guarantor as of any date of determination, an amount equal to (i) the aggregate
amount of all payments and distributions made on or before such date by such
Subsidiary Guarantor in respect of this Subsidiary Guarantee (including,
without limitation, in respect of this Section 13.01(c)) minus (ii) the
aggregate amount of all payments received on or before such date by such
Subsidiary Guarantor from the other Subsidiary Guarantors as contributions
under this Section 13.01(c). The amounts payable as contributions hereunder
shall be determined as of the date on which the related payment or distribution
is made by the applicable Funding Guarantor. The allocation among Subsidiary
Guarantors of their obligations as set forth in this Section 13.01(c) shall not
be construed in any way to limit the liability of any Subsidiary Guarantor
hereunder.
13.02. Bankruptcy. Additionally, each Subsidiary Guarantor
unconditionally and irrevocably, jointly and severally, guarantees the payment
of any and all of the Guaranteed Obligations of the Borrowers or any Guarantor
to the Guaranteed Creditors whether or not due or payable by the Borrowers upon
the occurrence of any of the events specified in Section 9.05, and
unconditionally, and jointly and severally, promises to pay such indebtedness
to the Guaranteed Creditors, or order, on demand, in lawful money of the United
States.
13.03. Nature of Liability. (a) The liability of each
Subsidiary Guarantor hereunder is joint and several and exclusive and
independent of any security for or other guarantee of the Guaranteed
Obligations of the Borrowers or any Guarantor whether executed by such
Guarantor, any other Guarantor, any other guarantor or by any other party, and
the liability of each Subsidiary Guarantor hereunder is not affected or
impaired by (a) any direction as to application of payment by the Borrowers or
by any other party, or (b) any other continuing or other guarantee, undertaking
or maximum liability of a guarantor or of any other party as to the Guaranteed
Obligations of the Borrowers, or (c) any payment on or in reduction of any such
other guarantee or undertaking, or (d) any dissolution, termination or
increase, decrease or change in personnel by the Borrowers, or (e) any payment
made to the Guaranteed Creditors on the Guaranteed Obligations which any such
Guaranteed Creditor repays to the Borrowers pursuant to court order in any
bankruptcy, reorganization, arrangement, moratorium or other debtor relief
proceeding, and each Subsidiary Guarantor, to the extent permitted by
applicable law, waives any right to the deferral or modification of its
obligations hereunder by reason of any such proceeding.
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(b) It is the desire and intent of each Subsidiary Guarantor
and the Guaranteed Creditors that this Subsidiary Guarantee shall be enforced
against each Subsidiary Guarantor to the fullest extent permissible under the
laws and public policies applied in each jurisdiction in which enforcement is
sought. If, however, and to the extent that, the obligations of any Subsidiary
Guarantor under this Subsidiary Guarantee shall be adjudicated to be invalid or
unenforceable for any reason (including, without limitation, because of any
applicable state or federal law relating to fraudulent conveyances or
transfers), then the amount of the Guaranteed Obligations of such Subsidiary
Guarantor shall be deemed to be reduced and such Subsidiary Guarantor shall pay
the maximum amount of the Guaranteed Obligations which would be permissible
under applicable law.
13.04. Independent Obligation. The obligations of each
Subsidiary Guarantor hereunder are independent of the obligations of any other
Subsidiary Guarantor, any other guarantor, any other party or the Borrowers,
and a separate action or actions may be brought and prosecuted against each
Subsidiary Guarantor whether or not action is brought against any other
Subsidiary Guarantor, any other guarantor, any other party or the Borrowers and
whether or not any other guarantor, any other party or the Borrowers are joined
in any such action or actions. Each Subsidiary Guarantor waives, to the full
extent permitted by law, the benefit of any statute of limitations affecting
its liability hereunder or the enforcement thereof. Any payment by the
Borrowers or other circumstance which operates to toll any statute of
limitations as to the Borrowers shall operate to toll the statute of
limitations as to any Subsidiary Guarantor.
13.05. Authorization. Each Subsidiary Guarantor authorizes
the Guaranteed Creditors without notice or demand (except as shall be required
by applicable statute and cannot be waived), and without affecting or impairing
its liability hereunder, from time to time to:
(a) change the manner, place or terms of payment of, and/or
change or extend the time of payment of, renew, increase, accelerate
or alter, any of the Guaranteed Obligations (including any increase or
decrease in the rate of interest thereon), any security therefor, or
any liability incurred directly or indirectly in respect thereof, and
the Subsidiary Guarantee herein made shall apply to the Guaranteed
Obligations as so changed, extended, renewed or altered;
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(b) take and hold security for the payment of the Guaranteed
Obligations and sell, exchange, release, surrender, realize upon or
otherwise deal with in any manner and in any order any property by
whomsoever at any time pledged or mortgaged to secure, or howsoever
securing, the Guaranteed Obligations or any liabilities (including any
of those hereunder) incurred directly or indirectly in respect thereof
or hereof, and/or any offset thereagainst;
(c) exercise or refrain from exercising any rights against
the Borrowers or others or otherwise act or refrain from acting;
(d) release or substitute any one or more endorsers,
guarantors, the Borrowers or other obligors;
(e) settle or compromise any of the Guaranteed Obligations,
any security therefor or any liability (including any of those
hereunder) incurred directly or indirectly in respect thereof or
hereof, and may subordinate the payment of all or any part thereof to
the payment of any liability (whether due or not) of the Borrowers to
its creditors other than the Guaranteed Creditors;
(f) apply any sums by whomsoever paid or howsoever realized
to any liability or liabilities of the Borrowers to the Guaranteed
Creditors regardless of what liability or liabilities of the Borrowers
remain unpaid;
(g) consent to or waive any breach of, or any act, omission
or default under, this Agreement, any other Credit Document or any of
the instruments or agreements referred to herein or therein, or
otherwise amend, modify or supplement this Agreement, any other Credit
Document or any of such other instruments or agreements; and/or
(h) take any other action which would, under otherwise
applicable principles of common law, give rise to a legal or equitable
discharge of any Subsidiary Guarantor from its liabilities under this
Subsidiary Guarantee.
13.06. Reliance. It is not necessary for the Guaranteed
Creditors to inquire into the capacity or powers of the Borrowers or the
officers, directors, partners or agents acting or purporting to act on its
behalf, and any Guaranteed Obligations made or created in reliance upon the
professed exercise of such powers shall be guaranteed hereunder.
<PAGE> 123
-117-
13.07. Subordination. Any of the indebtedness of the
Borrowers now or hereafter owing to any Subsidiary Guarantor is hereby
subordinated to the Guaranteed Obligations of the Borrowers owing to the
Guaranteed Creditors; and if the Agent so requests at a time when an Event of
Default exists, all such indebtedness of the Borrowers to any Subsidiary
Guarantor shall be collected, enforced and received by such Subsidiary
Guarantor for the benefit of the Guaranteed Creditors and be paid over to the
Agent on behalf of the Guaranteed Creditors on account of the Guaranteed
Obligations of the Borrowers to the Guaranteed Creditors, but without affecting
or impairing in any manner the liability of any Subsidiary Guarantor under the
other provisions of this Subsidiary Guarantee (other than the reduction of any
such liability attributable to such payment). Prior to the transfer by any
Subsidiary Guarantor of any note or negotiable instrument evidencing any of the
indebtedness of the Borrowers to such Subsidiary Guarantor, such Subsidiary
Guarantor shall mark such note or negotiable instrument with a legend that the
same is subject to this subordination. Without limiting the generality of the
foregoing, each Subsidiary Guarantor hereby agrees with the Guaranteed
Creditors that it will not exercise any right of subrogation which it may at
any time otherwise have as a result of this Subsidiary Guarantee (whether
contractual, under Section 509 of the Bankruptcy Code or otherwise) until all
Guaranteed Obligations have been irrevocably paid in full in cash.
13.08. Waiver. (a) Each Subsidiary Guarantor waives any
right (except as shall be required by applicable statute and cannot be waived)
to require any Guaranteed Creditor to (i) proceed against the Borrowers, any
other Guarantor, any other guarantor or any other party, (ii) proceed against
or exhaust any security held from the Borrowers, any other Guarantor, any other
guarantor or any other party or (iii) pursue any other remedy in any Guaranteed
Creditor's power whatsoever. Each Subsidiary Guarantor waives any defense
based on or arising out of any defense of the Borrowers, any other Guarantor,
any other guarantor or any other party, other than payment in full of the
Guaranteed Obligations, based on or arising out of the disability of the
Borrowers, any other Guarantor, any other guarantor or any other party, or the
unenforceability of the Guaranteed Obligations or any part thereof from any
cause, or the cessation from any cause of the liability of the Borrowers other
than payment in full of the Guaranteed Obligations. The Guaranteed Creditors
may, at their election, foreclose on any security held by the Agent, the
Collateral Agent or any other Guaranteed Creditor by one or more judicial or
nonjudicial sales, whether or not every aspect of any such sale is commercially
<PAGE> 124
-118-
reasonable (to the extent such sale is permitted by applicable law), or
exercise any other right or remedy the Guaranteed Creditors may have against
the Borrowers or any other party, or any security, without affecting or
impairing in any way the liability of any Subsidiary Guarantor hereunder except
to the extent the Guaranteed Obligations have been paid. Each Subsidiary
Guarantor waives any defense arising out of any such election by the Guaranteed
Creditors, even though such election operates to impair or extinguish any right
of reimbursement or subrogation or other right or remedy of such Subsidiary
Guarantor against the Borrowers or any other party or any security.
(b) Each Subsidiary Guarantor waives all presentments,
demands for performance, protests and notices, including, without limitation,
notices of nonperformance, notices of protest, notices of dishonor, notices of
acceptance of this Subsidiary Guarantee, and notices of the existence, creation
or incurring of new or additional Guaranteed Obligations. Each Subsidiary
Guarantor assumes all responsibility for being and keeping itself informed of
the Borrowers' financial condition and assets, and of all other circumstances
bearing upon the risk of nonpayment of the Guaranteed Obligations and the
nature, scope and extent of the risks which each Subsidiary Guarantor assumes
and incurs hereunder, and agrees that the Guaranteed Creditors shall have no
duty to advise any Subsidiary Guarantor of information known to them regarding
such circumstances or risks.
<PAGE> 125
S-1
IN WITNESS WHEREOF, the parties hereto have caused their duly
authorized officers to execute and deliver this Agreement as of the date first
above written.
Address for all Credit Parties: DI INDUSTRIES, INC.
as Borrower
10370 Richmond Avenue,
Suite 600
Houston, Texas 77042 By /s/ SCOTT O'KEEFE
Telephone No.: (713) 435-6100 ------------------------------------
Facsimile No.: (713) 435-6171 Title: Senior Vice President and
Chief Financial Officer
DRILLERS, INC.
as Borrower
By /s/ SCOTT O'KEEFE
------------------------------------
Title: Senior Vice President and
Chief Financial Officer
DI INTERNATIONAL, INC.
as Guarantor
By /s/ SCOTT O'KEEFE
------------------------------------
Title: Senior Vice President and
Chief Financial Officer
BANKERS TRUST COMPANY,
Individually and as Agent
By /s/ MARY JO JOLLY
------------------------------------
Title: Assistant Vice President
ING (US) CAPITAL CORPORATION,
Individually and as Co-Agent
By /s/ FRANK P. FERRARA
------------------------------------
Title: Senior Associate
<PAGE> 126
S-2
NORDLANDSBANKEN ASA,
as Lender
By TORE FORMO
--------------------------------------
Title: Assistant General Manager
<PAGE> 127
ANNEX I
LIST OF LENDERS AND COMMITMENTS
<TABLE>
<CAPTION>
Amounts
Revolving Outstanding on
Lender Loan Commitment the Amendment Date
------ --------------- ------------------
<S> <C> <C>
Bankers Trust Company $21,500,000 $13,200,000
ING (US) Capital Corporation 21,500,000 13,200,000
Nordlandsbanken ASA 7,000,000 6,600,000
----------- -----------
Total: $50,000,000 $33,000,000
</TABLE>
<PAGE> 128
ANNEX II
LENDER ADDRESSES
<TABLE>
<CAPTION>
Lender Address
------ -------
<S> <C>
Bankers Trust Company 130 Liberty Street
New York, New York 10006
Attention: James T. Cullen
Telephone No.: (212) 250-7343
Facsimile No.: (212) 250-6029
ING (US) Capital Corporation 135 East 57th Street
New York, New York 10022
Attention: Frank Ferrara
Telephone No.: (212) 409-1733
Facsimile No.: (212) 832-3616
Nordlandsbanken ASA Postboks 1213 Vika,
0110 Oslo, Norway
Attention: Tore Formo
Telephone No.: 011-47-22-47-36-89
Facsimile No.: 011-47-22-33-67-10
</TABLE>
<PAGE> 129
-2-
ANNEX IV
<PAGE> 130
-3-
ANNEX VI
<PAGE> 131
-4-
ANNEX VII
<PAGE> 1
EXHIBIT 12.1
DI INDUSTRIES, INC.
RATIO OF EARNINGS TO FIXED CHARGES
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, YEAR ENDED DECEMBER 31,
---------------------------- ---------------------------------------------
PRO FORMA PRO FORMA
1997 1997 1996 1996 1996 1995 1994
--------- ------ ------- --------- -------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Pretax income from continuing
operations:............................. $1,065 $2,976 $(1,491) $(25,453) $(10,877) $(12,675) $(3,557)
Add:
Fixed Charges:
Interest, whether expensed or
capitalized........................ 2,949 672 262 12,582 1,220 1,472 404
Amortization of debt expense and
discount or premium................ 99 87 12 394 183 47 --
Minority interest in the loss of
Indrillers......................... 202 202 -- -- 118 -- --
------ ------ ------- -------- -------- -------- -------
Earnings as adjusted...................... 4,315 3,937 (1,217) (12,477) (9,356) (11,156) (3,153)
====== ====== ======= ======== ======== ======== =======
Fixed Charges............................. 3,048 759 274 12,976 1,403 1,519 404
====== ====== ======= ======== ======== ======== =======
Ratio of Earnings to fixed Charges........ 1.42 5.19 -- -- -- -- --
====== ====== ======= ======== ======== ======== =======
Deficiency in earnings.................... -- -- $(1,491) $(25,453) $(16,759) $(12,675) $(3,557)
====== ====== ======= ======== ======== ======== =======
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED MARCH 31,
DECEMBER 31, ---------------------
1994 1994 1993
------------ --------- ---------
<S> <C> <C> <C>
Pretax income from continuing
operations:............................. $(2,260) $(1,384) $(3,387)
Add:
Fixed Charges:
Interest, whether expensed or
capitalized........................ 332 257 --
Amortization of debt expense and
discount or premium................ -- -- --
Minority interest in the loss of
Indrillers......................... -- -- --
------- ------- -------
Earnings as adjusted...................... (1,928) (1,127) (3,387)
======= ======= =======
Fixed Charges............................. 332 257 --
======= ======= =======
Ratio of Earnings to fixed Charges........ -- -- --
======= ======= =======
Deficiency in earnings.................... $(2,260) $(1,384) $(3,387)
======= ======= =======
</TABLE>
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to incorporation by reference in this registration statement of
DI Industries, Inc. on Form S-3 of our report dated March 14, 1997, relating to
the consolidated balance sheet of DI Industries, Inc. and Subsidiaries as of
December 31, 1996 and the related consolidated statements of operations, changes
in shareholder's equity and cash flows for the year then ended, and the related
financial statement schedule, which report appears in the December 31, 1996
annual report on Form 10-K of DI Industries, Inc.
/s/ KPMG PEAT MARWICK LLP
KPMG PEAT MARWICK LLP
Houston, Texas
May 5, 1997
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this registration
statements of DI Industries, Inc. on Form S-3 of our report dated March 28,
1996, appearing in the Annual Report on Form 10-K of DI Industries, Inc. for the
year ended December 31, 1996.
/s/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Houston, Texas
May 5, 1997
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report on the financial statements of Grey Wolf Drilling Company and to all
other references to our Firm included in or made a part of this registration
statement.
/s/ ARTHUR ANDERSEN LLP
ARTHUR ANDERSEN LLP
Houston, Texas
May 1, 1997
<PAGE> 1
EXHIBIT 23.5
CONSENT OF JAMES K. B. NELSON
The undersigned hereby consents to the references in this registration
statement to the undersigned as becoming a director of the registrant upon
closing of the Grey Wolf Acquisition, which is to be funded in part with the net
proceeds of the offering to which this registration statement relates, and to
all other references to the undersigned included in or made a part of this
registration statement.
/s/ JAMES K. B. NELSON
JAMES K. B. NELSON
Houston, Texas
May 5, 1997
<PAGE> 1
EXHIBIT 23.6
CONSENT OF WILLIAM T. DONOVAN
The undersigned hereby consents to the references in this registration
statement to the undersigned as becoming a director of the registrant upon
closing of the Grey Wolf Acquisition, which is to be funded in part with the net
proceeds of the offering to which this registration statement relates, and to
all other references to the undersigned included in or made a part of this
registration statement.
/s/ WILLIAM T. DONOVAN
WILLIAM T. DONOVAN
Houston, Texas
May 5, 1997
