SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
1995 FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 1-5471
-----------------
GLOBAL MARINE INC.
(Exact name of registrant as specified in its charter)
Delaware 95-1849298
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
777 N. Eldridge Road, Houston, Texas 77079
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713)596-5100
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $0.10 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d)
of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant's
knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of January 31, 1996, the aggregate market value of the
Company's common stock, $0.10 par value, held by non-
affiliates was $1,431,402,387.
Indicate the number of shares outstanding of each of the
registrant's classes of common stock, as of the latest
practicable date: Common Stock, $0.10 par value, 166,677,083
shares outstanding as of January 31, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement in connection with the 1996
Annual Meeting of Stockholders are incorporated into
Part III of this Report.
TABLE OF CONTENTS TO FORM 10-K
Page
----
Part I
1. and 2. Business and Properties 3
Contract Drilling 3
Drilling Management Services 7
Oil and Gas Operations 8
Competition and Industry Conditions 10
Operational Risks and Insurance 11
Foreign Operations 13
Governmental Regulations and Environmental Matters 13
Employees 14
Executive Officers of the Registrant 15
3. Legal Proceedings 15
4. Submission of Matters to a Vote of Security Holders 15
Part II
5. Market for Registrant's Common Equity and
Related Stockholder Matters 16
6. Selected Financial Data 17
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18
8. Financial Statements and Supplementary Data 28
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 55
Part III
10. Directors and Executive Officers of the Registrant 55
11. Executive Compensation 55
12. Security Ownership of Certain Beneficial Owners and
Management 55
13. Certain Relationships and Related Transactions 55
Part IV
14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K 56
Signatures 64
PART I
ITEMS 1. AND 2. BUSINESS AND PROPERTIES
Global Marine Inc., a Delaware corporation incorporated in
1964, is a holding company that engages in various businesses
through its operating subsidiaries. Unless otherwise provided,
the terms "Global Marine" and "Company" refer to Global Marine
Inc. and, unless the context otherwise requires,to the Company's
consolidated subsidiaries.
The Company is a major international offshore drilling
contractor with a modern, diversified fleet of 26 mobile offshore
drilling rigs. The Company also owns a currently inactive,
special-purpose mobile offshore rig designed for arctic
operations. In addition, the Company provides offshore drilling
management services on a turnkey basis and participates in oil
and gas exploration, development and production activities.
Industry segment information relative to the Company is set forth
in Note 9 of Notes to Consolidated Financial Statements in Item 8
of this Annual Report on Form 10-K.
Contract Drilling
Substantially all of the Company's offshore contract drilling
operations are conducted by or through its wholly-owned
subsidiary Global Marine Drilling Company ("GMDC"). GMDC is
headquartered in Houston, Texas, has other principal offices in
Lafayette, Louisiana and Aberdeen, Scotland, and has additional
offices in Dubai, United Arab Emirates; London, England; Luanda,
Angola; New Orleans, Louisiana; Pointe Noire, Congo; Port Gentil,
Gabon; Port Harcourt, Nigeria, and Port of Spain, Trinidad.
The Company's fleet of 26 mobile offshore drilling rigs
consists of 23 cantilevered jackup rigs, two semisubmersible rigs
and one self-propelled drillship. The Company's currently
inactive, special-purpose rig designed for arctic operations is a
concrete island drilling system ("CIDS"). The CIDS was
last under contract in 1990. All of the Company's active
drilling rigs were placed in service in 1979 or later, and, as of
February 28, 1996, the average age of the rigs in the fleet was
approximately 13.7 years. Twenty-two of the Company's rigs are
subject to mortgages granted to collateralize the Company's 12-
3/4% Senior Secured Notes due 1999 (the "Senior Secured Notes").
Since 1989, the Company has undertaken in excess of $100
million in capital expenditures for improvements to the fleet,
including approximately $28 million for the purchase and
installation of "top drive" drilling systems on 22 rigs. Top
drives are now installed on 24 of the 26 rigs in the fleet. Top
drive drilling systems permit drilling with extended stands of
drill pipe and enable operators to rotate the drill pipe when
exiting the well bore, thereby increasing both the speed and
safety of drilling operations and reducing the risk of the drill
pipe becoming stuck in the well bore.
The Company's fleet is deployed in the major offshore oil and
gas operating areas worldwide. The principal areas of the
Company's operations currently include the Gulf of Mexico, the
North Sea, and offshore West Africa.
In June 1995 the Company completed the sale of a rig, the
Glomar Main Pass III, to a customer that had been bareboat
chartering the rig from the Company. The Company received net
proceeds of $22.4 million in cash and recognized a gain of $14.7
million.
In 1995 the Company completed the purchase of the CIDS, which
was previously chartered by the Company under a long-term lease.
(See Note 4 of Notes to Consolidated Financial Statements in Item
8 of this Annual Report on Form 10-K.)
As part of upgrading and expanding its rig fleet and other
assets, the Company considers and pursues the acquisition of
suitable additional rigs and other assets on an ongoing basis.
If the Company decides to undertake an acquisition, the issuance
of additional shares of stock or additional debt could be
required. The Company may also consider the disposition of rigs
and other assets if and when a disposition can be effected on
favorable terms. Disposition proceeds, to the extent available,
could also be used as a source of acquisition financing.
The following table lists the Company's drilling rigs in the
fleet as of February 15, 1996, indicating the year each rig was
placed in service, as well as its maximum water and drilling
depth capabilities, current location, customer, and estimated
contract expiration date.
<TABLE>
<CAPTION>
DRILLING FLEET
Status as of February 15, 1996
YEAR
PLACED MAXIMUM DRILLING
IN WATER DEPTH DEPTH CURRENT CONTRACT
SERVICE CAPABILITY (1) CAPABILITY LOCATION CUSTOMER TERM (2)
------- -------------- ---------- -------- --------- ---------
Cantilevered Jackup
<S> <C> <C> <C> <C> <C> <C>
Glomar High Island I 1979 250 ft. 20,000 ft. Gulf of Mexico Vastar Resources expires 3/96
Glomar High Island II 1979 270 ft. 20,000 ft. Gulf of Mexico Unocal expires 4/96
Glomar High Island III 1980 250 ft. 20,000 ft. West Africa Texaco expires 3/98
Glomar High Island IV 1980 250 ft. 20,000 ft. Gulf of Mexico Unocal expires 4/96
Glomar High Island V 1981 270 ft. 20,000 ft. West Africa Cabinda Gulf expires 8/96
Glomar High Island VII 1982 250 ft. 20,000 ft. West Africa Kelt expires 6/96
Glomar High Island VIII 1982 250 ft. 20,000 ft. Gulf of Mexico Vastar Resources expires 3/96
Glomar High Island IX 1983 250 ft. 20,000 ft. West Africa Texaco expires 4/96
Glomar Adriatic I 1981 300 ft. 25,000 ft. West Africa Elf Gabon expires 4/96
Glomar Adriatic II 1981 350 ft. 25,000 ft. Gulf of Mexico Shell expires 3/96
Glomar Adriatic III 1982 300 ft. 25,000 ft. Gulf of Mexico Forest Oil expires 5/96
Glomar Adriatic IV 1983 350 ft. 25,000 ft. Trinidad Amoco expires 5/96
Transocean No. 5 1979 300 ft. 20,000 ft. Abu Dhabi Total expires 4/96
Glomar Adriatic VI 1981 350 ft. 20,000 ft. Gulf of Mexico Shell expires 3/96
Glomar Adriatic VII 1983 325 ft. 20,000 ft. Gulf of Mexico Amoco expires 5/96
Glomar Adriatic VIII 1983 300 ft. 25,000 ft. West Africa Mobil expires 2/97
Glomar Adriatic IX 1981 300 ft. 20,000 ft. West Africa Ashland Oil expires 5/96
Glomar Adriatic X 1982 300 ft. 20,000 ft. West Africa Total expires 4/96
Glomar Adriatic XI 1983 225 ft. 25,000 ft. North Sea Chevron expires 8/96
Glomar Main Pass I 1982 300 ft. 25,000 ft. Gulf of Mexico Conoco expires 3/96
Glomar Main Pass IV 1982 300 ft. 25,000 ft. Gulf of Mexico Mobil expires 3/96
Glomar Labrador I 1983 300 ft. 25,000 ft. North Sea Mobil expires 4/96
Glomar Baltic I 1983 375 ft. 25,000 ft. Gulf of Mexico Anadarko expires 5/96
Semisubmersible
Glomar Arctic I 1983 1,800 ft. 25,000 ft. North Sea Amerada Hess expires 12/96
Glomar Arctic III 1984 1,800 ft. 25,000 ft. North Sea Conoco expires 6/96
Drillship
Glomar Robert F. Bauer 1983 2,750 ft. 25,000 ft. Yemen British Gas expires 4/97
Concrete Island Drilling System (3)
Glomar Beaufort Sea I 1984 55 ft. 25,000 ft. Alaska - inactive
- -----------------------
(1) During 1995, the Company revised the water-depth ratings of its jackups
to conform with standard industry practice, which is to reflect maximum
limits during most weather seasons. In prior years, the Company's water-
depth ratings reflected maximum limits during the most severe weather
season.
(2) Expiration dates include firm commitments for extensions of current
contracts and for new contracts which have not yet commenced. Expiration
dates relate to both term and well-to-well contracts and, with respect to
well-to-well contracts, are estimates only.
(3) The Company's inactive Concrete Island Drilling System is excluded from
the Company's rig utilization rates discussed below.
</TABLE>
Rig Utilization. For the year ended December 31, 1995, the Company's
average utilization rate for active rigs in the fleet was 99 percent compared to
94 percent for 1994. The average rig utilization rate for a period is equal to
the ratio of days in the period during which the rigs were under contract to
the total days in the period during which the rigs were available to work,
but it excludes the CIDS, which is not included in the active fleet. As of
February 15, 1996, the Company's utilization rate for its active fleet was
100 percent. The Company expects contracts on 18 of the Company's 26 rigs
under contract as of February 15, 1996, to expire at varying times on or prior
to May 31, 1996. No assurance can be made that the Company will obtain drilling
contracts for its rigs upon the completion of current contracts; however,
short-term contracts have been typical in the industry for the past decade,
and the Company considers its upcoming contract expirations typical of
prevailing market conditions and consistent with the normal course of business.
As of December 31, 1995, all twelve of the Company's rigs in the Gulf
of Mexico were employed. As of that date, the industry utilization rate in the
Gulf of Mexico was 80 percent compared with a rate of 74 percent as of December
31, 1994. Industry utilization rates were derived from data published in the
Offshore Rig Locator. Revenues attributable to the Gulf of Mexico accounted for
44 percent, 53 percent and 38 percent of the Company's contract drilling
revenues in 1995, 1994, and 1993, respectively.
As of December 31, 1995, all four of the Company's rigs in the North
Sea were employed. As of that date, the industry utilization rate in the North
Sea was 93 percent compared with a rate of 80 percent as of December 31, 1994.
Revenues from this market accounted for 22 percent, 14 percent and 28 percent of
the Company's contract drilling revenues in 1995, 1994, and 1993, respectively.
As of December 31, 1995, all seven of the Company's rigs offshore West
Africa were employed. As of that date, the industry utilization rate offshore
West Africa was 81 percent compared with a rate of 86 percent as of December 31,
1994. Revenues from this market accounted for 21 percent, 15 percent and 16
percent of the Company's contract drilling revenues in 1995, 1994, and 1993,
respectively.
The following table sets forth the size and average utilization rate of
the Company's fleet.
<TABLE>
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Rigs in service at year-end 26 25 24 24 26
Average rig utilization 99% 94% 91% 81% 89%
</TABLE>
As of December 31, 1995, none of the Company's rigs was
subject to a firm commitment beyond 1997. The following tables show, for
each of the Company's three principal groups of drilling rigs and each major
geographic area in which the Company operates, the number of contract-months
available, the number of contract-months under firm commitments, and the
percentage of available months committed for each of 1996 and 1997, determined
on the basis of executed contracts as of December 31, 1995, excluding
customer option periods. The number of rigs in each category is indicated in
parenthesis.
<TABLE>
<CAPTION>
1996 1997
---------------------------------------- ----------------------------------------
Rig Contract Rig Contract Percentage Rig Contract Rig Contract Percentage
Months Months Committed/ Months Months Committed/
Available Committed Available Available Committed Available
------------ ------------ ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Jackups (23) 276 77 28% 276 2 1%
Semisubmersibles (2) 24 13 54% 24 - -
Drillships (1) 12 12 100% 12 4 33%
--- --- --- --
Total 312 102 33% 312 6 2%
=== === === ==
</TABLE>
<TABLE>
<CAPTION>
1996 1997
---------------------------------------- ---------------------------------------
Rig Contract Rig Contract Percentage Rig Contract Rig Contract Percentage
Months Months Committed/ Months Months Committed/
Available Committed Available Available Committed Available
------------ ------------ ---------- ------------ ------------ ----------
<S> <C> <C> <C> <C> <C> <C>
Gulf of Mexico (12) 144 26 18% 144 - -
West Africa (7) 84 30 36% 84 2 2%
North Sea (4) 48 21 44% 48 - -
Other (3) 36 25 69% 36 4 11%
--- --- --- ---
Total 312 102 33% 312 6 2%
=== === === ===
</TABLE>
The numbers of rigs in the preceding table reflect their locations
as of December 31, 1995.
As of December 31, 1995, the Company's contract drilling backlog was
approximately $130 million, $112 million of which is expected to be realized in
1996. The contract drilling backlog at December 31, 1994, was $70 million.
Drilling Contracts and Major Customers. Each of the Company's
drilling rigs is employed under an individual contract which extends over a
period of time covering either a stated term or the time required to drill a
well or number of wells. While the final contract for employment of a rig is
the result of negotiations between the Company and the customer, most
contracts are awarded based upon competitive bidding. The rates specified in
drilling contracts are generally on a per day basis, payable in U.S. dollars,
and vary depending upon the equipment and services supplied, the areas involved,
the duration of the work, competitive conditions and other variables. The
contracts provide for a basic dayrate during drilling operations, with lower
rates or no payment for periods of equipment breakdown, adverse weather, or
other conditions which may be beyond the control of the Company. When a rig
mobilizes to or demobilizes from an operating area, a contract may provide
for different dayrates, specified fixed amounts, or for no payment during the
mobilization period. A contract may be terminated by the customer if the rig is
destroyed or lost, if drilling operations are suspended for a specified period
of time due to a breakdown of major equipment or, in some cases, if other
events occur that are beyond the control of either party.
The Company's offshore contract drilling business is subject to the
usual risks associated with having a limited number of customers for its
services. In 1995, Shell Oil Company provided $51.2 million, or 11 percent, of
consolidated revenues. In 1994, no single customer provided more than 10
percent of consolidated revenues. In 1993, Arco provided $29.2 million, or
11 percent, of consolidated revenues.
Drilling Management Services
The Company provides drilling management services on a
turnkey basis through its wholly-owned subsidiaries, Applied Drilling Technology
Inc. ("ADTI") and Global Marine Integrated Services - International Inc.
("GMIS-I"), and through Global Marine Integrated Services - Europe ("GMIS-E"),
which is a division of GMDC. ADTI operates primarily in the U.S. Gulf of
Mexico, and GMIS-I and GMIS-E operate in areas other than the U.S. Gulf of
Mexico. For a guaranteed price, each will assume responsibility for the design
and execution of specific offshore drilling programs and deliver a logged or
loggable hole to an agreed depth. Compensation is contingent upon satisfactory
completion of the drilling program.
Since commencing operations in 1980, ADTI has completed 233 turnkey
wells as of December 31, 1995, including 57 in 1995, 50 in 1994, and 18 in 1993.
GMIS-E completed six wells in 1995 and two wells in 1994, its first year of
operations. GMIS-I completed four wells in 1995, its first year of operations.
As of December 31, 1995, the Company's drilling management services
backlog was approximately $25 million, all of which is expected to be realized
in 1996. As of December 31, 1994, the drilling management services backlog was
approximately $57 million.
The Company, as well as several of its offshore drilling competitors
and other oil service companies, has also started offering services as a general
contractor under arrangements variously described as "partnering," "full service
contracting," and "integrated drilling services" arrangements, among others.
When the Company acts as a general contractor, it provides planning, engineering
and management services beyond the scope of its traditional contract drilling
business, and thereby assumes greater liability. In 1994 and 1995,
respectively, GMIS-E and GMIS-I began providing such planning, engineering
and management services, as well as turnkey drilling services, in areas other
than the U.S. Gulf of Mexico.
Oil and Gas Operations
Oil and gas exploration, development and production activities are
conducted through Challenger Minerals Inc. ("CMI"), which is a wholly-owned
subsidiary of the Company. Such activities primarily include participation in
the development and operation of properties for oil and gas production. In
addition, the Company incurs through ADTI and other subsidiaries certain
limited exploration and leasehold acquisition costs in connection with its
turnkey drilling operations. Substantially all of the Company's oil and gas
activities are conducted in the United States offshore Louisiana and Texas and
onshore in Oklahoma and Texas.
Sales Prices and Production Costs. The following table summarizes the
Company's oil and gas sales prices and production costs:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
Average sales prices:
<S> <C> <C> <C>
Gas (per MCF) $ 1.57 $ 1.86 $ 1.98
Oil (per barrel) $16.89 $15.79 $16.89
Average production cost:
Oil and natural gas (per BTU equivalent MCF of gas) $ .34 $ .46 $ .37
</TABLE>
Productive Wells. The following table summarizes the Company's gross and
net wells as of December 31, 1995, including producing wells and those that are
shut-in but capable of producing:
<TABLE>
Gross Wells Net Wells
------------ --------------
Oil Gas Oil Gas
----- ----- ----- -----
Offshore
<S> <C> <C> <C> <C>
Louisiana 11 11 1.48 1.73
Texas - 17 - 2.79
--- --- ---- ----
Total offshore 11 28 1.48 4.52
--- --- ---- ----
Onshore
Oklahoma 2 - .14 -
Texas - 1 - .11
--- --- ---- ----
Total onshore 2 1 .14 .11
--- --- ---- ----
13 29 1.62 4.63
=== === ==== ====
</TABLE>
For purposes of the tables included in this report, a gross
well or a gross acre is a well or acre in which a working interest is owned by
the Company. A net well or net acre is used to show the cumulative total of the
Company's fractional working interests in one or more wells or acres.
Developed and Undeveloped Acreage. The following table summarizes the
Company's developed and undeveloped acreage as of December 31, 1995:
<TABLE>
Developed Acreage Undeveloped Acreage
----------------------- ----------------------
Gross Acres Net Acres Gross Acres Net Acres
----------- --------- ----------- ---------
Offshore
<S> <C> <C> <C> <C>
Louisiana 35,134 6,114 26,988 11,579
Texas 10,280 1,735 7,040 1,568
------- ------ ------- -------
Total offshore 45,414 7,849 34,028 13,147
Onshore
Louisiana 205 1 - -
Oklahoma 64 18 - -
Texas 325 74 - -
------- ------ ------- -------
Total onshore 594 93 - -
------- ------ ------- -------
46,008 7,942 34,028 13,147
======= ====== ======= =======
</TABLE>
Drilling Activities. The following table shows the Company's gross and net
exploratory and development wells drilled during the years indicated:
<TABLE>
1995 1994 1993
------------ ------------- -------------
Gross Net Gross Net Gross Net
----- --- ----- --- ----- ---
Exploratory
<S> <C> <C> <C> <C> <C> <C>
Gas 1 .10 4 .68 1 .20
Dry 3 .50 4 .95 4 .88
Development
Gas 1 .17 2 .34 - -
Total
Gas* 2 .27 6 1.02 1 .20
Dry 3 .50 4 .95 4 .88
--- ---- --- ----- --- -----
5 .77 10 1.97 5 1.08
=== ==== === ===== === =====
______________
* Includes wells that are shut-in but capable of producing.
</TABLE>
At December 31, 1995, the Company was participating in the drilling of one
well in which the Company had a ten percent working interest.
Competition and Industry Conditions
Offshore contract drilling is a highly competitive and cyclical business.
It is characterized by high capital costs, long lead times for construction of
new rigs and numerous industry participants, none of which has a significant
market share but several of which have substantially greater financial resources
than the Company. Offshore drilling rigs have few alternative uses and, because
of their nature and the environment in which they work, have relatively high
maintenance costs whether employed or unemployed. Contracts are awarded on a
competitive bid basis and, while an operator selecting a rig may consider, among
other things, quality of service and equipment, price competition is the primary
factor in determining which qualified contractor is awarded a job. In addition,
the Company's offshore drilling business is subject to the usual risks
associated with having a limited number of customers for its services.
From 1982 through 1994, the offshore contract drilling market was
adversely affected by a supply of offshore rigs that significantly exceeded rig
demand as well as by a reduced level of demand generally for such equipment.
The reduced demand principally was the result of low oil and gas prices,
reductions in the exploration and development expenditures of the Company's
customers, and prolonged uncertainty and volatility in oil and gas prices.
Although oil prices have not increased to any significant extent, drilling
markets have strengthened considerably over the past twelve months. The number
of rigs under contract has increased, the number of available rigs has
declined, and dayrates for newly contracted rigs have risen, particularly for
semisubmersibles in the North Sea. Despite the overall improvements, the
Company estimates that market dayrates on average are at only one-half of the
levels required to justify significant new rig construction. The Company cannot
predict the future level of demand or dayrates for the Company's contract
drilling services or the timing or extent of any further improvement in the
industry. Worldwide military, political and economic events, including
initiatives by the Organization of Petroleum Exporting Countries ("OPEC"),
are likely to continue to cause oil and gas price volatility. Factors which
influence demand for the Company's services include the ability of OPEC to
set and maintain production levels and prices, the level of production by
non-OPEC countries, worldwide demand for oil and gas, and contract and other
terms sought by various governments to explore and develop oil, gas and other
hydrocarbons within their offshore waters.
ADTI, GMIS-I and GMIS-E compete with other participants in the drilling
management services industry, some of which have greater resources. In
addition, the Company's drilling management services business is subject to
the usual risks associated with having a limited number of customers for
its services.
Cash flow from the Company's drilling management services may be limited
by certain factors, in particular, the ability of the Company to obtain and
successfully perform turnkey drilling contracts based on competitive bids, which
in turn is largely dependent on the number of such contracts available for
bid. Accordingly, results of the Company's drilling management service
operations may vary widely from year to year. Furthermore, turnkey operations
may be constrained by the availability of rigs as demand for rigs increases.
In the U.S. Gulf of Mexico, ADTI relied on third-party rigs for approximately
97 percent of its rig-time in 1995, and had an average of five rigs under
short-term contracts during the year. To minimize the risk of not having a
rig available for a turnkey job, ADTI considers and may undertake to commit to
several rigs under term contracts of from three to twelve months. In the North
Sea and West Africa, the market for turnkey drilling is not well established,
and growth in these markets may be constrained by rig availability in 1996.
With respect to the Company's oil and gas operations, CMI experiences
competition from other oil and gas companies in all phases of its operations.
Many competing companies have substantially greater financial and other
resources. The Company's oil and gas business has been adversely affected
by the same oil and gas market conditions that have affected the Company's
contract drilling operations over the past several years, including low prices,
prolonged uncertainty and price volatility. A worldwide surplus of oil has
affected and continues to affect the prices received for the Company's oil
production.
The Company's oil and gas production operations and economics are also
affected by governmental regulation, the use and allocation of oil and
natural gas, the extent of domestic production, and the levels of imports and of
prices of competitive fuels. They are also affected by fluctuation in demand
in the Company's market areas due to excess supplies of oil, as well as
seasonal demand factors, tax and other laws relating to the petroleum industry
and changes in such laws, and by constantly changing administrative regulations.
Operational Risks and Insurance
The Company's operations are subject to the usual hazards incident to the
drilling of oil and gas wells, such as blowouts, explosions, oil spills and
fires, which can severely damage or destroy equipment or cause environmental
damage. The Company's activities are also subject to perils peculiar to marine
operations, such as collision, grounding, and damage or loss from severe
weather. These hazards can cause personal injury and loss of life, severe
damage to and destruction of property and equipment, pollution or environmental
damage, and suspension of operations.
The Company maintains insurance coverage against certain general and marine
public liability, including liability for personal injury, in the amount of $200
million, subject to a self-insured retention of no more than $250,000 per
occurrence. In addition, the Company's rigs and related equipment are
separately insured under hull and machinery policies against certain marine and
other perils, subject to a self-insured retention generally of no more than
$300,000 per occurrence. The Company's current practice is to insure each
active rig for its market value. Although each rig is insured for at least its
financial book value, the Company's insurance does not cover all costs that
would be required to replace each rig. In addition to hull and machinery
coverage, the Company purchases rig business interruption insurance with respect
to its operating rigs. Business interruption coverage applies only to business
interruptions as a result of a loss insured under hull and machinery policies.
The deductible for business interruption claims is 30 days. As a result of
historical claims involving damage to the "spud cans" (i.e., the bases of the
legs of jackup rigs) of certain of the Company's jackup drilling units, insurers
have excluded business interruption coverage with respect to spud can damage
incurred after May 3, 1992. Although the Company currently purchases rig
business interruption insurance with respect to all of its operating rigs,
the decision to insure a rig against interruption risks is dependent on a number
of factors, including dayrate and utilization levels, and no assurance can be
made that the Company will continue to insure any or all of its operating rigs
against such risks. All of the Company's rigs which are operated
internationally are presently insured against loss due to war, including
terrorism.
The Company is permitted under the terms of the rig mortgages securing
the Senior Secured Notes to change the limits on its general and marine public
liability insurance to $150 million, and to be subject, with respect to such
liability insurance and its marine hull and machinery insurance, to self-insured
retention amounts of up to $1 million per occurrence. In addition, the
indenture governing the Senior Secured Notes contains certain restrictions
regarding the use of insurance proceeds received by the Company due to the loss
of any Company-owned rig other than the Glomar Baltic I, the Glomar Adriatic
IX, the Glomar Adriatic X, the Glomar Adriatic XI and the Glomar Beaufort
Sea I.
Although the general and marine public liability policies cover
liability for pollution under most circumstances, they do not cover liability
for bringing a well under control following a blowout. In the case of turnkey
drilling operations, the Company maintains insurance covering the cost of
controlling the well, including any environmental damage resulting therefrom,
the cost of cleanup, and the cost of redrilling ("well control liabilities") in
an amount not less than $20 million per occurrence subject to a self-insured
retention of $200,000 per occurrence. Under turnkey drilling contracts, the
Company generally assumes the risk of the cost of well control, but on
occasion the Company receives indemnification from the customer for such risk in
excess of the $20 million insurance coverage. In many instances, however, the
Company is not indemnified by its customers for well control liabilities.
Furthermore, the Company is not insured against certain drilling risks, such
as stuck drill stem and loss of in-hole equipment not arising from an insured
peril, that could result in delays or nonperformance of a turnkey drilling
contract. In connection with the Company's offshore contract drilling
operations, the Company is generally indemnified for any cost of well control by
its customers. In any event, however, the Company maintains insurance against
such liabilities in the amount of $50 million per occurrence subject to a
self-insured retention of $200,000 per occurrence.
The occurrence of a significant event, including pollution or environmental
damage, not fully insured or indemnified against or the failure of a customer to
meet its indemnification obligations, could materially and adversely affect the
Company's operations and financial condition. Moreover, no assurance can be
made that the Company will be able to maintain adequate insurance in the future
at rates it considers reasonable. See "-- Governmental Regulations and
Environmental Matters."
Foreign Operations
A significant portion of the Company's revenues is attributable to
drilling operations in foreign countries. Such activities accounted for 41
percent, 29 percent and 44 percent of the Company's total revenues in 1995, 1994
and 1993, respectively. Risks associated with the Company's operations in
foreign areas include risks of war and civil disturbances or other risks that
may limit or disrupt markets, expropriation, nationalization, renegotiation or
nullification of existing contracts, foreign exchange restrictions and currency
fluctuations, foreign taxation, changing political conditions and foreign and
domestic monetary policies. To date, the Company has experienced no material
loss as a result of any of these factors. Additionally, the ability of the
Company to compete in the international drilling market may be adversely
affected by foreign governmental regulations favoring or requiring the awarding
of drilling contracts to local contractors, or by regulations requiring foreign
contractors to employ citizens of, or purchase supplies from, a particular
jurisdiction. Furthermore, foreign governmental regulations, which may in
the future become applicable to the industry served by the Company, could reduce
demand for the Company's services, or such regulations could directly affect the
Company's ability to compete for customers.
Governmental Regulations and Environmental Matters
The Company's business is affected by changes in public policy and by
federal, state, foreign and local laws and regulations relating to the energy
industry. The adoption of laws and regulations curtailing exploration and
development drilling for oil and gas for economic, environmental and other
policy reasons adversely affects the Company's operations by limiting
available drilling and other opportunities in the energy service industry.
The Company's operations are subject to numerous federal, state and
local laws and regulations controlling the discharge of materials into the
environment or otherwise relating to the protection of the environment. For
example, the Company, as an operator of mobile offshore drilling units in
navigable U.S. waters and certain offshore areas, including the Outer
Continental Shelf, is liable for damages and for the cost of removing oil spills
for which it may be held responsible, subject to certain limitations. The
Company's operations may involve the use or handling of materials that may be
classified as environmentally hazardous substances. Laws and regulations
protecting the environment have generally become more stringent, and may in
certain circumstances impose "strict liability," rendering a person liable
for environmental damage without regard to negligence or fault. The Company
does not believe that environmental regulations have had any material adverse
effect on its capital expenditures, results of operations or competitive
position to date, and does not presently anticipate that any material
expenditures will be required to enable it to comply with existing laws and
regulations. It is possible, however, that modification of existing regulations
or the adoption of new regulations in the future, particularly with respect to
environmental and safety standards, could have such a material adverse effect
on the Company's operations.
The U.S. Oil Pollution Act of 1990 ("OPA '90") and similar legislation
enacted in Texas, Louisiana and other coastal states address oil spill
prevention and control and significantly expand liability exposure across all
spectrums of the oil and gas industry. The Company is of the opinion that it
maintains sufficient insurance coverage to respond to the added exposures.
OPA '90 also mandated increases in the amounts of financial responsibility
that must be certified with respect to mobile offshore drilling units and
offshore facilities (e.g. oil and gas production platforms, among others)
located in U.S. waters. Operators of mobile offshore drilling units, together
with operators of vessels, must provide evidence of financial responsibility
based on a tonnage formula, which, in the Company's case, would not exceed $15
million for its largest rig located in U.S. waters. The Company has complied
with the requirement by providing evidence of adequate U.S.-based net worth.
The Company's inability to comply with the rule in the future, however, could
have a material adverse effect on its operations and financial condition.
During 1995, 45 percent of the Company's contract drilling revenues were
attributable to operations in U.S. waters, and, as of February 15, 1996, 11 of
the Company's 26 active rigs were located in U.S. waters.
Under OPA '90, lessees, permittees, or holders of a right of use for
offshore facilities will be required to certify evidence of financial
responsibility in the amount of $150 million. The Department of the Interior
("DOI") is responsible for promulgating regulations implementing the new
financial responsibility requirements with respect to offshore facilities.
The Minerals Management Service of the DOI issued an Advance Notice of Proposed
Rulemaking in 1993 which contemplated regulations for offshore facilities
similar to the Coast Guard regulations for vessels. The DOI solicited comments
from the offshore oil industry with respect to the proposed regulations, which
will also be subject to review and comment before adoption. The DOI
regulations, with the regulations promulgated by the Coast Guard, could
adversely affect CMI as well as GMDC and ADTI. CMI presently operates an
offshore production platform, and ADTI's business and GMDC's operations in
the Gulf of Mexico are largely dependent on oil and gas companies' drilling
activities, which, in turn, ultimately depend on their ability to meet the OPA
'90 financial responsibility requirements. The DOI regulations, however, are
not expected to be promulgated until Congress has had an opportunity to
reevaluate the $150 million financial responsibility requirements. The Company
cannot predict the exact nature or effect of any regulations promulgated
under OPA '90 or any amendments thereto.
Employees
The Company had approximately 2,100 employees at December 31, 1995. The
Company requires highly skilled personnel to operate its drilling rigs. In
recognition of this, the Company conducts extensive personnel training and
safety programs.
Executive Officers of the Registrant
The name, age as of December 31, 1995, and office or offices currently
held by each of the executive officers of the Company are as follows:
<TABLE>
Name Age Office or Offices
---- --- -----------------
<S> <C> <C>
David A. Herasimchuk 53 Vice President, Market Development
Thomas R. Johnson 47 Vice President and Corporate Controller
Gary L. Kott 53 President and Chief Operating Officer of
Global Marine Drilling Co.
C. Russell Luigs 62 Chairman of the Board, President and Chief
Executive Officer
Jon A. Marshall 44 Group Vice President of the Company, and
President of Challenger Minerals Inc.
Jerry C. Martin 63 Senior Vice President and Chief Financial
Officer
James L. McCulloch 43 Vice President and General Counsel
John G. Ryan 43 Chairman and Chief Executive Officer of
Global Marine Drilling Co., and Corporate
Secretary of the Company
Robert E. Sleet, Jr. 49 Vice President and Treasurer
</TABLE>
Officers serve for a one-year term or until their successors
are elected and qualified to serve. Each executive officer's principal
occupation has been as an executive officer of the Company for more
than the past five years, with the exception of Messrs. Marshall and
McCulloch. Mr. Marshall has served as the Company's Group Vice President since
February 1995, prior to which he had been President of Applied Drilling
Technology Inc. and Challenger Minerals Inc. since April 1992. From
1990 to April 1992, he was Applied Drilling Technology's Vice President of
Operations, prior to which he held various operating positions with Applied
Drilling Technology Inc. and with Global Marine Drilling Company. Mr. McCulloch
has served in his present position since May 1993 and has had general
supervision of the Company's legal affairs since February 1993, prior to which
he was the Company's Vice President, Litigation and Risk Management.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the Company's security
holders during the fourth quarter of 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock, $0.10 par value per share, is listed on the
New York Stock Exchange under the symbol "GLM." At January 31, 1996, there were
8,015 stockholders of record of the Common Stock. The high and low sales prices
of the Common Stock as reported on the New York Stock Exchange Composite
Transactions Tape for each full quarterly period within the past two years
appear under "Consolidated Selected Quarterly Financial Data," which follows the
notes to the consolidated financial statements.
The Company has not declared any dividends on its common stock since 1985.
Subject to the preferential dividend rights of holders of the Company's
preferred stock, if any, the holders of the Common Stock will be entitled to
receive when, as and if declared by the Board of Directors out of funds legally
available therefor, all other dividends payable in cash, in property, or in
shares of Common Stock. The indenture governing the Company's Senior Secured
Notes contains certain restrictions with respect to the payment of dividends on
the Common Stock (other than stock dividends). (See Note 6 of Notes to
Consolidated Financial Statements.) It is not expected that dividends will be
declared or paid on the Common Stock in the foreseeable future.
<TABLE>
<CAPTION>
ITEM 6. SELECTED FINANCIAL DATA
GLOBAL MARINE INC. AND SUBSIDIARIES
FIVE-YEAR REVIEW
(Dollars in millions, except per share data)
------------------------------------------------------
1995 1994 1993 1992 1991
------------------------------------------------------
Financial Performance
Revenues:
<S> <C> <C> <C> <C> <C>
Contract drilling $ 248.9 $ 211.4 $ 200.3 $ 214.1 $ 249.9
Drilling management services 209.3 137.8 57.1 26.9 37.2
Oil and gas 9.8 9.8 11.6 19.3 28.1
------- ------- ------ ------- -------
Total revenues $ 468.0 $ 359.0 $ 269.0 $ 260.3 $ 315.2
======= ======= ======= ======= =======
Operating income:
Contract drilling $ 54.6 $ 25.6 $ 4.5 $ 17.3 $ 49.2
Drilling management services (1) 17.3 10.8 7.6 (2.2) 4.5
Oil and gas 3.4 3.7 5.3 3.2 9.1
Corporate expenses (15.0) (14.0) (14.2) (13.5) (13.7)
------- ------- ------- ------- -------
Total operating income 60.3 26.1 3.2 4.8 49.1
------- ------- ------- ------- -------
Other income (expense):
Interest expense (30.2) (30.2) (32.1) (43.6) (49.9)
Interest capitalized 5.6 3.7 - - -
Interest income 4.7 3.8 2.7 2.8 3.5
Gain on sale of offshore drilling rigs 14.7 - - 10.9 -
Litigation settlement - - - 55.0 -
Other - 2.0 - 0.7 0.8
------- ------- ------- ------- -------
Total other income (expense) (5.2) (20.7) (29.4) 25.8 (45.6)
------- ------- ------- ------- -------
Income (loss) before income taxes 55.1 5.4 (26.2) 30.6 3.5
Income tax expense 3.2 0.6 0.3 3.1 2.5
------- ------- ------- ------- -------
Income (loss) before extraordinary item and
cumulative effect of accounting changes 51.9 4.8 (26.5) 27.5 1.0
Extraordinary gain on extinguishment of debt - - - 28.3 -
Cumulative effect of accounting changes, net - (3.5) - 1.4 -
------- ------- ------- ------- -------
Net income (loss) $ 51.9 $ 1.3 $ (26.5) $ 57.2 $ 1.0
======= ======= ======= ======= =======
Primary net income (loss) per common share:
Before extraordinary item and cumulative
effect of accounting changes $ 0.31 $ 0.03 $ (0.17) $ 0.24 $ 0.01
Extraordinary gain on extinguishment of debt - - - 0.24 -
Cumulative effect of accounting changes, net - (0.02) - 0.01 -
------- ------- ------- ------- -------
Primary net income (loss) per common share $ 0.31 $ 0.01 $ (0.17) $ 0.49 $ 0.01
======= ======= ======= ======= =======
Average common shares outstanding 165.1 163.8 152.01 16.3 109.2
Dividends declared per common share (2) $ - $ - $ - $ - $ -
Capital expenditures $ 73.5 $ 75.9 $ 40.6 $ 20.9 $ 22.7
Financial Position (end of year)
Working capital $ 116.2 $ 93.4 $ 107.2 $ 30.7 $ 88.4
Net properties $ 386.6 $ 353.4 $ 314.6 $ 318.0 $ 353.7
Total assets $ 563.0 $ 512.4 $ 492.9 $ 479.9 $ 523.7
Long-term debt, including current maturities $ 225.0 $ 225.0 $ 225.0 $ 249.0 $ 391.8
Shareholders' equity $ 269.0 $ 212.3 $ 205.4 $ 154.5 $ 44.6
Operational Data
Average rig utilization (3) (4) 99% 94% 91% 81% 89%
Fleet average dayrate (5) $28,700 $25,600 $25,600 $27,600 $29,300
Number of active rigs (end of year) (4) 26 27 24 24 26
Turnkey wells completed 67 52 18 10 16
Number of employees (end of year) 2,100 1,700 1,500 1,500 1,900
- -----------------
(1) Excludes the aggregate net profit earned on turnkey wells drilled on oil
and gas properties in which the Company has working interests.
(2) The indenture governing the Senior Secured Notes contains certain
restrictions with respect to the payment of dividends on the Common
Stock (other than stock dividends). See Note 6 of Notes to Consolidated
Financial Statements.
(3) The average rig utilization rate for a period is equal to the ratio of
days in the period during which the rigs were under contract to the total
days in the period during which the rigs were available to work.
(4) Excludes the Company's Concrete Island Drilling System, a currently
inactive, special-purpose mobile offshore rig designed for arctic
operations.
(5) Contract drilling revenues less non-rig related revenues divided by the
aggregate contract days, adjusted to exclude days under contract at zero
dayrate.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Operating Results
Summary
For 1995, operating income increased to $60.3 million from $26.1 million
for 1994. The improvement in operating results was primarily due to generally
higher contract drilling dayrates and utilization, lower depreciation expense
due to a change in estimated rig service lives, the commencement of operations
in 1995 of three offshore drilling rigs purchased in 1994, and an increase in
the number of turnkey wells completed.
For 1994, operating income increased to $26.1 million from $3.2 million for
1993. The improvement in operating results was due to (i) higher revenues
and lower operating expenses attributable to operating five additional rigs in
the lower-cost Gulf of Mexico market during 1994 compared to 1993, when the
rigs were operating for a portion of the year in weaker, higher-cost foreign
markets, (ii) the full-year effect of three rigs acquired from Transocean
Drilling AS in September 1993, (iii) lower mobilization expense attributable to
moving fewer rigs during 1994, (iv) increased contract drilling dayrates in the
U.S. Gulf of Mexico for 1994 compared to 1993, and (v) an increase in the number
of turnkey drilling contracts completed. These improvements were partially
offset by lower turnkey profit margins, normal declines in oil and gas
production and lower oil and gas sales prices.
Data relating to the Company's operations by business segment follows:
<TABLE>
<CAPTION>
Increase/ Increase/
1995 (Decrease) 1994 (Decrease) 1993
---- ---------- ---- ---------- ----
(Dollars in millions)
Revenues:
<S> <C> <C> <C> <C> <C>
Contract drilling $258.4 20% $215.4 6% $203.1
Drilling management 212.8 49% 142.8 138% 59.9
Oil and gas 9.8 - 9.8 (16%) 11.6
Less: Intersegment revenues (13.0) 44% (9.0) 61% (5.6)
------ ------ ------
$468.0 30% $359.0 33% $269.0
====== ====== ======
Operating income:
Contract drilling $ 54.6 113% $ 25.6 469% $ 4.5
Drilling management 17.3 60% 10.8 42% 7.6
Oil and gas 3.4 (8%) 3.7 (30%) 5.3
Corporate expenses (15.0) 7% (14.0) (1%) (14.2)
------ ------ ------
$ 60.3 131% $ 26.1 716% $ 3.2
====== ====== ======
</TABLE>
The Company reported net income of $51.9 million for 1995 as compared
with net income of $1.3 million for 1994 and a net loss of $26.5 million for
1993. Net income for 1995 included a $14.7 million gain on the sale of the
offshore drilling rig, Glomar Main Pass III. Net income for 1994 included a
$3.5 million charge for the cumulative effect of a required change in accounting
for postemployment benefits. Excluding such nonrecurring items, net income for
1995 and 1994 was $37.2 million and $4.8 million, respectively, compared to a
net loss of $26.5 million for 1993.
In the U.K. sector of the North Sea, increased rig demand and a decrease in
the number of rigs available have resulted in higher contract drilling dayrates
in 1995 as compared with 1994, particularly for semisubmersible rigs. A current
oversupply of natural gas in the North Sea's U.K. sector, however, has
created uncertainty regarding future demand for North Sea jackups. An
oversupply of jackups in the North Sea, which could result from any reduction in
future demand, could put downward pressure on dayrates and utilization rates for
the Company's two jackup drilling rigs which operate in the U.K. sector of
the North Sea. Demand in other sectors of the North Sea remains strong.
Offshore West Africa, industry utilization and dayrates have steadily improved
since the end of 1994. In the U.S. Gulf of Mexico, industry demand began
weakening in late December 1994 due to seasonal factors, but stabilized
during the first quarter of 1995. Since March 1995, demand in the U.S. Gulf
of Mexico has increased, and, as of December 31, 1995, 141 Gulf rigs were under
contract, up from a low of 109 earlier in the year.
Contract Drilling Operations
Data with respect to the Company's contract drilling operations follows:
<TABLE>
<CAPTION>
Increase/ Increase/
1995 (Decrease) 1994 (Decrease) 1993
------ ---------- ------ ---------- ------
(Dollars in millions, except for fleet average dayrate)
Contract drilling revenues by area: (1)
<S> <C> <C> <C> <C> <C>
Gulf of Mexico $ 112.9 (1%) $ 113.7 49% $ 76.4
North Sea 55.6 91% 29.1 (49%) 57.2
West Africa 55.3 74% 31.8 1% 31.6
Other 34.6 (15%) 40.8 8% 37.9
------- ------- -------
$ 258.4 20% $ 215.4 6% $ 203.1
======= ======= =======
Average rig utilization (2) 99% 94% 91%
Fleet average dayrate $28,700 $25,600 $25,600
- -------------------
(1) Includes revenues earned from affiliates.
(2) Excludes the Company's Concrete Island Drilling System, a currently
inactive, special-purpose mobile offshore rig designed for arctic
operations.
</TABLE>
Of the $43.0 million increase in contract drilling revenues
for 1995 compared to 1994, $26.4 million was attributable to increases in
dayrates, $14.2 million was attributable to increases in rig utilization, and
$2.4 million was attributable to an increase in non-dayrate revenue. On a
regional basis, revenues from the North Sea increased by $26.5 million due to
higher utilization and dayrates. The $23.5 million increase in revenues
attributable to offshore West Africa was primarily the result of the
full-year effect of two rigs mobilized to West Africa from other areas in
1994 and the commencement of operations of the Glomar Adriatic IX and Glomar
Adriatic X in 1995. The $6.2 million decline in revenues in the "other"
category for 1995 compared to 1994 was due to the mobilization of the two rigs
to West Africa in 1994 noted above.
Of the $12.3 million increase in contract drilling revenues for
1994 compared to 1993, $16.7 million was attributable to increases in rig
utilization and $2.0 million was attributable to increases in dayrates. Such
increases were partially offset by a decrease of $6.4 million in non-dayrate
revenue primarily attributable to the completion of an integrated services
contract in the North Sea in December 1993. Regionally, revenues from the Gulf
of Mexico increased by $37.3 million due to (i) the 1993 mobilization to the
Gulf of two rigs from West Africa and three rigs from the North Sea, (ii) the
full-year effect of two of three rigs acquired from Transocean Drilling AS
and (iii) higher dayrates for the Company's other rigs in the Gulf of Mexico.
Revenues from the North Sea decreased by $28.1 million due to (i) the
mobilization of the three rigs from the North Sea to the Gulf of Mexico in 1993,
(ii) the sale of the offshore drilling rig, Glomar Moray Firth, to Transocean
Drilling AS in September 1993 and the termination of a management contract with
respect to that rig in December 1993, and (iii) lower North Sea dayrates and
utilization. The $2.9 million increase in revenues in the "other" category for
1994 compared to 1993 was due to higher dayrates and utilization with respect to
one rig in the Far East, the 1993 mobilization of one rig to Trinidad from the
Gulf of Mexico, and the full-year effect of one of the three rigs acquired from
Transocean Drilling AS in September 1993, partially offset by the mobilization
of one rig from Alaska to West Africa in the fourth quarter of 1994 and the
termination of a management contract in Alaska during 1993.
Effective January 1, 1995, the Company increased to 25 years the estimated
useful lives of its jackup drilling rigs and increased to 20 years the estimated
useful lives of its semisubmersible drilling rigs and drillship. In addition,
salvage values were reduced to $500,000 per rig for jackups and $1,000,000 per
rig for both semisubmersibles and the drillship. The effect of the change in
estimated service lives and salvage values was to decrease 1995 depreciation
expense by approximately $11.2 million. Depreciation expense for contract
drilling operations totaled $27.4 million for 1995, $34.9 million for 1994 and
$32.0 million for 1993. The number of rigs subject to depreciation averaged 25
rigs in 1995 and 1994 and 24 rigs in 1993. Three rigs, the Glomar Adriatic IX,
Glomar Adriatic X, and Glomar Adriatic XI, were not in service nor subject to
depreciation for part of 1995. The Glomar Adriatic IX and Glomar Adriatic X
were purchased by the Company in February 1994 and began undergoing
refurbishment at that time. Refurbishment of the Glomar Adriatic IX was
completed in March 1995, and the rig was mobilized to Nigeria where it began
drilling in May. Refurbishment of the Glomar Adriatic X was completed in
October 1995, and the rig was mobilized to Angola where it began drilling
for a customer in November. The Glomar Adriatic XI was purchased by the
Company in November 1994 and began operations for a customer in the North Sea in
October 1995 after extensive modifications were completed.
The Company's operating profit margin for contract drilling operations
for 1995 increased to 21 percent from 12 percent in 1994 and 2 percent in 1993.
The increase in operating profit margin in 1995 compared to 1994 was due to the
decrease in depreciation expense discussed above as well as to higher dayrates
earned on the Company's rigs in 1995. Operating expenses other than
depreciation increased by $21.5 million in 1995 compared to 1994. The increase
in operating expenses in 1995 was due in part to (i) the 1995 commencement of
operations of the Glomar Adriatic IX, Glomar Adriatic X and Glomar Adriatic XI,
(ii) a higher payout under a net revenue-sharing arrangement with Transocean
Drilling AS with respect to two rigs, (iii) the March 1995 commencement of a
drilling contract in Nigeria for a rig which was mobilized from Alaska where it
had been on standby for a customer in 1994, (iv) the September 1994 commencement
of a drilling contract in Angola for a rig which was previously leased to an
operator in Saudi Arabia under a bareboat charter agreement, and (v) higher
utilization of three North Sea rigs which were idle for a significant part of
1994. The operating profit margin for 1993 was relatively low primarily as a
result of the cost of mobilizing a number of rigs from the North Sea and
West Africa to the Gulf of Mexico in 1993, as well as to lower dayrates and
utilization in 1993.
For the offshore drilling industry as a whole, the number of rigs under
contract in the Gulf of Mexico increased throughout 1993 due to stronger
domestic natural gas prices and a growing number of drilling prospects developed
from enhanced seismic technology. As demand in the Gulf increased, drilling
contractors during 1993 and 1994 relocated a significant number of offshore rigs
from weak overseas markets to the Gulf, resulting in downward pressure on
Gulf dayrates. A seasonal decline in demand beginning in December 1994 was
exacerbated by low natural gas prices, and the number of rigs under contract
industry-wide fell substantially from December 1994 to February 1995. As a
result of this weakening in demand, dayrates received for newly contracted
jackups in the Gulf of Mexico trended downward between November 1994 and March
1995. Despite stagnant natural gas prices in the first half of 1995, drilling
demand in the Gulf increased significantly since March and, as of December 31,
1995, 141 Gulf rigs were under contract. As demand increased, dayrates for
jackups in the Gulf began recovering. Aside from the seasonal recovery, the
strength in demand in the U.S. Gulf of Mexico beginning in the second quarter of
1995 can be attributed to, among other things, (i) improved seismic and
drilling technologies which have lowered the finding costs of oil and gas and
lower oil and gas producers' operating costs, making exploration and production
economical at lower oil and natural gas prices, and (ii) expectations of higher
future natural gas prices. For the full year, average demand in the Gulf
increased to 134 rigs under contract (76 percent utilization) for 1995 from 131
rigs (75 percent utilization) for 1994 and 118 rigs (78 percent utilization) for
1993. As of February 15, 1996, all eleven of the Company's rigs in the Gulf of
Mexico were under contract. The Company averaged 100 percent utilization for
its rigs in the Gulf of Mexico for 1995, 99 percent for 1994 and 95 percent for
1993.
In the U.K. sector of the North Sea, (i) promising oil discoveries west of
the Shetland Islands, (ii) operators' increased drilling to fulfill commitments
to drill previously awarded blocks, (iii) fewer available North Sea rigs, (iv)
increasing optimism with respect to the outlook for stable oil prices, and
(v) increased levels of operators' cash flow, among other factors, have resulted
in higher dayrates and utilization in the U.K. sector of the North Sea in 1995
compared to 1994, particularly for semisubmersible rigs. However, an oversupply
of natural gas in the U.K. sector of the North Sea has caused some gas drilling
programs to be delayed and has created uncertainty over future demand for North
Sea jackups, which in the U.K. drill predominantly for gas. An oversupply of
jackups in the North Sea, which could result from any reduction in future
demand, could put downward pressure on dayrates and utilization rates for the
Company's Glomar Labrador I and Glomar Adriatic XI jackups. Under the
Glomar Labrador I's current contract, which is expected to terminate in April
1996, the dayrate is subject to adjustment periodically based on an index of
market dayrates. The Glomar Adriatic XI is under contract through
approximately October 1996 at dayrates higher than or equal to the dayrate the
rig is presently receiving. The Company's two semisubmersible rigs operating in
the North Sea, the Glomar Arctic I and Glomar Arctic III, compete in markets
driven primarily by oil prices and are not expected to be affected by any
weakness caused by low natural gas prices. For the fourth quarter of 1995,
average drilling industry demand in the North Sea decreased to 76 rigs
under contract (94 percent utilization) from 77 rigs (96 percent utilization)
for the third quarter of 1995. For the full year, average demand in the
North Sea increased to 71 rigs under contract (90 percent utilization) for
1995 from 64 rigs (76 percent utilization) for 1994. For 1993, North Sea demand
averaged 81 rigs (79 percent utilization). As of February 15, 1996, all four of
the Company's rigs in the North Sea were under contract. The Company
averaged 100 percent utilization for its drilling rigs in the North Sea for
1995, 68 percent for 1994 and 83 percent for 1993.
During 1993, the civil war in Angola, a reduction of the Nigerian national
oil company's participation in ongoing projects and volatile oil prices caused
a reduction in the demand for drilling rigs offshore West Africa and,
accordingly, a reduction in dayrates. Despite the unrest, supply and demand
stabilized in 1994. As a result, the Company mobilized two offshore drilling
rigs, the Glomar High Island IX and the Glomar Adriatic VIII, from weakening
other markets to West Africa during 1994. In 1995, the Company placed into
service the recently acquired Glomar Adriatic IX and Glomar Adriatic X, which
commenced drilling operations offshore West Africa in May and November,
respectively. For the fourth quarter of 1995, average drilling industry demand
offshore West Africa increased to 35 rigs under contract (87 percent
utilization) from 32 rigs (84 percent utilization) for the third quarter of
1995. For the full year, average demand offshore West Africa increased
to 31 rigs under contract (83 percent utilization) for 1995 from 24 rigs (75
percent utilization) for 1994. For 1993, West African demand averaged 26 rigs
(70 percent utilization). In February 1996, the Company began mobilizing the
Glomar High Island III from the U.S. Gulf of Mexico to Angola where it will
begin drilling for a customer in March. The cost of the mobilization is
expected to be substantially reimbursed by the client. As of February 15,
1996, all eight of the Company's rigs located offshore West Africa, including
the Glomar High Island III, were under contract. The Company's average
utilization rate for its rigs located offshore West Africa was 95 percent for
1995, 98 percent for 1994 and 88 percent for 1993.
As of December 31, 1995, the worldwide industry utilization rate for
competitive offshore rigs was 83 percent, with 91 of the 546 worldwide
competitive rigs unemployed. The Company anticipates that contracts on 18 of
the Company's 26 rigs under contract as of February 15, 1996, will expire at
varying times on or prior to May 31, 1996. No assurance can be made that the
Company will obtain drilling contracts for its rigs upon the completion of
current contracts; however, short-term contracts have been typical in the
industry for the past decade, and the Company considers its upcoming contract
expirations typical of prevailing market conditions and consistent with the
normal course of business.
Drilling Management Services
Revenues for drilling management services increased by $70.0 million to
$212.8 million in 1995 from $142.8 million in 1994. Operating income
increased by $6.5 million to $17.3 million in 1995 from $10.8 million in 1994.
The $70.0 million increase in revenues for the year consisted of (i) a $41.9
million increase attributable to an increase in the number of wells drilled,
from 52 in 1994 to 67 in 1995, (ii) a $12.3 million increase attributable to
higher average turnkey revenues per well, (iii) $13.9 million from the
completion work on a multi-well North Sea turnkey project in 1995, and (iv) a
$1.9 million increase in other drilling management revenues. Average turnkey
revenues per well were higher because a higher percentage of the wells drilled
in 1995 were directional and/or deep, high-pressured wells as compared with
those completed in the prior year.
For 1994, drilling management services reported an $82.9 million increase in
revenues to $142.8 million from $59.9 million in 1993, and a $3.2 million
increase in operating income to $10.8 million from $7.6 million in 1993. The
improvement resulted from the completion of 52 wells in 1994 as compared to
18 wells in 1993, partially offset by lower average profit margins on the
1994 wells.
The increase in the number of turnkey wells drilled in 1995 and in 1994
was attributable in part to a more competitive pricing policy and oil and gas
operators' increased reliance on turnkey contractors to supplement internal
drilling staffs.
Operating income for drilling management services expressed as a
percentage of drilling management revenues declined to 8 percent for each of
1995 and 1994 as compared with 13 percent for 1993. Four wells in 1995
incurred losses aggregating $5.7 million, compared to losses on seven wells
aggregating $5.4 million in 1994, and no losses on wells in 1993.
Oil and Gas Operations
Data related to the Company's oil and gas production follows:
<TABLE>
<CAPTION>
Increase/ Increase/
1995 (Decrease) 1994 Decrease) 1993
---- ---------- ---- --------- ----
Gas:
Production (in millions
<S> <C> <C> <C> <C> <C>
of cubic feet) 4,382 9% 4,009 (12%) 4,557
Average sale price (per
thousand cubic feet) $1.57 (15%) $1.86 (6%) $1.98
Oil:
Production (in barrels) 169,317 15% 147,715 (4%) 154,436
Average sale price (per barrel) $16.89 7% $15.79 (7%) $16.89
</TABLE>
Despite higher oil and natural gas production and higher oil prices,
revenues from oil and gas were unchanged at $9.8 million for each of 1995 and
1994 due to a decline in the average price received for gas. The increase in
oil and gas production was due to production from new properties, partially
offset by normal production declines. Operating income of $3.4 million
for 1995 was slightly lower than for 1994 due principally to higher depletion
expense.
Oil and gas revenues in the amount of $9.8 million for 1994 were lower
than the $11.6 million of revenues reported for 1993 due to lower volumes of oil
and gas produced and lower oil and gas prices. Oil and gas production
decreased as a result of normal production declines, the 1993 sale of an oil
producing property, and the temporary suspension of production in order to
repair an oil and gas well in 1994, partially offset by production from two new
properties. Operating income of $3.7 million for 1994 was lower than the $5.3
million of operating income reported for 1993 due to the lower revenues
discussed above and higher costs associated with the development of new
prospects, offset in part by a lower depletion rate in 1994 as compared with
1993. Depletion expense decreased to $1.9 million for 1994 from $3.3 million
for 1993. The lower depletion rate resulted in part from the property sale
in 1993, and from the deferral of net profits earned on certain turnkey
drilling contracts, which reduced the depletable base.
Other Income and Expense
Interest expense was $30.2 million for each of 1995 and 1994 compared to
$32.1 million in 1993. The decrease in interest expense from 1993 to 1994 was
due to the reduction in long-term debt resulting from the retirement of the rig
mortgage note for the Glomar Baltic I in August 1993.
Interest capitalized increased by $1.9 million to $5.6 million in 1995 from
$3.7 million in 1994. Interest capitalized in 1994 was attributable to the
acquisition and refurbishment of two offshore drilling rigs, the Glomar Adriatic
IX and Glomar Adriatic X, which were acquired in February 1994. The increase in
interest capitalized in 1995 was primarily due to the construction work on
the Glomar Adriatic XI, which was acquired in November 1994, and to higher
amounts capitalized with respect to the Glomar Adriatic IX and Glomar Adriatic X
as a result of continuing capital expenditures. The higher interest
capitalization was offset in part by the completion of the refurbishment of
the Glomar Adriatic IX in the second quarter of 1995. Work on the Glomar
Adriatic X and Glomar Adriatic XI was completed in the fourth quarter of 1995.
Interest income increased by $0.9 million to $4.7 million in 1995 from
$3.8 million in 1994 primarily due to higher short-term investment balances.
Interest income increased to $3.8 million for 1994 from $2.7 million for 1993,
primarily due to the recognition of $0.8 million in connection with the
favorable 1994 settlement of the Company's demobilization obligations with
respect to a third-party owned rig aboard the Glomar Beaufort Sea I.
In June 1995 the Company completed the sale of its offshore drilling rig,
the Glomar Main Pass III, for $22.4 million in cash, net of expenses, and
recognized a gain of $14.7 million.
Other income for 1994 consisted of $1.4 million in dividend income and a
$0.6 million gain on the sale of marketable equity securities.
For 1995, the provision for income taxes was not significant due to the
utilization of net operating loss carryforwards for U.S. federal income tax
purposes. Income tax expense for 1995, 1994 and 1993 primarily consisted of
income taxes applicable to foreign countries in which the Company had no loss
carryforwards.
As of December 31, 1995, the Company had approximately $1.1 billion of
net operating loss carryforwards ("NOLs") expiring in various amounts at various
times from the year 2000 to 2009. The NOLs may be used to reduce taxable
income in future years prior to their expiration. The Company's ability to
utilize the NOLs is dependent on the amount and timing of future earnings.
Due to the uncertain nature of their ultimate realization, the Company has
not recognized on its balance sheet an asset for the amount of the future tax
benefits of the NOLs. Instead, the Company has recorded a valuation
allowance against the deferred tax asset in the amount of $381.8 million as
of December 31, 1995. The amount of the valuation allowance is subject to
periodic review. A reasonable possibility exists that the conditions which
existed at December 31, 1995 giving rise to the recognition of the valuation
allowance as of that date may change in the near term. If the allowance is
reduced in a future period, the adjustment would be recorded as a reduction to
income tax expense.
During 1994, the Company adopted Statement of Financial Accounting Standards
("SFAS") No. 112, "Employers' Accounting for Postemployment Benefits." The
cumulative impact of this change was to decrease 1994 net income by $3.5
million.
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation," which sets forth accounting and
disclosure requirements for stock-based compensation arrangements. The new
statement encourages, but does not require, companies to measure stock-based
compensation cost using a fair-value method, rather than the intrinsic-value
method prescribed by Accounting Principles Board ("APB") Opinion No. 25.
Companies choosing to continue to measure stock-based compensation using the
intrinsic-value method must disclose on a pro forma basis net income and net
income per share as if the fair-value method were used. The Company intends
to adopt the disclosure requirements of SFAS No. 123 in 1996 and to continue
to measure stock-based compensation cost using the intrinsic-value approach
prescribed by APB Opinion No. 25. Adoption of the new standard is not
expected to have a material effect on the Company's earnings.
Liquidity and Capital Resources
During the three-year period ended December 31, 1995, the Company entered
into a number of transactions designed to improve its financial and competitive
positions. In 1993 the Company sold 21,150,000 shares of common stock for $74.2
million, of which $26.0 million was used to retire a rig mortgage note and $17.0
million was used to pay part of the purchase price of three offshore drilling
rigs. In 1994 the Company sold marketable securities received in connection
with a 1992 settlement of natural gas take-or-pay litigation for total cash
proceeds of $30.8 million. The Company used the $30.8 million sale proceeds
plus available cash, for a total of $39.8 million, to purchase three offshore
drilling rigs in 1994. In 1994 and 1995, the Company spent an additional $56
million to refurbish and upgrade the three rigs purchased in 1994. Finally, in
1995 the Company sold a jackup rig for $22.4 million, recognizing a gain of
$14.7 million.
In 1995, cash flow provided by operating activities amounted to $75.0
million. An additional $23.9 million was provided from sales of properties and
equipment, primarily the sale of the Glomar Main Pass III. From the $98.9
million sum of cash flow from operations and proceeds from sales of properties
and equipment, plus available cash, $73.5 million was used for capital
expenditures, and $28.8 million was used for purchases of marketable securities
(net of maturities). In 1994, cash flow provided by operating activities
totaled $61.3 million, including $17.9 million in proceeds from the liquidation
of a promissory note received in connection with the 1992 settlement of the
Company's take-or-pay litigation.
As of December 31, 1995, the Company's long-term debt totaled $225.0
million, consisting entirely of 12-3/4% Senior Secured Notes due 1999 (the
"Senior Secured Notes"), and shareholders' equity totaled $269.0 million. The
annual interest on the Senior Secured Notes is $28.7 million, payable
semiannually, each June and December.
The Senior Secured Notes do not require any payments of principal prior
to their stated maturity in December 1999, but the Company is required to make
offers to purchase Senior Secured Notes upon the occurrence of certain events
defined in the indenture, such as asset sales, or a change of control, or
if the annual cash flow of the Company exceeds certain specified levels. In
the first quarter of 1996, the Company will make an offer to purchase, at a
price of 100 percent of principal, $39.3 million aggregate principal amount of
Senior Secured Notes from the sum of the excess cash flow for 1995 and the
proceeds of asset sales that were not applied to the purchase of Replacement
Assets as defined in the indenture. As of February 9, 1996, the quoted market
price of the Senior Secured Notes was 110 percent of principal, which exceeds
the price at which the Company is required to make its purchase offer. The
amount of Senior Secured Notes the Company will purchase, if any, is not
expected to be material. The portion of the $39.3 million of cash that is not
used to purchase Senior Secured Notes will become unrestricted and available to
the Company for general purposes upon termination of the Company's purchase
offer in the second quarter of 1996.
The Senior Secured Notes are not redeemable at the option of the Company
prior to December 15, 1997. On or after December 15, 1997, the Senior Secured
Notes are redeemable at the option of the Company, in whole at any time or in
part from time to time, at a price of 102 percent of principal if redeemed
during the twelve months beginning December 15, 1997, or at a price of 100
percent of principal if redeemed on or after December 15, 1998, in each case
together with interest accrued to the redemption date. The Company presently
expects that, absent unforeseen circumstances, it will seek to retire the Senior
Secured Notes from the Company's cash and marketable securities, to the extent
available, and/or the proceeds of debt financings as early as December 1997.
The indenture under which the Senior Secured Notes are issued imposes
significant operating and financial restrictions on the Company and requires
that a first lien in favor of the trustee be maintained, for the benefit of the
holders of Senior Secured Notes, on a significant portion of the Company's
material assets. Such restrictions affect, and in many respects limit or
prohibit, among other things, the ability of the Company to incur additional
indebtedness, make capital expenditures, create liens, sell assets, engage in
mergers or acquisitions, and make dividends or other payments. The restrictive
covenants contained in and liens provided for under the indenture could
significantly limit the ability of the Company to respond to changing business
or economic conditions or to respond to substantial declines in operating
results.
Capital expenditures for 1996 are estimated to be $35 million, principally
for improvements to the Company's drilling fleet.
As of December 31, 1995, the Company had $86.6 million in cash, cash
equivalents and marketable securities, including $42.1 million which was
restricted from use for general corporate purposes. The restricted amount
includes (i) $27.7 million in proceeds from asset sales and $11.6 million
in excess cash flow for 1995, which will become unrestricted only after and
to the extent not used to purchase Senior Secured Notes in the Senior Secured
Notes purchase offer in the first quarter of 1996, and (ii) $2.8 million
collateralizing outstanding operating letters of credit. As of December 31,
1994, the Company had $57.9 million in cash and marketable securities,
net of restricted amounts of $19.3 million.
An additional source of liquidity is the cash flow from the Company's oil
and gas properties and drilling management service operations, both of which
are available to service the Company's debt and to fund its working capital
requirements and capital expenditures. Cash flow from the Company's drilling
management services may be limited by certain factors, in particular, the
ability of the Company to obtain and successfully perform turnkey drilling
contracts based on competitive bids, which in turn is largely dependent on
the number of such contracts available for bid. Accordingly, results of the
Company's drilling management service operations may vary widely from quarter
to quarter and from year to year. Furthermore, turnkey operations may be
constrained by the availability of rigs as demand for rigs increases. In
the U.S. Gulf of Mexico, ADTI relied on third-party rigs for approximately
97 percent of its rig-time in 1995, and had an average of five rigs under
short-term contracts during the year. To minimize the risk of not having a
rig available for a turnkey job, ADTI considers and may undertake to commit
to several rigs under term contracts of from three to twelve months. In the
North Sea and West Africa, the market for turnkey drilling is not well
established, and growth in these markets may be constrained by rig
availability in 1996.
In February 1996, the Company entered into an agreement to extend to
December 1998 its $25 million revolving credit and letter of credit facility
with a major international bank. Under the credit facility, the Company may
borrow an amount of up to 80 percent of eligible accounts receivable.
Borrowings under the facility would accrue interest at the lowest of three
market-based interest rates. The unused portion of the line of credit is
subject to an annual commitment fee of .1875 percent. There were no
borrowings or letters of credit outstanding under the facility as of December
31, 1995 or 1994. As of December 31, 1995, the Company was eligible to
borrow the full $25 million under the revolving credit facility.
The Company believes that it will be able to meet all of its current
obligations, including capital expenditures and debt service, from its cash flow
from operations and its cash, cash equivalents and marketable securities.
As part of upgrading and expanding its rig fleet and other assets, the
Company considers and pursues the acquisition of suitable additional rigs and
other assets on an ongoing basis. If the Company decides to undertake an
acquisition, the issuance of additional shares of stock or additional debt could
be required. The Company may also consider the disposition of rigs and other
assets if and when a disposition can be effected on favorable terms.
Disposition proceeds, to the extent available, could also be used as a source of
acquisition financing.
In April 1995, the Company filed with the Securities and Exchange Commission
a Registration Statement on Form S-3 for the proposed offering from time to time
of (i) debt securities, which may be subordinated to other indebtedness of the
Company, (ii) shares of preferred stock, $0.01 par value per share, and/or (iii)
shares of common stock, $0.10 par value per share, for an aggregate initial
public offering price not to exceed $75 million. Any net proceeds from the
sale of offered securities would be used for general corporate purposes which
may include, but are not limited to, capital expenditures and the financing
of acquisitions. The Registration Statement was declared effective by the
Commission in June 1995. The Company has not yet offered for sale or sold any
securities under the Registration Statement.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Global Marine Inc.
We have audited the consolidated balance sheet of Global Marine Inc. and
subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of
the three years in the period ended December 31, 1995. 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 consolidated financial position of Global Marine Inc.
and subsidiaries as of December 31, 1995 and 1994, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1995 in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the consolidated financial statements, in 1994 the
Company adopted the new method of accounting for postemployment benefits, as
prescribed by Statement of Financial Accounting Standards No. 112.
/s/ Coopers & Lybrand L.L.P.
Houston, Texas
February 9, 1996
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(In millions, except per share data)
<CAPTION>
Year Ended December 31,
-----------------------
1995 1994 1993
---- ---- ----
Revenues
<S> <C> <C> <C>
Contract drilling $248.9 $211.4 $200.3
Drilling management 209.3 137.8 57.1
Oil and gas 9.8 9.8 11.6
------ ------ ------
Total revenues 468.0 359.0 269.0
------ ------ ------
Expenses
Contract drilling 166.9 150.9 163.8
Drilling management 192.0 127.0 49.5
Oil and gas 3.4 4.2 3.0
Depreciation, depletion and amortization 31.0 37.4 35.9
General and administrative 14.4 13.4 13.6
------ ------ ------
407.7 332.9 265.8
------ ------ ------
Operating income 60.3 26.1 3.2
------ ------ ------
Other income (expense)
Interest expense (30.2) (30.2) (32.1)
Interest capitalized 5.6 3.7 -
Interest income 4.7 3.8 2.7
Gain on sale of offshore drilling rig 14.7 - -
Other - 2.0 -
------ ------ ------
Total other income (expense) (5.2) (20.7) (29.4)
------ ------ ------
Income (loss) before income taxes 55.1 5.4 (26.2)
Income tax expense (Note 8) 3.2 .6 .3
------ ------ ------
Income (loss) before cumulative effect
of change in accounting principle 51.9 4.8 (26.5)
Cumulative effect of change in accounting
for postemployment benefits (Note 1) - (3.5) -
------ ------ ------
Net income (loss) $ 51.9 $ 1.3 $(26.5)
====== ====== ======
Primary net income (loss) per common share (Note 7):
Before cumulative effect of change in accounting principle $ 0.31 $ 0.03 $ (0.17)
Cumulative effect of change in accounting
for postemployment benefits (Note 1) - (0.02) -
------ ------ -------
Primary net income (loss) per common share $ 0.31 $ 0.01 $ (0.17)
====== ====== =======
Fully diluted net income per common and common
equivalent share (Note 7):
Before cumulative effect of change in accounting principle $ 0.30 $ 0.03 N/A
Cumulative effect of change in accounting
for postemployment benefits (Note 1) - (0.02) N/A
------ ------
Fully diluted net income per common
and common equivalent share $ 0.30 $ 0.01 N/A
====== ======
See notes to consolidated financial statements.
</TABLE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
ASSETS
<CAPTION>
December 31,
-------------------------
1995 1994
------ ------
Current assets
<S> <C> <C>
Cash and cash equivalents (Note 2) $ 33.2 $ 33.3
Marketable securities (Note 2) 53.4 24.6
Accounts receivable, less allowance for doubtful
accounts of $1.1 in 1995 and $1.2 in 1994 70.2 63.1
Costs incurred on turnkey drilling contracts in progress 8.4 18.5
Prepaid expenses 2.2 10.0
Other current assets .9 .3
------ -------
Total current assets 168.3 149.8
------ -------
Properties (Note 3)
Rigs and drilling equipment, less accumulated
depreciation of $189.0 in 1995 and $168.4 in 1994 377.9 346.9
Oil and gas properties, full cost method, less accumulated
depreciation, depletion and amortization of $26.4 in 1995
and $26.9 in 1994 8.7 6.5
------ -------
Net properties 386.6 353.4
------ -------
Other assets 8.1 9.2
------ -------
Total assets $563.0 $512.4
====== =======
See notes to consolidated financial statements.
</TABLE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
December 31,
-----------------------
1995 1994
------ ------
Current liabilities
<S> <C> <C>
Accounts payable $ 33.9 $ 39.5
Accrued compensation and related employee costs 10.8 9.0
Other accrued liabilities 7.4 7.9
------ ------
Total current liabilities 52.1 56.4
------ ------
Long-term debt (Note 3) 225.0 225.0
Other long-term liabilities 16.9 18.7
Commitments and contingencies (Note 4) - -
Shareholders' equity
Preferred stock, $0.01 par value, 10 million shares
authorized, no shares issued or outstanding - -
Common stock, $0.10 par value, 300 million shares
authorized, 166,458,083 shares and 164,408,185 shares
issued and outstanding at December 31, 1995
and 1994, respectively (Note 6) 16.6 16.4
Additional paid-in capital 264.8 260.2
Accumulated deficit (12.4) (64.3)
------ ------
Total shareholders' equity 269.0 212.3
------ ------
Total liabilities and shareholders' equity $563.0 $512.4
====== ======
See notes to consolidated financial statements.
</TABLE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(In millions)
<CAPTION>
Year Ended December 31,
-------------------------
1995 1994 1993
------ ------ ------
Cash flows from operating activities
<S> <C> <C> <C>
Net income (loss) $ 51.9 $ 1.3 $(26.5)
Adjustments to reconcile net income (loss) to net
cash provided by (used in) operating activities:
Depreciation, depletion and amortization 31.0 37.4 35.9
Gain on sale of offshore drilling rig (14.7) - -
Cumulative effect of change in accounting
principle - 3.5 -
Increase in accounts receivable (7.1) (5.2) (11.5)
Decrease in note receivable - 17.9 -
(Increase) decrease in costs incurred on turnkey
drilling contracts in progress 10.1 (17.0) (1.5)
(Increase) decrease in other current assets 7.2 (1.9) (.7)
Increase (decrease) in accounts payable (5.6) 19.6 4.7
Increase (decrease) in accrued liabilities 3.0 1.2 (2.5)
Other, net (.8) 4.5 1.4
------ ------ ------
Net cash flow provided by (used in) operating activities 75.0 61.3 (.7)
------ ------ ------
Cash flows from investing activities
Capital expenditures (73.5) (75.9) (40.6)
Purchases of held-to-maturity securities (124.3) (64.7) (26.7)
Proceeds from maturities of held-to-maturity securities 95.5 60.2 16.8
Proceeds from sales of available-for-sale securities - 15.6 -
Proceeds from sales of properties and equipment 23.9 2.6 10.3
Other - 2.1 (1.9)
------ ------ ------
Net cash flow used in investing activities (78.4) (60.1) (42.1)
------ ------ ------
Cash flows from financing activities
Common stock offerings, net of expenses - - 74.2
Payments on long-term debt - - (25.4)
Proceeds from exercise of employee stock options 3.3 .9 1.9
------ ------ ------
Net cash flow provided by financing activities 3.3 .9 50.7
------ ------ ------
Increase (decrease) in cash and cash equivalents (.1) 2.1 7.9
Cash and cash equivalents at beginning of year 33.3 31.2 23.3
------ ------ ------
Cash and cash equivalents at end of year $ 33.2 $ 33.3 $ 31.2
====== ====== ======
See notes to consolidated financial statements.
</TABLE>
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars in millions)
<CAPTION>
Additional
Common Stock Paid-in Accumulated
------------------------
Shares Par Value Capital Deficit Total
----------- --------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 140,228,732 $14.0 $179.6 $(39.1) $154.5
Net loss - - - (26.5) (26.5)
Common stock offerings 21,150,000 2.1 72.1 - 74.2
Exercise of employee stock options 779,500 .1 1.0 - 1.1
Common stock issued under
other employee benefit plans 674,567 .1 2.0 - 2.1
----------- ----- ------ ------ ------
Balance, December 31, 1993 162,832,799 16.3 254.7 (65.6) 205.4
Net income - - - 1.3 1.3
Common stock issued in
connection with the acquisition
of two offshore drilling rigs 750,000 .1 2.9 - 3.0
Exercise of employee stock options 484,500 - .9 - .9
Common stock issued under
other employee benefit plans 340,886 - 1.7 - 1.7
----------- ----- ------ ------ ------
Balance, December 31, 1994 164,408,185 16.4 260.2 (64.3) 212.3
Net income - - - 51.9 51.9
Exercise of employee stock options 1,615,299 .2 3.1 - 3.3
Common stock issued under
other employee benefit plans 434,599 - 1.5 - 1.5
----------- ----- ------ ------ ------
Balance, December 31, 1995 166,458,083 $16.6 $264.8 $(12.4) $269.0
=========== ===== ====== ====== ======
See notes to consolidated financial statements.
</TABLE>
Note 1 - Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Global
Marine Inc. and its majority-owned subsidiaries. Unless the context
otherwise requires, the term "Company" refers to Global Marine Inc. and its
consolidated subsidiaries. Intercompany accounts and transactions have been
eliminated.
Cash Equivalents
Cash equivalents consist of all highly liquid debt instruments
with remaining maturities of three months or less at the time of purchase.
Properties and Depreciation
Rigs and Drilling Equipment. Rigs and drilling equipment are carried at
an amount equal to the fair market values of the rigs in the fleet as of
December 31, 1988, plus the cost of rig acquisitions and other additions and
improvements to the existing fleet thereafter. Included in the cost of rigs and
drilling equipment is an allocation of the interest cost incurred during
the period required to construct or refurbish a rig. Expenditures for
maintenance and repairs are charged to expense as incurred. Costs of property
sold or retired and the related accumulated depreciation are removed from the
accounts; resulting gains or losses are included in income.
Effective January 1, 1995, the Company increased to 25 years the estimated
useful lives of its jackups and increased to 20 years the estimated useful
lives of its semisubmersibles and drillship. In addition, salvage values were
reduced to $500,000 per rig for jackups and $1,000,000 per rig for
semisubmersibles and the drillship. The effect of the change in estimated
service lives and salvage values was to decrease 1995 depreciation expense by
approximately $11.2 million.
Effective January 1, 1995, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of," which requires that
certain long-lived assets be reviewed for impairment whenever events indicate
that the carrying amount of an asset may not be recoverable, and that an
impairment loss be recognized under certain circumstances in the amount by which
the carrying value exceeds the fair value of the asset. The adoption of SFAS
No. 121 had no effect on the Company's results of operations or financial
position.
Oil and Gas Properties. The Company capitalizes all costs attributable
to the acquisition, exploration and development of oil and gas reserves under
the full cost method of accounting. The depreciation, depletion and
amortization provision is computed using the units-of-production method.
The depletable base consists of capitalized costs, estimated future costs to
develop proved reserves and estimated future dismantlement costs, and is reduced
by the aggregate net profit earned on the Company's turnkey drilling
contracts for wells drilled on properties in which the Company has working
interests. In addition, the depletable base is reduced by proceeds from
sales of oil and gas properties, unless the sale involves a significant
quantity of reserves in relation to total reserves, in which case a gain or loss
would be recognized. The costs of unproved properties and major development
projects are not subject to depreciation, depletion and amortization until they
are fully evaluated. All unproved properties are reviewed at least annually to
ascertain if impairment has occurred. Costs of proved oil and gas properties
which exceed the present value of estimated future net revenues are charged to
expense.
Revenue Recognition
Contract drilling services are performed generally on a daily-rate basis
under individual contracts for either a stated period of time or the time
required to drill a well or number of wells. Revenues from contract drilling
services and the related expenses are recognized on a per-day basis as the work
progresses. Revenues from turnkey drilling contracts, which are classified
under drilling management revenues, are derived from the design and execution of
a specific offshore drilling program at a fixed price to the oil and gas
operator. Revenues from turnkey drilling contracts and the related expenses are
recognized upon completion of the turnkey contract.
Foreign Currency Translation
The U.S. dollar is the functional currency for all of the Company's
operations. Realized and unrealized foreign currency transaction gains and
losses are recorded in income.
The Company may be exposed to the risk of foreign currency exchange
losses in connection with its foreign operations. Such losses are the result of
holding net monetary assets (cash and receivables in excess of payables)
denominated in foreign currencies during periods of a strengthening U.S. dollar.
The Company's foreign exchange gains and losses, which are primarily
attributable to the British pound, have not been and are not expected to be
material. This is because the Company's revenues are primarily denominated
in U.S. dollars, revenues in each foreign currency are approximately equal to
the Company's local expenses in that currency, and the Company does not
speculate in foreign currencies or maintain significant foreign currency cash
balances.
Postemployment Benefits
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits." SFAS No. 112 requires the recognition of expense for
postemployment benefits on an accrual basis rather than the cash basis used
previously. Postemployment benefits include severance pay, disability-related
benefits and certain health care benefits during the period after termination
of employment but before retirement. The cumulative effect of the change as
of January 1, 1994, was a charge to earnings in the amount of $3.5 million
($0.02 per share). Other than the cumulative effect, the effect of the
change on earnings was not material.
Note 2 - Investments
At December 31, 1995 and 1994, all of the Company's investments in cash
equivalents and marketable securities consisted of debt securities which were
classified as held-to-maturity and were carried at amortized cost. A summary of
the estimated fair values of investments as of December 31 follows:
<TABLE>
1995 1994
------ ------
(In millions)
Cash equivalents:
<S> <C> <C>
Commercial paper $ 21.8 $ 26.1
Eurodollar time deposits 9.4 5.1
Certificates of deposit - .2
------ ------
$ 31.2 $ 31.4
====== ======
Marketable securities:
Commercial paper $ 42.5 $ 13.7
Eurodollar time deposits 10.6 7.3
U.S. Treasury obligations .2 .3
Certificates of deposit .1 3.3
------ ------
$ 53.4 $ 24.6
====== ======
</TABLE>
The estimated fair values of investments approximated their amortized cost;
therefore, there were no unrealized gains or losses as of December 31, 1995
or 1994.
The estimated fair values of investments as of December 31 grouped by
contractual maturities were as follows:
<TABLE>
1995 1994
------ ------
(In millions)
<S> <C> <C>
Within three months or less $ 31.2 $ 31.4
After three months through one year 53.3 24.5
After one year .1 .1
------ ------
$ 84.6 $ 56.0
====== ======
</TABLE>
As of December 31, 1995, $42.1 million of the Company's marketable
securities was restricted from general use. The restricted amount is comprised
of (i) $27.7 million in proceeds from asset sales and $11.6 million in excess
cash flow for 1995 which will become unrestricted only after and to the
extent not used in the offering to purchase Senior Secured Notes in the first
quarter of 1996 (see Note 3) and (ii) $2.8 million collateralizing outstanding
operating letters of credit.
Note 3 - Long-term Debt
Long-term debt as of December 31, 1995 and 1994, consisted entirely of
12-3/4% Senior Secured Notes due 1999 (the "Senior Secured Notes") in the
aggregate principal amount of $225.0 million, due December 15, 1999. Interest
on the Senior Secured Notes is payable semiannually each June and December.
The Senior Secured Notes do not require any payments of principal prior to their
stated maturity on December 15, 1999, but the Company is required to make
offers to purchase Senior Secured Notes upon the occurrence of certain events
defined in the indenture, such as asset sales, or a change of control, or if
the annual cash flow of the Company exceeds certain specified levels. In the
first quarter of 1996, the Company will make an offer to purchase, at a price
of 100 percent of principal, $39.3 million aggregate principal amount of Senior
Secured Notes from the sum of the excess cash flow for 1995 and the proceeds of
asset sales that were not applied to the purchase of Replacement Assets as
defined in the Senior Secured Note indenture. As of February 9, 1996, the
quoted market price of the Senior Secured Notes was 110 percent of principal,
which exceeds the price at which the Company is required to make its purchase
offer. The amount of Senior Secured Notes the Company will purchase, if any,
is not expected to be material. The portion of the $39.3 million of cash that
is not used to purchase Senior Secured Notes will become unrestricted and
available to the Company for general purposes upon termination of the Company's
purchase offer in the second quarter of 1996.
The Senior Secured Notes are not redeemable at the option of the Company
prior to December 15, 1997. On or after December 15, 1997, the Senior Secured
Notes are redeemable at the option of the Company, in whole at any time or in
part from time to time, at a price of 102 percent of principal if redeemed
during the twelve months beginning December 15, 1997, or at a price of 100
percent of principal if redeemed on or after December 15, 1998, in each case
together with interest accrued to the redemption date. The Company presently
expects that, absent unforeseen circumstances, it will seek to retire the Senior
Secured Notes from the Company's cash and marketable securities, to the extent
available, and/or the proceeds of debt financing as early as December 1997.
The Senior Secured Notes are collateralized by 22 rigs and all of the
capital stock of the Company's direct or indirect subsidiaries, excluding the
stock of Petdrill, Inc., and certain other subsidiaries as defined in the
indenture. The indenture under which the Senior Secured Notes are issued
imposes significant operating and financial restrictions on the Company.
Such restrictions affect, and in many respects limit or prohibit, among other
things, the ability of the Company to incur additional indebtedness, make
capital expenditures, create liens, sell assets, engage in mergers or
acquisitions, and make dividends or other payments.
In February 1996, the Company entered into an agreement to extend to
December 1998 its $25 million revolving credit and letter of credit facility
with a major international bank. Under the credit facility, the Company may
borrow an amount of up to 80 percent of eligible accounts receivable.
Borrowings under the facility would accrue interest at the lowest of three
market-based interest rates. The unused portion of the line of credit is
subject to an annual commitment fee of .1875 percent. There were no
borrowings or letters of credit outstanding under the facility as of
December 31, 1995 or 1994. As of December 31, 1995, the Company was eligible
to borrow the full $25 million under the revolving credit facility.
Note 4 - Commitments and Contingencies
The Company has numerous noncancelable operating leases for office
facilities and equipment. The leases have remaining terms ranging up to six
years, some of which may be renewed at the Company's option. Certain leases
are subject to rent revisions based on the Consumer Price Index or increases
in building operating costs. Rent expense for 1995, 1994, and 1993 was $4.9
million, $6.9 million, and $6.1 million, respectively.
Future minimum rental payments for the Company's lease obligations as of
December 31, 1995, were as follows:
<TABLE>
(In millions)
Year ending December 31:
<C> <C>
1996 $ 2.4
1997 2.3
1998 2.2
1999 2.2
2000 2.1
Later years .6
-----
Total future minimum rental payments $11.8
=====
</TABLE>
During 1995 the Company completed the purchase of a concrete island
drilling system ("CIDS"), the Glomar Beaufort Sea I, which was previously
chartered by the Company under a long-term lease. The Company has agreed to pay
a purchase price of up to $9.3 million out of the rig's future cash flow or
proceeds from the sale of the rig, if any. The full $9.3 million will be
paid only if the Company's share of future cash flow or rig sale proceeds
exceeds $48 million. The Company will have no obligation to pay any amount if
the rig fails to generate any future cash flow. The Glomar Beaufort Sea I is
a special-purpose mobile offshore rig designed for arctic operations and was
last under contract in 1990.
The Company is involved in various lawsuits resulting from personal
injury and, from time to time, performance of services and property damage.
The Company maintains insurance coverage against certain general and marine
public liability, including liability for personal injury, in the amount of
$200 million, subject to a self-insured retention of no more than $250,000
per occurrence. In addition, the Company's rigs and related equipment are
separately insured under hull and machinery policies against certain marine and
other perils, subject to a self-insured retention generally of no more than
$300,000 per occurrence. The Company accrues for its share of the anticipated
cost of settlement of claims in the normal course of business; actual costs have
generally been within management's expectations. In the opinion of management,
resolution of these matters will not have a material adverse effect on its
results of operations, financial position or cash flows.
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.
Note 5 - Financial Instruments
Concentrations of Credit Risk
The market for the Company's services and products is the offshore oil and
gas industry, and the Company's customers consist primarily of major integrated
international oil companies and independent oil and gas producers. The Company
performs ongoing credit evaluations of its customers and generally does not
require material collateral. The Company maintains reserves for potential
credit losses, and such losses have been within management's expectations.
At December 31, 1995 and 1994, the Company had cash deposits concentrated
primarily in four major banks. In addition, the Company had certificates of
deposits, commercial paper and Eurodollar time deposits with a variety of
companies and financial institutions with strong credit ratings. As a result
of the foregoing, the Company believes that credit risk in such instruments is
minimal.
Fair Values of Financial Instruments
The estimated fair value of the Company's $225.0 million carrying value of
long-term debt approximated $248.0 million and $240.8 million as of December 31,
1995 and 1994, respectively. The estimates of fair values were based on quoted
market prices. The fair values of the Company's cash equivalents, marketable
securities, trade receivables and trade payables approximated their carrying
values due to the short-term maturities of these instruments (see Note 2).
Note 6 - Capital Stock
The Company is authorized to issue 300,000,000 shares of common stock,
$0.10 par value per share, and 10,000,000 shares of preferred stock, $0.01 par
value per share. As of December 31, 1995, 133,541,917 shares of common stock
were unissued, including 13,541,852 shares reserved for issuance under stock
option and incentive plans. None of the preferred stock was issued or
outstanding as of December 31, 1995.
The indenture governing the Senior Secured Notes contains certain
restrictions with respect to the payment of dividends on the common stock
(other than stock dividends). Specifically, the indenture restricts the payment
of dividends based on (i) availability of funds under a formula based on
previously unapplied cumulative net income since September 30, 1992 plus
certain stock sale proceeds after December 23, 1992 and (ii) satisfaction of the
then applicable minimum interest coverage ratio for debt incurrence. Cumulative
net income for purposes of the test excludes gains or losses on asset sales and
certain other nonrecurring charges or credits specified in the indenture.
Although the Company was not prohibited from paying cash dividends under the
terms of the indenture as of December 31, 1995, management does not intend to
declare any cash dividends in the foreseeable future.
The Company has three stock option plans, the Global Marine Inc. 1989 Stock
Option and Incentive Plan (the "Employee Plan"), the Global Marine Inc. 1994
Non-Employee Stock Option and Incentive Plan (the "Non-Employee Plan"), and the
1990 Non-Employee Director Stock Option Plan (the "Director Plan"). Under the
Employee Plan, incentive and non-qualified options to purchase shares of
common stock may be granted to key employees; under the Non-Employee Plan,
non-qualified options may be granted to certain non-employees; and under both
plans, shares of common stock may be sold at prices below the market price at
the time of the sale. Under the Director Plan, non-qualified options to
purchase shares of common stock are automatically granted each year to
outside directors of the Company. Under the Plans, one-half of each option
grant outstanding at December 31, 1995 was exercisable beginning one year after
the date of grant with the remainder exercisable after two years. Options
expire ten years after the date of grant. Options become exercisable in full if
more than 50 percent of the Company's outstanding common stock is acquired by
a person or a single group of persons.
The following is a summary of stock option transactions:
<TABLE>
Number
Of Shares Option Price
Under Option Per Share
------------ -------------
<S> <C> <C>
Outstanding, December 31, 1992 7,500,400 $0.56 to $5.44
Granted 1,825,000 $3.00 to $4.63
Exercised (779,500) $0.56 to $4.81
Canceled (183,200) $1.69 to $5.44
----------
Outstanding, December 31, 1993 8,362,700 $0.56 to $5.44
Granted 1,761,900 $4.13 to $4.75
Exercised (484,500) $0.56 to $3.50
Canceled (414,900) $4.44 to $5.44
----------
Outstanding, December 31, 1994 9,225,200 $0.56 to $5.44
Granted 2,236,500 $3.63 to $6.69
Exercised (1,615,299) $0.56 to $5.44
Canceled (11,000) $3.63 to $4.19
----------
Outstanding, December 31, 1995 9,835,401 $0.56 to $6.69
==========
Exercisable, December 31,
1995 6,753,201
1994 6,586,550
</TABLE>
During 1995 and 1994, up to 262,500 and 200,000 shares of common stock,
respectively, were offered for conditional sale under the Employee Plan to
certain key employees at a price of $0.10 per share. The exact number of shares
to be offered is dependent on the performance of the Company as measured
against certain long-term performance goals. To the extent the performance
goals are met, shares offered in 1995 and 1994 will be issued in 1998 and 1997,
respectively.
Shares of common stock available for future option grants and incentive
stock sales under the option plans totaled 3,243,951 and 5,830,637 at December
31, 1995 and 1994, respectively.
Note 7 - Net Income (Loss) per Common Share
Primary and fully diluted net income per common share were computed by
dividing net income by the weighted average number of common shares outstanding
and, for those periods in which they had a dilutive effect, shares contingently
issuable due to outstanding employee stock options and incentive sales. The
net loss per common share was computed by dividing the net loss by the weighted
average number of common shares outstanding.
Primary net income or loss per common share was based on 165,142,881
shares for 1995, 163,828,711 shares for 1994, and 151,984,669 shares for 1993.
Primary shares excluded contingently issuable shares because their effect was
either immaterial or antidilutive.
Fully diluted net income per common and common equivalent share was based on
172,540,316 and 166,996,378 shares for 1995 and 1994, respectively.
Note 8 - Income Taxes
The provision for income taxes consisted of the following:
<TABLE>
1995 1994 1993
------ ------ ------
(In millions)
<S> <C> <C> <C>
Current - Foreign $ 2.3 $ .9 $ .8
- U.S. federal .9 (.3) -
- State - - (.5)
----- ---- ----
Provision for income taxes $ 3.2 $ .6 $ .3
===== ==== ====
</TABLE>
A reconciliation of the differences between income taxes computed at the
U.S. federal statutory rate of 35 percent and the Company's reported provision
for income taxes follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
(Dollars in millions)
<S> <C> <C> <C>
Income tax expense (benefit) at statutory rate $ 19.3 $ 1.9 $(9.2)
Utilization of net operating loss carryforwards (12.9) - -
Income (deductions) not recognized for financial net income (7.8) (1.9) 8.7
Foreign tax provision 2.3 .9 .8
Alternative minimum tax .9 - -
State tax provision - - (.5)
Amortization of discount on note payable - - .3
Other, net 1.4 (.3) .2
------ ----- -----
Provision for income taxes $ 3.2 $ .6 $ .3
====== ===== =====
Effective tax rate 5.8% 11.1% 1.1%
====== ===== =====
</TABLE>
Deferred tax assets and liabilities are recorded in recognition of the
expected future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. The significant components of
the Company's deferred tax assets and liabilities as of December 31 were as
follows:
<TABLE>
<CAPTION>
1995 1994
------ ------
(In millions)
Deferred tax assets:
<S> <C> <C>
Net operating and capital loss carryforwards $ 402.6 $ 415.5
Investment tax credit carryforwards 28.7 29.0
Accrued expenses not currently deductible 7.9 1.2
------ -------
439.2 445.7
Less: Valuation allowance (381.8) (395.8)
------ -------
Deferred tax assets, net of valuation allowance 57.4 49.9
------ -------
Deferred tax liabilities:
Depreciation and depletion for tax in excess of book expense 28.0 19.2
Tax benefit transfers 22.1 26.6
Income recognized for book in excess of tax 6.3 2.7
Other 1.0 1.4
------ -------
Total deferred tax liabilities 57.4 49.9
------ -------
Net deferred tax asset recognized in consolidated balance sheet $ - $ -
====== =======
</TABLE>
The Company's ability to utilize the net operating loss carryforwards
and other deferred tax assets is dependent on the amount and timing of future
earnings. Due to the uncertain nature of their ultimate realization, the
Company has recorded against the deferred tax assets a valuation allowance in
the amount of $381.8 million as of December 31, 1995. The amount of the
valuation allowance is subject to periodic review. A reasonable possibility
exists that the conditions which existed at December 31, 1995 giving rise to
the recognition of the valuation allowance as of that date may change in the
near term. If the allowance is reduced in a future period, the adjustment
would be recorded as a reduction to income tax expense.
As of December 31, 1995, the Company had $1,134.2 million in net operating
loss carryforwards ("NOLs") and $28.7 million in investment tax credit
carryforwards ("Credits") expiring as follows:
<TABLE>
NOLs Credits
------- -------
(In millions)
Year ending December 31:
<C> <C> <C>
1996 $ 6.3
1997 5.3
1998 8.7
1999 8.1
2000 $ 46.8 0.3
2001 62.4 -
2002 31.3 -
2003 24.3 -
2004 424.1 -
2005 418.9 -
2006 66.2 -
2007 4.8 -
2008 35.8 -
2009 19.6 -
-------- -----
$1,134.2 $28.7
======== =====
</TABLE>
The NOLs and Credits are subject to review and potential disallowance by the
Internal Revenue Service ("IRS") upon audit of the federal income tax returns of
the Company. Section 382 of the Internal Revenue Code of 1986, as amended, may
impair the future availability of the NOLs and the Credits if there is a change
in ownership of more than 50 percent of the Company's common stock. This
limitation, if it applied, would limit the utilization of the NOLs and the
Credits in each taxable year to an amount equal to the product of the federal
long-term tax-exempt bond rate prescribed monthly by the IRS and the fair market
value of all the Company's stock at the time of the ownership change. The
interpretation of Section 382 is subject to numerous uncertainties.
Accordingly, while the Company believes its loss carryforwards are available to
it without limitation, such availability is not certain, nor is it certain that
such carryforwards, if presently available without limitation, will continue to
be available without limitation.
Note 9 - Industry Segment Information
The Company provides offshore drilling services on a contract daily-rate
basis principally in the U.S. Gulf of Mexico, the North Sea, and offshore West
Africa and on a turnkey basis primarily in the U.S. Gulf of Mexico. In
addition, the Company has oil and gas production interests principally in the
U.S. Gulf of Mexico. In the industry segment data which follows, revenues from
turnkey drilling services are included in drilling management services.
Intersegment revenues are recorded at transfer prices which are intended to
approximate the prices charged to unaffiliated customers and have been
eliminated from consolidated revenues. Operating income consists of revenues
less the related operating costs and expenses, excluding interest and
unallocated corporate expenses. Adjustments and eliminations with respect
to operating income represent the reduction to drilling management services
operating income in the amount of the aggregate net profit earned in connection
with service contracts on oil and gas properties in which the Company has
economic interests.
<TABLE>
<CAPTION>
Drilling
Contract Management Adjustments and
Drilling Services Oil and Gas Corporate Eliminations Consolidated
-------- ---------- ----------- --------------- ------------ ------------
(In millions)
Revenues from unaffiliated customers
<C> <C> <C> <C> <C> <C> <C>
1995 $248.9 $209.3 $ 9.8 $ - $ - $468.0
1994 211.4 137.8 9.8 - - 359.0
1993 200.3 57.1 11.6 - - 269.0
Intersegment revenues
1995 9.5 3.5 - - (13.0) -
1994 4.0 5.0 - - (9.0) -
1993 2.8 2.8 - - (5.6) -
Total revenues
1995 258.4 212.8 9.8 - (13.0) 468.0
1994 215.4 142.8 9.8 - (9.0) 359.0
1993 203.1 59.9 11.6 - (5.6) 269.0
Operating income
1995 54.6 17.3 3.4 (15.0) - 60.3
1994 25.6 16.5 3.7 (14.0) (5.7) 26.1
1993 4.5 9.8 5.3 (14.2) (2.2) 3.2
Depreciation, depletion
and amortization
1995 27.4 (1) - 3.0 0.6 - 31.0
1994 34.9 - 1.9 0.6 - 37.4
1993 32.0 - 3.3 0.6 - 35.9
Capital expenditures
1995 66.0 0.3 5.1 2.1 - 73.5
1994 70.2 (2) - 4.9 0.8 - 75.9
1993 36.7 - 3.1 0.8 - 40.6
Identifiable assets
1995 456.2 22.0 10.6 74.2 - 563.0
1994 390.4 24.3 19.1 78.6 - 512.4
1993 379.6 5.4 43.2 64.7 - 492.9
______________________
(1) Effective January 1, 1995, the Company increased the remaining lives of its
offshore drilling rigs, resulting in a reduction of $11.2 million in
depreciation expense for 1995.
(2) Excludes $3.0 million of common stock issued in connection with the
acquisition of two offshore drilling rigs.
</TABLE>
In 1995 one customer provided $40.9 million of contract drilling revenues
and $10.3 million of drilling management revenues. No single customer provided
more than ten percent of revenues for 1994. In 1993 one customer provided $29.2
million of contract drilling revenues.
Export sales by geographic areas were as follows:
<TABLE>
1995 1994 1993
------ ------ ------
(In millions)
<S> <C> <C> <C>
North Sea $ 80.0 $ 39.2 $ 62.9
West Africa 68.2 31.2 31.6
Far East and Australia 13.3 14.4 10.4
Trinidad 11.9 11.8 6.7
Other 20.3 6.6 6.6
------ ------ ------
$193.7 $103.2 $118.2
====== ====== ======
</TABLE>
Note 10 - Retirement Plans
Pensions
The Company has defined benefit pension plans covering substantially all of
its employees. For the most part, benefits are based on the employee's
length of service and average earnings for the five highest consecutive calendar
years of compensation during the last fifteen years of service. Substantially
all benefits are paid from funds previously provided to trustees. The Company
is the sole contributor to the plans, and its funding objective is to fund
participants' benefits under the plans as they accrue, taking into consideration
future salary increases. The components of net pension cost were as follows:
<TABLE>
1995 1994 1993
------ ------ ------
(In millions)
<S> <C> <C> <C>
Service cost - benefits earned during the period $ 1.9 $ 2.1 $ 1.5
Interest cost on projected benefit obligation 4.1 3.7 3.3
Actual return on plan assets (9.5) 0.9 (2.9)
Net amortization and deferral 6.7 (3.5) 0.3
----- ----- -----
Net pension cost $ 3.2 $ 3.2 $ 2.2
===== ===== =====
</TABLE>
The following table sets forth the funded status of the plans by plan type
(for federal income tax reporting purposes) and the amounts recognized in the
Company's consolidated balance sheet as of December 31:
<TABLE>
<CAPTION>
1995 1994
------------------------- -------------------------
Qualified Nonqualified Qualified Nonqualified
--------- ------------ --------- ------------
(In millions)
Actuarial present value of plan benefits:
<S> <C> <C> <C> <C>
Vested $42.7 $ 7.5 $ 33.6 $ 6.2
Nonvested 3.5 .3 2.6 .3
----- ------ ------ ------
Accumulated benefit obligation 46.2 7.8 36.2 6.5
Effect of projected salary increases 8.3 1.2 5.4 1.4
----- ------ ------ ------
Projected benefit obligation 54.5 9.0 41.6 7.9
Plan assets at fair value 46.5 3.0 34.6 2.7
----- ------ ------ ------
Projected benefit obligation in
excess of plan assets 8.0 6.0 7.0 5.2
Unrecognized net loss (7.3) (1.9) (4.9) (1.3)
----- ------ ------ ------
Accrued pension liability $ .7 $ 4.1 $ 2.1 $ 3.9
===== ====== ====== ======
</TABLE>
Plan assets consist primarily of listed stocks and bonds, fixed-income
investments and real estate.
The Company has established grantor trusts to provide funding for the
benefits payable under certain of the nonqualified plans. The trusts are
irrevocable, and assets contributed to the trusts can only be used to pay
such benefits with certain exceptions. Assets of the trusts consisted of
interest-bearing cash in the amount of $1.6 million and $0.5 million as of
December 31, 1995 and 1994, respectively, and were included in other assets on
the consolidated balance sheet.
The expected long-term rate of return on plan assets used to compute
pension cost was 9.0 percent for 1995, 1994, and 1993. The assumed rate of
increase in future compensation levels ranged from 5.5 percent to 6.5 percent
for each of 1995, 1994, and 1993. The discount rate used to compute the
actuarial present value of the projected benefit obligation was 7.25 percent
for 1995, 8.25 percent for 1994 and 7.5 percent for 1993.
The Company has a defined contribution savings plan in which substantially
all of the Company's domestic employees are eligible to participate. Company
contributions to the savings plan are based on the amount of employee
contributions. Charges to expense with respect to this plan totaled $0.6
million for 1995 and $0.5 million for each of 1994 and 1993.
Other Postretirement Benefits
The Company provides, for a period of two years following retirement,
health care benefits to retirees, their covered dependents and beneficiaries.
In addition, the Company provides term life insurance to retirees. Generally,
employees who have reached the age of 55 and have rendered a minimum of five
years of service are eligible for such retirement benefits. For the most
part, health care benefits are contributory while life insurance benefits are
noncontributory.
Net postretirement life insurance and health care cost consisted of the
following components:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
(In millions)
<S> <C> <C> <C>
Service cost - benefits earned during the period $0.1 $0.1 $0.1
Interest cost on accumulated postretirement benefit obligation 0.2 0.2 0.2
---- ---- ----
Net postretirement life insurance and health care cost $0.3 $0.3 $0.3
==== ==== ====
</TABLE>
Benefits under the Company's postretirement life insurance and health
care plans are not funded. The status of the plans as of December 31 was as
follows:
<TABLE>
<CAPTION>
1995 1994
---- ----
(In millions)
Actuarial present value of accumulated postretirement benefit
obligation:
<S> <C> <C>
Retirees and dependents $ 1.2 $ 1.0
Active employees eligible for benefits 0.5 0.6
Active employees not yet eligible for benefits 0.7 0.8
Unrecognized net gain (loss) 0.1 (0.1)
----- -----
Accrued postretirement life insurance and health care liability $ 2.5 $ 2.3
===== =====
</TABLE>
The assumed health care cost trend rate used in measuring the accumulated
postretirement benefit obligation was 8.0 percent for 1996, gradually declining
to 6.0 percent by the year 2015 and remaining at that level thereafter. The
effect of a one-percentage point increase in the assumed health care cost
trend rate for each future year on (i) the portion of the accumulated
postretirement benefit obligation applicable to health care benefits as of
December 31, 1995 and (ii) the net postretirement health care cost for the
year then ended would be immaterial. The assumed discount rate used in
determining the accumulated postretirement benefit obligation was 7.0 percent
for 1995 and 1994.
Note 11 - Supplemental Cash Flow Information
Cash interest payments totaled $28.7 million for 1995 and 1994 and $28.9
million for 1993. Cash payments for income taxes totaled $3.6 million in 1995,
$1.1 million in 1994, and $5.4 million in 1993.
During 1994, the Company acquired one offshore drilling rig in an
all-cash transaction and two other drilling rigs for $26.0 million in cash plus
750,000 shares of Global Marine Inc. common stock.
In September 1993, the Company acquired a 100 percent ownership interest
in three offshore drilling rigs in exchange for a 100 percent ownership
interest in its offshore drilling rig, the Glomar Moray Firth I, plus $17.0
million in cash.
SUPPLEMENTAL OIL AND GAS DISCLOSURE (Unaudited)
The Company's estimated net proved reserves and proved developed reserves
of crude oil, natural gas and natural gas liquids are shown in the table below:
<TABLE>
<CAPTION>
1995 1994 1993
------------------------- -------------------------- ---------------------------
Gas Oil Gas Oil Gas Oil
----------- ------------ ----------- ------------ ----------- ------------
Millions of Thousands of Millions of Thousands of Millions of Thousands of
Cubic Feet Barrels Cubic Feet Barrels Cubic Feet Barrels
---------- ----------- ----------- ------------ ----------- ------------
Proved Reserves:
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1 11,837 655 10,588 368 11,816 948
Increase (decrease) during the
year attributable to:
Revisions of previous estimates 326 208 1,606 349 1,209 (55)
Extensions, discoveries and
other additions 1,136 50 3,652 86 2,120 29
Production (4,382) (169) (4,009) (148) (4,557) (154)
Sales of minerals in place - - - - - (400)
------ ---- ------ ---- ------ ----
Balance, December 31 8,917 744 11,837 655 10,588 368
====== ==== ====== ==== ====== ====
Proved Developed Reserves:
January 1 11,674 631 10,588 368 11,816 948
====== ==== ====== ==== ====== ====
December 31 8,893 682 11,674 631 10,588 368
====== ==== ====== ==== ====== ====
</TABLE>
Users of this information should be aware that the process of estimating
quantities of "proved" and "proved developed" natural gas and crude oil reserves
is very complex, requiring significant subjective decisions in the evaluation of
all available geological, engineering and economic data for each reservoir.
The data for a given reservoir may also change substantially over time as a
result of numerous factors including, but not limited to, additional development
activity, evolving production history and continual reassessment of the
viability of production under varying economic conditions. Consequently,
material revisions to existing reserve estimates occur from time to time.
Although every reasonable effort is made to ensure that reserve estimates
reported represent the most accurate assessments possible, the significance
of the subjective decisions required and variances in available data for various
reservoirs make these estimates generally less precise than other estimates
presented in connection with financial statement disclosures.
Proved reserves are estimated quantities of crude oil, natural gas and
natural gas liquids which geological and engineering data demonstrate with
reasonable certainty to be recoverable in future years from known reservoirs
under existing economic and operating conditions. All of the Company's proved
reserves are located in the United States. Proved developed reserves are
those proved reserves that can be expected to be recovered through existing
wells with existing equipment and operating methods.
The estimates of the Company's proved oil and gas reserves were prepared
by Ryder Scott Company Petroleum Engineers and were based on data supplied to
them by the Company. Ryder Scott Company Petroleum Engineers has issued reports
that include descriptions of the bases used in preparing the reserve estimates.
These reports are filed as exhibits to the Company's Annual Report on Form 10-K.
Capitalized costs of unproved oil and gas properties excluded from the
full cost amortization pool as of December 31, 1995 and 1994 totaled $0.7
million and $1.1 million, respectively. Costs incurred related to oil and gas
activities consisted of the following:
<TABLE>
1995 1994 1993
------ ------ ------
(In millions)
<S> <C> <C> <C>
Exploration costs $ 4.1 $ 1.1 $ 2.2
Development costs .6 2.7 .3
Acquisition of properties .4 1.1 .6
----- ----- -----
Total $ 5.1 $ 4.9 $ 3.1
===== ===== =====
</TABLE>
The calculation of estimated future net cash flows in the following table
assumed the continuation of existing economic conditions. Future net cash
inflows were computed by applying year-end prices (except for future price
changes as allowed by contract) of oil and gas to the expected future production
of proved reserves, less estimated future expenditures (based on year-end costs)
expected to be incurred in developing and producing such reserves.
The standardized measure of discounted future net cash flows relating to
proved oil and gas reserves as of December 31 follows:
<TABLE>
1995 1994 1993
------ ------ ------
(In millions)
<S> <C> <C> <C>
Future cash inflows $ 32.2 $ 30.8 $ 29.9
Future production and development costs 11.3 11.1 9.4
------ ------ ------
Future net cash flows 20.9 19.7 20.5
Ten percent annual discount for estimated
timing of cash flows 3.5 2.8 4.2
------ ------ ------
Standardized measure of discounted
future net cash flows relating to
proved oil and gas reserves $ 17.4 $ 16.9 $ 16.3
====== ====== ======
</TABLE>
Principal sources of changes in the standardized measure of discounted
future net cash flows follow:
<TABLE>
1995 1994 1993
------ ------ ------
(In millions)
<S> <C> <C> <C>
Balance, January 1 $ 16.9 $ 16.3 $ 20.5
Revisions:
Quantity estimates and production rates 3.9 5.0 2.4
Prices, net of lifting costs .6 (4.0) (.1)
Estimated future development costs (.9) .1 (.6)
Accretion of ten percent discount 1.7 1.6 2.0
------ ------ ------
Net revisions 5.3 2.7 3.7
Additions, extensions and discoveries
plus improved recovery 2.7 5.3 3.0
Net sales of production (7.9) (7.5) (9.6)
Sales and purchases of reserves in place - - (2.5)
Development costs incurred .4 .1 1.2
------ ------ ------
Balance, December 31 $ 17.4 $ 16.9 $ 16.3
====== ====== ======
</TABLE>
Results of operations from producing activities follow:
<TABLE>
1995 1994 1993
------ ------ ------
(In millions)
<S> <C> <C> <C>
Revenues $ 9.8 $ 9.8 $ 11.6
------ ------ ------
Expenses
Production costs 1.9 2.3 2.0
Depreciation, depletion and amortization 3.0 1.9 3.3
Technical support and other 1.5 1.9 1.0
------ ------ ------
6.4 6.1 6.3
------ ------ ------
Income before income taxes 3.4 3.7 5.3
Income tax expense (benefit) .1 - (.5)
------ ------ ------
Results of operations from producing activities
(excluding corporate overhead and interest) $ 3.3 $ 3.7 $ 5.8
====== ====== ======
</TABLE>
<TABLE>
CONSOLIDATED SELECTED QUARTERLY FINANCIAL DATA (Unaudited)
(In millions, except per share data)
<CAPTION>
1995 1994
------------------------------------------ --------------------------------------
First Second Third Fourth First Second Third Fourth
Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revenues $116.1 $102.4 $135.8 $113.7 $ 68.0 $ 76.3 $91.4 $123.3
Operating income 9.7 14.7 15.5 20.4 3.8 4.9 6.8 10.6
Income (loss):
Before accounting change $ 4.5 $ 24.2 $ 9.6 $ 13.6 $ (1.7) $ (0.8) $ 1.1 $ 6.2
Cumulative effect of change
in accounting principle - - - - (3.5) - - -
------ ------ ------ ----- ------ ------ ----- ------
Net income (loss) $ 4.5 $ 24.2 $ 9.6 $ 13.6 $ (5.2) $ (0.8) $ 1.1 $ 6.2
====== ====== ====== ====== ====== ====== ===== ======
Primary income (loss) per share:
Before accounting change $ .03 $ .14 $ .06 $ .08 $ (.01) $ .00 $ .01 $ .04
Cumulative effect of change
in accounting principle - - - - (.02) - - -
------ ------ ------ ------ ------- ------ ------ ------
Primary net income (loss) per share $ .03 $ .14 $ .06 $ .08 $ (.03) $ .00 $ .01 $ .04
====== ====== ====== ====== ======= ====== ====== ======
Price ranges of common stock:
High 4-1/4 5-7/8 7-3/8 8-3/4 4-7/8 4-13/16 4-7/8 5
Low 3-1/2 4-1/8 5-1/8 6 3-3/4 3-5/8 3-3/4 3-5/8
</TABLE>
Net income for the second quarter of 1995 included a $14.7 million gain on
the sale of an offshore drilling rig.
During the first quarter of 1994, the Company adopted Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits." The cumulative impact of the change as of January 1,
1994 was an increase in the net loss in the amount of $3.5 million ($0.02
per share). Other than the cumulative effect, the effect of the accounting
change was not material.
The net loss for the first quarter of 1994 also included $1.1 million in
dividend income.
Net income for the fourth quarter of 1994 included interest income of
$0.8 million recognized in connection with the favorable settlement of the
Company's demobilization obligations with respect to a third-party owned rig
aboard the Glomar Beaufort Sea I.
The Company did not declare any dividends on its common stock
in either 1995 or 1994.
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Global Marine Inc.
Our report on the consolidated financial statements of Global Marine Inc. and
subsidiaries is included on page 28 of this Form 10-K. In connection with our
audits of such financial statements, we have also audited the related
financial statement schedule listed in the index on page 56 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
Houston, Texas
February 9, 1996
<TABLE>
GLOBAL MARINE INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(In millions)
<CAPTION>
Additions
-------------------------
Balance at Charged to Charged to Balance
Beginning Costs and Other at End
Description of Year Expenses Accounts Deductions of Year
- ----------------------------- ---------- ---------- ---------- ---------- -------
Year ended December 31, 1995:
Allowance for doubtful
<S> <C> <C> <C> <C> <C>
accounts receivable $ 1.2 $ .1 $ - $ .2 $ 1.1
Year ended December 31, 1994:
Reserve for loss on
operating lease $ 8.4 $ - $ 0.2 (a) $ 8.6 (b) $ -
Allowance for doubtful
accounts receivable 1.2 .2 - .2 1.2
Year ended December 31, 1993:
Reserve for loss on
operating lease $19.6 $ - $ .7 (a) $ 11.9 (b) $ 8.4
Allowance for doubtful
accounts receivable 1.2 .5 - .5 1.2
(a) Represents unearned interest income which was charged to an escrow
account for the lease of the Glomar Beaufort Sea I and which was classified
as a noncurrent asset.
(b) Represents lease payments for the Glomar Beaufort Sea I which were made
from the escrow account described in (a) above.
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
As permitted by General Instruction G, the information called for by
this item with respect to the Company's directors is incorporated by reference
from the Company's definitive proxy statement to be filed pursuant to
Regulation 14A within 120 days after the end of the last fiscal year.
Information with respect to the Company's executive officers is set forth in
Part I of this Annual Report on Form 10-K under the caption "Executive Officers
of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION
As permitted by General Instruction G, the information called for by this
item is incorporated by reference from the Company's definitive proxy statement
to be filed pursuant to Regulation 14A within 120 days after the end of the last
fiscal year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As permitted by General Instruction G, the information called for by
this item is incorporated by reference from the Company's definitive proxy
statement to be filed pursuant to Regulation 14A within 120 days after the
end of the last fiscal year.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
As permitted by General Instruction G, the information called
for by this item is incorporated by reference from the Company's definitive
proxy statement to be filed pursuant to Regulation 14A within 120 days after the
end of the last fiscal year.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
<TABLE>
Page
(a) Financial Statements, Schedules and Exhibits
<C> <S> <C>
(1) Financial Statements
Report of Independent Accountants 28
Consolidated Statement of Operations 29
Consolidated Balance Sheet 30
Consolidated Statement of Cash Flows 32
Consolidated Statement of Shareholders' Equity 33
Notes to Consolidated Financial Statements 34
(2) Financial Statement Schedule
Report of Independent Accountants 53
Schedule II - Valuation and Qualifying Accounts 54
</TABLE>
Schedules other than those listed above are omitted for the reason
that they are not applicable.
(3) Exhibits
The following instruments are included as exhibits to this Annual
Report on Form 10-K and are filed herewith unless otherwise indicated.
Exhibits incorporated by reference are so indicated by parenthetical
information.
3(i).1 Restated Certificate of Incorporation of the Company as filed with the
Secretary of State of Delaware on March 15, 1989, effective March 16,
1989. (Incorporated herein by this reference to Exhibit 3(i).1 of the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1993.)
3(i).2 Certificate of Amendment of the Restated Certificate of Incorporation
of the Company as filed with the Secretary of State of Delaware on
May 11, 1990. (Incorporated herein by this reference to Exhibit
3(i).2 of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993.)
3(i).3 Certificate of Correction of the Restated Certificate of
Incorporation of the Company as filed with the Secretary of State of
Delaware on September 25, 1990. (Incorporated herein by this
reference to Exhibit 3(i).3 of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1993.)
3(i).4 Certificate of Amendment of the Restated Certificate of Incorporation
of the Company as filed with the Secretary of State of Delaware on
May 11, 1992. (Incorporated herein by this reference to Exhibit
3(i).4 of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1993.)
3 (i).5 Certificate of Amendment of the Restated Certificate of Incorporation
of the Company as filed with the Secretary of State of Delaware on
May 12, 1994. (Incorporated herein by this reference to Exhibit 4.5
of the Registrant's Registration Statement on Form S-3 (No. 33-53691)
filed with the Commission on May 18, 1994.)
3(ii).1 By-laws of the Company as amended on May 10, 1989. (Incorporated
herein by this reference to Exhibit 3(ii).1 of the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1993.)
4.1 Indenture, dated as of December 23, 1992, between the Company and
Wilmington Trust Company, as Trustee, with respect to the Senior
Secured Notes. (Incorporated herein by this reference to Exhibit 4.5
of Post-Effective Amendment No. 2 to the Registrant's Registration
Statement on Form S-3 (No. 33-34013) filed with the Commission on
January 22, 1993.)
4.2 First Priority Naval Mortgage, dated April 29, 1993, from Global
Marine Drilling Company to Wilmington Trust Company, as Trustee.
(Incorporated herein by this reference to Exhibit 4.6 of the
Registrant's Registration Statement on Form S-3 (No. 33-65272) filed
with the Commission on June 30, 1993.)
4.3 First Preferred Fleet Mortgage, dated December 23, 1992, from Global
Marine Drilling Company to Wilmington Trust Company, as Trustee.
(Incorporated herein by this reference to Exhibit 4.7 of Post-
Effective Amendment No. 2 to the Registrant's Registration Statement
on Form S-3 (No. 33-34013) filed with the Commission on January 22,
1993.)
4.4 Release of Vessel from Lien of First Preferred Fleet Mortgage, dated
April 30, 1993, by Wilmington Trust Company, as Trustee.
(Incorporated herein by this reference to Exhibit 4.8 of the
Registrant's Registration Statement on Form S-3 (No. 33-65272) filed
with the Commission on June 30, 1993.)
4.5 First Preferred Fleet Mortgage, dated December 23, 1992, from Global
Marine Deepwater Drilling Inc. to Wilmington Trust Company, as
Trustee. (Incorporated herein by this reference to Exhibit 4.8 of
Post-Effective Amendment No. 2 to the Registrant's Registration
Statement on Form S-3 (No. 33-34013) filed with the Commission on
January 22, 1993.)
4.6 Release of Vessel from Lien of Mortgage, dated January 27, 1993,
by Wilmington Trust Company, as Trustee. (Incorporated herein by
this reference to Exhibit 4.6 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993.)
4.7 First Priority Naval Mortgage, dated March 17, 1993, from Global
Marine Nautilus Inc. to Wilmington Trust Company, as Trustee.
(Incorporated herein by this reference to Exhibit 4.10 of the
Registrant's Registration Statement on Form S-3 (No. 33-65272) filed
with the Commission on June 30, 1993.)
4.8 Release of Vessel from Lien of First Priority Naval Fleet Mortgage,
dated September 8, 1993, by Wilmington Trust Company, as Trustee.
(Incorporated herein by this reference to Exhibit 4.8 of the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1993.)
4.9 Supplement No. 1, dated September 8, 1993, to First Priority Naval
Fleet Mortgage from Global Marine Nautilus Inc. to Wilmington Trust
Company, as Trustee. (Incorporated herein by this reference to
Exhibit 4.9 of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1993.)
4.10 Assumption Agreement and Supplement No. 2, dated December 16, 1993, to
First Priority Naval Fleet Mortgage among Global Marine Drilling
Company and Wilmington Trust Company, as Trustee. (Incorporated
herein by this reference to Exhibit 4.10 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1993.)
4.11 First Preferred Fleet Mortgage, dated December 23, 1992, from
Global Marine West Africa Inc. to Wilmington Trust Company, as
Trustee. (Incorporated herein by this reference to Exhibit 4.10
of Post-Effective Amendment No. 2 to the Registrant's Registration
Statement on Form S-3 (No. 33-34013) filed with the Commission on
January 22, 1993.)
4.12 First Preferred Ship Mortgage, dated December 23, 1992, from Global
Marine Adriatic Inc. to Wilmington Trust Company, as Trustee.
(Incorporated herein by this reference to Exhibit 4.11 of Post-
Effective Amendment No. 2 to the Registrant's Registration Statement
on Form S-3 (No. 33-34013) filed with the Commission on January 22,
1993.)
4.13 Assumption Agreement and Supplement No.1, dated March 4, 1993, to
First Preferred Ship Mortgage among Global Marine Adriatic Inc., as
Original Mortgagor, Global Marine Drilling Company, as Assuming
Mortgagor, and Wilmington Trust Company, as Trustee. (Incorporated
herein by this reference to Exhibit 4.13 of the Registrant's
Registration Statement on Form S-3 (No. 33-65272) filed with the
Commission on June 30, 1993.)
4.14 First Preferred Ship Mortgage, dated December 23, 1992, from Global
Marine Australia Inc. to Wilmington Trust Company, as Trustee.
(Incorporated herein by this reference to Exhibit 4.12 of Post-
Effective Amendment No. 2 to the Registrant's Registration Statement
on Form S-3 (No. 33-34013) filed with the Commission on January 22,
1993.)
4.15 Release of Vessel from Lien of Mortgage, dated May 19, 1995, by
Wilmington Trust Company, as Trustee.
4.16 First Preferred Ship Mortgage, dated December 23, 1992, from Global
Marine Bismarck Sea Inc. to Wilmington Trust Company, as Trustee.
(Incorporated herein by this reference to Exhibit 4.13 of Post-
Effective Amendment No. 2 to the Registrant's Registration Statement
on Form S-3 (No. 33-34013) filed with the Commission on January 22,
1993.)
4.17 First Priority Naval Mortgage, dated March 17, 1993, from Global
Marine North Sea Inc. to Wilmington Trust Company, as Trustee.
(Incorporated herein by this reference to Exhibit 4.16 of the
Registrant's Registration Statement on Form S-3 (No. 33-65272 ) filed
with the Commission on June 30, 1993.)
4.18 Subsidiary Pledge Agreement, dated December 23, 1992, between
Global Marine Adriatic Inc. and Wilmington Trust Company, as Trustee.
(Incorporated herein by this reference to Exhibit 4.15 of Post-
Effective Amendment No. 2 to the Registrant's Registration Statement
on Form S-3 (No. 33-34013) filed with the Commission on January 22,
1993.)
4.19 Subsidiary Pledge Agreement, dated December 23, 1992, between Global
Marine Australia Inc. and Wilmington Trust Company, as Trustee.
(Incorporated herein by this reference to Exhibit 4.16 of Post-
Effective Amendment No. 2 to the Registrant's Registration Statement
on Form S-3 (No. 33-34013) filed with the Commission on January 22,
1993.)
4.20 Subsidiary Pledge Agreement, dated December 23, 1992, between Global
Marine Bismarck Sea Inc. and Wilmington Trust Company, as Trustee.
(Incorporated herein by this reference to Exhibit 4.17 of Post-
Effective Amendment No. 2 to the Registrant's Registration
Statement on Form S-3 (No. 33-34013) filed with the Commission on
January 22, 1993.)
4.21 Subsidiary Pledge Agreement, dated December 23, 1992, between
Global Marine Deepwater Drilling Inc. and Wilmington Trust Company,
as Trustee. (Incorporated herein by this reference to Exhibit 4.18 of
Post-Effective Amendment No. 2 to the Registrant's Registration
Statement on Form S-3 (No. 33-34013) filed with the Commission on
January 22, 1993.)
4.22 Subsidiary Pledge Agreement, dated December 23, 1992, between
Global Marine Drilling Company Inc. and Wilmington Trust Company,
as Trustee. (Incorporated herein by this reference to Exhibit 4.19
of Post-Effective Amendment No. 2 to the Registrant's Registration
Statement on Form S-3 (No. 33-34013) filed with the Commission on
January 22, 1993.)
4.23 Subsidiary Pledge Agreement, dated December 23, 1992, between
Global Marine Nautilus Inc. and Wilmington Trust Company, as Trustee.
(Incorporated herein by this reference to Exhibit 4.20 of Post-
Effective Amendment No. 2 to the Registrant's Registration Statement
on Form S-3 (No. 33-34013) filed with the Commission on January 22,
1993.)
4.24 Subsidiary Pledge Agreement, dated December 23, 1992, between
Global Marine North Sea Inc. and Wilmington Trust Company, as
Trustee. (Incorporated herein by this reference to Exhibit 4.21
of Post-Effective Amendment No. 2 to the Registrant's Registration
Statement on Form S-3 (No. 33-34013) filed with the Commission on
January 22, 1993.)
4.25 Subsidiary Pledge Agreement, dated December 23, 1992, between Global
Marine West Africa Inc. and Wilmington Trust Company, as Trustee.
(Incorporated herein by this reference to Exhibit 4.22 of Post-
Effective Amendment No. 2 to the Registrant's Registration
Statement on Form S-3 (No. 33-34013) filed with the Commission on
January 22, 1993.)
4.26 Subsidiary Pledge Agreement, dated December 21, 1995, between
Global Marine International Services Corporation and Wilmington
Trust Company, as Trustee.
10.1 Credit Agreement, dated June 24, 1993, among Global Marine Inc.,
Global Marine Drilling Company, Global Marine Australia Inc.,
Global Marine Baltic Inc., Global Marine Deepwater Drilling Inc. and
Societe Generale, New York Branch. (Incorporated herein by this
reference to Exhibit 10.1 of the Registrant's Registration
Statement on Form S-3 (No. 33-65272) filed with the Commission on
June 30, 1993.)
10.2 Amendment No. 1, dated February 26, 1996, to Credit Agreement among
Global Marine Inc., Global Marine Drilling Company, Global Marine
Australia Inc., Global Marine Baltic Inc., Global Marine Deepwater
Drilling Inc. and Societe Generale, New York Branch.
10.3 Memorandum of Agreement, dated June 6, 1993, between Global Marine
Inc. and Transocean Drilling AS, and Amendment No. 1 thereto dated
June 16, 1993. (Incorporated herein by this reference to Exhibit
99.1 of the Registrant's Registration Statement on Form S-3
(No. 33-65272) filed with the Commission on June 30, 1993.)
10.4 Letter of Intent in Order to Form a Joint Venture, dated June 6,
1993, between Global Marine Inc. and Transocean Drilling AS.
(Incorporated herein by this reference to Exhibit 99.2 of the
Registrant's Registration Statement on Form S-3 (No. 33-65272)
filed with the Commission on June 30, 1993.)
10.5 Purchase and Sale Agreement, dated August 24, 1993, between Global
Marine Inc. and Transocean Drilling AS. (Incorporated herein by
this reference to Exhibit 10.3 of the Registrant's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1993.)
10.6 Management Agreement (relating to Glomar Moray Firth I), dated
September 10, 1993, between Global Marine Nautilus Inc. and
Transocean Drilling AS. (Incorporated herein by this reference
to Exhibit 10.4 of the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1993.)
10.7 Management Agreement (relating to Transocean No. 5), dated
September 10, 1993, between Global Marine Nautilus Inc. and
Transocean Drilling AS. (Incorporated herein by this
reference to Exhibit to 10.5 of the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1993.)
* 10.8 Letter Employment Agreement dated February 14, 1995, between the
Company and C. Russell Luigs. (Incorporated herein by this reference
to Exhibit 10.7 of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1994.)
* 10.9 Consulting Agreement dated February 14, 1986, between Challenger
Minerals Inc. and Donald B. Brown. (Incorporated herein by this
reference to Exhibit 10.2 of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1987.)
* 10.10 Form of Letter Severance Agreement dated February 7, 1989, between
the Company and six executive officers, respectively. (Incorporated
herein by this reference to Exhibit 10.5 of the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1988.)
* 10.11 Letter Severance Agreement dated May 7, 1992,between the Company
and one executive officer. (Incorporated herein by this reference
to Exhibit 10.5 of the Registrant's Annual Report on Form 10-K for
the year ended December 31, 1992.)
* 10.12 Global Marine Inc. 1989 Stock Option and Incentive Plan.
(Incorporated herein by this reference to Exhibit 10.6 of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1988.)
* 10.13 First Amendment to Global Marine Inc. 1989 Stock Option and
Incentive Plan. (Incorporated herein by this reference to Exhibit
10.6 of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1990.)
* 10.14 Second Amendment to Global Marine Inc. 1989 Stock Option and
Incentive Plan. (Incorporated herein by this reference to Exhibit
10.7 of the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991.)
* 10.15 Third Amendment to Global Marine Inc. 1989 Stock Option and Incentive
Plan. (Incorporated herein by this reference to Exhibit 10.19 of
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993.)
* 10.16 Fourth Amendment to Global Marine Inc. 1989 Stock Option and
Incentive Plan. (Incorporated herein by this reference to Exhibit
10.16 of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994.)
* 10.17 Form of Incentive Stock Sale Agreement dated February 14, 1995,
between the Company and nine executive officers, respectively.
(Incorporated herein by this reference to Exhibit 10.18 of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.)
* 10.18 Form of Incentive Stock Sale Agreement dated February 20, 1996,
between the Company and two executive officers, respectively.
* 10.19 Form of Performance Stock Memorandum dated June 7, 1994, regarding
conditional opportunity to acquire Company stock granted to six
executive officers, respectively. (Incorporated herein by this
reference to Exhibit 10.1 of the Registrant's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1994.)
* 10.20 Form of Performance Stock Memorandum dated February 14, 1995,
regarding conditional opportunity to acquire Company stock granted
to six executive officers, respectively. (Incorporated herein by
this reference to Exhibit 10.20 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1994.)
* 10.21 Form of Performance Stock Memorandum dated February 20, 1996,
regarding conditional opportunity to acquire Company stock granted
to six executive officers, respectively.
* 10.22 Executive Life Insurance Plan. (Incorporated herein by this
reference to Exhibit 10.5 of the Registrant's Annual Report on
Form 10-K for the year ended December 31, 1988.)
* 10.23 Global Marine Inc. Executive Supplemental Retirement Plan of 1990.
(Incorporated herein by this reference to Exhibit 10.8 of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1990.)
* 10.24 Global Marine Executive Deferred Compensation Trust as established
effective January 1, 1995.
* 10.25 Global Marine Benefit Equalization Retirement Plan effective
January 1, 1990. (Incorporated herein by this reference to Exhibit
10.8 of the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1989.)
* 10.26 Global Marine Benefit Equalization Retirement Trust as established
effective January 1, 1990. (Incorporated herein by this reference to
Exhibit 10.9 of the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1989.)
* 10.27 Form of Indemnification Agreement entered into between the Company and
each of its directors and officers. (Incorporated herein by this
reference to Exhibit 10.12 of the Registrant's Annual Report on Form
10-K for the year ended December 31, 1986.)
* 10.28 Resolutions dated August 3, 1994 regarding Directors' Compensation.
* 10.29 Amended and Restated Retirement Plan for Outside Directors.
(Incorporated herein by this reference to Exhibit 10.12 of the
Registrant's Annual Report on Form 10-K for the year ended December
31, 1990.)
* 10.30 Global Marine Inc. 1990 Non-Employee Director Stock Option Plan
(Incorporated herein by this reference to Exhibit 10.18 of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1991.)
* 10.31 First Amendment to Global Marine Inc. 1990 Non-Employee Director
Stock Option Plan (Incorporated herein by this reference to Exhibit
10.1 of the Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1995.)
* 10.32 Global Marine Inc. 1995 Management Incentive Award Plan.
(Incorporated herein by this reference to Exhibit 10.29 of the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994.)
* 10.33 Global Marine Inc. 1996 Management Incentive Award Plan.
11.1 Computation of Earnings Per Common Share.
21.1 List of Subsidiaries.
23.1 Consent of Coopers & Lybrand L.L.P., Independent Accountants.
23.2 Consent of Independent Petroleum Engineers (Ryder Scott Company
Petroleum Engineers).
27.1 Financial Data Schedule. (Exhibit 27.1 is being submitted
as an exhibit only in the electronic format of this Annual Report on
Form 10-K being submitted to the Securities and Exchange Commission.
Exhibit 27.1 shall not be deemed filed for purposes of Section 11
of the Securities Act of 1933, Section 18 of the Securities Exchange
Act of 1934 or Section 323 of the Trust Indenture Act, or otherwise be
subject to the liabilities of such sections, nor shall it be deemed a
part of any registration statement to which it relates.)
99.1 Report of Independent Petroleum Engineers dated February 8, 1996.
99.2 Report of Independent Petroleum Engineers dated February 8, 1995.
(Incorporated herein by this reference to Exhibit 99.1 of the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1994.)
99.3 Reports of Independent Petroleum Engineers dated February 7, 1994.
(Incorporated herein by this reference to Exhibit 99.1 of the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1993.)
- ---------------------------
* Management contract or compensatory plan or arrangement.
The Company hereby undertakes, pursuant to Regulation S-K, Item 601(b),
paragraph (4) (iii), to furnish to the Securities and Exchange Commission
on request agreements defining the rights of holders of long-term debt of
the Company and its consolidated subsidiaries not filed herewith in
accordance with said Item.
(b) Reports on Form 8-K
The Company did not file any Current Reports on Form 8-K during the last
quarter of 1995.
SIGNATURES REQUIRED FOR FORM 10-K
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
GLOBAL MARINE INC.
(REGISTRANT)
Date: February 28, 1996 By: J. C. MARTIN
---------------------------
(J. C. Martin)
Senior Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
C. R. LUIGS Chairman of the Board, February 28, 1996
- ------------------- President and Chief
(C. R. Luigs) Executive Officer
J. C. MARTIN Senior Vice President and February 28, 1996
- ------------------- Chief Financial Officer
(J. C. Martin) (Principal Financial
Officer) and Director
THOMAS R. JOHNSON Vice President and February 28, 1996
- ------------------- Corporate Controller
(Thomas R. Johnson) (Principal Accounting Officer)
Director
- -------------------
(Patrick M. Ahern)
DONALD B. BROWN Director February 28, 1996
- -------------------
(Donald B. Brown)
E. J. CAMPBELL Director February 28, 1996
- -------------------
(E. J. Campbell)
THOMAS CASON Director February 28, 1996
- -------------------
(Thomas Cason)
PETER T. FLAWN Director February 28, 1996
- -------------------
(Peter T. Flawn)
JOHN M. GALVIN Director February 28, 1996
- -------------------
(John M. Galvin)
L. L. LEIGH Director February 28, 1996
- -------------------
(L. L. Leigh)
PAUL J. POWERS Director February 28, 1996
- -------------------
(Paul J. Powers)
SIDNEY A. SHUMAN Director February 28, 1996
- -------------------
(Sidney A. Shuman)
W. R. THOMAS Director February 28, 1996
- -------------------
(W. R. Thomas)
EXHIBIT 99
EXHIBIT INDEX
A. Copies of exhibits listed below are submitted with this Annual Report on
Form 10-K, immediately following this index.
4.15 Release of Vessel from Lien of Mortgage, dated May 19, 1995, by
Wilmington Trust Company, as Trustee.
4.26 Subsidiary Pledge Agreement, dated December 21, 1995, between Global
Marine International Services Corporation and Wilmington Trust
Company, as Trustee.
10.2 Amendment No. 1, dated February 26, 1996, to Credit Agreement among
Global Marine Inc., Global Marine Drilling Company, Global Marine
Australia Inc., Global Marine Baltic Inc., Global Marine Deepwater
Drilling Inc. and Societe Generale, New York Branch.
10.18 Form of Incentive Stock Sale Agreement dated February 20, 1996,
between the Company and two executive officers, respectively.
10.21 Form of Performance Stock Memorandum dated February 20, 1996,
regarding conditional opportunity to acquire Company stock granted to
six executive officers, respectively.
10.24 Global Marine Executive Deferred Compensation Trust as established
effective January 1, 1995.
10.28 Resolutions dated August 3, 1994 regarding Directors' Compensation.
10.33 Global Marine Inc. 1996 Management Incentive Award Plan.
11.1 Computation of Earnings Per Common Share.
21.1 List of Subsidiaries.
23.1 Consent of Coopers & Lybrand L.L.P., Independent Accountants.
23.2 Consent of Independent Petroleum Engineers (Ryder Scott Company
Petroleum Engineers).
27.1 Financial Data Schedule. (Exhibit 27.1 is being submitted as an
exhibit only in the electronic format of this Annual Report on Form
10-K being submitted to the Securities and Exchange Commission.
Exhibit 27.1 shall not be deemed filed for purposes of Section 11
of the Securities Act of 1933, Section 18 of the Securities Exchange
Act of 1934 or Section 323 of the Trust Indenture Act, or otherwise
be subject to the liabilities of such sections, nor shall it be
deemed a part of any registration statement to which it relates.)
99.1 Report of Independent Petroleum Engineers dated February 8, 1996.
B. All other exhibits listed in Item 14(a)(3) are incorporated by reference in
this Annual Report on Form 10-K, as stated in Item 14(a)(3). Descriptions
of these exhibits are incorporated herein by this reference to
Item 14(a)(3) of this Report.
EXHIBIT 4.15
RELEASE OF VESSEL FROM LIEN OF MORTGAGE
Wilmington Trust Company, not in its individual capacity but
solely as Trustee, as mortgagee (the "Mortgagee"), with reference
to that First Preferred Ship Mortgage dated December 23, 1992, made
and executed by Global Marine Australia Inc., a Delaware
corporation (the "Mortgagor"), covering the Glomar Main Pass III to
secure payment to the Mortgagee of the total principal amount of
US$225,000,000, which First Preferred Ship Mortgage was filed in
the office of the Officer in Charge, Marine Documentation, United
States Coast Guard, Port of Houston, Texas on December 23, 1992 at
9:09 a.m. and recorded in Book PM 267, Page I-3 on December 23,
1992 at 10:08 a.m. does hereby release said rig, being the whole of
the jackup named the GLOMAR MAIN PASS III, O.N. 651369, and no
other rig from the Mortgage.
IN WITNESS WHEREOF, the Mortgagee has caused this release to
be executed this 19th day of May, 1995.
WILMINGTON TRUST COMPANY
not in its individual
capacity but solely as
Trustee, as Mortgagee
By: /s/ DAVID A. VANASKEY, JR.
Its: SR. FINANCIAL SERVICES
OFFICER
STATE OF DELAWARE
COUNTY OF NEW CASTLE COUNTY
This Release was acknowledged before me on May 19, 1995, by
DAVID A. VANASKEY, JR. as SENIOR FINANCIAL SERVICES OFFICER of
Wilmington Trust Company, not in its individual capacity but solely
as Trustee, on behalf of whom said Release was executed.
/S/ VERNESSA E. ROBINSON
Signature of Notarial Officer
[Seal]
My commission expires OCTOBER 12, 1996
EXHIBIT 4.26
SUBSIDIARY PLEDGE AGREEMENT
AGREEMENT dated as of December 21, 1995 between Global Marine
International Services Corporation, a Bahamian corporation (with
its successors, the "Company"), and Wilmington Trust Company, a
Delaware banking corporation, as trustee under the Indenture
referred to herein (with its successors in such capacity, the
"Trustee").
W I T N E S S E T H
WHEREAS, the Company is a Subsidiary of Global Marine Inc.
(the "Issuer"); and
WHEREAS, the Issuer has heretofore executed and delivered to
the Trustee an Indenture dated as of December 23, 1992 (the
"Indenture"), providing for the issuance of $225,000,000 aggregate
principal amount of the Issuer's 12 3/4% Senior Secured Notes Due
1999 (the "Notes"); and
WHEREAS, Section 1017 of the Indenture provides that upon the
designation by the Issuer of a Subsidiary as a "Restricted
Subsidiary" in accordance with clause (ii) of the definition of
the term "Unrestricted Subsidiary" the Issuer shall cause such
Subsidiary to execute and deliver to the Trustee a Subsidiary
Pledge Agreement; and
WHEREAS, simultaneous with the execution of this Subsidiary
Pledge Agreement by the Company, the Issuer has designated the
Company as a "Restricted Subsidiary" in accordance with clause
(ii) of the definition of the term "Unrestricted Subsidiary"; and
WHEREAS, the Company will receive substantial direct and
indirect benefit from the Issuer's issuance and sale of the Notes;
NOW THEREFORE, in consideration of the premises and in order
to comply with Section 1017 of the Indenture, the Company hereby
agrees as follows:
SECTION 1. DEFINITIONS.
Capitalized terms used herein and not otherwise defined
herein shall have the meanings set forth in the Indenture. The
following terms, as used herein, have the following respective
meanings:
"Board of Directors" means, with respect to any Person,
either the board of directors of such Person, or any duly
authorized committee of such board.
"Board Resolution" means, with respect to the Board of
Directors of any Person, a copy of a resolution certified by the
Secretary or an Assistant Secretary of such Person to have been
duly adopted by such Board of Directors and to be in full force
and effect on the date of such certification, and delivered to the
Trustee.
"Cash Collateral Account" has the meaning set forth in
Section 5(A) hereof.
"Collateral" has the meaning set forth in Section 3 hereof.
"Company Request" or "Company Order" means a written request
or order signed in the name of the Company by its Chairman of the
Board, its President, a Vice Chairman or a Vice President, and by
its Treasurer, an Assistant Treasurer, its Secretary or an
Assistant Secretary, and delivered to the Trustee.
"Instruments" means all "instruments", "chattel paper" or
"letters of credit" (each as defined in the UCC) including, but
not limited to, promissory notes, drafts, bills of exchange and
trade acceptances, now owned or hereafter acquired by the Company.
"Liquid Investments" has the meaning set forth in Section
5(E) hereof.
"Non-cash Consideration" means any non-cash Proceeds of any
Asset Sale by the Company of a Mortgaged Vessel.
"Proceeds" means all proceeds of, and all other profits,
income or receipts, in whatever form, arising from the ownership,
collection, sale, exchange, assignment or other disposition of, or
realization upon, Collateral, including without limitation all
claims of the Company against third parties for loss of, or for
proceeds payable under, or unearned premiums with respect to, any
Collateral, and all interest, dividends (cash or otherwise) and
other payments and distributions on or with respect to the
Collateral or in exchange for the Collateral, in each case whether
now existing or hereafter arising.
"Secured Obligations" means the obligations secured under
this Agreement including (a) the obligations of the Issuer under
the Indenture and under the Notes, whether in respect of
principal, premium, interest (including Defaulted Interest, and
whether or not accruing after commencement of any case, proceeding
or other action relating to the bankruptcy, insolvency or
reorganization of the Issuer) or otherwise, (b) the obligations of
the Company hereunder, and (c) any renewals or extensions of any
of the foregoing; PROVIDED, HOWEVER, that the amount of such
Secured Obligations shall be deemed to be limited to that amount
which would not render the pledge hereunder subject to avoidance
under Section 548 of the United States Bankruptcy Code or any
comparable provisions of any applicable state law.
"Security Interests" means the security interests in the
Collateral granted hereunder securing the Secured Obligations.
"Subsidiary" means a subsidiary of the Company.
"Subsidiary Shares" means all shares of capital stock or
other evidences of ownership in any subsidiary, other than a Non-Recourse
Subsidiary, of the Issuer (now or hereafter existing) from time to time
owned or acquired by the Company in any manner, the certificates, if any,
representing such shares or other evidences of ownership, and any shares
of capital stock, warrants, rights or options to acquire such shares, or
any security convertible into or exchangeable for such shares or any other
Instrument or property received or receivable as a distribution or
a dividend thereon or exchanged or exchangeable therefor.
"UCC" means the Uniform Commercial Code as in effect on the
date hereof in the State of New York; PROVIDED that if by reason
of mandatory provisions of law, the perfection or the effect of
perfection or non-perfection of the Security Interest in any
Collateral is governed by the Uniform Commercial Code as in effect
in a jurisdiction other than New York, "UCC" means the Uniform
Commercial Code as in effect in such other jurisdiction for
purposes of the provisions hereof relating to such perfection or
effect of perfection or non-perfection.
Unless otherwise defined herein or in the Indenture, or
unless the context otherwise requires, all terms used herein which
are defined in the UCC shall have the meanings therein stated.
SECTION 2. REPRESENTATIONS AND WARRANTIES.
The Company represents and warrants to the Trustee and for
the benefit of each Holder as follows:
(A) CORPORATE EXISTENCE AND POWER. The Company is a
corporation duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation,
and has all corporate powers and all material governmental
licenses, authorizations, consents and approvals required to carry
on its business as now conducted.
(B) CORPORATE AND GOVERNMENTAL AUTHORIZATION; NO
CONTRAVENTION. The execution, delivery and performance by the
Company of this Agreement (i) is within the Company's corporate powers,
(ii) has been duly authorized by all necessary corporate action, requires no
action by or in respect of, or filing with, any governmental body, agency
or official (other than any actions or filings required pursuant
to Section 4(H) hereof ), (iii) does not contravene, or constitute
a default under, any provision of applicable law or regulation or
of the certificate of incorporation or by-laws of the Company or
of any agreement, judgment, injunction, order, decree or other
instrument binding thereon or (iv) result in the creation or
imposition of any Lien on any asset of the Company other than the
Lien of this Agreement.
(C) BINDING EFFECT. This Agreement constitutes a valid
and binding agreement of the Company, enforceable in accordance
with its terms.
(D) LITIGATION. There is no action, suit,
investigation, litigation or proceeding affecting the Company or
any Subsidiary thereof pending or threatened before any domestic
or foreign court, governmental agency or other governmental body,
official or arbitrator that in any manner draws into question the
validity of this Agreement, the enforceability of the Security
Interests or the consummation of the transactions contemplated
hereby.
(E) COLLATERAL. The Company has good title to all of
the Collateral free and clear of any Liens other than the Lien of
this Agreement.
(F) ENFORCEMENT PERFECTION. The Company has not
performed any acts which might prevent the Trustee from enforcing
any of the terms of this Agreement or which would limit the
Trustee in any such enforcement. No financing statement,
mortgage, security agreement or similar or equivalent document,
instrument or notation covering all or any part of the Collateral
is on file or of record in any jurisdiction in which such filing
or recording would be effective to perfect a Lien on such
Collateral. No Collateral is in the possession of any Person
(other than the Company) asserting any claim thereto or security
interest therein, except that the Trustee or its designee may have
possession of Collateral as contemplated hereby.
(G) VALIDITY, PERFECTION AND PRIORITY OF SECURITY
INTERESTS. This Agreement duly creates, for the benefit of the
Trustee and the Holders, valid Security Interests in the
Collateral under the UCC, which by its terms this Agreement
purports to create. Upon the delivery of the Instruments (to the
extent required to be delivered hereunder) and certificates
representing Subsidiary Shares to the Trustee in accordance with
Section 4 hereof, the Trustee will have valid and perfected
Security Interests therein subject to no prior Lien. Other than
the foregoing, no registration, recordation or filing with or
notice to any governmental body, agency or official, or any other
action, is required in connection with the execution or delivery
of this Agreement or necessary for the validity or enforceability
hereof or for the perfection of the Security Interests.
SECTION 3. THE SECURITY INTERESTS.
(A) In order to secure the full and punctual payment of
the Secured Obligations in accordance with the terms thereof and
to secure the performance of all of the obligations of the Company
hereunder, the Company hereby irrevocably grants, assigns, pledges
and transfers to the Trustee for the ratable security and benefit
of the Holders a continuing security interest in and to and lien
on all of the right, title and interest of the Company in, to and
under all of the following property of the Company, whether now
owned or existing or hereafter acquired or arising and regardless
of where located (all being collectively referred to as the
"Collateral"):
(1) Subsidiary Shares;
(2) Instruments received by the Company as
Noncash Consideration;
(3) cash Proceeds of any Asset Sale by the
Company of a Mortgaged Vessel;
(4) the Cash Collateral Account, all cash
deposited therein from time to time, the
Liquid Investments made pursuant to Section
5(E) hereof and other rights, monies and
property in the possession or under the
control of the Trustee; and
(5) all Proceeds of all or any of the Collateral
described in clauses (1) through (5) hereof.
(B) The Security Interests are granted as security only
and not a transfer of title and shall not subject the Trustee or
any Holder to, or transfer or in any way affect or modify, any
obligation or liability of the Company or any Subsidiary of the
Company with respect to any of the Collateral or any transaction
in connection therewith.
SECTION 4. FURTHER ASSURANCES; COVENANTS.
(A) (i) The Company will, on or prior to the third day
after the related Asset Sale, deliver and pledge to the Trustee
any Instrument acquired by the Company at any time as Non-cash
Consideration, appropriately endorsed to the Trustee, PROVIDED
that, pending such delivery, the Company shall hold such
Instruments in trust for the Trustee and the Holders, and PROVIDED
FURTHER that the Trustee may, upon request of the Company, make
appropriate arrangements for making any Instrument pledged by the
Company available to it for purposes of presentation, collection
or renewal (any such arrangement to be effected, to the extent
deemed appropriate to the Trustee, against trust receipt or like
document); SUBJECT, HOWEVER, to the Security Interest in such
Instruments and the Proceeds thereof;
(ii) the Company will immediately deliver and
pledge to the Trustee certificates or other instruments acquired
by it at any time representing Subsidiary Shares;
(iii)all Instruments required under clause (i) of
this subsection (A) to be delivered to the Trustee shall be so
delivered by the Company pursuant hereto endorsed in suitable form
for transfer by endorsement and delivery by the Trustee, and
accompanied by any required transfer tax stamps, all in form and
substance satisfactory to the Trustee; and all certificates or
other instruments representing Subsidiary Shares delivered to the
Trustee by the Company pursuant hereto shall be in suitable form
for transfer by delivery, or shall be accompanied by duly executed
instruments of transfer or assignment in blank, and accompanied by
any required transfer tax stamps, all in form and substance
satisfactory to the Trustee; and
(iv) the Company will promptly give to the Trustee
copies of any notices or other communications received by it with
respect to Subsidiary Shares registered in the name of the Company
and the Trustee will promptly give to the Company copies of any
notices and communications received by the Trustee with respect to
Subsidiary Shares registered in the name of the Trustee or its
nominee.
(B) Except as otherwise provided in this subsection
(B), the Company shall continue to enforce, at its own expense,
any and all obligations of any Persons to it arising out of
Instruments received as Non-cash Consideration and shall continue
to collect, at its own expense, all amounts due, if any, or to
become due, that arise out of such Instruments and to pay over or
deposit such amounts in accordance with Section 5(C) hereof;
PROVIDED, HOWEVER, that the Trustee shall have the right at any
time, and from time to time, upon the occurrence and during the
continuance of a Default, to direct the obligors to the Company
under such Instruments to make payment of all amounts or other
property due or to become due to the Company thereunder directly
to the Trustee and, at the expense of the Company, to enforce such
Instruments, and to adjust, settle or compromise the amount or
payment thereof, if any, in the same manner and to the same extent
as the Company might have done.
(C) Upon the occurrence and during the continuance of a
Default, the Company will promptly notify (and hereby authorizes
the Trustee so to notify) each account debtor in respect of any
Instrument received as Non-cash Consideration that such Collateral
has been assigned to the Trustee hereunder, and that any payments
due or to become due in respect of such Collateral are to be made
directly to the Trustee or its designee.
(D) The Company will not (i) create, incur or suffer to
exist any Lien with respect to any Collateral other than the Lien
of the Security Documents and Permitted Collateral Liens, or (ii)
effect any Asset Sale with respect to any Collateral except as
permitted under Section 1013 of the Indenture.
(E) The Company will, promptly upon request, provide to
the Trustee all information and evidence it may reasonably request
concerning the Collateral and any other information the Trustee
may reasonably request to enable the Trustee to enforce the
provisions of this Agreement.
(F) The Company shall comply, in all material respects,
with all acts, rules, regulations, orders, decrees and directions
of any court or governmental instrumentality applicable to the
Collateral.
(G) The Company will deliver to the Trustee a copy of
each material demand, notice or document received by it relating
in any way to the Collateral if failure to so deliver might
adversely affect the Trustee's ability to safeguard the Security
Interest in such Collateral.
(H) At any time and from time to time, upon the request
of the Trustee, and at the sole expense of the Company, the
Company will promptly and duly execute and deliver such further
instruments and documents and take such further action as the
Trustee may reasonably request for the purpose of obtaining or
preserving the full benefits of this Agreement and of the rights
and powers herein granted, including, without limitation, the
filing of any financing or continuation statements under the UCC
with respect to the Security Interests created hereby. The
Company also hereby authorizes the Trustee to file any such
financing or continuation statement without the signature of the
Company to the extent permitted by applicable law.
(I) If any new Subsidiary of the Company (other than a
Non-Recourse Subsidiary, so long as it remains such) is
established or acquired, or the Company designates a Subsidiary as
a "Restricted Subsidiary" in accordance with clause (ii) of the
definition of the term Unrestricted Subsidiary in the Indenture,
the Company shall cause such Subsidiary to execute and deliver to
the Trustee an agreement in substantially the form of this
Subsidiary Pledge Agreement and, if such new Subsidiary owns any
Subsidiary Shares, to deliver and pledge to the Trustee pursuant
to such agreement the certificates or other instruments
representing all such Subsidiary Shares, in the form required by
such agreement, and free of all Liens other than the Lien of such
agreement. For purposes of this subsection (J), if the Subsidiary
Shares being pledged are the Capital Stock of a Subsidiary
organized under the laws of a jurisdiction other than the United
States, a State thereof or the District of Columbia, the
Subsidiary Pledge Agreement with respect thereto shall be
substantially in the form of this Subsidiary Pledge Agreement,
with such changes therein (which shall be satisfactory to the
Trustee), as are required by the law of the jurisdiction in which
such Subsidiary is organized in order to grant a security interest
in such Capital Stock comparable to that provided for in this
Subsidiary Pledge Agreement, as evidenced by an Opinion of Counsel
(which shall also address the validity of such agreement and the
creation and perfection of such security interest).
SECTION 5. CASH COLLATERAL ACCOUNT; DISTRIBUTIONS ON
COLLATERAL.
(A) There is hereby established by the Trustee a cash
collateral account, subject to such applicable laws and such
applicable regulations of the Board of Governors of the Federal
Reserve System and of any other appropriate banking or
governmental authority as may now hereafter be in effect (the
"Cash Collateral Account"), in the name and under the sole
dominion and control of the Trustee. The Company shall deposit
from time to time into the Cash Collateral Account all Net
Available Proceeds of an Asset Sale by the Company of any
Collateral or any Mortgaged Vessel. Any income received by the
Trustee with respect to the balance from time to time standing to
the credit of the Cash Collateral Account, including any interest
or capital gains on Liquid Investments, shall remain, or be
deposited, in the Cash Collateral Account. All right, title and
interest in and to the cash amounts on deposit from time to time
in the Cash Collateral Account together with any Liquid
Investments from time to time made pursuant to subsection (E) of
this Section 5 shall vest in the Trustee, shall constitute part of
the Collateral hereunder and shall not constitute payment of the
Secured Obligations until applied thereto as hereinafter provided.
(B) Except as otherwise provided by the provisions of
subsection (D) of this Section 5 or of Section 10 hereof or
Section 1013 of the Indenture, no amount (including interest on
amounts on deposit in the Cash Collateral Account) shall be paid
or released to or for the account of, or withdrawn by or for the
account of, the Company or any other Person from the Cash
Collateral Account.
(C) Except as specified in subsection (G) of this
Section 5, the Trustee shall have the right to receive and retain
as Collateral hereunder all dividends, interest and other payments
and distributions made upon or with respect to the Collateral and
the Company shall take all such action as the Trustee may deem
necessary or appropriate to give effect to such right. All such
dividends, interest and other payments and distributions which are
received by the Company shall be received in trust for the benefit
of the Trustee and the Holders and shall be paid over to the
Trustee as Collateral in the same form as received (with any
necessary endorsement). The Company shall deposit any such
dividends, interest and other payments and distributions that are
in the form of cash into the Cash Collateral Account.
(D) Except as provided in subsection (G) of this
Section 5, any distributions or other Proceeds of the Collateral
received by the Trustee and the balance from time to time standing
to the credit of the Cash Collateral Account shall be released to
the Company only as permitted under Section 1013 of the Indenture;
PROVIDED that the Trustee shall not distribute or release to the
Company any such Collateral upon the occurrence and continuation
of a Default. If the Notes have been declared, or have become,
due and payable and such declaration and its consequences have not
been rescinded or annulled, the Trustee may, in accordance with
Section 505 of the Indenture or as otherwise permitted herein,
apply or cause to be applied (subject to collection) any or all of
the balance from time to time standing to the credit of the Cash
Collateral Account in the manner specified in Section 10 hereof.
(E) Amounts on deposit in the Cash Collateral Account
shall be invested and reinvested from time to time in such Liquid
Investments as the Company shall instruct the Trustee to invest
in, provided that such instruction shall be in writing; PROVIDED,
HOWEVER, that, if a Default shall have occurred and be continuing,
the Trustee shall have the exclusive right to make investment
decisions with respect to amounts on deposit in the Cash
Collateral Account. Such Liquid Investments shall be held in the
name and be under the sole dominion and control of the Trustee,
subject to subsection (D) of this Section 5. "Liquid Investments"
means such Permitted Investments as are described in clauses (a),
(b), (c) and (d) of the definition of that term in the Indenture;
PROVIDED, HOWEVER, that in order to provide the Trustee, for the
benefit of the Holders, with a perfected security interest
therein, each Liquid Investment, or, in the case of the Permitted
Investments described in clause (d) of the definition of that
term, each security which is the subject of a repurchase
obligation, shall be either:
(a) evidenced by negotiable certificates or
instruments, or if non-negotiable then issued in the
name of the Trustee, which (i) are delivered (together
with any appropriate instruments of transfer) to, and
held by, the Trustee or an agent thereof (which shall
not be the Company or any of its Affiliates) in the
State of Delaware or (ii) held by or on behalf of the
Depositary Trust Company or the Participants Trust
Company (each a "Clearing Corporation") and credited to
a securities account of the Trustee maintained with such
Clearing Corporation; or
(b) maintained in book-entry form on the records
of a Federal Reserve Bank and registered in the name of
the Trustee, as depositary, in a book-entry securities
account maintained with respect to such Liquid
Investment with the Federal Reserve Bank in the Federal
Reserve District in which the Trustee's Corporate Trust
Office is located.
The Company shall bear the risk of any realized losses
incurred on Liquid Investments, and if any such realized loss
shall occur on a day when the Company would not be permitted
pursuant to subsection (D) of this Section 5 to withdraw monies
from its Cash Collateral Account, the Company shall promptly remit
an amount equal to the amount of any such loss to the Trustee for
credit to the Cash Collateral Account.
(F) If immediately available cash on deposit in the
Cash Collateral Account is not sufficient to make any permitted
distribution to the Company, the Trustee shall liquidate as
promptly as practicable Liquid Investments as required to obtain
sufficient cash to make such distribution and, notwithstanding any
other provision of this Section 5, such distribution shall not be
made until such liquidation has taken place.
(G) Unless a Default shall have occurred and be
continuing, the Company shall have the right to receive any
dividends on the Subsidiary Shares in the form of cash or
property, but not any dividends in the form of Instruments or
additional Subsidiary Shares; PROVIDED that until the Trustee has
received a certificate signed by an authorized officer of the
Company stating (i) the source, type and amount of such dividend
and (ii) that no Default has occurred and is continuing, such
dividend will be held by the Company in trust for the benefit of
the Trustee and the Holders. If a Default shall have occurred and
be continuing, the Company shall pay over or deposit any such
dividends as provided by subsection (C) of this Section 5 or, in
the case of dividends in the form of property, take any action
necessary to perfect the Trustee's Security Interest therein as
provided by Section 4(H) hereof.
SECTION 6. RIGHT TO VOTE SUBSIDIARY SHARES.
Unless an Event of Default shall have occurred and be
continuing, the Company shall have the right, from time to time,
to vote and give consents, ratifications and waivers with respect
to the Subsidiary Shares. If an Event of Default shall have
occurred and be continuing, the Trustee shall have the right to
the extent permitted by law and the Company shall take all such
action as may be necessary or appropriate to give effect to such
right, to vote and to give consents, ratifications or waivers, and
take any other action with respect to any or all of the Subsidiary
Shares with the same force and effect as if the Trustee were the
sole and absolute owner thereof, including, without limitation,
causing the registration thereof in the name of the Trustee.
SECTION 7. POWER OF ATTORNEY.
The Company hereby irrevocably appoints the Trustee its
true and lawful attorney, with full power of substitution, in the
name of the Company, the Trustee, the Holders or otherwise, for
the sole use and benefit of the Trustee and the Holders, but at
the Company's expense, to exercise, to the extent permitted by
law, any and all rights and remedies provided under this
Agreement, at any time and from time to time while an Event of
Default has occurred and is continuing.
SECTION 8. REMEDIES UPON EVENT OF DEFAULT.
(A) If the Notes have been declared, or have become,
due and payable and such declaration and its consequences have not
been rescinded and annulled, the Trustee may, after notice to the
Holders, and shall, upon direction by the Holders of not less than
25 percent in principal amount of Outstanding Notes, exercise on
behalf of the Holders all rights of a secured party under the UCC
(to the extent permitted by law, whether or not in effect in the
jurisdiction where such rights are exercised) and, in addition,
the Trustee may, without being required to give any notice, except
as herein provided or as may be required by mandatory provisions
of law: (i) withdraw all cash and Liquid Investments in the Cash
Collateral Account and apply such monies, Liquid Investments and
other cash, if any, then held by it as Collateral as specified in
Section 10 hereof and (ii) if there shall be no such monies,
Liquid Investments or cash or if such monies, Liquid Investments
or cash shall be insufficient to pay all the Secured Obligations
in full, sell the Collateral or any part thereof at public or
private sale or at any broker's board or on any securities
exchange, for cash, upon credit or for future delivery, and at
such price or prices as the Trustee may deem satisfactory. The
Trustee, or any Holder may be the purchaser of any or all of the
Collateral so sold at any public sale (or, if the Collateral is of
a type customarily sold in a recognized market or is of a type
which is the subject of widely distributed standard price
quotations, or if otherwise permitted by applicable law, at any
private sale). The Trustee is authorized, in connection with any
such sale, if it deems it advisable so to do, to impose such
limitations or conditions in connection with any such sale as the
Trustee deems necessary or advisable in order to comply with the
UCC or any other law. The Trustee is authorized, in connection
with any such sale, if it deems it advisable to do so, (i) to
restrict the prospective bidders on or purchasers of any of the
Subsidiary Shares to a limited number of sophisticated investors
who will represent and agree that they are purchasing for their
own account for investment and not with a view to the distribution
or sale of any of such Subsidiary Shares, (ii) to cause to be
placed on certificates for any or all of the Subsidiary Shares or
any other securities pledged hereunder a legend to the effect that
such security has not been registered under the Securities Act of
1933 and may not be disposed of in violation of the provision of
said Act, and (iii) to impose such other limitations or conditions
in connection with any such sale as the Trustee deems necessary or
advisable in order to comply with said Act or any other law. The
Company covenants and agrees that it will execute and deliver such
documents and take such other action as the Trustees deems
necessary or advisable in order that any such sale may be made in
compliance with applicable law. Upon any such sale the Trustee
shall have the right to deliver, assign and transfer to the
purchaser thereof the Collateral so sold. In order to ratify and
confirm any such sale the Company will, upon the request of the
Trustee or any such purchaser, execute and deliver thereto all
instruments of assignment, conveyance or transfer and release as
may be designated in such request. Each purchaser at any such
sale shall hold the Collateral so sold to it absolutely and free
from any claim or right of whatsoever kind, including any equity
or right of redemption of the Company which may be waived, and the
Company, to the extent permitted by law, hereby specifically
waives all rights of redemption, stay or appraisal which it has or
may have under any law now existing or hereafter adopted. The
receipt given by the Trustee or by the officer making such sale
under judicial proceedings shall be a sufficient discharge to any
purchaser for its purchase money, and, after paying such purchase
money and receiving such receipt, such purchaser or its personal
representatives or assigns shall not be obliged to see the
application of such purchase money, or be in any way answerable
for any loss, misapplication or the non-application thereof.
(B) To the extent the Trustee is obligated by law to
provide notice, the notice (if any) shall (i) in case of a public
sale, state the time and place fixed for such sale, (ii) in the
case of a sale at any broker's board or on a securities exchange,
state the board or exchange at which sale is to be made and the
day on which the Collateral, or the portion thereof being so sold,
will first be offered for sale at such board or exchange and (iii)
in the case of a private sale, state the day after which such sale
may be consummated. In the event any such notice is required to
be given, the Trustee shall give the Company not less than ten
days' prior written notice of the time and place of any sale or
other intended disposition of any of its Collateral. The Company
agrees that such notice constitutes "reasonable notification"
within the meaning of Section 9-504(3) of the UCC. Any such public
sale shall be held at such time or times within ordinary business
hours and at such place or places as the Trustee may fix in the
notice of such sale. At any such sale the Collateral may be sold
in one lot as an entirety or in separate parcels, as the Trustee
may determine. The Trustee shall not be obligated to make any
such sale pursuant to any such notice. The Trustee may, without
notice or publication, adjourn any public or private sale or cause
the same to be adjourned from time to time by announcement at the
time and place fixed for the sale, and such sale may be made at
any time or place to which the same may be so adjourned. In case
of any sale of all or any part of the Collateral on credit or for
future delivery, the Collateral so sold may be retained by the
Trustee until the selling price is paid by the purchaser thereof,
but the Trustee shall not incur any liability in case of the
failure of such purchaser to take up and pay for the collateral so
sold and, in case of any such failure, such Collateral may again
be sold upon like notice. The Trustee, instead of exercising the
power of sale herein conferred upon it, may proceed by a suit or
suits at law or in equity to foreclose the Security Interests and
sell the Collateral, or any portion thereof, under a judgment or
decree of a court or courts of competent jurisdiction.
(C) For the purpose of exercising any and all rights
and remedies under this Agreement, the Trustee may (i) require the
Company to, and the Company agrees that it will, at its expense
and upon the request of the Trustee, forthwith assemble all or any
part of the Collateral as directed by the Trustee and make it
available at a place designated by the Trustee which is in its
opinion, reasonably convenient to the Trustee and the Company
whether at the premises of the Company or otherwise; (ii) to the
extent permitted by applicable law, enter, with or without process
of law and without breach of the peace, any premise where any of
the Collateral is or may be located, and without charge or
liability to it seize and remove such Collateral from such
premises; and (iii) have access to and use of the Company's books
and records relating to the Collateral.
(D) The Trustee may exercise any and all rights and
remedies of the Company under or in connection with any obligation
owing to the Company in respect of the Collateral, including,
without limitation, any and all rights of the Company to demand or
otherwise require payment of any amount under any obligation owing
to the Company in respect of the Collateral.
(E) In addition to and without limiting the foregoing,
the Trustee may utilize all or any of the following powers with
respect to all or any of the Collateral, at any time and from time
to time while an Event of Default has occurred and is continuing:
(i) demand, sue for, collect, receive and give
acquittance for any and all monies due or to
become due thereon or by virtue thereof;
(ii) settle, compromise, compound, prosecute or
defend any action or proceeding with respect
thereto;
(iii)if the Notes have been declared, or have
become, due and payable and such declaration and
its consequences have not been rescinded and
annulled, sell, transfer, assign or otherwise deal
in or with the same or the proceeds or avails
thereof, as fully and effectually as if the
Trustee were the absolute owner thereof; and
(iv) extend the time of payment of any or all
thereof and make any allowance and other
adjustments with reference thereto.
SECTION 9. LIMITATION ON DUTY OF TRUSTEE IN RESPECT
OF COLLATERAL; INDEMNIFICATION.
(A) Beyond the exercise of reasonable care in the
custody thereof, the Trustee shall have no duty as to any
Collateral in its possession or control or in the possession or
control of any agent or bailee or any income thereon or as to the
preservation of rights against prior parties or any other rights
pertaining thereto. The Trustee shall be deemed to have exercised
reasonable care in the custody of the Collateral in its possession
if the Collateral is accorded treatment substantially equal to
that which it accords its own property, and shall not be liable or
responsible for any loss or diminution in the value of any of the
Collateral, by reason of the act or omission of any carrier,
forwarding agency, or other agent or bailee selected by the
Trustee in good faith.
(B) The Trustee undertakes to perform such duties and
only such duties as are specifically set forth herein, and no
implied covenants or obligations shall be read into this Agreement
against the Trustee.
(C) In the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the statements
and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and conforming
to the requirements of this Agreement.
(D) Whether or not therein expressly so provided, every
provision of this Agreement relating to the conduct or affecting
the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section 9.
(E) The Company agrees to indemnify the Trustee and its
officers, directors, employees and agents from and against any and
all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses (including, but not limited to,
expenses allocable to internal counsel of the Trustee) or
disbursements of any kind or nature whatsoever which may be
imposed on, incurred by, or asserted against, the Trustee in any
way relating to or arising out of any Collateral or any action
taken or omitted by the Trustee with respect to the Collateral,
PROVIDED that the Company shall not be liable for any portion of
such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements of any
kind or nature whatsoever resulting from the negligence or bad
faith of the Trustee and its officers, directors, employees and
agents as determined by a court of competent jurisdiction.
Without limiting the generality of the foregoing, the Company
agrees to reimburse the Trustee promptly upon demand for any out-of-pocket
expenses (including reasonable counsel fees) incurred by
the Trustee in connection with the preparation, execution,
delivery, modification, amendment, administration, or enforcement
(whether through negotiations, legal proceedings or otherwise), or
legal advice in respect of rights or responsibilities with respect
to the Collateral. Notwithstanding the foregoing, nothing in this
subsection (E) shall be construed to limit the effect of
subsection (B) or (C) of this Section 9.
(F) In making the withdrawals and payments required by
Section 5(D) hereof, the Trustee shall act in accordance with the
instructions of the Company received by it under Section 5(D)
hereof and shall be fully protected in relying thereon.
(G) The Trustee shall be under no liability for
interest or any money received by it hereunder except as otherwise
agreed with the Company.
SECTION 10. APPLICATION OF PROCEEDS.
If an Event of Default shall have occurred and be
continuing and if the Notes have been declared, or have become,
due and payable and such declaration and its consequences have not
been rescinded and annulled, the Proceeds of all or any part of
the Collateral and cash in the Cash Collateral Account shall be
applied by the Trustee in the following order of priorities:
FIRST, to payment of the expenses of any sale or other
realization made or concluded pursuant to Section 8 hereof,
including reasonable compensation to agents and counsel for the
Trustee, and all expenses, liabilities and advances incurred or
made by the Trustee in connection therewith, and any other
unreimbursed expenses for which the Trustee is to be reimbursed
pursuant to Section 13 hereof, and unpaid fees owing to the
Trustee under the Indenture;
SECOND, to the payment of amounts then due and unpaid
for principal of (and premium, if any) and interest on the Notes,
ratably, without preference or priority of any kind, according to
the amounts due and payable on such Notes for principal (and
premium, if any) and interest, respectively;
THIRD, to the payment of the remainder, if any, to the
Company or to whosoever may be lawfully entitled thereto or as a
court of competent jurisdiction may direct.
The Trustee may make distributions hereunder in cash or in kind
or, on a ratable basis, in any combination thereof.
SECTION 11. CONCERNING THE TRUSTEE.
In furtherance and not in derogation of the rights,
privileges and immunities of the Trustee set forth in Article Six
of the Indenture (all of which shall apply as if set forth
herein):
(A) The Trustee is authorized to take all such action
as is provided to be taken by it as Trustee hereunder and all
other action reasonably incidental thereto. As to any matters not
expressly provided for herein (including, without limitation, the
timing and methods of realization upon the Collateral), the
Trustee shall act in accordance with the provisions of the
Indenture.
(B) All rights of action and claims under this
Agreement in respect of obligations evidenced by all Instruments
may be prosecuted and enforced by the Trustee without the
possession thereof or the production thereof in any proceeding
relating thereto, and any such proceeding instituted by the
Trustee shall be instituted in its own name as the secured party
hereunder for the benefit of the Holders in accordance with this
Agreement.
(C) The Trustee shall not be responsible for the
existence, genuineness or value of any of the Collateral or for
the validity, perfection, priority or enforceability of the
Security Interests in any of the Collateral, whether impaired by
operation of law or by reason of any action or omission to act on
its part hereunder. The Trustee shall have no duty to ascertain
or inquire as to the performance or observance of any of the terms
of this Agreement by the Company.
(D) Except as otherwise provided in Section 9:
(i) the Trustee may rely and shall be protected in
acting or refraining from acting upon any resolution, certificate,
statement, instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note, other evidence
of indebtedness, or other paper or document believed by it to be
genuine and to have been signed or presented by the proper party
or parties;
(ii) any request or direction of the Company
mentioned herein shall be sufficiently evidenced by a Company
Request or Company Order and any resolution of the Board of
Directors of any Person shall be sufficiently evidenced by a Board
Resolution;
(iii) whenever in the administration of this
Agreement the Trustee shall deem it desirable that a matter be
proved or established prior to taking, suffering or omitting any
action hereunder, the Trustee (unless other evidence be herein
specifically prescribed) may, in the absence of bad faith on its
part, rely upon an Officers' Certificate;
(iv) the Trustee may consult with counsel of its
selection and the written advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and protection in
respect of any action taken, suffered or omitted by it hereunder
in good faith and in reliance thereon;
(v) the Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, report, notice,
request, direction, consent, order, bond, debenture, note, other
evidence of indebtedness or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or
investigation into such facts or matters as it may see fit;
(vi) the Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder either directly
or by or through agents or attorneys, and the Trustee shall not be
responsible for any misconduct or negligence on the part of any
agent or attorney appointed with due care by it hereunder;
(vii) no provision of this Agreement shall be
construed to relieve the Trustee from liability for its own
negligent action, its own negligent failure to act, or its own
willful misconduct, EXCEPT that (a) this subsection (vii) shall
not be construed to limit the effect of subsection (i) of this
Section 11 or subsection (B) of Section 9 hereof; (b) the Trustee
shall not be liable for any error of judgment made in good faith
by a Responsible Officer, unless it shall be proved that the
Trustee was negligent in ascertaining the pertinent facts; and (c)
the Trustee shall not be liable with respect to any action taken,
suffered or omitted to be taken by it in good faith in accordance
with the direction of the Holders of not less than a majority in
principal amount of the Outstanding Notes relating to 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, under this Agreement;
(viii) the Trustee may become the owner or pledgee
of Notes, and, subject to Sections 608 and 614 of the Indenture,
may otherwise deal with the Company with the same rights it would
have if it were not Trustee; and
(ix) the recitals contained herein shall be taken
as the statements of the Company, and the Trustee assumes no
responsibility for their correctness; the Trustee makes no
representations with respect to the Collateral or as to the
validity or sufficiency of this Agreement.
SECTION 12. APPOINTMENT OF CO-TRUSTEES.
At any time or times, in order to comply with any legal
requirement in any jurisdiction, the Trustee may appoint another
bank or trust company or one or more other persons, either to act
as co-trustees or co-trustee, jointly with the Trustee, or to act
as separate trustee or trustees on behalf of the Holders with such
power and authority as may be necessary for the effectual
operation of the provisions hereof and may be specified in the
instrument of appointment (which may, in the discretion of the
Trustee, include provisions for the protection of such co-trustee
or separate trustee similar to the provisions of Sections 9 and 11
hereof).
SECTION 13. EXPENSES.
In the event that the Company fails to comply with the
provisions of this Agreement such that the value of any Collateral
or the validity, perfection, rank or value of any Security
Interest is thereby diminished or potentially diminished or put at
risk, the Trustee may, but shall not be required to, effect such
compliance on behalf of the Company, and the Company shall
reimburse the Trustee for the costs thereof on demand. All
expenses of protecting, storing, insuring, handling, and shipping
the Collateral, any and all excise, property, sales, and use taxes
imposed by any state, federal, or local authority on any of the
Collateral, or expenses in respect of (i) the sale or other
disposition thereof, (ii) the administration or enforcement of
this Agreement, (iii) the exercise by the Trustee of any of the
rights conferred upon it hereunder, including, without limitation,
the preservation of the validity, perfection, rank or value of any
Security Interest or (iv) any Default or Event of Default, shall
be borne and paid by the Company; and if the Company fails to
promptly pay any portion of such expenses when due, the Trustee
may, at its option, but shall not be required to, pay the same and
charge the Company's account therefor, and the Company agrees to
reimburse the Trustee therefor on demand. All sums so paid or
incurred by the Trustee for any of the foregoing and any and all
other sums for which the Company may become liable hereunder and
all costs and expenses (including attorneys' fees, legal expenses
and court costs) reasonably incurred by the Trustee in enforcing
or protecting the Security Interests or any of its rights or
remedies under this Agreement, shall, together with interest
thereon until paid at the rate applicable to the Notes, be
additional Secured Obligations hereunder.
SECTION 14. TERMINATION OF SECURITY
INTERESTS; RELEASE OF COLLATERAL.
Upon the payment in full by the Issuer of all of the
Secured Obligations, the Security Interests shall terminate and
all rights to the Collateral shall revert to the Company. At any
time and from time to time prior to such termination of the
Security Interests, the Trustee may release any of the Collateral
as provided in Section 1013 of the Indenture or with the consent
of the Holders of not less than 66 2/3% in principal amount of
Outstanding Notes, or as otherwise provided in Section 401 of the
Indenture. Upon any such termination of the Security Interests or
release of Collateral, the Trustee will, at the expense of the
Company, release over to the Company any Collateral remaining in
the Trustee's possession and execute and deliver to the Company
such documents as the Company shall reasonably request to evidence
the termination of the Security Interest or the release of such
Collateral, as the case may be.
SECTION 15. CORPORATE EXISTENCE.
Subject the rights granted to the Issuer under Section
801 of the Indenture, the Company shall do or cause to be done all
things necessary to preserve and keep in full force and effect the
corporate existence, rights (charter and statutory) and franchises
of the Company and each Subsidiary; PROVIDED, HOWEVER, that the
Company and any Subsidiary shall not be required to preserve any
right or franchise if the Board of Directors of the Issuer shall
determine that the preservation thereof is no longer desirable in
the conduct of the business of the Company and that the loss
thereof is not disadvantageous in any material respect to the
Holders.
SECTION 16. NOTICES.
Any request, demand, authorization, direction, notice,
consent, waiver or other document provided or permitted by this
Agreement to be made upon, given or furnished to, or filed with,
(A) the Trustee shall be sufficient for every purpose
hereunder if made, given, furnished or filed in writing to or
with the Trustee at its Corporate Trust Office, 1100 North
Market Street, Rodney Square North, Wilmington, Delaware
19890, to the attention of the Corporate Trust
Administration, or
(B) the Company shall be sufficient for every purpose
hereunder (unless otherwise herein expressly provided) if in
writing and mailed, first-class postage prepaid, or sent via
facsimile transmission to the Company addressed to it at the
address or facsimile number set forth in the signature page
hereof, or at any other address previously furnished in
writing to the Trustee by the Company, Attention: Secretary.
SECTION 17. WAIVERS, NON-EXCLUSIVE REMEDIES.
No failure on the part of the Trustee to exercise, no
delay in exercising and no course of dealing with respect to, any
right under this Agreement shall operate as a waiver thereof; nor
shall any single or partial exercise by the Trustee of any right
under the Indenture or this Agreement preclude any other or
further exercise thereof or the exercise of any other right. The
rights in this Agreement are cumulative and are not exclusive of
any other remedies provided by law.
SECTION 18. SUCCESSOR TRUSTEE.
Upon acceptance of appointment as successor Trustee
under the Indenture, such successor Trustee shall thereupon
succeed to and become vested with all the rights and duties of the
retiring Trustee, and the retiring Trustee shall be discharged
from its duties and obligations hereunder. After any retiring
Trustee's resignation hereunder as Trustee, the provisions of
Section 9 and 11 hereof shall inure to its benefit as to any
actions taken or omitted to be taken by it while it was a Trustee.
SECTION 19. SUCCESSORS AND ASSIGNS.
This Agreement is for the benefit of the Trustee and
Holders and their successors and assigns. This Agreement shall be
binding on the Company and its successors and may not be assigned
thereby without the prior written consent of the Trustee with the
consent of the Holders of not less than 66 2/3% in aggregate
principal amount of Outstanding Notes.
SECTION 20. CHANGES IN WRITING.
(A) Without the consent of any of the Holders, the
Company and the Trustee, at any time and from time to time, may
enter into one or more amendments hereof, in form satisfactory to
the Trustee, for any of the following purposes:
(i) to evidence the succession of another Person
to the Company and the assumption by such successor of the
covenants of the Company herein; or
(ii) to add to the covenants of the Company, for
the benefit of the Holders of all the Notes, or to surrender any
right or power herein conferred upon the Company; or
(iii)to change or eliminate any of the provisions
of this Agreement, PROVIDED that any such change or elimination
shall become effective only when there is no Note Outstanding
created prior to the execution of such amendment which is entitled
to the benefit of such provision; or
(iv) to evidence and provide for the acceptance of
appointment hereunder by a successor Trustee and to add to or
change any of the provisions of this Agreement as shall be
necessary to provide for or facilitate the administration of the
trusts hereunder by more than one Trustee, pursuant to the
requirements of Section 611(b) of the Indenture; or
(v) to cure any ambiguity, to correct or
supplement any provision herein which may be inconsistent with any
other provision herein or to make any other provisions with
respect to matters or questions arising under this Agreement,
PROVIDED such actions shall not adversely affect the interests of
the Holders in any material respect.
(B) (i) With the consent of the Holders of not less
than a majority in principal amount of the Outstanding Notes, by
Act of said Holders delivered to the Company and the Trustee, the
Company, when authorized by a Board Resolution, and the Trustee
may enter into one or more amendments hereof for the purpose of
adding any provisions to or changing in any manner or eliminating
any of the provisions of this Agreement or of modifying in any
manner the rights of the Holders; PROVIDED, HOWEVER, that no such
amendment shall, without the consent of the Holders of not less
than 66 2/3 percent in principal amount of the Outstanding Notes,
change in any manner or eliminate any provision of this Agreement
creating or providing for the creation of a Lien on any of the
Collateral, or release the Lien on any Collateral otherwise than
as provided herein or in the Indenture; and PROVIDED, FURTHER,
that no such amendment shall, without the consent of the Holder of
each Outstanding Note, modify any of the provisions of this
Section, except to provide that certain other provisions of this
Agreement cannot be modified or waived without the consent of the
Holder of each Outstanding Note affected thereby; PROVIDED,
HOWEVER, that this subsection (8) shall not be deemed to require
the consent of any Holder with respect to changes in references to
"the Trustee" and concomitant changes in this Section, in
accordance with the requirements of clause (v) of subsection (A)
of this Section or the deletion of this proviso.
(ii) It shall not be necessary for any Act of
Holders under this subsection (8) to approve the particular form
of any proposed amendment, but it shall be sufficient if such Act
shall approve the substance thereof.
SECTION 21. NEW YORK LAW.
This Agreement shall be construed in accordance with and
governed by the laws of the State of New York, except as otherwise
required by mandatory provisions of law and except to the extent
that remedies provided by the laws of any jurisdiction other than
New York are governed by the laws of such jurisdiction. The
Company hereby irrevocably submits to the nonexclusive
jurisdiction of the United States District Court for the Southern
District of New York and of any New York State Court sitting in
New York City for purposes of all legal proceedings arising out of
or relating to this Agreement or the transactions contemplated
hereby. The Company irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have
to the laying of the venue of any such proceeding brought in such
a court and any claim that any such proceeding brought in such a
court has been brought in an inconvenient forum.
SECTION 22. SEVERABILITY.
If any provision hereof is invalid and unenforceable in
any jurisdiction, then, to the fullest extent permitted by law,
(i) the other provisions hereof shall remain in full force and
effect in such jurisdiction and shall be liberally construed in
favor of the Trustee and the Holders in order to carry out the
intentions of the parties hereto as nearly as may be possible, and
(ii) the invalidity or unenforceability of any provision hereof in
any jurisdiction shall not affect the validity or enforceability
of such provision in any other jurisdiction.
SECTION 23. COUNTERPARTS; INTEGRATION.
This Agreement may be signed in any number of
counterparts, each of which shall be an original, with the same
effect as if the signatures thereto and hereto were upon the same
instrument. This Agreement constitutes the entire agreement and
understanding among the parties hereto and supersedes any and all
prior agreements and understandings, oral or written, relating to
the subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed by their respective authorized
officers as of the day and year first above written.
GLOBAL MARINE INTERNATIONAL
SERVICES CORPORATION
By: /s/ James L. McCulloch
Name: James McCulloch
Title: Vice President
Address: c/o Global Marine Inc.
777 North Eldridge
Houston, TX 77079
Facsimile Number: (713) 596-5196
WILMINGTON TRUST COMPANY,
as Trustee
By: /S/ David Vanasky
Name: David Vanasky
Title: Vice President
EXHIBIT 10.2
AMENDMENT NO. 1
This Amendment No. 1 dated as of February 26, 1996
("Agreement") is among Global Marine Australia Inc., Global
Marine Baltic Inc., Global Marine Deepwater Drilling Inc., and Global
Marine Drilling Company (collectively, the "Borrowers"), Global
Marine Inc. ("Guarantor"), the Subsidiary Guarantors (as defined
in the Credit Agreement described below) and Societe Generale, New
York Branch ("Bank").
INTRODUCTION
A. The Borrowers, the Guarantor and the Bank are parties
to the Credit Agreement dated as of June 24, 1993, as the same may
be amended, modified or supplemented from time-to-time, (the "Credit
Agreement").
B. The Borrowers, the Guarantor and the Bank wish to (i)
extend the maturity date and (ii) make certain other amendments
to the Credit Agreement.
THEREFORE, the Borrowers, the Guarantor, the Subsidiary
Guarantors and the Bank hereby agree as follows:
Section 1. DEFINITIONS; REFERENCES. Unless otherwise
defined in this Agreement, each term used in this Agreement which is
defined in the Credit Agreement has the meaning assigned to such
term in the Credit Agreement.
Section 2. AMENDMENTS. The Credit Agreement is amended as
follows:
(a) SECTION 1.01. Section 1.01 is amended as follows:
(i) The following new definitions are added in
alphabetical order:
"APPLICABLE MARGIN" means, at any time with
respect to any Advance, the following
percentages determined as a function of the
Guarantor's actual or implied long-term
secured senior Debt rating in effect from
time-to-time and issued by S&P:
ABR LIBOR CD
S&P RATING MARGIN MARGIN MARGIN
B+ or lower 1.0% 2.25% 2.25%
BB- .75% 2.0% 2.0%
BB .50% 1.75% 1.75%
BB+ .25% 1.50% 1.50%
BBB- or higher 0% 1.25% 1.25%
PROVIDED that, if at any time an event occurs
which results in there being no such S&P
rating, not later than 30 days after such
event occurs, a new Applicable Margin will be
determined in a manner to be mutually agreed
upon by the Guarantor and the Bank, and until
such new Applicable Margin is agreed upon, the
Applicable Margin shall be deemed to be the
Applicable Margin in effect immediately prior
to the date on which such event occurs;
PROVIDED FURTHER THAT, if the aggregate amount
of the Advances during any period is greater
than $10,000,000, the Applicable Margin on
Advances for each day during such period shall
be increased by .15% per annum.
"S & P" means Standard & Poor's Ratings
Service, a division of the McGraw-Hill
Companies, Inc., and any successor thereto
which is a nationally recognized statistical
rating organization.
(ii) The amount "$6,000,000" in the proviso contained
in the definition of "Eligible Accounts" is deleted and
replaced with the amount of "$10,000,000".
(iii) The date "June 24, 1996" in the definition of
"Maturity Date" is deleted and replaced with the date
"December 31, 1998".
(b) SECTION 2.03. Clauses (a) and (b) of Section 2.03 are
deleted and replaced in their entirety with the following:
(a) COMMITMENT FEES. The Borrowers agree to pay to
the Bank a commitment fee on the average daily amount by
which the Commitment exceeds the sum of the outstanding
Advances and the Letter of Credit Exposure from the date
of this Agreement until the Maturity Date at the rate of
.1875% per annum. The fee payable pursuant to this
clause (a) is due quarterly in arrears on the first day
of each January, April, July, and October commencing
April 1, 1996 and on the Maturity Date.
(b) LETTER OF CREDIT FEES. Each of the Borrowers
requesting the issuance of a Letter of Credit agrees to
pay to the Bank a fee for such Letter of Credit of .625%
per annum on the face amount of such Letter of Credit;
PROVIDED THAT, if the applicable Borrower shall have
deposited with the Bank into the Cash Collateral Account
an amount of cash equal to the Letter of Credit Exposure
attributable to such Letter of Credit as security for
such Letter of Credit Obligations, the fees payable
hereunder with respect to such Letter of Credit shall be
in an amount equal to .25% per annum. The foregoing fee
shall be based on the maximum amount available to be
drawn under such Letter of Credit from the date of
issuance of the Letter of Credit until its Expiration
Date and be payable on the date of the issuance of the
Letter of Credit and thereafter quarterly on the first
day of each January, April, July and October until its
Expiration Date.
(c) SECTION 2.06. Clauses (a), (b) and (c) of Section 2.06
are deleted and replaced in their entirety with the following:
(a) PRIME RATE ADVANCES. If such
Advance is a Prime Rate Advance, a rate per
annum equal at all times to the lesser of
(i) the Adjusted Prime Rate in effect from
time-to-time PLUS the Applicable Margin and
(ii) the Maximum Rate, payable in arrears on
the last day of each calendar quarter and on
the date such Prime Rate Advance shall be paid
in full, PROVIDED that any amount of principal
which is not paid when due (whether at stated
maturity, by acceleration or otherwise) shall
bear interest from the date on which such
amount is due until such amount is paid in
full, payable on demand, at a rate per annum
equal at all times to the lesser of (i) the
Adjusted Prime Rate in effect from
time-to-time PLUS the Applicable Margin PLUS
2% and (ii) the Maximum Rate.
(b) EURODOLLAR RATE ADVANCES. If such
Advance is a Eurodollar Rate Advance, a rate
per annum equal at all times during the
Interest Period for such Advance to the lesser
of (i) the Eurodollar Rate for such Interest
Period PLUS the Applicable Margin and (ii) the
Maximum Rate, payable on the last day of such
Interest Period, and, in the case of six-month
Interest Periods, on the day which occurs
during such Interest Period three months from
the first day of such Interest Period;
PROVIDED that any amount of principal which is
not paid when due (whether at stated maturity,
by acceleration or otherwise) shall bear
interest from the date on which such amount is
due until such amount is paid in full, payable
on demand, at a rate per annum equal at all
times to the lesser of (i) the rate required
to be paid on such Advance immediately prior
to the date on which such amount became due
PLUS 2% and (ii) the Maximum Rate.
(c) CD RATE ADVANCES. If such Advance
is a CD Rate Advance, a rate per annum equal
at all times during the Interest Period for
such Advance to the lesser of (i) the CD Rate
for such Interest Period PLUS the Applicable
Margin and (ii) the Maximum Rate, payable on
the last day of such Interest Period, and, in
the case of 180-day Interest Periods, on the
day which occurs during such Interest Period
90 days from the first day of such Interest
Period; PROVIDED that any amount of principal
which is not paid when due (whether at stated
maturity, by acceleration or otherwise) shall
bear interest from the date on which such
amount is due until such amount is paid in
full, payable on demand, at a rate per annum
equal at all times to the lesser of (i) the
rate required to be paid on such Advance
immediately prior to the date on which such
amount became due PLUS 2% and (ii) the Maximum
Rate.
(d) EXHIBIT B-1. Exhibit B-1 to the Credit Agreement is
deleted and replaced with the attached Exhibit B-1.
(e) SCHEDULE 1. Schedule 1 to the Credit Agreement is
deleted and replaced with the attached Schedule 1.
Section 3. REPRESENTATIONS AND WARRANTIES. Each of the
Borrowers, the Subsidiary Guarantors and the Guarantor
represents and warrants that (a) the execution, delivery and
performance of this Agreement are within the corporate power and
authority of such Borrower, Subsidiary Guarantor or the Guarantor,
as applicable, and have been duly authorized by appropriate
proceedings, (b) the Liens under the Security Documents are valid
and in full force and effect, and (c) this Agreement constitutes a
legal, valid, and binding obligation of such Borrower, Subsidiary
Guarantor or the Guarantor, as applicable, enforceable in accordance
with its terms, except as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the rights
of creditors generally and general principles of equity.
Section 4. REAFFIRMATION OF GUARANTIES. Each of the
Subsidiary Guarantors and the Guarantor acknowledges that the
obligations of such Subsidiary Guarantors or Guarantor under its
Guaranty shall continue in force from the date hereof to
guarantee the payment of the Guaranteed Obligations (as defined in its
Guaranty), as such Guaranteed Obligations may be amended pursuant
to this Agreement or as the same may be further amended, modified
or supplemented from time to time. Additionally, each of the
Subsidiary Guarantors and the Guarantor (a) consents to the
addition of Global Marine International Services Corporation
("GMISC") as a Borrower under the Credit Agreement (as amended by
this Agreement) pursuant to the terms of the Assumption Agreement
dated as of February 26, 1996 ("Assumption Agreement") among
GMISC, the Borrowers, the Guarantor, the Subsidiary Guarantors and the
Bank, and (b) agrees that the Guaranteed Obligations (as defined
in its Guaranty) shall include the obligations of GMISC under the
Credit Documents to which it is a party.
Section 5. EFFECTIVENESS. The Credit Agreement shall be
amended as provided in this Agreement effective on the date first
set forth above when:
(a) the Borrowers, the Guarantor, the Subsidiary
Guarantors and the Bank shall have duly and validly
executed originals of this Agreement and delivered them to
the Bank;
(b) all of the conditions to the effectiveness of the
Assumption Agreement shall have either been satisfied or
waived in writing by the Bank;
(c) the Borrowers, the Subsidiary Guarantors and the
Guarantor shall have delivered an opinion of their general
counsel in form and substance satisfactory to the Bank;
(d) each of the Borrowers, the Subsidiary Guarantors
and the Guarantor shall have delivered a certificate of its
Secretary or Assistant Secretary certifying its certificate
of incorporation, bylaws, resolutions and incumbency and in
form and substance satisfactory to the Bank; and
(e) the Borrower shall have paid to the Bank a
non-refundable facility fee of $75,000.
Section 6. CHOICE OF LAW. This Agreement shall be governed
by and construed and enforced in accordance with the laws of the
State of New York.
Section 7. COUNTERPARTS. This Agreement may be signed in
any number of counterparts, each of which shall be an original.
EXECUTED as of February 26, 1996.
BORROWERS:
GLOBAL MARINE AUSTRALIA INC.
By:/S/ ROBERT E. SLEET, JR.
Name: ROBERT E. SLEET, JR.
Title:VICE PRESIDENT & TREAS.
GLOBAL MARINE BALTIC INC.
By:/S/ ROBERT E. SLEET, JR.
Name: ROBERT E. SLEET, JR.
Title:VICE PRESIDENT & TREAS.
GLOBAL MARINE DEEPWATER
DRILLING INC.
By:/S/ ROBERT E. SLEET, JR.
Name: ROBERT E. SLEET, JR.
Title:VICE PRESIDENT & TREAS.
GLOBAL MARINE DRILLING COMPANY
By:/S/ ROBERT E. SLEET, JR.
Name: ROBERT E. SLEET, JR.
Title: TREASURER
GUARANTOR:
GLOBAL MARINE INC.
By:/S/ ROBERT E. SLEET, JR.
Name: ROBERT E. SLEET, JR.
Title:VICE PRESIDENT & TREAS.
SUBSIDIARY GUARANTORS:
GLOBAL MARINE BISMARCK SEA INC.
By:/S/ ROBERT E. SLEET, JR.
Name: ROBERT E. SLEET, JR.
Title:VICE PRESIDENT & TREAS.
GLOBAL MARINE NORTH SEA INC.
By:/S/ ROBERT E. SLEET, JR.
Name: ROBERT E. SLEET, JR.
Title:VICE PRESIDENT & TREAS.
GLOBAL MARINE WEST AFRICA INC.
By:/S/ ROBERT E. SLEET, JR.
Name: ROBERT E. SLEET, JR.
Title:VICE PRESIDENT & TREAS.
PETDRILL INC.
By:/S/ ROBERT E. SLEET, JR.
Name: ROBERT E. SLEET, JR.
Title:VICE PRESIDENT & TREAS.
BANK:
SOCIETE GENERALE, NEW YORK BRANCH
By: /S/ JOHN J. WAGNER
Name: JOHN J. WAGNER
Title: VICE PRESIDENT
EXHIBIT 10.18
GLOBAL MARINE INC.
INCENTIVE STOCK SALE AGREEMENT
(1989 Stock Option and Incentive Plan)
GLOBAL MARINE INC. (the "Company"), desiring to afford an
opportunity to the offeree identified as such below (the
"Offeree") to purchase shares of the Company's common stock, $.10
par value per share (the "Common Stock") at an incentive purchase
price below the market price at the time of sale as compensation
for the Offeree's services as an employee of the Company or of
one or more of its subsidiaries, hereby makes an offer to sell to
the Offeree, under the Company's 1989 Stock Option and Incentive
Plan, the number of shares of such Common Stock specified below,
at the price specified below, subject to and upon the terms and
conditions set forth below (the "Offer").
1. SPECIFICATION OF DATE, OFFEREE, NUMBER OF SHARES, PURCHASE
PRICE AND TERM.
(a) The date of the Offer is February 20, 1996.
(b) The Offeree is .
(c) The number of shares of the Company's Common Stock
offered hereby is .
(d) The purchase price of the Common Stock offered hereby
is $0.10 per share.
(e) The term of the Offer shall expire at the close of
business at the Company's principal executive office in
Houston, Texas, on February 21, 1996; from and after
that time, if the Offer has not been accepted before
that time as provided in this Agreement, neither the
Offeree nor the Company shall have any rights or
obligations under this Agreement.
2. METHOD OF ACCEPTANCE AND PURCHASE. The Offeree may accept
the Offer by executing a copy of this Agreement in the
acceptance space provided below and delivering said executed
copy or a facsimile thereof during the term of the Offer to
the Secretary of the Company at the Company's principal
executive office in Houston, Texas. Such acceptance shall
be completed to indicate the number of shares being
purchased. Payment of the purchase price for such number of
shares will be effected by means of immediate payroll
deduction. Promptly after receipt of such acceptance, the
Company shall, subject to the other terms and conditions of
this Agreement, issue a certificate for such number of
shares to the Offeree.
3. WAGE WITHHOLDING AND EMPLOYMENT TAXES. The Company and the
Offeree understand and agree that, (i) with respect to
shares of the Common Stock purchased under this Agreement
that are not subject to a substantial risk of forfeiture
(or, if subject to a substantial risk of forfeiture, with
respect to which a timely election under Section 83 of the
Internal Revenue Code has been filed), the Offeree will
recognize ordinary income for tax purposes to the extent of
any excess of the fair market value of such shares at the
time they are transferred to the Offeree over the price paid
for the shares, (ii) with respect to shares of the Common
Stock purchased under this Agreement that are subject to a
substantial risk of forfeiture and with respect to which a
timely Section 83 election is not filed, then, upon lapse of
the restrictions which impose a substantial risk of
forfeiture, the Offeree will recognize ordinary income for
tax purposes to the extent of any excess of the fair market
value of such shares at such time over the price paid for
the shares, and (iii) any such ordinary income recognized by
the Offeree will be subject to both wage withholding and
employment taxes. The Offeree agrees that his employer may
effect any such withholding and/or deduct any such taxes
from any cash compensation that the Company or any one or
more of its subsidiaries may pay the Offeree.
4. Restrictions on Share Transfer by Certain Offerees. Until
six months have elapsed after the date of the Offer, the
Offeree may not transfer the shares in a transaction that
would constitute a "sale" under Section 16 of the Securities
Exchange Act of 1934 (the "Exchange Act") if the Offeree is
(a) a director of Global Marine Inc., (b) an "officer" of
Global Marine Inc. as such term is defined for purposes of
the rules of the Securities and Exchange Commission under
Section 16 of the Exchange Act, or (c) a beneficial owner of
more than ten percent of the issued and outstanding Common
Stock. Furthermore, the Offeree understands and
acknowledges that, if he is an Offeree described in (a), (b)
or (c) in the preceding sentence, his transfer of any other
shares of the Common Stock in a "sale" transaction during
the six-month period mentioned above could be matched with
his purchase of shares of the Common Stock under this
Agreement and subject him to liability under Section 16 of
the Exchange Act.
5. NON-TRANSFERABLE. The Offer may not be transferred and may
be accepted only by the Offeree.
6. LIMITATION. The Offeree shall be entitled to the privileges
of stock ownership in respect of shares subject to the Offer
only when such shares have been issued and delivered to him
as fully paid shares upon purchase of Common Stock in
accordance with this Agreement.
7. REQUIREMENTS OF LAW AND OF STOCK EXCHANGES. The issuance of
shares upon acceptance of the Offer shall be subject to
compliance with all of the applicable requirements of law
with respect to the issuance and sale of such shares. In
addition, the Company shall not be required to issue or
deliver any certificate or certificates upon acceptance of
the Offer prior to the admission of such shares to listing
on notice of issuance on any stock exchange on which shares
of the same class are then listed. In the event the
Company's legal counsel shall advise it that registration
under the Securities Act of 1933 of the shares as to which
the Offer is accepted is required prior to issuance thereof,
the Company shall not be required to issue or deliver such
shares unless and until such legal counsel shall advise that
such registration has been completed or is not required.
8. GLOBAL MARINE INC. 1989 STOCK OPTION AND INCENTIVE PLAN.
The Offer and any acceptance and purchase under this
Agreement are made under and are subject to, and the Company
and the Offeree agree to be bound by, all of the terms and
conditions of the Company's 1989 Stock Option and Incentive
Plan as the same shall have been amended from time to time
in accordance with the terms thereof, provided that no such
amendment shall deprive the Offeree, without his consent, of
the Offer or any rights hereunder. Pursuant to said Plan,
the Board of Directors of the Company or its Committee
established for such purposes is authorized to adopt rules
and regulations not inconsistent with the Plan and to take
such action in the administration of the Plan as it shall
deem proper. A copy of the Plan in its present form is
available for inspection during business hours by the
Offeree at the Company's principal office.
IN WITNESS WHEREOF, the Company has caused this Agreement to
be executed on its behalf as of the date of the Offer stated
above.
GLOBAL MARINE INC.
By:
ACCEPTED for shares:
(Offeree)
EXHIBIT 10.21
20 February 1996
TO:
PERFORMANCE STOCK
In order to provide incentive compensation specifically directed
toward achievement of long term performance goals, you have been
granted an opportunity to acquire as many as shares of
Global Marine common stock, subject to stockholder approval of the
material terms under which you may acquire the shares. If
stockholder approval is obtained, the company will allow you to
acquire none, some or all of these shares at the time of the first
regular meeting of the company's board of directors in 1999,
depending on the extent to which the performance objectives set
forth in Exhibit A have been achieved.
This grant amounts to an incremental opportunity to earn
significant compensation, provided that we are able to achieve the
ambitious targets established for EPS, EBITDA and stock price.
This incentive arrangement is designed so that the management team
wins if the shareholders win.
The terms and conditions of your grant under this incentive
arrangement are outlined in the attached Exhibit A. The conditions
are based on the company's performance during the period 1996-1998,
as measured against long term performance goals established by the
Compensation Committee of the Board of Directors.
I look forward to working with you in an effective mutual effort to
assure that the target goals are more than accomplished.
Attachment
<PAGE>
EXHIBIT A
GLOBAL MARINE INC.
TERMS AND CONDITIONS
OF
OPPORTUNITY TO ACQUIRE PERFORMANCE STOCK
(Performance Period 1996-1998)
GLOBAL MARINE INC. (the "Company"), desiring to afford you a
conditional opportunity to acquire shares of the Company's common
stock, $.10 par value per share (the "Common Stock"), as added
incentive to achieve the long-term objectives of the Company and
its subsidiaries, has established the following terms and
conditions under which it will offer shares of Common Stock to you
under the Company's 1989 Stock Option and Incentive Plan (the
"Plan").
1. CONDITIONAL OPPORTUNITY TO ACQUIRE SHARES. At the time of the
first regular meeting of the Company's board of directors held
in 1999, the Company will offer shares of the Common Stock to
you, up to the full number of shares stated in the first
paragraph of the cover page of this memorandum (the "Shares"),
subject to the terms and conditions outlined in this
memorandum and the terms and conditions of the Plan as amended
from time to time in accordance with its terms. The Shares
will be offered to you and you will have the opportunity to
acquire the Shares in the form of an incentive stock purchase
under the Plan, at the same price and by substantially the
same method used to pay you a 1995 incentive bonus award in
February 1996.
2. NUMBER OF SHARES TO BE OFFERED. The Company will offer you
none, some or all of the Shares. The exact number of Shares
to be offered will depend on the performance of the Company
and its subsidiaries during the period 1996-1998 as measured
against the following long-term performance goals (the
"Performance Goals") established by the Compensation Committee
of the Company's board of directors (the "Compensation
Committee"):
Cumulative EBITDA: Cumulative earnings of the Company and
its subsidiaries on a consolidated basis
before interest, taxes, depreciation and
amortization for fiscal years 1996, 1997
and 1998.
Threshold = $600 million; Target = $750
million.
1998 E.P.S.: Earnings per share of the Company's
Common Stock for fiscal year 1998.
Threshold = $1.00/share; Target =
$1.50/share.
Stock Price: Average of the daily closing prices for
one share of the Company's Common Stock
during the fourth quarter of 1998
compared to the average of the daily
closing prices for one share of the
Company's Common Stock during the fourth
quarter of 1995.
Threshold = +30%; Target = +50%.
The total number of Shares stated in the first paragraph of
the cover page of this memorandum has been allocated among the
three Performance Goals as follows: 40% are Cumulative EBITDA
Shares; 40% are 1998 E.P.S. Shares; and 20% are Stock Price
Shares. You will be offered a percentage of the Shares
allocated to each Performance Goal, depending on actual
performance as measured against that respective Performance
Goal, as follows:
PERFORMANCE: PERCENTAGE
Below Threshold 0%
At Threshold 25%
Between Threshold A proportionate percentage
between 25% and
and Target 100%, based on straight-line
interpolation between the
threshold and target
objectives.
At or Above Target 100%
3. NON-TRANSFERABLE. You may not transfer your right to acquire
Shares under this memorandum other than by will or by the laws
of descent and distribution.
4. TERMINATION OF EMPLOYMENT. You will not be entitled to
acquire any of the Shares after termination of your employment
with the Company and its subsidiaries unless such termination
is by reason of early retirement not objected to by the
Compensation Committee, normal retirement, disability or
death, or unless your employment with the Company and its
subsidiaries is terminated by the Company or any such
subsidiary other than for cause (to mean acts of misconduct
harmful to the Company, inadequate performance or
incompetence). If your employment is terminated by reason of
early retirement not objected to by the Compensation
Committee, normal retirement or disability, or by the Company
or any of its subsidiaries other than for cause, the number of
Shares that the Company would otherwise offer to you at the
time of the Company's first regular board meeting held in 1999
will be prorated based on your months of employment completed
during the period 1996-1998 compared to 36 months, and the
Company will offer to you or your legal representative or
representatives, at the time of said board meeting, a reduced
number of Shares based on such proration. If your employment
is terminated by reason of your death, the total number of
Shares stated in the first paragraph of the cover page of this
memorandum will be multiplied by 50% and the resulting number
will be prorated based on your months of employment completed
during the period 1996-1998 compared to 36 months, and the
Company will offer to the appropriate person or persons named
under your last will and testament or determined under
applicable intestate laws, at the time of the Company's first
regular board meeting held in 1999, a reduced number of Shares
based on such multiplication and proration. Termination of
your "employment" with the Company and its subsidiaries will
be deemed to occur at the close of business on the earliest of
(i) the last day on which you are assigned to a position with
the Company or any of its subsidiaries for the purpose of
performing your occupation, in the case of termination by
reason of your early or normal retirement, disability or
death, (ii) the last day of the period during which you are
entitled to receive salary continuation under any agreement,
policy, plan or other arrangement with the Company or any of
its affiliates, in the case of any termination entitling you
to such salary continuation, (iii) the last day of an approved
leave of absence if you do not resume the performance of your
occupation for the Company or any of its subsidiaries on or
before the next business day, and (iv) the last day on which
you are assigned to a position with the Company or any of its
subsidiaries for the purpose of performing your occupation in
any other case. For purposes of this paragraph, the term
"disability" shall mean any physical or mental condition which
totally and permanently prevents you from engaging in any
substantial gainful activity, as reasonably determined in good
faith by the Compensation Committee.
5. ADJUSTMENTS. Except as provided in the following paragraph,
if outstanding shares of the class then subject to the
conditional opportunity to acquire Shares outlined herein are
increased, decreased, changed into or exchanged for a
different number or kind of shares or securities of the
Company through reorganization, recapitalization,
reclassification, stock dividend, stock split or reverse stock
split, then there will be substituted for each Share then
subject to such opportunity and for each share upon which any
of the Performance Goals are then based the number and class
of shares or securities into or for which each share of the
class subject to such opportunity shall be so changed or
exchanged, all without any change in the aggregate purchase
price for the Shares then subject to such opportunity, but
with a corresponding adjustment in the purchase price per
Share. Such adjustments will become effective on the
effective date of any such transaction; except that in the
event of a stock dividend or of a stock split effected by
means of a stock dividend or distribution, such adjustments
will become effective immediately after the record date
therefor.
Upon a dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with
one or more corporations as a result of which the Company is
not the surviving company, your opportunity to acquire Shares
and the obligations of the Company hereunder will terminate,
unless provision is made in writing in connection with such
transaction for the assumption of such obligations, or the
substitution for such obligations of similar obligations
involving the stock of a successor employer corporation, or a
parent or subsidiary thereof, with appropriate adjustments as
to the conditions thereof and the number and kind of Shares
and prices, in which event your opportunity to acquire Shares
and the obligations of the Company hereunder will continue in
the manner and under the terms so provided.
Adjustments under this Section 5 will be made by the
Compensation Committee, whose determination as to what
adjustments will be made, and the extent thereof, will be
final, binding and conclusive. No fractional shares of stock
will be issued pursuant to any acquisition of Shares or in
connection with any adjustment contemplated herein.
6. LIMITATION. You will not be entitled to the privileges of
stock ownership in respect of any of the Shares until they
have been issued and delivered pursuant to the terms and
conditions of this memorandum and the Plan.
7. REQUIREMENTS OF LAW AND STOCK EXCHANGES. Your right to
acquire the Shares and issuance of the Shares will be subject
to compliance with all applicable requirements of law. In
addition, the Company will not be required to issue or deliver
any certificate or certificates for any of the Shares prior to
the admission of such Shares to listing on notice of issuance
on any stock exchange on which shares of the same class are
then listed.
By acquiring any of the Shares as contemplated herein, you
will be representing and agreeing for yourself and your
transferees by will or by the laws of descent and distribution
that, unless a registration statement under the Securities Act
of 1933, as amended (the "Securities Act"), is in effect as to
the Shares acquired, any and all Shares so acquired will be
acquired for investment and not for sale or distribution, and
each such acquisition will be accompanied by a representation
and warranty in writing, signed by the person entitled to make
such acquisition, that the Shares are being so acquired in
good faith for investment and not for sale or distribution.
In the event the Company's legal counsel, at the Company's
request, advises it that registration under the Securities Act
of the acquired Shares is required prior to issuance thereof,
the Company will not be required to issue or deliver the
Shares unless and until such legal counsel advises it that
such registration has been completed or is not required.
By acquiring any of the Shares, you also will be representing
and agreeing for yourself and your transferees by will or the
laws of descent and distribution that if you are an officer of
the Company or any other person who might be deemed an
"affiliate" of the Company under the Securities Act at the
time any Shares that have been acquired are proposed to be
sold, you or they will not sell such Shares (a) without giving
thirty days advance notice in writing to the Company, and (b)
until the Company has advised you or them that such sale may
be made without registration under the Securities Act or, if
such registration is required, that such registration has been
effected.
8. RESTRICTIONS ON SHARE TRANSFER BY CERTAIN PERSONS. In the
case of Cumulative EBITDA Shares and 1998 E.P.S. Shares, until
six months have elapsed after the date of the Company's
unconditional offer of such Shares to you, or, in the case of
Stock Price Shares, until six months have elapsed after the
date the Compensation Committee approved the recommendation
that you be granted a conditional opportunity to acquire such
Shares, you may not transfer such Shares in a transaction that
would constitute a "sale" under Section 16 of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), if you
are at the time of the sale a person subject to the provisions
of Section 16 of the Exchange Act.
9. WAGE WITHHOLDING AND EMPLOYMENT TAXES. Your acquisition of
any of the Shares as outlined herein may result in ordinary
income at the time of acquisition. Such ordinary income will
be subject to both wage withholding and employment taxes, and
the Company or your employer may be required to effect such
withholding and/or deduct such taxes. Except as set forth
below, you may make an irrevocable election to satisfy, in
whole or in part, your obligation to reimburse the Company or
your employer for such taxes (an "Election") by (i) making a
cash payment to the Company, (ii) having the Company deduct
the required amount from any cash compensation that the
Company or any of its subsidiaries may owe you, (iii)
surrendering your right to acquire either a specified number
of the Shares or Shares having a specified value, in each case
with a value not in excess of your related tax liability, (iv)
tendering shares previously issued pursuant to the Plan or
other shares of the Company's common stock owned by you, or
(v) combining any or all of the foregoing in any fashion;
PROVIDED, HOWEVER, that, if you are at the time the
withholding obligation arises a person subject to the
provisions of Section 16 of the Exchange Act, you must satisfy
such obligation by surrendering your right to acquire such
number of Shares as will have a value sufficient to satisfy
such obligation, but not in excess of such liability. The
Compensation Committee may disapprove of any Election or
suspend or terminate the right to make Elections at any time
or from time to time. All withheld or surrendered Shares and
other shares tendered in payment will be valued at their Fair
Market Value on the date the withholding obligation arises.
"Fair Market Value" with regard to stock of the Company on a
particular date shall mean the average of the high and low
quotations at which the stock is traded on that particular
date as reported in the "NYSE-Composite Transactions" section
of the Southwest Edition of THE WALL STREET JOURNAL for that
date (corrected for obvious typographical errors), or, if no
prices are quoted for that date, on the last preceding date
for which such prices of shares of stock are so quoted. In
the event "NYSE-Composite Transactions" cease to be reported
as such, or in the event that the Company's stock is no longer
quoted on the New York Stock Exchange, an appropriate
substitute published stock quotation system will be selected
by the Compensation Committee, consistent with appropriate
regulatory provisions.
10. CONTINUED EMPLOYMENT AND FUTURE GRANTS. Neither the granting
to you of an opportunity to acquire stock nor the other
arrangements outlined herein give you the right to remain in
the employ of the Company or any of its subsidiaries or to be
selected to receive similar or identical grants in the future.
11. GLOBAL MARINE INC. 1989 STOCK OPTION AND INCENTIVE PLAN, THE
BOARD AND THE COMMITTEE. The opportunity to acquire Shares
outlined in this memorandum has been granted to you, and any
offer or sale of Shares will be made, under and pursuant to
the Plan as the same shall have been amended from time to time
in accordance with its terms. The decision of the Company's
board of directors or the Committee on any questions
concerning the interpretation or administration of the Plan or
any matters covered in this memorandum will be final and
conclusive. No amendment to the Plan or decision of the board
or the Committee will deprive you, without your consent, of
any rights hereunder.
A copy of the Plan in its present form is available at the
Company's principal office for inspection during business
hours by you or other persons who may be entitled to acquire
any of the Shares as contemplated herein.
12. STOCKHOLDER APPROVAL. The opportunity to acquire Shares
outlined in this memorandum has been granted to you subject to
approval by the stockholders of Global Marine Inc. of the
material terms under which you may acquire the Shares, as
required for "performance-based compensation" under section
162(m) of the Internal Revenue Code and the rules and
regulations thereunder.
References in this Exhibit A to "this memorandum" (and indirect
references such as "hereof," "hereunder" and "herein") refer to the
attached cover page of this memorandum and this Exhibit A, each of
which constitutes an integral part of this memorandum.
EXHIBIT 10.24
GLOBAL MARINE
EXECUTIVE DEFERRED
COMPENSATION TRUST
THIS TRUST AGREEMENT made this 23rd day of February,
1996, but effective January 1, 1995 by and between GLOBAL MARINE
CORPORATE SERVICES INC., a California corporation having its
principal offices in Houston, Texas ("Company"), and TEXAS COMMERCE
BANK NATIONAL ASSOCIATION, a national banking association
("Trustee");
WHEREAS, Company has established the Global Marine
Executive Supplemental Retirement Plan of 1990 (the "Plan");
WHEREAS, Company has incurred or expects to incur
liability under the terms of such Plan with respect to the
individuals participating in such Plan;
WHEREAS, Company wishes to establish a trust (hereinafter
called "Trust") and to contribute to the Trust assets that shall be
held therein, subject to the claims of the Company's creditors in
the event of Company's Insolvency, as herein defined, until paid to
Plan participants and their beneficiaries in such manner and at
such times as specified in the Plan;
WHEREAS, it is the intention of the parties that this
Trust shall constitute an unfunded arrangement and shall not affect
the status of the Plan as an unfunded plan maintained for the
purpose of providing deferred compensation for a select group of
management or highly compensated employees for purposes of Title I
of the Employee Retirement Income Security Act of 1974; and
WHEREAS, it is the intention of the Company to make
contributions to the Trust to provide itself with a source of funds
to assist it in the meeting of its liabilities under the Plan;
NOW, THEREFORE, the parties do hereby establish the Trust
and agree that the Trust shall be comprised, held and disposed of
as follows:
SECTION 1. ESTABLISHMENT OF TRUST
(a) Company hereby deposits with Trustee in trust
$1,000,000, which shall become the principal of the Trust to be
held, administered and disposed by Trustee as provided in this
Trust Agreement.
(b) The Trust shall become irrevocable thirty (30) days
following the issuance of a favorable private letter ruling
regarding the Trust from the Internal Revenue Service.
(c) The Trust is intended to be a grantor trust, of
which Company is the grantor, within the meaning of subpart E,
part I, subchapter J, chapter 1, subtitle A of the Internal Revenue
Code of 1986, as amended, and shall be construed accordingly.
(d) The principal of the Trust, and any earnings thereon
shall be held separate and apart from other funds of Company and
shall be used exclusively for the uses and purposes of Plan
participants and general creditors as herein set forth. Plan
participants and their beneficiaries shall have no preferred claim
on, or any beneficial ownership interest in, any assets of the
Trust. Any rights created under the Plan and this Trust Agreement
shall be mere unsecured contractual rights of Plan participants and
their beneficiaries against Company. Any assets held by the Trust
will be subject to the claims of Company's general creditors under
federal and state law in the event of Insolvency, as defined in
Section 3(a) herein.
(e) Company, in its sole discretion, may at any time, or
from time to time, make additional deposits of cash or other
property in trust with Trustee to augment the principal to be held,
administered and disposed of by Trustee as provided in this Trust
Agreement. Neither Trustee nor any Plan participant or beneficiary
shall have any right to compel such additional deposits.
(f) Upon a Change of Control, Company shall, as soon as
possible, but in no event longer than thirty (30) days following
the Change of Control, as defined in Section 13(d) herein, make an
irrevocable contribution to the Trust in an amount, determined in
accordance with Section 1(g), that is sufficient to pay each Plan
participant or beneficiary the benefits to which Plan participants
or their beneficiaries would be entitled pursuant to the terms of
the Plan as of the date on which the Change of Control occurred.
(g) The amount required to be contributed, if any,
pursuant to Section 1(f) herein shall be determined by an
independent actuarial firm selected by Company, in its sole
discretion. Such amount shall be equal to the present value of the
accrued benefits of each participant or beneficiary as of the date
of the contribution, whether or not then vested and nonforfeitable,
determined using the interest rate assumption that would be used by
the Pension Benefit Guaranty Corporation during the month in which
the contribution occurs to value annuities for a pension plan
termination, the GAM 83 mortality table, and the other relevant
assumptions used by Company in computing the accumulated benefit
obligation for the Global Marine Retirement Plan for Employees or
any successor plan (the "Retirement Plan") in accordance with
Financial Accounting Standards Bulletin 87 for its financial
statements as of the date of the most recent financial statements
completed before such contribution or if the Company does not
maintain the Retirement Plan, such assumptions as are deemed
reasonable by the actuary.
SECTION 2. PAYMENTS TO PLAN PARTICIPANTS AND THEIR
BENEFICIARIES
(a) Company shall deliver to Trustee a schedule (the
"Payment Schedule") that indicates the amounts payable in respect
of each Plan participant (and his or her beneficiaries), that
provides a formula or other instructions acceptable to Trustee for
determining the amount so payable, the form in which such amount is
to be paid (as provided for or available under the Plan), and the
time of commencement for payment of such amounts. Except as
otherwise provided herein, Trustee shall make payments to the Plan
participants and their beneficiaries in accordance with such
Payment Schedule. The Trustee shall make provision for the
reporting and withholding of any federal, state or local taxes that
may be required to be withheld with respect to the payment of
benefits pursuant to the terms of the Plan and shall pay amounts
withheld to the appropriate taxing authorities or determine that
such amounts have been reported, withheld and paid by Company.
(b) The entitlement of a Plan participant or his or her
beneficiaries to benefits under the Plan shall be determined by
Company or such party as it shall designate under the Plan, and any
claim for such benefits shall be considered and reviewed under the
procedures set out in the Plan.
(c) Company may make payment of benefits directly to
Plan participants or their beneficiaries as they become due under
the terms of the Plan. Company shall notify Trustee of its
decision to make payment of benefits directly prior to the time
amounts are payable to participants or their beneficiaries. In
addition, if the principal of the Trust, and any earnings thereon,
are not sufficient to make payments of benefits in accordance with
the terms of the Plan, Company shall make the balance of each such
payment as it falls due. Trustee shall notify Company where
principal and earnings are not sufficient.
SECTION 3. TRUSTEE RESPONSIBILITY REGARDING PAYMENTS TO TRUST
BENEFICIARY WHEN COMPANY IS INSOLVENT
(a) Trustee shall cease payment of benefits to Plan
participants and their beneficiaries if the Company is insolvent.
Company shall be considered "Insolvent" for purposes of this Trust
Agreement if (i) Company is unable to pay its debts as they become
due, or (ii) Company is subject to a pending proceeding as a debtor
under the United States Bankruptcy Code.
(b) At all times during the continuance of this Trust,
as provided in Section 1(d) hereof, the principal and income of the
Trust shall be subject to claims of general creditors of Company
under federal and state law as set forth below.
(1) The Board of Directors and the President of
Company shall have the duty to inform Trustee in writing
of Company's Insolvency. If a person claiming to be a
creditor of the Company alleges in writing to the Trustee
that Company has become Insolvent, Trustee shall
determine whether Company is Insolvent and, pending such
determination, Trustee shall discontinue payment of
benefits to Plan participants or their beneficiaries.
(2) Unless Trustee has actual knowledge of
Company's Insolvency or has received notice from Company
or a person claiming to be a creditor alleging that
Company is Insolvent, Trustee shall have no duty to
inquire whether Company is Insolvent. Trustee may in all
events rely on such evidence concerning Company's
solvency as may be furnished to Trustee and that provides
Trustee with a reasonable basis for making a
determination concerning Company's solvency.
(3) If at any time Trustee has determined that
Company is Insolvent, Trustee shall discontinue payments
to Plan participants or their beneficiaries and shall
hold the assets of the Trust for the benefit of Company's
general creditors. Nothing in this Trust Agreement shall
in any way diminish any rights of Plan participants or
their beneficiaries to pursue their right as general
creditors of Company with respect to benefits due under
the Plan or otherwise.
(4) Trustee shall resume the payment of benefits to
Plan participants or their beneficiaries in accordance
with Section 2 of this Trust Agreement only after Trustee
has determined that Company is not Insolvent (or is no
longer Insolvent).
(c) Provided that there are sufficient assets, if
Trustee discontinues the payment of benefits from the Trust
pursuant to Section 3(b) hereof and subsequently resumes such
payments, the first payment following such discontinuance shall
include the aggregate amount of all payments due to Plan
participants or their beneficiaries under the terms of the Plan for
the period of such discontinuance, less the aggregate amount of any
payments made to Plan participants or their beneficiaries by
Company in lieu of the payments provided for hereunder during any
such period of discontinuance.
SECTION 4. PAYMENTS TO COMPANY
Except as provided in Section 3 hereof, after the Trust
has become irrevocable, Company shall have no right or power to
direct Trustee to return to Company or to divert to others any of
the Trust assets before all payment of benefits have been made to
Plan participants and their beneficiaries pursuant to the terms of
the Plan.
SECTION 5. INVESTMENT AUTHORITY
(a) Subject to the investment direction of the
Retirement Plan Committee of Company (the "Retirement Plan
Committee"), funds held for the account of the Trust may be
invested by Trustee in obligations issued or fully guaranteed by
the United States of America or any agency thereof, corporate debt
securities currently rated A or better in Moody's, notes secured by
first mortgages on real estate, certificates of deposit, demand or
time deposits, life insurance and annuity contracts, commercial
paper rates P-1 or A-1 or master note agreements of companies the
commercial paper of which is rated P-1 or A-1 and pooled, common or
group investment funds offered by or through Trustee.
(b) The Retirement Plan Committee, in its sole
discretion, may at any time, or from time to time direct, require
or permit different or additional investments of Trust assets,
except that in no event may Trustee invest in securities (including
stock or rights to acquire stock) or obligations issued by Company,
other than a de minimis amount held in common investment vehicles
in which Trustee invests. All rights associated with assets of the
Trust shall be exercised by Trustee or the person designated by
Trustee, and shall in no event be exercisable by or rest with Plan
participants.
(c) Company shall have the right, at any time, and from
time to time in its sole discretion, to substitute assets of equal
fair market value for any asset held by the Trust. This right is
exercisable by Company in a nonfiduciary capacity without the
approval or consent of any person in a fiduciary capacity.
SECTION 6. DISPOSITION OF INCOME
During the term of this Trust, all income received by the
Trust, net of expenses and taxes, shall be accumulated and
reinvested.
SECTION 7. ACCOUNTING BY TRUSTEE
(a) The Trust's fiscal year shall be the calendar year.
Trustee shall maintain the books of the Trust on the cash receipts
and disbursements method of accounting.
(b) For federal and state income tax purposes, Trustee
shall file such returns and statements as it is directed by the
Retirement Plan Committee to so file in order to comply with
applicable provisions of the Code, regulations thereunder and any
state laws and regulations thereunder.
(c) Trustee shall provide the Retirement Plan Committee
annual reports respecting cash receipts and disbursements of the
Trust Fund.
(d) The Retirement Plan Committee shall have the right
to examine during regular business hours Trustee's books and
records respecting the Trust Fund by giving Trustee two (2) weeks'
prior written notice of its desire to inspect such books and
records.
SECTION 8. RESPONSIBILITY OF TRUSTEE
(a) Trustee is empowered to act in its discretion and
shall not be personally or individually liable to Company for any
act or omission except in the case of gross negligence, bad faith
or fraud.
(b) Trustee shall be indemnified by, and receive
reimbursement from, Company against and from any and all liability,
expense, claim, damage or loss incurred by it individually or as
Trustee in the administration of the Trust or any part or parts
thereof, or in the doing of any act done or performed or omission
occurring on account of its being Trustee, except such liability,
expense, claim, damage or loss arising from its gross negligence,
bad faith or fraud.
(c) Trustee shall receive from Company compensation for
its services in implementing the Trust as set forth in Exhibit A
hereto.
(d) No bond or other security shall be required of
Trustee.
(e) To the extent allowed by applicable law, Trustee
shall not be prohibited in any way in exercising its powers or from
dealing with itself in any other capacity, fiduciary or otherwise.
(f) Pursuant to Section 113.059 of the Texas Trust Code,
Company as Trustor hereby relieves Trustee from any or all duties,
restrictions, and liabilities otherwise imposed upon Trustee by the
Texas Trust Code except for such duties, restrictions, and
liabilities as are imposed (a) by Sections 113.052, 113.053 and
113.057 of the Texas Trust Code, (b) by the terms and conditions of
this Trust Agreement, or (c) by any other applicable law, rule or
regulation.
(g) Whenever Trustee, in the administration of the
provisions of this Trust Agreement, shall deem it necessary or
desirable that a matter be proved or established prior to taking or
suffering any action hereunder, such matter may, in the absence of
bad faith on the part of Trustee, be deemed to be conclusively
proved by a certificate delivered to Trustee by Company or the
Retirement Plan Committee, as the case may be, and such certificate
shall be complete authority to Trustee for any action taken or
suffered by it under the provisions of this Trust Agreement upon
the faith thereof. In the case of Company, such certificate shall
be signed by the President or any Vice President of Company.
(h) Trustee shall have, without exclusion, all powers
conferred on Trustees by applicable law, unless expressly provided
otherwise herein, provided, however, that if an insurance policy is
held as an asset of the Trust, Trustee shall have no power to name
a beneficiary of the policy other than the Trust, to assign the
policy (as distinct from conversion of the policy to a different
form) other than to a successor Trustee, or to loan to any person
the proceeds of any borrowing against such policy.
(i) However, notwithstanding the provisions of Section
8(h) above, Trustee may loan to Company the proceeds of any
borrowing against an insurance policy held as an asset of the
Trust.
(j) Notwithstanding any powers granted to Trustee
pursuant to this Trust Agreement or to applicable law, Trustee
shall not have any power that could give this Trust the objective
of carrying on a business and dividing the gains therefrom, within
the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal
Revenue Code.
(k) Trustee shall have the power to employ such
accountants, lawyers, brokers or other agents as Trustee deems
advisable in administering this Trust, and to reasonably rely upon
information and advice furnished by such accountants, lawyers,
brokers and other agents.
(l) Trustee shall have the power from time to time to
register any property in the name of its nominee or in its own
name, or to hold it unregistered or in such form that title shall
pass by delivery or to cause the same to be deposited in a
depository clearing corporation or system established to settle
transfers of securities and to cause such securities to be merged
and held in bulk by the nominee of such depository or clearing
corporation or system.
SECTION 9. COMPENSATION AND EXPENSES OF TRUSTEE
Trustee shall receive for its services as trustee
hereunder the compensation which may be agreed upon from time to
time by Company and Trustee. All amounts due Trustee as
compensation for its services shall be paid by Company, or
disbursed by Trustee out of the Trust, and, until paid, shall
constitute a charge upon the Trust. Brokerage fees, commissions,
stock transfer taxes and other charges and expenses incurred in
connection with the purchase and sale of securities for the Trust
or distribution thereof shall be paid by Trustee from the Trust.
All taxes imposed or levied with respect to the Trust or any part
thereof, under existing or future laws, shall be paid from the
Trust. Expenses incurred by Trustee in the administration of the
Trust (including fees for legal, actuarial, investment, or other
services and all other proper charges and expenses of Trustee and
of Trustee's agents and counsel) shall be paid by Company or
disbursed from the Trust by Trustee and, until paid, shall
constitute a charge upon the Trust.
SECTION 10. RESIGNATION AND REMOVAL OF TRUSTEE
(a) Trustee may resign at any time by written notice to
Company, which shall be effective 30 days after receipt of such
notice (the "Resignation Notice Date") unless Company and Trustee
agree otherwise and by accounting to its successor for the
administration of the Trust as may be required by the successor
Trustee.
(b) Trustee may be removed, by Company at any time;
provided, however, that no such removal shall be effective unless
contemporaneously with such removal a successor Trustee is
appointed by Company.
(c) Upon a Change of Control, as defined herein, Trustee
may not be removed by Company for two (2) years.
(d) Upon resignation or removal of Trustee and
appointment of a successor Trustee, all assets shall subsequently
be transferred to the successor Trustee. The transfer shall be
completed within thirty (30) days after receipt of notice of
resignation, removal or transfer, unless Company extends the time
limit.
(e) If Trustee resigns or is removed, a successor shall
be appointed, in accordance with Section 11 hereof, by the
effective date of resignation or removal under paragraphs (a) or
(b) of this Section 10. If no such appointment has been made,
Trustee may apply to a court of competent jurisdiction for
appointment of a successor or for instructions. All expenses of
Trustee in connection with the proceeding shall be allowed as
administrative expenses of the Trust.
SECTION 11. APPOINTMENT OF SUCCESSOR
(a) In the event Trustee has given notice of its
intention to resign, a successor Trustee shall be appointed by
Company within ten (10) days of the Resignation Notice Date.
Notice of the appointment of a successor Trustee shall be given by
the resigning Trustee to Company on the Resignation Notice Date at
the address of Company as last reflected on the records of Trustee.
(b) In the event that a successor Trustee has not been
appointed by Company within twenty (20) days after the Resignation
Notice Date or the occurrence of a vacancy in the position of
Trustee, a successor Trustee may be appointed by any Texas or
United States District Court holding terms in Houston, Harris
County, Texas, upon the application of Trustee. In the event such
Court shall deem it necessary, the Court may appoint a temporary
successor Trustee or successor Trustee on such terms as to
compensation as the Court shall deem necessary and reasonable
notwithstanding any provision herein to the contrary. A Trustee
appointed under the provisions of this Section 11 shall be a state
or national banking association which has a capital, surplus and
undivided profits of at least $10,000,000.
(c) Immediately upon the appointment of any successor
Trustee, all rights, titles duties, powers and authority of the
succeeded Trustee hereunder shall be vested in and undertaken by
the successor Trustee which shall be entitled to receive from the
trustee which it succeeds, in addition to the accounting referred
to in Section 10, all of the assets of the Trust held by it
hereunder and all records and files in connection therewith.
(d) Any and all successors to a resigning Trustee shall
be fully protected in relying upon the accounting referred to in
Section 10 and this Section 11. No successor Trustee shall be
obligated to examine or seek alteration of any accounting of any
preceding Trustee, nor shall any Trustee be liable personally for
failing to do so or for any act or omission of any preceding
Trustee. The preceding sentence shall not prevent any successor
Trustee or anyone else from taking any action otherwise permissible
in connection with any such accounting.
SECTION 12. AMENDMENT OR TERMINATION
(a) This Trust Agreement may be amended by a written
instrument executed by Trustee and Company. Notwithstanding the
foregoing, no such amendment shall conflict with the terms of the
Plan or shall make the Trust revocable after it has become
irrevocable in accordance with Section 1(b) hereof.
(b) Subject to the provisions of Section 12(c) herein,
the Trust shall not terminate until the date on which Plan
participants and their beneficiaries are no longer entitled to
benefits pursuant to the terms of the Plan. Upon termination of
the Trust, any assets remaining in the Trust shall be returned to
Company.
(c) Upon written approval of participants or
beneficiaries entitled to payment of benefits pursuant to the terms
of the Plan, Company may terminate this Trust prior to the time all
benefit payments under the Plan have been made. All assets in the
Trust at termination shall be returned to Company.
(d) Sections 1, 2 and 10(c) of this Trust Agreement may
not be amended by Company for fifteen (15) years following a Change
of Control, as defined herein.
SECTION 13. MISCELLANEOUS
(a) Any provision of this Trust Agreement prohibited by
law shall be ineffective to the extent of any such prohibition,
without invalidating the remaining provisions hereof.
(b) Benefits payable to Plan participants and their
beneficiaries under this Trust Agreement may not be anticipated,
assigned (either at law or in equity), alienated, pledged,
encumbered or subjected to attachment, garnishment, levy, execution
or other legal or equitable process.
(c) This Trust Agreement shall be governed by and
construed in accordance with the laws of Texas.
(d) For purposes of this Trust, "Change of Control"
shall mean: (i) any acquisition of more than fifty percent of the
voting power of the stock of Global Marine Inc. by any person or
persons acting as a group for purposes of acquiring such stock,
(ii) the occurrence of a change in the membership of the Board of
Directors of Global Marine Inc. during any consecutive two-year
period, excluding changes due to death or disability, as a result
of which individuals who were members of said Board at the
beginning of such period no longer constitute a majority of said
Board, (iii) shares of Global Marine Inc. becoming subject to
delisting by the New York Stock Exchange or a successor exchange in
respect of the number of publicly held shares or the number of
stockholders holding one hundred shares or more, (iv) approval by
the Board of Directors of Global Marine Inc. of the sale of all or
substantially all of its assets, or (v) approval by the Board of
Directors of Global Marine Inc. of any merger, consolidation,
issuance of securities or purchase of assets which would result in
an event described in (i), (ii), or (iii) above.
(e) Except as otherwise required by law, neither this
Trust Agreement nor any executed copy hereof need be filed in any
county, or other jurisdiction in which any of the properties
comprising the Trust are located, but the same may be filed for
record in any county or other jurisdiction by Trustee.
(f) Any notice or demand which by any provision of this
Trust Agreement is required or permitted to be given or served upon
Trustee may be given or served by in-hand delivery or by deposit,
postage prepaid and by registered or certified mail, in a post
office or letter box addressed to Trustee at 600 Travis, Houston,
Texas 77002 or at such other address as Trustee may from time to
time advise Company in writing.
(g) Whenever any notice, communication or report is
given by Trustee to Company pursuant to the provisions of this
Trust Agreement or is otherwise required to be provided to Company
pursuant to the provisions of this Trust Agreement, Trustee shall
provide, by in-hand delivery or by deposit, postage prepaid, in a
post office or letter box addressed to Company at 777 N. Eldridge,
Houston, Texas 77079, or at such other address as Company may from
time to time advise Trustee in writing.
(h) Whenever any notice, communication, or report is
given by Trustee to the Retirement Plan Committee pursuant to the
provisions of this Trust Agreement or is otherwise required to be
provided to the Retirement Plan Committee pursuant to the
provisions of this Trust Agreement, Trustee shall provide, by in-hand
delivery or by deposit, postage prepaid, in a post office or
letter box addressed to the Retirement Plan Committee at 777
N. Eldridge, Houston, Texas 77079, or at such other address as
Company may from time to time advise Trustee in writing.
(i) Trustee, by joining in the execution of this Trust
Agreement, accepts the Trust herein created and provided for and
accepts all of the rights, powers, privileges, duties and
responsibilities of Trustee hereunder and agrees to exercise and
perform the same in accordance with the terms and provisions
contained herein.
(j) This Trust Agreement may be executed in a number of
counterparts, each of which shall constitute an original, but such
counterparts shall together constitute but one and the same
instrument.
(k) The headings of the Sections of this Trust Agreement
are inserted for convenience only and shall not constitute a part
hereof.
SECTION 14. EFFECTIVE DATE
The effective date of this Trust Agreement shall be
January 1, 1995.
GLOBAL MARINE CORPORATE SERVICES INC.
By /S/ JAMES L. MCCULLOCH
Vice President
TEXAS COMMERCE BANK NATIONAL
ASSOCIATION, Trustee
By /S/ JANE WITTE
Vice President
EXHIBIT 10.28
COMPANY: Global Marine Inc. (the "Company")
ITEM: Resolutions of the Board of Directors
SUBJECT: Directors Compensation
DATE: August 3, 1994
RESOLVED that the resolutions of this Board of Directors
adopted on August 24, 1989, relating to directors fees and expense
reimbursement be, and they hereby are, superseded in their entirety
effective January 1, 1995, and that the following resolutions be,
and they hereby are, effective in their stead as said date; and it
was further
RESOLVED that the fees payable to directors of the
Company who are not officers or employees of the Company be, and
they hereby are, $6,000 per quarter (payable with respect to each
calendar quarter at the regular meeting of the Board of Directors
during such calendar quarter), $900 for attendance at each regular
meeting of the Board of Directors, $1,500 for attendance at each
special meeting of the Board of Directors, and $500 for attendance
at each meeting of any Committee of the Board of Directors, in each
case effective January 1, 1995; and it was further
RESOLVED that each director shall be reimbursed for all
expenses incurred by such director in attending each meeting of the
Board of Directors of the Company including regular meetings,
special meetings and meetings of any Committee of the Board of
Directors and they payment of such expenses shall be made upon
receipt by the Company of an invoice or expense account covering
such expenses.
EXHIBIT 10.33
GLOBAL MARINE INC.
1996 MANAGEMENT INCENTIVE AWARD PLAN
PURPOSE AND ELIGIBLE PARTICIPANTS
The purpose of the 1996 Management Incentive Award Plan is to
provide incentive awards in respect of service during 1996 for
employees of Global Marine Inc. and its subsidiaries in grade
levels 34 and above, excluding the Chief Executive Officer of
Global Marine Inc. and senior executives who report directly to the
Chief Executive Officer of Global Marine Inc., and also excluding
employees who are eligible to participate in any other plan or
arrangement under which incentive awards may be paid in cash, or
shares of stock in lieu of cash, by Global Marine Inc. or any of
its subsidiaries in respect of service during 1996.
PLAN
An incentive pool will be established for this plan in 1996. The
pool will be equal to 6% of the amount by which the company's 1996
consolidated pretax profit exceeds $40 million.
Consideration for individual awards under this plan will be given
to employees who are eligible to participate in this plan under the
provisions of this plan's first paragraph; provided, however, that
in cases of unusual merit consideration will be given to employees
below grade level 34 when recommended by the relevant Subsidiary
President or Corporate Vice President and approved by the Chief
Executive Officer of Global Marine Inc. No individual will be
eligible for an award of more than 50% of annual base salary.
Subject to approval by the Board of Directors of Global Marine
Inc., at its discretion, incentive awards under this plan will be
paid as soon as practicable after the company's 1996 results are
final and may be paid in cash or, at the discretion of the
Compensation Committee or the Board of Directors of Global Marine
Inc., in shares of common stock of Global Marine Inc. or in any
combination of cash and such shares; provided, however, that common
stock will not be used to pay an incentive award under this plan to
any director of Global Marine Inc., any beneficial owner of more
than ten percent of the issued and outstanding common stock of
Global Marine Inc., or any "officer" of Global Marine Inc. as such
term is defined for purposes of the rules of the Securities and
Exchange Commission under Section 16 of the Securities Exchange Act
of 1934. The aggregate market value of the shares, if any, used to
pay incentive awards under this plan shall be no greater than the
aggregate amount of cash that otherwise would have been paid in
lieu of said shares pursuant to the terms of this plan, the market
value per share being the average of the high and low prices for
Global Marine Inc. common stock as quoted on the New York Stock
Exchange Composite Transactions for the day the incentive awards
are determined.
Incentive awards will consider individual performance of the
employee. Establishment of the annual incentive award pool shall
not create or imply a promise or any other obligation of Global
Marine Inc. or any of its subsidiaries, or a right of any
individual employee or of the collective employees of Global Marine
Inc. or its subsidiaries. The plan shall terminate upon the grant
of awards under the plan or a resolution of the Board of Directors
of Global Marine Inc. terminating the plan. The establishment of
this plan or the grant of awards hereunder does not create or imply
a promise or any other obligation to establish the same or a
similar plan for any other year or to continue to grant such awards
in the future.
RESPONSIBILITY AND AUTHORITY
The Chief Executive Officer and the Chief Financial Officer of
Global Marine Inc. shall take all such actions, do all such things,
make all such payments and sign and deliver all such documents and
instruments as either or both of them may at any time or from time
to time deem necessary or desirable in order to implement this
plan.
<TABLE>
<CAPTION>
EXHIBIT 11.1
GLOBAL MARINE INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER COMMON SHARE
(Dollars in millions, except per share amounts)
1995 1994 1993
____________ ___________ ___________
Shares for primary and fully diluted computations:
<S> <C> <C> <C>
Weighted average shares of common stock outstanding
for primary earnings per share 165,142,881 163,828,711 151,984,669
Shares issuable on assumed exercise of stock
options and sale of incentive stock to reflect maximum
dilutive effect (1): 7,397,435 3,167,667 3,269,447
____________ ____________ ____________
Weighted average shares for fully
diluted earnings per share 172,540,316 166,996,378 155,254,116
============ ============ ============
Earnings for primary and
fully diluted computations:
Income (loss) before cumulative effect of
change in accounting principle $ 51.9 $ 4.8 $ (26.5)
Cumulative effect of change in accounting for
postemployment benefits - (3.5) -
------------ ------------ ------------
Net income (loss) $ 51.9 $ 1.3 $ (26.5)
============ ============ ============
Primary earnings (loss) per share:
Income (loss) before cumulative effect of change
in accounting principle $ 0.31 $ 0.03 $ (0.17)
Cumulative effect of change in accounting for
postemployment benefits - (0.02) -
____________ ______________ _____________
Primary net income (loss) per common share $ 0.31 $ 0.01 $ (0.17)
============ ============== =============
Fully diluted net income (loss) per share:
Income (loss) before cumulative effect of
change in accounting principle $ 0.30 $ 0.03 $ (0.17)
Cumulative effect of change in accounting for
postemployment benefits - (0.02) -
____________ ______________ ____________
Fully diluted net income (loss) per common share $ 0.30 $ 0.01 $ (0.17)
============ =============== ============
_________________________
(1) Shares issuable upon the assumed exercise of stock options are included in the computation of fully diluted
net loss per common share in accordance with Regulation S-K, Item 601(b)(11), although for 1993 their
inclusion is contrary to paragraph 40 of APB Opinion No. 15 because their inclusion produces an antidilutive
result.
</TABLE>
EXHIBIT 21.1
GLOBAL MARINE INC. AND SUBSIDIARIES
as of February 23, 1996
STATE OR OTHER PERCENT OF
VOTING
JURISDICTION OF STOCK OWNED BY
NAME OF COMPANY INCORPORATION IMMEDIATE PARENT
Global Marine Inc. Delaware -
Applied Drilling Technology Inc. Texas 100%
Arctic Systems Ltd. Canada 100%
Challenger Minerals Inc. California 100%
WO Offshore, Inc. Texas 50%
Global Marine Arctic Ltd. Canada 100%
Global Marine B.V. The Netherlands 100%
Global Marine Baltic Inc. Delaware 100%
Global Marine Bismarck Sea Inc. Delaware 100%
Global Marine International
Services Corporation Bahamas 100%
Global Marine Capital
Investments Inc. Delaware 100%
Global Marine Beaufort Sea Inc. Delaware 100%
Global Marine Corporate
Services Inc. California 100%
Global Marine Deepwater
Drilling Inc. Delaware 100%
Global Marine Australia Inc. Delaware 100%
Global Marine West Africa Inc. Delaware 100%
Petdrill, Inc. Delaware 100%
Global Marine Drilling Company California 100%
Global Marine Caribbean, Inc. California 100%
Global Marine Development Inc. California 100%
Global Marine do Brasil
Perfuracoes Brazil 50% (1)
Global Marine Drilling Services California 100%
Global Dolphin Drilling
Company Private Limited India 40%
Global Marine Drilling (Malaysia)
Sdn. Bhd. Malaysia 100%
Global Marine Integrated Services
- International Inc. Delaware 100%
Global Marine North Sea Inc. Delaware 100%
Global Marine Oil & Gas Company Delaware 100%
Global Marine U.K. Limited Scotland 100%
Global Marine de Venezuela Inc. Delaware 100%
Global Offshore Drilling Ltd. Nigeria 60%
Intermarine Services Inc. Texas 100%
Marican Offshore Drilling
Services, Inc. Canada 100%
___________________________
(1) The remaining 50% of the voting stock is owned directly by
Global Marine Inc.
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference of our report dated February 9,
1996 on our audits of the consolidated financial statements, which report
includes an explanatory paragraph that describes the Company's adoption of
the method of accounting for postemployment benefits, as prescribed by
the applicable statement of the Financial Accounting Standards Board, and
our report dated February 9, 1996 on our audits of the financial statement
schedule of Global Marine Inc. and subsidiaries, as of December 31, 1995 and
1994, and for the years ended December 31, 1995, 1994 and 1993, which reports
are included in this Annual Report on Form 10-K, into (i) the prospectus
constituting part of the Company's Registration Statements on Form S-8
(Registration Nos. 33-32088, 33-40961 and 33-63326), respectively, for the
Global Marine Inc. 1989 Stock Option and Incentive Plan, (ii) the prospectus
constituting part of the Company's Registration Statement on Form S-8
(Registration No. 33-40266) for the Global Marine Savings Incentive Plan,
(iii) the prospectus constituting part of the Company's Registration
Statement on Form S-8 (Registration No. 33-40961) for the Global Marine
Inc. 1990 Non-Employee Director Stock Option Plan, (iv) the prospectus
constituting part of the Company's Registration Statement on Form S-8
(Registration No. 33-57691) for the Global Marine Inc. 1994 Non-Employee
Stock Option and Incentive Plan, and (v) the prospectus constituting part of
the Company's Registration Statement on Form S-3 (Registration No. 33-58577)
for the proposed offering of up to $75,000,000 of debt securities, preferred
stock and/or common stock.
/s/ Coopers & Lybrand L.L.P.
Houston, Texas
February 28, 1996
EXHIBIT 23.2
CONSENT OF INDEPENDENT PETROLEUM ENGINEERS
We hereby consent (a) to the inclusion in the Annual Report
on Form 10-K of Global Marine Inc. for the year ended December
31, 1995, of our reports, dated February 8, 1996, February 8,
1995 and February 7, 1994, on our estimates of proved oil and gas
reserves for the years ended December 31, 1995, 1994 and 1993,
respectively, which reports are included in said Annual Report on
Form 10-K as Exhibits 99.1, 99.2 and 99.3 thereto, and (b) to the
incorporation by reference of our said reports into (i) the
prospectus constituting part of the Company's Registration
Statements on Form S-8 (Registration Nos. 33-32088, 33-40961 and
33-63326), respectively, for the Global Marine Inc. 1989 Stock
Option and Incentive Plan, (ii) the prospectus constituting part
of the Company's Registration Statement on Form S-8 (Registration
No. 33-40266) for the Global Marine Savings Incentive Plan, (iii)
the prospectus constituting part of the Company's Registration
Statement on Form S-8 (Registration No. 33-40961) for the Global
Marine Inc. 1990 Non-Employee Director Stock Option Plan, (iv)
the prospectus constituting part of the Company's Registration
Statement on Form S-8 (Registration No. 33-57691) for the Global
Marine Inc. 1994 Non-Employee Stock Option and Incentive Plan,
and (v) the prospectus constituting part of the Company's
Registration Statement on Form S-3 (Registration No. 33-58577)
for the proposed offering of up to $75,000,000 of debt
securities, preferred stock and/or common stock. This consent is
given provided that all references to Ryder Scott Company
Petroleum Engineers remain unchanged from those contained in the
Annual Report on Form 10-K of Global Marine Inc. for the year
ended December 31, 1995.
/s/ Ryder Scott Company
Petroleum Engineers
Ryder Scott Company
Petroleum Engineers
Houston, Texas
February 28, 1996
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated balance sheet of Global Marine Inc. and subsidiaries as
of 12-31-95 and the related consolidated statement of operations for the
year ended 12-31-95, and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 33,200
<SECURITIES> 53,400
<RECEIVABLES> 71,300
<ALLOWANCES> 1,100
<INVENTORY> 0
<CURRENT-ASSETS> 168,300
<PP&E> 602,000
<DEPRECIATION> 215,400
<TOTAL-ASSETS> 563,000
<CURRENT-LIABILITIES> 52,100
<BONDS> 225,000
0
0
<COMMON> 16,600
<OTHER-SE> 252,400
<TOTAL-LIABILITY-AND-EQUITY> 563,000
<SALES> 9,800
<TOTAL-REVENUES> 468,000
<CGS> 6,400
<TOTAL-COSTS> 393,300
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,200
<INCOME-PRETAX> 55,100
<INCOME-TAX> 3,200
<INCOME-CONTINUING> 51,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,900
<EPS-PRIMARY> .31
<EPS-DILUTED> .30
</TABLE>
EXHIBIT 99.1
February 8, 1996
Challenger Minerals Inc.
10777 Westheimer, Suite 700
Houston, Texas 77042
Gentlemen:
At your request, we have prepared an estimate of the
reserves, future production and income attributable to the major
leasehold interests of Challenger Minerals Inc. (Challenger) as
of December 31, 1995. The subject properties are located in the
state of Texas, and offshore Louisiana and Texas. The income
data have been estimated using the Securities and Exchange
Commission (SEC) guidelines for future cost and price parameters.
The estimated reserve quantities and future income
quantities presented in this report are related to hydrocarbon
prices. December 31, 1995 hydrocarbon prices were used in the
preparation of this report as required by SEC guidelines;
however, actual future prices may vary significantly from
December 31, 1995 prices. Therefore, quantities of reserves
actually recovered and quantities of income actually received may
differ significantly from the estimated quantities presented in
this report. The summary level results of this study are shown
below.
<TABLE>
SEC PARAMETERS
Estimated Net Reserve and Income Data
Certain Leasehold Interests of
CHALLENGER MINERALS INC.
As of December 31, 1995
_____________________________________________________
Proved
_____________________________________________________
Developed Total
_________________________
Producing Non-Producing Undeveloped Proved
_________ _____________ ___________ ____________
Net Remaining Reserves
<S> <C> <C> <C> <C>
Oil/Condensate - Barrels 437,664 243,642 62,460 743,766
Gas - MMCF 4,309 4,584 24 8,917
Income Data
Future Gross Revenue $16,528,829 $14,435,276 $1,151,150 $32,115,255
Deductions 4,947,346 5,381,419 936,550 11,265,315
__________ ___________ __________ ___________
Future Net Income (FNI) $11,581,483 $9,053,857 $ 214,600 $20,849,940
Discounted FNI @ 10% $10,565,346 $6,801,529 $ 44,168 $17,411,043
</TABLE>
<TABLE>
Probable
______________________________________________________
Developed Total
____________________________
Producing Non-Producing Undeveloped Probable
___________ _____________ ___________ ___________
NET REMAINING RESERVES
<S> <C> <C> <C> <C>
Oil/Condensate - Barrels 92,636 46,705 6,891 146,232
Gas - MMCF 321 343 3 667
INCOME DATA
Future Gross Revenue $2,268,831 $1,614,529 $127,010 $4,010,370
Deductions 139,528 118,344 0 257,872
__________ __________ ________ __________
Future Net Income (FNI) $2,129,309 $1,496,185 $127,010 $3,752,498
Discounted FNI @ 10% $1,518,670 $1,112,211 $ 90,210 $2,721,091
</TABLE>
<TABLE>
Possible
Developed
Non-Producing
_____________
<S> <C>
NET REMAINING RESERVES
Oil/Condensate - Barrels 36,800
Gas - MMCF 818
INCOME DATA
Future Gross Revenue $2,596,151
Deductions 391,518
__________
Future Net Income (FNI) $2,204,633
Discounted FNI @ 10% $1,197,520
</TABLE>
Liquid hydrocarbons are expressed in standard 42 gallon
barrels. All gas volumes are sales gas expressed in millions of cubic feet
(MMCF) at the official temperature and pressure bases of the areas where the gas
reserves are located.
We have included probable and possible reserves and income in this
report at the request of Challenger. These data are for Challenger's
information only and should not be included in reports to the SEC according
to the SEC guidelines.
The proved developed non-producing reserves included herein are
comprised of the shut-in and behind pipe categories. The probable developed
reserves included herein are comprised of probable additional producing,
behind pipe and undeveloped categories. The various producing status categories
are defined under the tab "Reserve Definitions and Pricing Assumptions" in this
report.
The future gross revenue is after the deduction of production taxes.
The deductions are comprised of the normal direct costs of operating the wells,
ad valorem taxes, recompletion costs, development costs and abandonment costs
net of salvage. The future net income is before the deduction of state and
federal income taxes and general administrative overhead, and has not been
adjusted for outstanding loans which may exist nor does it include any
adjustment for cash on hand or undistributed income. No attempt has been
made to quantify or otherwise account for any accumulated gas production
imbalances that may exist. Gas reserves account for approximately 59.6
percent and liquid hydrocarbon reserves account for the remaining 40.4
percent of total future gross revenue from proved reserves.
<PAGE>
The discounted future net income shown above was calculated using a
discount rate of 10 percent per annum compounded annually. Future net income
was discounted at four other discount rates, which were also compounded
annually. These results are shown on each estimated projection of future
production and income presented in a later section of this report and in summary
form below.
<TABLE>
Discounted Future Net Income
As of December 31, 1995
____________________________________________
Discount Total Total Total
Rate
Percent Proved Probable Possible
___________ _________ ________ ________
<C> <C> <C> <C>
12 $16,876,893 $2,570,161 $1,072,227
15 $16,147,835 $2,368,485 $ 914,226
20 $15,094,562 $2,086,439 $ 711,952
30 $13,441,639 $1,668,262 $ 454,287
The results shown above are presented for your information and should not be
construed as our estimate of fair market value.
RESERVES INCLUDED IN THIS REPORT
The proved reserves included herein conform to the definition as
set forth in the Securities and Exchange Commission's Regulation S-X Part
210.4-10 (a) as clarified by subsequent Commission Staff Accounting Bulletins.
The probable reserves and possible reserves included herein conform to
definitions of probable and possible reserves approved by the Society of
Petroleum Engineers and the society of Petroleum Evaluation Engineers. Our
definitions of proved, probable, and possible reserves are included under the
tab "Reserve Definitions and pricing Assumptions" in this report.
The probable reserves are less certain to be recovered than the
proved reserves and reserves classified as possible are less certain to be
recovered than those in the probable category. The reserves and income
quantities attributable to the different reserve classifications that are
included herein have not been adjusted to reflect the varying degrees of risk
associated with them and thus are not comparable.
ESTIMATES OF RESERVES
In general, the reserves included herein were estimated
by performance methods or the volumetric method; however, other methods were
used in certain cases where characteristics of the data indicated such other
methods were more appropriate in our opinion. The reserves estimated by the
performance method utilized extrapolations of various historical in those cases
where such data were definitive in our opinion. Reserves were estimated by the
volumetric method in those cases where there were inadequate historical
performance data to establish a definitive trend or where the use of
production performance data as a basis for the reserve estimates was
considered to be inappropriate.
The reserves included in this report are estimates only and should
not be construed as being exact quantities. They may or may not be actually
recovered, and if recovered, the revenues therefrom and the actual costs related
thereto could be more or less than the estimated amounts. Moreover, estimates of
reserves may increase or decrease as a result of future operations.
FUTURE PRODUCTION RATES
Initial production rates are based on the current producing rates
for those wells now on production. Test data and other related information were
used to estimate the anticipated initial production rates for those wells or
locations which are not currently producing. If no production decline trend has
been established, future production rates were held constant, or adjusted for
the effects of curtailment where appropriate, until a decline in ability to
produce was anticipated. An estimated rate of decline was then applied to
depletion of the reserves. If a decline trend has been established, this trend
was used as the basis for estimating future production rates. For reserves not
yet on production, sales were estimated to commence at an anticipated date
furnished by Challenger.
In general, we estimate that future gas production rates will continue
to be the same as the average rate for the latest available 12 months of actual
production until such time that the well or wells are incapable of producing at
this rate. The well or wells were then projected to decline at their decreasing
delivery capacity rate. Our general policy on estimates of future gas
production rates is adjusted when necessary to reflect actual gas marketing
conditions in specific cases.
The future production rates from wells now on production may be more
or less than estimated because of changes in market demand or allowables set
by regulatory bodies. Wells or locations which are not currently producing may
start producing earlier or later than anticipated in our estimates of their
future production rates.
HYDROCARBON PRICES
Challenger furnished us with prices in effect at December 31, 1995 and
these prices were held constant throughout the remaining life of the reserves.
in accordance with Securities and Exchange Commission guidelines, changes in
liquid and gas prices subsequent to December 31, 1995 were not taken into
account in this report. Future prices used in this report are discussed in more
detail under the tab "Reserve Definitions and Pricing Assumptions" in this
report.
COSTS
Operating costs for the leases and wells in this report are based
on the operating expense reports of Challenger and include only those costs
directly applicable to the leases or wells. When applicable, the operating
costs include a portion of general and administrative costs allocated
directly to the leases and wells under terms of operating agreements.
Development costs were furnished to us by Challenger and are based on
authorizations for expenditure for the proposed work or actual costs for
similar projects. The current operating and development costs were held
constant throughout the life of the properties. Challenger's estimate of
abandonment costs, net of salvage value, has been included in this report.
Ryder Scott has not performed a detailed study of the abandonment costs nor
the salvage value and makes no warranty for Challenger's estimate. No
deduction was made for indirect costs such as general administration and
overhead expenses, loan repayments, interests expenses and exploration and
development prepayments which are not charged directly to the leases or wells.
GENERAL
Table A presents a line summary of proved reserve and income data for
each of the subject properties which are ranked according to their future net
income discounted at 10 percent per year. Table B presents a one line summary
of gross and net reserves and income data for each of the subject properties.
Table C presents a one line summary of initial basic data for each of the
subject properties. Tables 1 through 95 present our estimated projection of
production and income by years beginning January 1, 1996 by state, field,
and lease or well.
While it may reasonably be anticipated that the future
prices received for the sale of production and the operating costs and other
costs relating to such production may also increase or decrease from existing
levels, such changes were, in accordance with rules adopted by the SEC,
omitted from consideration in making this evaluation.
The estimates of reserves presented herein were based upon a detailed
study of the properties in which Challenger owns an interest; however, we have
not made any field examination of the properties. No consideration was given in
this report to potential environmental liabilities which may exist nor were any
costs included for potential liability to restore and clean up damages, if
any, caused by past operating practices. Challenger has informed us that they
have furnished us all of the accounts, records, geological and engineering data,
and reports and other data required for this investigation. The ownership
interests, prices, and other factual data furnished by Challenger were
accepted without independent verification. The estimates presented in this
report are based on data available through December 1995.
Neither we nor any of our employees have any interest in the
subject properties and neither the employment to make this study nor the
compensation is contingent on our estimates of reserves and future income for
the subject properties.
This report was prepared for the exclusive use of Challenger.
The data, work papers, and maps used in the preparation of this report are
available for examination by authorized parties in our offices. Please contact
us if we can be of further service.
Very truly yours,
RYDER SCOTT COMPANY
PETROLEUM ENGINEERS
/s/ Joe P. Allen
Joe P. Allen, P.E.
Senior Vice President
JPA/sw
</TABLE>
