<PAGE> 1
Filed Pursuant to Rule 424(b)(3).
Registration No. 333-49089
PROSPECTUS
PARKER DRILLING COMPANY
OFFER TO EXCHANGE
9.75% SENIOR NOTES DUE 2006, SERIES D
($450,000,000 PRINCIPAL AMOUNT OUTSTANDING)
FOR ALL OUTSTANDING 9.75% SENIOR NOTES DUE 2006, SERIES B
($300,000,000 PRINCIPAL AMOUNT OUTSTANDING)
AND 9.75% SENIOR NOTES DUE 2006, SERIES C
($150,000,000 PRINCIPAL AMOUNT OUTSTANDING)
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME,
ON JUNE 26, 1998, UNLESS EXTENDED.
(THE MAXIMUM PERIOD OF TIME THAT THE EXCHANGE OFFER WILL REMAIN OPEN IS 30
BUSINESS DAYS AFTER THE DATE ON WHICH THE REGISTRATION STATEMENT IS DECLARED
EFFECTIVE BY THE COMMISSION.)
---------------------
Parker Drilling Company, a Delaware corporation (the "Company"), hereby
offers, upon the terms and subject to the conditions set forth in this
Prospectus and the accompanying letter of transmittal (the "Letter of
Transmittal," and together with this Prospectus, the "Exchange Offer"), to
exchange $1,000 principal amount of its 9.75% Senior Notes due 2006, Series D
(the "Exchange Notes"), which have been registered under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to a Registration Statement
(as defined herein) of which this Prospectus constitutes a part, for each $1,000
principal amount of its outstanding 9.75% Senior Notes due 2006, Series B (the
"Series B Notes" or the "Series A/B Notes"), of which $300,000,000 principal
amount is outstanding, and its outstanding 9.75% Senior Notes due 2006, Series C
(the "Series C Notes"), of which $150,000,000 principal amount is outstanding
(the Series B Notes and the Series C Notes being referred to collectively as the
"Old Notes"). The form and terms of the Exchange Notes are identical in all
material respects to the form and terms of the Series B Notes and Series C
Notes, except for certain transfer restrictions and registration rights relating
to the Series C Notes. The Exchange Notes will evidence the same debt as the Old
Notes and will be issued under and be entitled to the benefits of the Indenture
(as defined herein). The Exchange Notes and the Old Notes are collectively
referred to herein as the "Notes."
The Exchange Notes will be senior unsecured obligations of the Company,
ranking pari passu in right of payment with all senior Indebtedness (as defined)
of the Company and senior to all Subordinated Indebtedness (as defined) of the
Company. The Exchange Notes will be fully and unconditionally guaranteed (the
"Subsidiary Guarantees") on a senior unsecured basis by the Company's principal
operating subsidiaries, jointly and severally (the "Subsidiary Guarantors"), and
the Subsidiary Guarantees will rank pari passu in right of payment with all
senior Indebtedness of the Subsidiary Guarantors and senior to all Subordinated
Indebtedness of the Subsidiary Guarantors. The Subsidiary Guarantees may be
released under certain circumstances. The Exchange Notes and Subsidiary
Guarantees will be effectively subordinated to secured Indebtedness of the
Company and the Subsidiary Guarantors, respectively, including any Indebtedness
under the Senior Credit Facility (as defined), which is secured by liens on
substantially all of the assets of the Company and the Subsidiary Guarantors, to
the extent of the pledged collateral. At March 31, 1998, the Company had no debt
senior to, but had $3.3 million of debt ranking pari passu with, the Notes and
had $75 million available under the revolving credit portion of the Senior
Credit Facility, less $12.4 million reserved to support outstanding letters of
credit. The Indenture governing the Exchange Notes permits the Company and its
subsidiaries to incur additional Indebtedness in the future, subject to certain
limitations.
(Cover continued on next page)
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 OF THIS PROSPECTUS FOR A DISCUSSION OF
CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH THE EXCHANGE OFFER
AND IN EVALUATING AN INVESTMENT IN THE EXCHANGE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is May 28, 1998.
<PAGE> 2
The Company will accept for exchange any and all Old Notes that are validly
tendered on or prior to 5:00 p.m., New York City time, on the date the Exchange
Offer expires, which will be June 26, 1998, unless the Exchange Offer is
extended. The maximum period of time that the Exchange Offer will remain open is
30 business days after the date on which the Registration Statement is declared
effective by the Commission. See "The Exchange Offer -- Expiration Date;
Extensions; Amendment." Tenders of Old Notes may be withdrawn at any time prior
to 5:00 p.m., New York City time, on the business day prior to the Expiration
Date (as defined herein), unless previously accepted for exchange. The Exchange
Offer is not conditioned upon any minimum principal amount of Old Notes being
tendered for exchange. However, the Exchange Offer is subject to certain
conditions which may be waived by the Company and to the terms and provisions of
the Registration Rights Agreement related to the Series C Notes (as defined
herein). Old Notes may be tendered only in denominations of $1,000 principal
amount and integral multiples thereof. Pursuant to the terms of the Registration
Rights Agreement, the Company has agreed to pay certain expenses of the Exchange
Offer. See "The Exchange Offer."
The Exchange Notes will bear interest from the later of May 15, 1998 and
the date of issuance of the Exchange Notes at a rate equal to 9.75% per annum
and will be payable semi-annually on May 15 and November 15 of each year
commencing November 15, 1998. Interest on the Series C Notes that are tendered
in exchange for the Exchange Notes that has accrued from the date of issuance of
the Series C Notes (or the most recent Interest Payment Date to which interest
on the Series C Notes has been paid), through the Exchange Date and interest on
the Series B Notes that are tendered in exchange for the Exchange Notes since
the most recent date to which interest on the Series B Notes has been paid
through the Exchange Date will be payable on November 15, 1998.
The Series C Notes in an aggregate principal amount of $150 million were
sold by the Company on March 11, 1998 to Jefferies & Company, Inc. (the "Initial
Purchaser") in a transaction not registered under the Securities Act in reliance
upon Section 4(2) of the Securities Act. The Series C Notes were thereupon
offered and sold by the Initial Purchaser only to "qualified institutional
buyers" (as defined in Rule 144A under the Securities Act) and to a limited
number of institutional "accredited investors" (as defined in Rule
501(a)(1),(2),(3) or (7) under the Securities Act), each of whom agreed to
comply with certain transfer restrictions and other conditions. Accordingly, the
Series C Notes may not be offered, resold or otherwise transferred unless
registered under the Securities Act or unless an applicable exemption from the
registration requirements of the Securities Act is available. The Exchange Notes
are being offered hereunder in order to satisfy the obligations of the Company
under the Registration Rights Agreement entered into with the Initial Purchaser
in connection with the offering of the Series C Notes. See "The Exchange Offer."
On November 12, 1996, the Company issued $300 million aggregate principal
amount of unregistered 9.75% Senior Notes due 2006, Series A (the "Series A
Notes"), all of which were exchanged in February 1997 for the registered Series
B Notes pursuant to the Indenture dated November 12, 1996 (the "Series A/B
Indenture"). As such, the Series B Notes are freely tradeable. THE COMPANY HAS
INCLUDED THE SERIES B NOTES IN THE EXCHANGE OFFER IN ORDER TO ALLOW THE SERIES C
NOTES AND THE SERIES B NOTES TO TRADE AS A SINGLE ISSUE, WHICH THE COMPANY
BELIEVES WILL INCREASE THE LIQUIDITY OF THE EXCHANGE NOTES. SEE "RISK
FACTORS -- EXCHANGE OFFER PROCEDURES" AND "RISK FACTORS -- ABSENCE OF A PUBLIC
MARKET FOR THE EXCHANGE NOTES."
Based on no-action letters issued by the staff of the Securities and
Exchange Commission (the "Commission" or "SEC") to third parties, including
Exxon Capital Holdings Corporation, SEC No-Action Letter (available April 13,
1989), Morgan Stanley & Co. Inc., SEC No-Action Letter (available June 5, 1991)
(the "Morgan Stanley Letter") and Mary Kay Cosmetics, Inc., SEC No-Action Letter
(available June 5, 1991), the Company believes that the Exchange Notes issued
pursuant to the Exchange Offer for Series C Notes may be offered for resale,
resold and otherwise transferred by the respective holders thereof (other than a
"Restricted Holder," being (i) a broker-dealer who purchased Series C Notes
exchanged for such Exchange Notes directly from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act or (ii) a
person that is an affiliate of the Company within the meaning of Rule 405 under
the Securities Act), without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of
ii
<PAGE> 3
such holder's business and such holder is not participating in, and has no
arrangement with any person to participate in, the distribution (within the
meaning of the Securities Act) of such Exchange Notes. Eligible holders wishing
to accept the Exchange Offer must represent to the Company that such conditions
have been met. Holders who tender Series C Notes in the Exchange Offer with the
intention to participate in a distribution of the Exchange Notes may not rely
upon the Morgan Stanley Letter or similar no-action letters. See "The Exchange
Offer -- General." Each broker-dealer that receives Exchange Notes for its own
account in exchange for Series C Notes pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. A broker-dealer that delivers such a prospectus to
purchasers in connection with such resales will be subject to certain of the
civil liability provisions under the Securities Act and will be bound by the
provisions of the Registration Rights Agreement (including certain
indemnification rights and obligations). This Prospectus, as it may be amended
or supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Series C Notes where
such Series C Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has agreed
that it will make this Prospectus and any amendment or supplement to this
Prospectus available to any broker-dealer for use in connection with any such
resale for a period of up to 180 days after consummation of the Exchange Offer.
See "Plan of Distribution."
The Company will not receive any proceeds from the Exchange Offer.
The Exchange Notes will constitute a new issue of securities with no
established trading market, and there can be no assurance as to the liquidity of
any markets that may develop for the Exchange Notes or as to the ability of or
price at which the holders of Exchange Notes would be able to sell their
Exchange Notes. Future trading prices of the Exchange Notes will depend on many
factors, including, among others, prevailing interest rates, the Company's
operating results and the market for similar securities. The Company does not
intend to apply for listing of the Exchange Notes on any securities exchange.
The Initial Purchaser has informed the Company that they currently intend to
make a market for the Exchange Notes. However, they are not so obligated, and
any such market making may be discontinued at any time without notice.
Accordingly, no assurance can be given that an active public or other market
will develop for the Exchange Notes or as to the liquidity of or the trading
market for the Exchange Notes.
ANY SERIES C NOTES AND/OR SERIES B NOTES NOT TENDERED AND ACCEPTED IN THE
EXCHANGE OFFER WILL REMAIN OUTSTANDING. TO THE EXTENT THAT ANY SERIES C NOTES
AND/OR SERIES B NOTES OF OTHER HOLDERS ARE TENDERED AND ACCEPTED IN THE EXCHANGE
OFFER, A HOLDER'S ABILITY TO SELL UNTENDERED SERIES C NOTES AND/OR SERIES B
NOTES COULD BE ADVERSELY AFFECTED. FOLLOWING CONSUMMATION OF THE EXCHANGE OFFER,
THE HOLDERS OF UNTENDERED SERIES C NOTES WILL CONTINUE TO BE SUBJECT TO THE
EXISTING RESTRICTIONS UPON TRANSFER THEREOF.
The Company expects that the Exchange Notes issued pursuant to this
Exchange Offer will be issued in the form of one or more Global Exchange Notes
(as defined herein), which will be deposited with, or on behalf of, The
Depository Trust Company ("DTC") and registered in its name or in the name of
Cede & Co., its nominee. Beneficial interest in the Global Exchange Notes
representing the Exchange Notes will be shown on, and transfers thereof to
qualified institutional buyers will be effected through, records maintained by
DTC and its participants. After the initial issuance of the Global Exchange
Note, Exchange Notes in certificated form will be issued in exchange for the
Global Exchange Note on the terms set forth in the Indenture. See "Description
of Exchange Notes -- Book-Entry, Delivery and Form."
---------------------
No dealer, salesperson or other person has been authorized to give
information or to make any representations not contained in this Prospectus,
and, if given or made, such information or representations must not be relied
upon as having been authorized by the Company. This Prospectus does not
constitute an offer to sell or the solicitation of an offer to buy any security
other than the Exchange Notes offered hereby, nor does it constitute an offer to
sell or the solicitation of an offer to buy any of the Exchange Notes to any
person in any jurisdiction in which it is unlawful to make such an offer or
solicitation to such person. Neither
iii
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the delivery of this Prospectus nor any sale made hereunder shall under any
circumstances create any implication that the information contained herein is
correct as of any date subsequent to the date hereof.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C>
Available Information....................................... iv
Incorporation of Certain Documents by Reference............. v
Summary..................................................... 1
Disclosure Regarding Forward-Looking Statements............. 11
Risk Factors................................................ 11
The Company................................................. 17
Management.................................................. 28
Private Placement........................................... 29
Use of Proceeds............................................. 29
Capitalization.............................................. 30
Unaudited Pro Forma Combined Financial Statements........... 31
Selected Consolidated Financial Data........................ 37
The Exchange Offer.......................................... 39
Description of Senior Credit Facility....................... 46
Description of Exchange Notes............................... 47
Certain Federal Income Tax Considerations................... 74
Plan of Distribution........................................ 76
Transfer Restrictions on Series C Notes..................... 76
Legal Matters............................................... 78
Experts..................................................... 78
</TABLE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy and information statements and other information
with the Commission. Such reports, proxy and information statements and other
information can be inspected and copied at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the following regional offices of the Commission:
Seven World Trade Center, Suite 1300, New York, New York 10048 and Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511.
Copies of such materials can be obtained by mail from the Public Reference
Section of the Commission, at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. Such reports, proxy and information
statements and other information can also be inspected and copied at the offices
of the New York Stock Exchange, 20 Broad Street, New York, New York 10005. In
addition, the Commission maintains a site on the World Wide Web that contains
reports, proxy and information statements and other information filed
electronically by the Company with the Commission which can be accessed over the
Internet at http://www.sec.gov. While any Notes remain outstanding, the Company
will make available, upon request, to any holder and any prospective purchaser
of Notes, the information required pursuant to Rule 144A(d)(4) under the
Securities Act during any period in which the Company is not subject to Section
13 or 15(d) of the Exchange Act. Any such request should be directed to the
Secretary of the Company, 8 East Third Street, Tulsa, Oklahoma 74103. The
Company's common stock is listed on the New York Stock Exchange under the symbol
"PKD."
This Prospectus constitutes part of a registration statement on Form S-4
(herein, together with all amendments and exhibits, referred to as the
"Registration Statement") filed by the Company with the
iv
<PAGE> 5
Commission under the Securities Act. This Prospectus omits certain of the
information set forth in the Registration Statement. Reference is hereby made to
the Registration Statement and to the exhibits relating thereto for further
information with respect to the Company and the securities offered hereby.
Statements contained herein concerning the provisions of contracts or other
documents are not necessarily complete, and each such statement is qualified in
its entirety by reference to the copy of the applicable contract or other
document filed with the Commission. Copies of the Registration Statement and the
exhibits thereto are on file at the offices of the Commission and may be
obtained upon payment of the fee prescribed by the Commission, or may be
examined without charge at the public reference facilities of the Commission
described above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE THAT ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. COPIES OF ANY SUCH DOCUMENTS, OTHER THAN EXHIBITS
TO SUCH DOCUMENTS THAT ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE THEREIN,
ARE AVAILABLE WITHOUT CHARGE TO ANY PERSON TO WHOM THIS PROSPECTUS IS DELIVERED,
UPON ORAL OR WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY, 8 EAST THIRD
STREET, TULSA, OKLAHOMA 74103, TELEPHONE NUMBER (918) 585-8221. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY JUNE 19,
1998 [5 DAYS PRIOR TO THE EXPIRATION DATE].
The following documents have been filed by the Company with the Commission
pursuant to the Exchange Act (File No. 1-7573) and are incorporated herein by
reference:
(1) the Company's Annual Report on Form 10-K for the fiscal year ended
August 31, 1997;
(2) the Company's Current Reports on Form 8-K filed November 3, 1997
and January 8, 1998;
(3) the Company's Current Reports on Form 8-K/A filed January 6, 1997
and March 6 and March 31, 1998;
(4) the Company's Quarterly Report on Form 10-Q for the quarterly
period ended November 30, 1997; and
(5) the Company's Quarterly Report on Form 10-Q for the quarterly
period ended February 28, 1998.
All documents filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the Registration Statement of which this Prospectus is a part
with respect to the registration of the Exchange Notes, shall be deemed to be
incorporated by reference herein and to be a part hereof from the date of filing
thereof. Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained herein,
or in any other subsequently filed document that also is or is deemed to be
incorporated by reference herein, modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Prospectus.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS AND THE ACCOMPANYING LETTER OF TRANSMITTAL AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE EXCHANGE AGENT. NEITHER THE DELIVERY OF THIS
PROSPECTUS OR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TOGETHER, NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF.
NEITHER THIS PROSPECTUS
v
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NOR THE ACCOMPANYING LETTER OF TRANSMITTAL, OR BOTH TOGETHER, CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED
HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT
AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT
QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
vi
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SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements (including the notes thereto)
included elsewhere in this Prospectus or incorporated by reference herein.
Unless otherwise indicated, the pro forma information presented herein gives
effect to (i) the acquisition of Mallard Bay Drilling, Inc. ("Mallard") in
November 1996, (ii) the acquisition of Quail Tools, Inc. ("Quail") in November
1996, (iii) the acquisitions of Hercules Offshore Corporation ("HOC") and
Hercules Rig Corp. ("HRC" and collectively with HOC, "Hercules") in December
1997, (iv) the financings related to these acquisitions, and (v) the Series C
Notes Offering and the application of the net proceeds therefrom. References to
"Parker" or the "Company" in this Prospectus include Parker Drilling Company
and, unless the context otherwise requires, its subsidiaries.
THE COMPANY
Parker is a leading worldwide provider of contract drilling services,
operating in the transition zones of the Gulf of Mexico and Nigeria, in the
offshore waters of the Gulf of Mexico and in international and domestic land oil
and gas producing regions. Since 1996, the Company's growth strategy has focused
on expanding its business into higher margin offshore and transition zone
drilling and workover (completion, remedial or abandonment) markets. Consistent
with this strategy, the Company acquired (i) Mallard, the second-largest barge
drilling and workover company in the transition zones of the Gulf of Mexico (the
"Mallard Acquisition"), (ii) Quail, a leading provider of specialized rental
equipment for drilling and workover operations, primarily in the Gulf of Mexico
(the "Quail Acquisition"), (iii) the assets of Bolifor, S.A. ("Bolifor"), a
leading provider of land contract drilling services in Bolivia (the "Bolifor
Acquisition") and (iv) Hercules, a leading provider of contract drilling and
workover services in the Gulf of Mexico market (the "Hercules Acquisition").
Parker's rig fleet currently consists of 35 barge drilling and workover
rigs, eight offshore jackup rigs, six offshore platform rigs and 75 land rigs.
The Company's barge rig fleet is dedicated to transition zone waters, which are
generally defined as extending from the coast to depths of up to 25 feet. The
Company's offshore jackup and platform rig fleets currently operate in the Gulf
of Mexico market. The Company's land rig fleet generally consists of premium and
specialized deep drilling rigs, with 62 of its 75 land rigs capable of drilling
to depths of 15,000 feet or greater. In addition, 21 of the Company's land rigs
are helicopter-transportable, thus establishing the Company as the dominant
operator in the heli-rig market throughout the world. The diversity of the
Company's rig fleet, both in terms of geographic location and asset class,
enables the Company to provide a broad range of services to oil and gas
operators around the world and to take advantage of market upturns, while
reducing its exposure to downturns in any particular sector or region.
The oilfield services industry has experienced a significant increase in
activity in the last two years as oil and gas companies have increased their
exploration and production budgets in response to increasing demand for oil and
gas, stronger oil and gas prices and improved technology which has reduced
drilling costs. In the offshore drilling market, including transition zones, rig
day rates and utilization levels are at a 15-year high with many markets at or
approaching full utilization. During 1996 and 1997, the land drilling industry,
both in the United States and internationally, has also shown a marked
improvement in day rates and utilization driven by several factors, including
stronger commodity prices, rig attrition and the consolidation of drilling
contractors, especially in the domestic market. While oil prices have declined
in recent months due primarily to anticipation of reduced demand in the Asia
Pacific region and increased supply by certain OPEC members, the Company does
not expect such price reductions to materially affect its business unless oil
prices remain depressed for such a period of time that causes oil and gas
companies to significantly reduce the current level of expenditures for drilling
operations. See "Risk Factors -- Industry Conditions."
The Company's principal offices are located at 8 East Third Street, Tulsa,
Oklahoma 74103, and its telephone number is (918) 585-8221.
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<PAGE> 8
BUSINESS STRATEGY
The Company's objective is to continue to expand its position as a
worldwide provider of contract drilling and drilling related services in order
to achieve revenue and earnings growth. To accomplish this objective, the
Company's business strategy is to (i) expand and diversify the Company's market
position in transition zones and in offshore drilling markets worldwide; (ii)
capitalize on the increased demand for contract drilling services in the
Company's core drilling markets by upgrading its existing rigs with newer
technology and equipment and by purchasing or constructing additional rigs; and
(iii) expand and diversify its operations by pursuing additional acquisitions of
complementary assets and businesses.
HERCULES TRANSACTION
In December 1997, the Company acquired Hercules for $195.6 million.
Hercules owns a fleet of seven jackup rigs and three self-erecting platform rigs
and is the second-largest jackup drilling and workover company in the shallow
waters of the Gulf of Mexico. The Hercules Acquisition further expands and
complements the Company's presence in the Gulf of Mexico market and provides
opportunities to operate jackup rigs internationally. Additionally, the Hercules
fleet of three platform rigs augments the Company's existing offshore platform
rig business.
THE EXCHANGE OFFER
The Series C Notes......... The Series C Notes were sold by the Company on
March 11, 1998 (the "Series C Notes Offering"), to
Jefferies & Company, Inc. (the Initial Purchaser)
pursuant to a Purchase Agreement dated March 4,
1998 (the "Purchase Agreement"). The Initial
Purchaser subsequently resold the Series C Notes to
qualified institutional buyers pursuant to Rule
144A under the Securities Act and to accredited
institutional investors.
The Series B Notes......... On November 12, 1996 the Company sold Series A
Notes to Jefferies & Company, Inc. and to ING
Baring (U.S.) Securities, Inc. (collectively, the
"Series A Initial Purchasers"). Pursuant to a
Registration Rights Agreement dated November 12,
1996, an exchange offer was made by the Company in
February 1997 to exchange all outstanding Series A
Notes for registered Series B Notes. Pursuant to
such exchange offer, all outstanding Series A Notes
were exchanged for registered Series B Notes.
Registration
Requirements............... Pursuant to the Purchase Agreement, the Company and
the Initial Purchaser entered into a Registration
Rights Agreement dated March 11, 1998 (the
"Registration Rights Agreement"), which grants the
holders of the Series C Notes certain exchange and
registration rights. The Exchange Offer is intended
to satisfy such exchange and registration rights,
which terminate upon the consummation of the
Exchange Offer. If applicable law or applicable
interpretations of the staff of the Commission do
not permit the Company to effect the Exchange
Offer, the Company has agreed to file a shelf
registration (the "Shelf Registration Statement")
covering resales of the Series C Notes. The
Registration Rights Agreement also obligates the
Company to make the Exchange Offer to the holders
of the Series B Notes.
The Exchange Offer......... The Company is offering to exchange $1,000
principal amount of the Exchange Notes for each
$1,000 principal amount of (i) Series C Notes and
(ii) Series B Notes. As of the date hereof,
$150,000,000 aggregate principal amount of Series C
Notes are outstanding and $300,000,000 aggregate
principal amount of Series B Notes are outstanding.
The
2
<PAGE> 9
Company will issue the Exchange Notes to holders
after the Expiration Date but no later than July
10, 1998, (the "Exchange Date").
Based on an interpretation of the staff of the
Commission set forth in no action letters issued to
third parties, the Company believes that Exchange
Notes issued pursuant to the Exchange Offer in
exchange for Series C Notes may be offered for
resale, resold and otherwise transferred by any
holder thereof (other than any such holder which is
an "affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that such Exchange Notes are acquired in the
ordinary course of such holder's business and that
such holder does not intend to participate and has
no arrangement or understanding with any person to
participate in the distribution of such Exchange
Notes.
Each broker-dealer must acknowledge that it will
deliver a prospectus in connection with any resale
of Exchange Notes issued in exchange for Series C
Notes. The Letter of Transmittal for the Exchange
Offer states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not
be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. This
Prospectus, as it may be amended or supplemented
from time to time, may be used by a broker-dealer
in connection with resales of Exchange Notes
received in exchange for Series C Notes where such
Series C Notes were acquired by such broker-dealer
as a result of market-making activities or other
trading activities. The Company has agreed to make
this Prospectus available to any participating
broker-dealer for use in connection with any such
resale for a period of up to 180 days from the
consummation of the Exchange Offer.
Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose of
participating, in a distribution of the Exchange
Notes could not rely on the position of the staff
of the Commission enunciated in Exxon Capital
Holdings Corporation (available April 13, 1989) or
similar no-action letters and, in the absence of an
exemption therefrom, must comply with the
registration and prospectus delivery requirements
of the Securities Act in connection with the resale
transaction. Failure to comply with such
requirements in such instance may result in such
holder incurring liability under the Securities Act
for which the holder is not indemnified by the
Company.
Expiration Date Offer...... 5:00 p.m., New York City time, on June 26, 1998,
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date to which the Exchange Offer is extended. The
maximum period of time that the Exchange Offer will
remain open is 30 business days after the date on
which the Registration Statement is declared
effective by the Commission. See "The Exchange
Offer -- Expiration Date; Extensions; Amendments."
Interest on the Exchange
Notes...................... The Exchange Notes will bear interest from the
later of May 15, 1998 and the date of issuance of
the Exchange Notes at a rate equal to 9.75% per
annum and will be payable semi-annually on May 15
and November 15 of each year commencing November
15, 1998. Interest on the Series C Notes that are
tendered in exchange for the Exchange
3
<PAGE> 10
Notes that has accrued from the date of issuance of
the Series C Notes (or the most recent Interest
Payment Date to which interest on the Series C
Notes has been paid), through the Exchange Date and
interest on the Series B Notes that are tendered in
exchange for the Exchange Notes since the most
recent date to which interest on the Series B Notes
has been paid through the Exchange Date will be
payable on November 15, 1998.
Procedures for Tendering
Series C Notes and/or
Series B Notes........... Each holder of Series C Notes and/or Series B Notes
wishing to accept the Exchange Offer must complete,
sign and date the accompanying Letter of
Transmittal, or a facsimile thereof, in accordance
with the instructions contained herein and therein,
and mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with the
Series C Notes and/or Series B Notes and any other
required documentation to the Exchange Agent at the
address set forth herein. By executing the Letter
of Transmittal, each holder will represent to the
Company that, among other things, the holder or the
person receiving such Exchange Notes, whether or
not such person is the holder, is acquiring the
Exchange Notes in the ordinary course of business
and that neither the holder nor any such other
person has any arrangement or understanding with
any person to participate in the distribution of
such Exchange Notes. In lieu of physical delivery
of the certificates representing Series C Notes
and/or Series B Notes, tendering holders may
transfer Series C Notes and/or Series B Notes
pursuant to the procedure for book-entry transfer
as set forth under "The Exchange
Offer -- Procedures for Tendering."
Special Procedures for
Beneficial Owners.......... Any beneficial owner whose Series C Notes and/or
Series B Notes are registered in the name of a
broker-dealer, commercial bank, trust company or
other nominee and who wishes to tender should
contact such registered holder promptly and
instruct such registered holder to tender on such
beneficial owner's behalf.
If such beneficial owner wishes to tender on such
owner's own behalf, such owner must, prior to
completing and executing the Letter of Transmittal
and delivering its Series C Notes and/or Series B
Notes, either make appropriate arrangements to
register ownership of the Series C Notes and/or
Series B Notes in such owner's name or obtain a
properly completed bond power from the registered
holder. The transfer of record ownership may take
considerable time.
Guaranteed Delivery
Procedures................. Holders of Series C Notes and/or Series B Notes who
wish to tender their Series C Notes and/or Series B
Notes and whose Series C Notes and/or Series B
Notes are not immediately available or who cannot
deliver the Series C Notes and/or Series B Notes
(or comply with the procedures for book-entry
transfer prior to the Expiration Date) must tender
their Series C Notes and/or Series B Notes
according to the guaranteed delivery procedures set
forth in "The Exchange Offer -- Guaranteed Delivery
Procedures."
Withdrawal Rights.......... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date
pursuant to the procedures described under "The
Exchange Offer -- Withdrawal of Tenders."
4
<PAGE> 11
Acceptance of Series C
Notes and/or Series B Notes
and Delivery of Exchange
Notes.................... Subject to certain conditions, the Company will
accept for exchange any and all Series C Notes and
any and all Series B Notes that are properly
tendered in the Exchange Offer prior to 5:00 p.m.,
New York City time, on the Expiration Date. The
Exchange Notes issued pursuant to the Exchange
Offer will be delivered on the Exchange Date. See
"The Exchange Offer -- Terms of the Exchange
Offer."
Federal Income Tax
Consequences............. The exchange pursuant to the Exchange Offer should
not be a taxable event for federal income tax
purposes. See "Certain Federal Income Tax
Consequences."
Effect on Holders of Series
C Notes.................... As a result of the making of this Exchange Offer,
the Company will have fulfilled one of its
obligations under the Registration Rights Agreement
and, with certain exceptions noted below, holders
of Series C Notes who do not tender their Series C
Notes will not have any further registration rights
under the Registration Rights Agreement or
otherwise. Such holders will continue to hold the
untendered Series C Notes and will be entitled to
all the rights and subject to all the limitations
applicable thereto under the Indenture, except to
the extent such rights or limitations, by their
terms, terminate or cease to have further
effectiveness as a result of the Exchange Offer.
All untendered Series C Notes will continue to be
subject to certain restrictions on transfer.
Accordingly, if any Series C Notes are tendered and
accepted in the Exchange Offer, the trading market
of the untendered Series C Notes could be adversely
affected. See "Risk Factors -- Exchange Offer
Procedures" and "Risk Factors -- Absence of a
Public Market for the Exchange Notes."
Effect on Holders of Series
B Notes.................... Holders of Series B Notes who do not tender their
Series B Notes will continue to hold untendered
Series B Notes and will be entitled to all the
rights and subject to all the limitations
applicable thereto under the Series A/B Indenture.
If any holders of the Series B Notes tender such
notes, the trading market of untendered Series B
Notes could be adversely affected. See "Risk
Factors -- Exchange Offer Procedures" and "Risk
Factors -- Absence of a Public Market for the
Exchange Notes."
Exchange Agent............. Chase Bank of Texas, National Association is
serving as exchange agent (the "Exchange Agent") in
connection with the Exchange Offer. The mailing
address of the Exchange Agent is: Chase Bank of
Texas, National Association, Attention: Frank
Ivins -- Registered Bond Events -- Personal &
Confidential, P. O. Box 2320, Dallas, Texas 75221-
2320. Hand deliveries and deliveries by overnight
courier should be addressed to Chase Bank of Texas,
National Association, Attention: Frank
Ivins -- Registered Bond Events -- Personal &
Confidential, 1201 Main Street, 18th Floor, Dallas,
Texas 75202. For information with respect to the
Exchange Offer, the telephone number for the
Exchange Agent is (800) 275-2048, and the facsimile
number for the Exchange Agent is (214) 672-5746.
See "The Exchange Offer -- Exchange Agent."
Use of Proceeds............ There will be no cash proceeds payable to the
Company from the issuance of the Exchange Notes
pursuant to the Exchange Offer. See "Use of
Proceeds." For a discussion of the use of the net
proceeds
5
<PAGE> 12
received by the Company from the sale of the Series
C Notes, see "Private Placement."
SUMMARY OF TERMS OF THE EXCHANGE NOTES
Securities Offered......... $450,000,000 principal amount of 9.75% Senior Notes
due 2006, Series D.
Maturity Date.............. November 15, 2006.
Interest Rate and Payment
Dates...................... The Exchange Notes will bear interest at a rate of
9.75% per annum. Interest on the Exchange Notes
will accrue from the date of issuance thereof and
will be payable semi-annually on November 15 and
May 15 of each year, commencing November 15, 1998.
Optional Redemption........ The Exchange Notes will be redeemable at the option
of the Company, in whole or in part, at any time on
or after November 15, 2001, at the redemption
prices set forth herein, together with accrued and
unpaid interest to the date of redemption. In the
event the Company consummates a Public Equity
Offering on or prior to November 15, 1999, the
Company may at its option use all or a portion of
the proceeds from such offering to redeem up to 35%
of the aggregate principal amount of the Notes
originally issued (but disregarding, for this
purpose, any Exchange Notes other than additional
Notes) at a redemption price equal to 109.75% of
the aggregate principal amount thereof, together
with accrued and unpaid interest to the date of
redemption, provided that at least 65% of the
aggregate principal amount of Notes originally
issued (but disregarding, for this purpose, any
Exchange Notes other than additional Notes) remain
outstanding immediately after such redemption. See
"Description of Exchange Notes -- Optional
Redemption."
Change of Control.......... Upon the occurrence of a Change of Control (as
defined herein), each holder of Exchange Notes will
have the right to require the Company to purchase
all or a portion of such holder's Exchange Notes at
a price equal to 101% of the aggregate principal
amount thereof, together with accrued and unpaid
interest to the date of purchase. See "Description
of Exchange Notes -- Repurchase at the Option of
Holders -- Change of Control."
Guarantees................. The Exchange Notes will be fully and
unconditionally guaranteed on a senior unsecured
basis by each of the Company's principal operating
subsidiaries, jointly and severally, and such
Subsidiary Guarantees will rank pari passu in right
of payment with all senior indebtedness of the
Subsidiary Guarantors and senior to all
subordinated indebtedness of the Subsidiary
Guarantors. The Subsidiary Guarantees may be
released under certain circumstances. See
"Description of Exchange Notes -- Subsidiary
Guarantees."
Ranking.................... The Exchange Notes will be senior unsecured
obligations of the Company, ranking pari passu in
right of payment with all senior indebtedness of
the Company and senior to all subordinated
indebtedness of the Company. The Exchange Notes and
the Subsidiary Guarantees will be effectively
subordinated to secured indebtedness of the Company
and the Subsidiary Guarantors, respectively,
including any indebtedness under the Senior Credit
Facility (as defined), which is secured by liens on
substantially all of the assets of the Company and
the Subsidiary Guarantors. At March 31, 1998, the
Company had no debt senior to, but had $3.3 million
of debt ranking pari passu with, the Notes and had
6
<PAGE> 13
$75 million available under the revolving credit
portion of the Senior Credit Facility, less $12.4
million reserved to support outstanding letters of
credit. Subject to certain limitations, the Company
and its Subsidiaries may incur additional
indebtedness in the future. See "Description of
Senior Credit Facility" and "Description of
Exchange Notes -- General."
Certain Covenants.......... The Indenture relating to the Exchange Notes
contains certain covenants, including covenants
that limit: (i) indebtedness; (ii) restricted
payments; (iii) issuances and sales of capital
stock of restricted subsidiaries; (iv)
sale/leaseback transactions; (v) transactions with
affiliates; (vi) liens; (vii) asset sales; (viii)
dividends and other payment restrictions affecting
restricted subsidiaries; (ix) conduct of business;
and (x) mergers, consolidations or sales of assets.
See "Description of Exchange Notes -- Certain
Covenants."
Transfer Restrictions...... The Series C Notes were not registered under the
Securities Act and unless so registered may not be
offered or sold except pursuant to an exemption
from, or in a transaction not subject to, the
registration requirements of the Securities Act.
See "Transfer Restrictions on Series C Notes".
Exchange Offer............. Pursuant to the Registration Rights Agreement by
and among the Company, the Subsidiary Guarantors
and the Initial Purchaser, the Company agreed to
(i) file a registration statement with the
Commission (the "Exchange Offer Registration
Statement") with respect to a SUPERtack(TM)* offer
to exchange the Series C Notes and the Series B
Notes (the "Exchange Offer") for senior debt
securities of the Company with terms substantially
identical to the Old Notes (except that the
Exchange Notes generally will not contain terms
with respect to transfer restrictions) within 60
days after the date of original issuance of the
Series C Notes and (ii) use its best efforts to
cause such registration statement to become
effective under the Securities Act within 135 days
after such issue date. The Registration Statement
of which this Prospectus is a part constitutes such
Exchange Offer Registration Statement. In the event
that applicable law or interpretations of the staff
of the Commission do not permit the Company to
effect the Exchange Offer, or if certain holders of
the Series C Notes notify the Company that they are
not permitted to participate in, or would not
receive freely tradeable Exchange Notes pursuant to
the Exchange Offer, the Company will use its best
efforts to cause to become effective a registration
statement (the "Shelf Registration Statement") with
respect to the resale of the Series C Notes and to
keep the Shelf Registration Statement effective
until two years after the date of original issuance
of the Series C Notes. The interest rate on the
Series C Notes is subject to increase under certain
circumstances if the Company is not in compliance
with its obligations under the Registration Rights
Agreement.
* "SUPERtack(TM) offer" is a phrase created and
trademarked by Jefferies & Company, Inc. to
reference an offering of securities to register
two or more series of bonds or notes into one
registered series of securities.
RISK FACTORS
The Exchange Notes involves certain risks that a potential investor should
carefully evaluate prior to making an investment. See "Risk Factors."
7
<PAGE> 14
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table presents for the periods indicated certain historical
and pro forma financial data for the Company. The following information should
be read together with the historical financial statements of Parker, Mallard,
Quail and Hercules, including the notes thereto, and the Unaudited Pro Forma
Combined Financial Statements, including the notes thereto, included elsewhere
or incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31, SIX MONTHS ENDED FEBRUARY 28,
----------------------------------------------------- ---------------------------------------
PRO FORMA PRO FORMA
1995 1996 1997 1997(1) 1997 1998 1998(1)
----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues................ $ 157,371 $ 156,652 $ 311,644 $ 403,993 $ 124,240 $ 235,097 $ 260,501
Operating expenses:
Drilling, rental and
other..................... 120,891 116,438 203,250 265,064 84,997 146,201 162,823
Depreciation, depletion,
amortization.............. 23,745 23,061 46,256 62,424 19,612 31,673 35,769
General and
administrative............ 14,232 15,756 14,414 14,414 6,801 8,545 8,545
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating
expenses............ 158,868 155,255 263,920 341,902 111,410 186,419 207,137
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income (loss)....... (1,497) 1,397 47,724 62,091 12,830 48,678 53,364
Interest income (expense),
net......................... 1,184 1,507 (27,484) (50,834) (10,090) (20,805) (24,196)
Other income (expense)........ 7,413 5,663 3,316 3,243 2,087 6,394 6,394
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes....................... 7,100 8,567 23,556 14,500 4,827 34,267 35,562
Income tax expense............ 3,184 4,514 7,241 7,371 2,012 11,359 13,869
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income (loss)............. $ 3,916 $ 4,053 $ 16,315 $ 7,129 $ 2,815 $ 22,908 $ 21,693
=========== =========== =========== =========== =========== =========== ===========
Earnings (loss) per share
(diluted)................... $ .07 $ .07 $ .23 $ .10 $ .04 $ .29 $ .28
=========== =========== =========== =========== =========== =========== ===========
Weighted average shares
outstanding (diluted)....... 55,112,160 57,261,491 71,760,543 72,371,863 67,504,241 78,380,903 78,380,903
=========== =========== =========== =========== =========== =========== ===========
OTHER FINANCIAL DATA:
Ratio of earnings to fixed
charges(3).................. 81.7x 64.5x 1.7x 1.3x 1.4x 2.4x 2.3x
Capital expenditures:
Maintenance................. $ 5,133 $ 6,646 $ 14,702 $ 16,471 $ 5,618 $ 9,669 $ 10,237
Other....................... 16,407 24,190 72,724 84,355 26,158 71,751 75,963
Net Cash Flows:
Operating................... 17,936 29,971 8,472 15,454 (1,830) 66,108 68,989
Investing................... (7,770) (39,143) (466,276) (713,703) (391,300) (264,170) (73,398)
Financing................... (74) 50,158 606,017 668,217 385,989 (7,828) (828)
Adjusted EBITDA(2)............ 22,248 24,458 93,980 124,515 32,442 80,351 89,133
Ratio of Adjusted EBITDA to
net interest expense........ n/a n/a 3.4x 2.4x 3.2x 3.9x 3.7x
</TABLE>
<TABLE>
<CAPTION>
AT FEBRUARY 28, 1998
----------------------------
ACTUAL AS ADJUSTED(4)
---------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and other short-term investments..... $ 4,061 $ 73,166
Property, plant and equipment, net.......................... 647,669 647,669
Total assets................................................ 1,073,620 1,145,325
Total long-term debt, including current portion............. 559,796 632,546
Total stockholders' equity.................................. 372,340 371,440
</TABLE>
- ---------------
(1) Pro forma information gives effect to the Series C Notes Offering (as
defined) and the use of net proceeds therefrom, the acquisitions of Mallard,
Quail and Hercules and the financings related to these acquisitions as if
these transactions had occurred on September 1, 1996. See "Unaudited Pro
Forma Combined Financial Statements."
(2) Adjusted EBITDA represents operating income (loss) before depreciation,
depletion and amortization and provision for reduction in carrying value of
certain assets. EBITDA is frequently used by securities analysts and is
presented hereby to provide additional information about the Company's
operations. EBITDA is not a measurement presented in accordance with
generally accepted accounting principles. EBITDA should not be considered in
isolation or as a substitute for net income, cash flow provided by operating
activities or other income or cash flow data prepared in accordance with
generally accepted accounting principles or as a measure of a company's
profitability or liquidity.
(3) For purposes of these calculations, earnings consist of income (loss) before
income taxes plus interest expense, and fixed charges consist of interest
expense.
(4) Gives effect to the sale of the Series C Notes issued March 11, 1998 and the
application of the net proceeds therefrom as if this transaction had
occurred on February 28, 1998.
8
<PAGE> 15
RIG ACTIVITY DATA
The following table presents certain rig activity data for the Company,
including Mallard, Hercules and the rigs acquired in the Bolifor Acquisition,
for the periods indicated, both prior to and subsequent to their respective
dates of acquisition:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------- FISCAL
1993 1994 1995 1996 1997 CURRENT(1)
------- ------- ------- ------- ------- ----------
(AVERAGE FOR PERIOD)
<S> <C> <C> <C> <C> <C> <C>
TRANSITION ZONE RIG DATA(2)
Domestic barge deep drilling:
Rigs available for service(3)........ 7.0 7.0 7.0 7.0 7.8 8.0
Utilization rate of rigs available
for service(4)..................... 83% 73% 75% 86% 98% 100%
Dayrate.............................. $ 9,606 $13,537 $12,880 $13,793 $15,660 $20,554
Cold stacked rigs(3)................. 1.0 1.0 1.0 2.0 3.0 3.0
Domestic barge intermediate drilling:
Rigs available for service(3)........ 5.0 5.0 5.0 5.0 4.1 5.0
Utilization rate of rigs available
for service(4)..................... 77% 65% 74% 85% 95% 100%
Dayrate.............................. $ 7,671 $10,432 $10,143 $10,381 $11,149 $13,963
Cold stacked rigs(3)................. 0.0 0.0 0.0 0.0 0.0 0.0
Domestic barge workover and shallow
drilling:
Rigs available for service(3)........ 10.0 9.0 7.3 8.7 8.7 10.0
Utilization rate of rigs available
for service(4)..................... 66% 48% 66% 71% 83% 70%
Dayrate.............................. $ 6,742 $ 8,181 $ 8,066 $ 7,595 $ 8,650 $ 9,409
Cold stacked rigs(3)................. 12.0 13.0 12.6 6.3 6.3 4.0
International barge drilling:
Rigs available for service(3)........ 1.0 1.0 1.0 1.7 3.5 3.0
Utilization rate of rigs available
for service(4)..................... 57% 46% 89% 89% 92% 100%
Dayrate.............................. $22,049 $23,531 $25,141 $25,302 $25,022 $26,495
Cold stacked rigs(3)................. 0.0 0.0 0.0 1.0 0.5 2.0
OFFSHORE RIG DATA(2)
Jackup rigs(5):
Rigs available for service(3)........ 2.7 3.5 5.0 5.0 5.8 6.0
Utilization rate of rigs available
for service(4)..................... 97% 76% 89% 97% 100% 100%
Dayrate.............................. $16,071 $15,429 $14,629 $19,390 $23,326 $28,100
Cold stacked rigs(3)................. 0.0 0.0 0.0 0.0 0.0 1.0
Platform rigs(6):
Rigs available for service(3)........ 5.0 4.5 4.0 3.2 3.0 3.0
Utilization rate of rigs available
for service(4)..................... 82% 68% 50% 91% 96% 100%
Dayrate.............................. $ 8,101 $ 9,379 $ 9,466 $12,226 $14,029 $16,667
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED AUGUST 31,
--------------------------------
LAND RIG DATA 1993 1994 1995 1996 1997 CURRENT(1)
------------- ---- ---- ---- ---- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Utilization rate of international land rigs(7)....... 40% 56% 54% 55% 63% 72%
Utilization rate of domestic land rigs(7)(8)......... 41% 45% 46% 56% 87% 80%
</TABLE>
- ---------------
(1) As of February 26, 1998.
9
<PAGE> 16
(2) Transition zone rig data for fiscal year 1997 is presented for the period
November 12, 1996, the acquisition date of Mallard, through August 31, 1997.
Offshore rig data for fiscal year 1997 is presented for the 12 months ended
September 30, 1997.
(3) The number of rigs is determined by calculating the number of days each rig
was in the fleet, e.g., a rig under contract or available for contract for
an entire year is 1.0 "rigs available for service" and a rig cold stacked
for one quarter is 0.25 "cold stacked rigs." "Rigs available for service"
includes rigs currently under contract or available for contract. "Cold
stacked rigs" includes all rigs that are stacked and would require
significant refurbishment before being placed into service.
(4) Rig utilization rates are based on a weighted average basis assuming 365
days availability for all rigs available for service. Rigs acquired or
disposed of have been treated as added to or removed from the rig fleet as
of the date of acquisition or disposal. Rigs that are in operation or fully
or partially staffed and on a revenue producing standby status are
considered to be utilized. Rigs under contract that generate revenues during
moves between locations or during mobilization/demobilization are also
considered to be utilized.
(5) Reflects information on the seven jackup rigs acquired by the Company in the
Hercules Acquisition, one of which is currently undergoing refurbishment and
is expected to be placed into service in July 1998, but does not include one
cold stacked liftboat owned by the Company.
(6) Reflects the three platform rigs acquired by the Company in the Hercules
Acquisition. Does not include three of the Company's previously cold stacked
platform rigs, two of which have been refurbished and are available for
service, and one additional cold stacked platform rig.
(7) Parker calculates its land rig utilization rates on a weighted average basis
assuming 365 days availability for all of its rigs. Rigs retired, disposed
of or reclassified as assets held for sale have been treated as removed from
the rig fleet as of the last day of each fiscal period, except as described
in footnote (8) below. Rigs that are in operation or fully or partially
staffed and on a revenue-producing standby status are considered to be
utilized. Rigs under contract that generate revenues during moves between
locations or during mobilization/demobilization are also considered to be
utilized.
(8) Domestic land rig utilization for the fiscal years ended August 31, 1993,
1994 and 1995 has been adjusted to reflect the removal of 16 domestic
mechanical rigs in August 1994 and the sale of an additional 22 such rigs in
August 1996. Including these 38 domestic rigs during such periods,
historical domestic utilization was as follows: 1993 -- 14%, 1994 -- 15%,
and 1995 -- 21%.
10
<PAGE> 17
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Prospectus includes certain statements that may be deemed to be
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended (the "Securities Act"), and Section 21E of the Exchange
Act. All statements, other than statements of historical facts, included in this
Prospectus that address activities, events or developments that the Company
expects, projects, believes or anticipates will or may occur in the future,
future operating results of the Company's rigs, future capital expenditures and
investments in the acquisition and refurbishment of rigs (including the amount
and nature thereof), repayment of debt, expansion and growth of operations and
other such matters, are forward-looking statements. These statements are based
on certain assumptions and analyses made by management of the Company in light
of its experience and its perception of historical trends, current conditions,
expected future developments and other factors it believes are appropriate in
the circumstances. Such statements are subject to a number of assumptions, risks
and uncertainties, including the risk factors discussed herein, general economic
and business conditions, prices of oil and gas, foreign exchange and currency
fluctuations, the business opportunities (or lack thereof) that may be presented
to and pursued by the Company, changes in laws or regulations and other factors,
many of which are beyond the control of the Company. Prospective investors are
cautioned that any such statements are not guarantees of future performance and
that actual results or developments may differ materially from those projected
in the forward-looking statements.
RISK FACTORS
The following risk factors, as well as the other information set forth in
this Prospectus, should be carefully considered in connection with this Exchange
Offer or evaluated prior to making an investment in the Exchange Notes.
REDUCTION OF PUBLIC MARKET FOR NOTES NOT EXCHANGED
Issuance of the Exchange Notes in exchange for Series C Notes and/or Series
B Notes pursuant to the Exchange Offer will be made only after a timely receipt
by the Company of such Series C Notes and/or Series B Notes, a properly
completed and duly executed Letter of Transmittal and all other required
documents. Therefore, holders of the Series C Notes and/or Series B Notes
desiring to tender such Series C Notes and/or Series B Notes in exchange for
Exchange Notes should allow sufficient time to ensure timely delivery. The
Company is under no duty to give notification of defects or irregularities with
respect to the tenders of Series C Notes and/or Series B Notes for exchange.
Series C Notes that are not tendered or are tendered but not accepted will,
following the consummation of the Exchange Offer, continue to be subject to the
existing restrictions upon transfer thereof. Upon consummation of the Exchange
Offer, the registration rights under the Registration Rights Agreement will
terminate. In addition, any holder of Series C Notes who tenders in the Exchange
Offer for the purpose of participating in a distribution of the Exchange Notes
may be deemed to have received restricted securities and, if so, will be
required to comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any resale transaction. Each broker-
dealer that receives Exchange Notes for its own account in exchange for Series C
Notes, where such Series C Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities, must acknowledge that
it will deliver a prospectus in connection with any sale of such Exchange Notes.
TO THE EXTENT THAT SOME OF THE SERIES C NOTES OR SERIES B NOTES ARE TENDERED AND
ACCEPTED IN THE EXCHANGE OFFER, THE TRADING MARKET FOR UNTENDERED AND TENDERED
BUT UNACCEPTED SERIES C NOTES OR SERIES B NOTES, AS THE CASE MAY BE, COULD BE
ADVERSELY AFFECTED.
SUBSTANTIAL LEVERAGE
As of February 28, 1998, on a pro forma basis after giving effect to the
sale of the Series C Notes and the application of the net proceeds thereof, the
Company's total long-term debt and stockholders' equity would have been $632.5
million and $371.4 million, respectively. See "Capitalization." The Company's
level of indebtedness will have several important effects on its future
operations, including: (i) a substantial portion of the Company's cash flow from
operations must be dedicated to the payment of interest on its indebtedness and
11
<PAGE> 18
will not be available for other purposes; and (ii) the Company's ability to
obtain additional financing in the future for working capital, capital
expenditures, acquisitions, general corporate purposes or other purposes may be
impaired. The Company's ability to meet its debt service obligations and to
reduce its total indebtedness will be dependent upon the Company's future
performance, which will be subject to general economic conditions and to
financial, business and other factors affecting the operations of the Company,
many of which are beyond its control. There can be no assurance that the
Company's business will continue to generate cash flow at or above current
levels. If the Company is unable to generate sufficient cash flow from
operations in the future to service its debt, it may be required, among other
things, to refinance all or a portion of its existing debt, including the Notes,
or to obtain additional financing. There can be no assurance that any such
refinancing would be possible or that any additional financing could be
obtained.
INDUSTRY CONDITIONS
The Company's revenues and earnings are affected directly by the worldwide
level of oil and gas exploration and development activity. The level of such
activity is affected by many factors over which the Company has no control,
including, among others, the market prices of oil and gas, the volatility of
such prices, the levels of production by, and other activities of, OPEC and
other oil and gas producers, governmental regulation and trade restrictions, the
level of worldwide economic activity, political stability in major oil producing
areas, the development of alternate energy sources and the long-term effect of
worldwide energy conservation measures. In recent months crude oil prices have
declined, which the Company attributes primarily to (i) announced increases in
OPEC production quotas, (ii) anticipation that deteriorating economic conditions
in Southeast Asia will result in a decrease in worldwide demand for crude oil
and (iii) the potential for an increase in crude oil production by Iraq. A
prolonged reduction in crude oil prices at or below current levels could
eventually lead to a reduction in spending by oil and gas companies, which could
adversely effect the Company's business and operating results.
RISKS OF INTERNATIONAL OPERATIONS
A significant portion of the Company's operations is conducted in
international markets, including South America, the Asia Pacific region and West
Africa. International activities accounted for approximately 53% of the
Company's operating revenues for the year ended August 31, 1997. In addition to
the risks inherent in the drilling business, the Company's international
operations are subject to certain political, economic and other uncertainties,
including, among others, risks of war and civil disturbances, expropriation,
nationalization, termination of existing contracts, taxation policies, foreign
exchange restrictions and fluctuations and other risks arising out of foreign
governmental sovereignty over certain areas in which the Company conducts
operations. Although the Company seeks to protect against some of these risks
through insurance, insurance is not available for all types of risks or for all
areas in which the Company operates. To the extent insurance is available for a
particular risk, there can be no assurance that such insurance will be
sufficient to cover all losses that could be incurred with respect to a
particular covered risk. Losses from these factors could be material in those
countries where the Company has a significant concentration of assets.
The Company's Nigerian operations are subject to certain risks relating to
political instability in Nigeria and the possibility of the promulgation of
legislation or regulations by the United States that, if adopted, could restrict
the ability of the Company and some of its customers to engage in trade with and
invest in Nigeria. Since beginning operations in 1991, the Company has not been
materially affected by political instability in Nigeria, but other rig
contractors have in recent years experienced work stoppages and delays relating
to civil unrest in Nigeria. If the United States were to adopt legislation or
regulations restricting operations in Nigeria or if civil unrest in Nigeria were
to reoccur, the Company could lose an important source of income and could be
required to redeploy its remaining rigs out of Nigeria. The costs of such
redeployment might not be reimbursable, and such costs, together with the lost
revenues resulting from a termination of its Nigerian operations, could have a
material adverse effect on the Company. Revenues and operating income
attributable to the Company's Nigerian operations for the year ended August 31,
1997 were $27.0 million and $7.4 million, respectively.
12
<PAGE> 19
EFFECTIVE SUBORDINATION
The Exchange Notes will be unsecured and effectively subordinated in right
of payment to all existing and future secured indebtedness of the Company and
the Subsidiary Guarantors, which will include future borrowings under the Senior
Credit Facility or any future secured credit facility, to the extent of the
pledged collateral. The Senior Credit Facility is secured by liens on
substantially all of the assets of the Company and the assets and stock of the
Subsidiary Guarantors. Accordingly, the lenders under the Senior Credit Facility
will have claims with respect to the assets constituting collateral for any
indebtedness thereunder that will be satisfied prior to the unsecured claims of
holders of the Notes. See "Description of Senior Credit Facility." In the event
of a default on the Notes or a bankruptcy, liquidation or reorganization of the
Company, such assets will be available to satisfy obligations with respect to
the indebtedness secured thereby before any payment therefrom could be made on
the Notes. Thus, the Notes and the Subsidiary Guarantees will be effectively
subordinated to claims of the lenders under the Senior Credit Facility to the
extent of such pledged collateral. At March 31, 1998, the Company had no debt
senior to, but had $3.3 million of debt ranking pari passu with, the Notes and
had $75 million available under the revolving credit portion of the Senior
Credit Facility, less $12.4 million reserved to support outstanding letters of
credit.
OPERATING HAZARDS AND UNINSURED RISKS
The Company's drilling operations are subject to various hazards inherent
in the drilling of oil and gas wells, including blowouts, reservoir damage, loss
of well control, cratering, and oil and gas well fires. Such events can result
in personal injury or death, severe damage to or destruction of equipment and
facilities, suspension of operations, and substantial damage to surrounding
areas and the property of others. The Company's offshore operations also are
subject to hazards inherent in marine operations, such as capsizings,
groundings, collisions, damage from weather, sea damage or unsound location.
Generally, the Company obtains indemnification from its customers by contract
for certain of these risks. To the extent not transferred to customers by
contract, the Company seeks protection against such risks through insurance.
However, potential liabilities associated with oilfield casualties or losses
could arise in risk categories where no insurance has been purchased, where
claims exceed the applicable insurance coverage, or where indemnification is not
available or satisfied. The occurrence of events that are not fully insured or
the failure of a customer to meet its indemnification obligations could have a
material adverse effect on the Company. In addition, there can be no assurance
that insurance will be available or, even if available, that insurance premiums
or other costs will not rise sharply in the future.
INTEGRATION OF ACQUISITIONS
The Mallard Acquisition and the Quail Acquisition have required the Company
to integrate and manage businesses that are related to, but substantially
different from, Parker's historical land drilling business. In addition, the
Hercules Acquisition requires assimilation of operations into the Company's
existing businesses. No assurance can be given that the Company will be
successful in managing and incorporating the acquired businesses into its
existing operations or that such activities will not require a disproportionate
amount of management's attention. The Company's failure to successfully
incorporate the acquired businesses into its existing operations, or the
occurrence of unexpected costs or liabilities in the acquired businesses, could
have a material adverse effect on the Company's business, financial condition
and results of operations.
RISKS OF ACQUISITION STRATEGY
The Company's growth strategy includes the acquisition of other oilfield
service businesses. There can be no assurance, however, that the Company will be
able to continue to identify attractive acquisition opportunities, obtain
financing for acquisitions on satisfactory terms or successfully acquire
identified targets. Future acquisitions may require the Company to incur
additional indebtedness or issue capital stock to finance such acquisitions.
Depending on the Company's operating performance, the provisions of the Senior
Credit Facility, the terms of its Series A/B Indenture or the Indenture
governing the Exchange Notes may limit the ability of the Company to incur
additional indebtedness, thereby restricting funds available to finance future
acquisitions. In addition, competition for acquisition opportunities in the
industry has escalated due to market
13
<PAGE> 20
conditions. There can be no assurance that such competition for acquisitions
will not continue to increase, thereby increasing the cost to the Company of
making further acquisitions or causing such acquisitions to be prohibitively
expensive for the Company.
COMPETITION
The drilling market is competitive. Drilling contracts are generally
awarded on a competitive bid basis and, while an operator may consider factors
such as quality of service and type and location of equipment as well as the
ability to provide ancillary services, price and availability are significant
factors in determining which contractor is awarded a job. The Company believes
that the market for drilling contracts will continue to be competitive for the
foreseeable future. Certain of the Company's competitors have greater financial
resources than the Company, which may enable them to better withstand industry
downturns, to compete more effectively on the basis of price, to acquire
existing rigs or to build new rigs. There can be no assurance that the Company
will be able to compete successfully against its competitors in the future or
that such competition will not have a material adverse effect on the Company's
business, financial condition and results of operations. See "The
Company -- Competition."
RISK OF UPGRADE AND REFURBISHMENT PROJECTS
The Company's business strategy contemplates significant expenditures to
upgrade and refurbish certain of its rigs. These projects are subject to the
risks of delay or cost overruns inherent in large refurbishment projects,
including shortages of materials or skilled labor, unforeseen engineering
problems, work stoppages, weather interference, unanticipated cost increases,
nonavailability of necessary equipment and inability to obtain any of the
requisite permits or approvals. Any substantial delay in placing such rigs in
service could have an adverse effect on the operations of the Company.
GOVERNMENTAL REGULATION AND ENVIRONMENTAL MATTERS
Many aspects of the Company's operations are affected by domestic and
foreign political developments and are subject to numerous domestic and foreign
governmental regulations that may relate directly or indirectly to the contract
drilling industry, including environmental and safety matters. Some of the
Company's activities take place in or near ecologically sensitive areas, such as
wetlands, beaches and inland waterways. Numerous federal and state environmental
laws regulate drilling activities and impose liability for causing pollution in
inland, coastal and offshore waters. In addition, the regulations applicable to
the Company's operations include certain regulations that control the discharge
of materials into the environment or require remediation of contamination under
certain circumstances. For example, the Company may be liable for damages and
costs incurred in connection with oil spills for which it is legally
responsible. Certain environmental laws and regulations impose "strict
liability," rendering a person liable without regard to negligence or fault on
the part of such person. Such environmental laws and regulations may expose the
Company to liability for the conduct of, or conditions caused by, others, or for
acts of the Company that were in compliance with all applicable laws at the time
such acts were performed.
The Company has made and will continue to make expenditures to comply with
environmental and safety requirements. Because the requirements imposed by such
laws and regulations are subject to change, the Company is unable to predict the
ultimate cost of compliance with such requirements. The modification of existing
foreign or domestic laws or regulations or the adoption of new laws or
regulations curtailing exploratory or development drilling for oil and gas for
economic, political, environmental or other reasons could have a material
adverse effect on the Company by limiting drilling opportunities. See "The
Company -- Government Regulation and Environmental Matters."
RESTRICTIONS IMPOSED BY LENDERS
The Senior Credit Facility, the Series A/B Indenture and the Indenture
governing the Exchange Notes contain a number of covenants that restrict the
ability of the Company to dispose of assets, merge or consolidate with another
entity, incur additional indebtedness, create liens, make capital expenditures
or other
14
<PAGE> 21
investments or acquisitions and otherwise restrict corporate activities. The
Senior Credit Facility also contains requirements that the Company maintain
certain financial ratios and may restrict the Company from prepaying the
Company's other indebtedness (including the Series B Notes, Series C Notes or
the Exchange Notes). The ability of the Company to comply with such provisions
may be affected by events that are beyond the Company's control. The breach of
any of these covenants could result in a default under the Senior Credit
Facility, the Series A/B Indenture and the Indenture. In addition, as a result
of these covenants, the ability of the Company to respond to changing business
and economic conditions and to secure additional financing, if needed, may be
significantly restricted, and the Company may be prevented from engaging in
transactions that might otherwise be considered beneficial to the Company. See
"Description of Senior Credit Facility" and "Description of Exchange Notes."
CREDITOR RIGHTS OF SUBSIDIARY GUARANTORS
Various fraudulent conveyance laws enacted for the protection of creditors
may apply to the Subsidiary Guarantors' issuance of the Subsidiary Guarantees.
To the extent that a court were to find that (x) a Subsidiary Guarantee was
incurred by a Subsidiary Guarantor with intent to hinder, delay or defraud any
present or future creditor or the Subsidiary Guarantor contemplated insolvency
with a design to prefer one or more creditors to the exclusion in whole or in
part of others or (y) a Subsidiary Guarantor did not receive fair consideration
or reasonably equivalent value for issuing its Subsidiary Guarantee and such
Subsidiary Guarantor (i) was insolvent, (ii) was rendered insolvent by reason of
the issuance of such Subsidiary Guarantee, (iii) was engaged or about to engage
in a business or transaction for which the remaining assets of such Subsidiary
Guarantor constituted unreasonably small capital to carry on its business or
(iv) intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they matured, the court could avoid or subordinate
such Subsidiary Guarantee in favor of the Subsidiary Guarantor's creditors.
Among other things, a legal challenge of a Subsidiary Guarantee on fraudulent
conveyance grounds may focus on the benefits, if any, realized by the Subsidiary
Guarantor as a result of the Company's issuance of the Notes. The Indenture
contains a savings clause, which generally will limit the obligations of each
Subsidiary Guarantor under its Subsidiary Guarantee to the maximum amount as
will, after giving effect to all of the liabilities of such Subsidiary
Guarantor, result in such obligations not constituting a fraudulent conveyance.
To the extent a Subsidiary Guarantee of any Subsidiary Guarantor was avoided or
limited as a fraudulent conveyance or held unenforceable for any other reason,
holders of the Exchange Notes would cease to have any claim against such
Subsidiary Guarantor and would be creditors solely of the Company and any
Subsidiary Guarantor whose Subsidiary Guarantee was not avoided or held
unenforceable. In such event, the claims of the holders of the Notes against the
issuer of an invalid Subsidiary Guarantee would be subject to the prior payment
of all liabilities (including trade payables) of such Subsidiary Guarantor.
There can be no assurance that, after providing for all prior claims, there
would be sufficient assets to satisfy the claims of the holders of the Notes
relating to any avoided portions of any of the Subsidiary Guarantees.
The measure of insolvency for purposes of the foregoing considerations will
vary depending upon the law applied in any such proceeding. Generally, however,
a Subsidiary Guarantor may be considered insolvent if the sum of its debts,
including contingent liabilities, was greater than the fair marketable value of
all of its assets at a fair valuation or if the present fair marketable value of
its assets was less than the amount that would be required to pay its probable
liability on its existing debts, including contingent liabilities, as they
become absolute and mature. The terms of the Subsidiary Guarantees will provide
that, for purposes of such limitations and the applicable fraudulent conveyance
laws, any indebtedness of a Subsidiary Guarantor incurred from time to time
pursuant to the Senior Credit Facility and secured by a perfected Lien on the
assets of such Subsidiary Guarantor (assuming, for purposes of such
determination, that the incurrence of any such indebtedness and the granting of
any such security interest did not violate any such fraudulent conveyance laws)
shall be deemed, to the extent of the value of the assets subject to such Lien,
to have been incurred prior to the incurrence by such Subsidiary Guarantor of
liability under its Subsidiary Guarantee. Based upon financial and other
information, the Company and the Subsidiary Guarantors believe that the
Subsidiary Guarantees are being incurred for proper purposes and in good faith
and that the Company and each Subsidiary Guarantor is solvent and will continue
to be solvent after issuing its Subsidiary Guarantee, will have sufficient
capital for carrying on its business after such issuance and will be able to pay
its debts as
15
<PAGE> 22
they mature. There can be no assurance, however, that a court passing on such
standards would agree with the Company. See "Description of Exchange
Notes -- Subsidiary Guarantees."
POTENTIAL DILUTION OF VOTING INTEREST
To the extent all of the Series B Notes and Series C Notes are exchanged
for Exchange Notes, $450 million aggregate principal amount of Exchange Notes
will be outstanding following consummation of the Exchange Offer, and the
Exchange Notes will be deemed to be a single series of debt securities
outstanding under the Indenture. Accordingly, the individual voting interest of
each holder of Series B or Series C Notes will be diluted. IN ADDITION,
ISSUANCES OF ADDITIONAL NOTES UNDER THE INDENTURE, TO THE EXTENT PERMITTED BY
THE DEBT INCURRENCE LIMITATIONS OF THE INDENTURE, MAY RESULT IN FURTHER DILUTION
OF THE INDIVIDUAL VOTING INTEREST OF THE HOLDERS OF EXCHANGE NOTES. See
"Description of Exchange Notes."
ABSENCE OF A PUBLIC MARKET FOR THE EXCHANGE NOTES
The Series C Notes have not been registered under the Securities Act and
are subject to significant restrictions on resale. The Exchange Notes will
constitute a new issue of securities with no established trading market. The
Company does not intend to apply for listing of the Series B Notes, the Series C
Notes or the Exchange Notes on any securities exchange or to seek the admission
thereof to trading in the National Association of Securities Dealers Automated
Quotation System. The Initial Purchaser has informed the Company that, following
completion of the Exchange Offer, it currently intends to make a market in the
Exchange Notes. However, it is not so obligated, and any such market making may
be discontinued at any time without notice. In addition, any such market making
activity will be subject to the limits imposed by the Securities Act and the
Exchange Act and may be limited during the Exchange Offer or the pendency of the
Shelf Registration Statement. Accordingly, no assurance can be given that an
active public or other market will develop for the Exchange Notes or as to the
liquidity of or the trading market for the Exchange Notes.
16
<PAGE> 23
THE COMPANY
GENERAL
Parker is a leading worldwide provider of contract drilling and drilling
related services, operating in the transition zones of the Gulf of Mexico and
Nigeria, in the offshore waters of the Gulf of Mexico and in international and
domestic land oil and gas producing regions. The Company's growth strategy is
focused on higher margin offshore and transition zone drilling and workover
markets. Consistent with this strategy, in November 1996, the Company acquired
(i) Mallard, the second-largest barge drilling and workover company in the
transition zones of the Gulf of Mexico and (ii) Quail, a leading provider of
specialized rental equipment for drilling and workover operations, primarily in
the Gulf of Mexico. In July 1997 the Company acquired the assets of Bolifor, a
leading provider of land contract drilling services in Bolivia. In addition, in
December 1997 the Company acquired Hercules, a leading provider of contract
drilling and workover services in the shallow waters of the Gulf of Mexico.
With the closing of the acquisition of Hercules, Parker's rig fleet
consists of 35 barge drilling and workover rigs, eight offshore jackup rigs, six
offshore platform rigs and 75 land rigs. The Company's barge and jackup rig
fleet is dedicated to transition zone waters, which are generally defined as
extending from the coast to depths of up to 25 feet. The Company's offshore
jackup and platform rig fleets currently operate in the Gulf of Mexico market.
Parker's land rig fleet generally consists of premium and specialized deep
drilling rigs, with 62 of its 75 land rigs capable of drilling to depths of
15,000 feet or greater. In addition, 21 of the Company's land rigs are
helicopter-transportable, thus establishing Parker as the dominant operator in
the heli-rig market throughout the world. The diversity of the Company's rig
fleet, both in terms of geographic location and asset class, enables the Company
to provide a broad range of services to oil and gas operators around the world
and to take advantage of market upturns, while reducing its exposure to
downturns in any particular sector or region.
The oilfield services industry has experienced a significant increase in
activity in the last two years as oil and gas companies have increased their
exploration and production budgets in response to increasing demand for oil and
gas, stronger oil and gas prices and improved technology which has reduced
drilling costs. In the offshore drilling market, including transition zones, rig
dayrates and utilization levels are at a 15-year high with many markets at or
approaching full utilization. During 1996 and 1997, the land drilling industry,
both in the United States and internationally, has also shown a marked
improvement in dayrates and utilization driven by several factors, including
stronger commodity prices, rig attrition and consolidation of drilling
contractors, especially in the domestic market. While oil prices have declined
in recent months due primarily to anticipation of reduced demand in the Asia
Pacific region and increased supply by certain OPEC members, the Company does
not expect such price reductions to materially affect its business unless oil
prices remain depressed for such a period of time that causes oil and gas
companies to significantly reduce the current level of expenditures for drilling
operations. See "Risk Factors -- Industry Conditions."
TRANSITION ZONE OPERATIONS
The Company is a leading provider of contract drilling services in the
transition zones of the Gulf of Mexico and Nigeria, where barge rigs are the
primary source of drilling and workover services. Barge rigs are mobile drilling
and workover vessels that are submersible and are built to work in eight to 25
feet of water. These rigs are towed by tug boats to the drill site with the
derrick laid down. The derrick is a framework for hoisting and lowering
equipment over a drill hole and is also known as a mast structure. The lower
hull is submerged by flooding until it rests on the sea floor. The derrick is
then raised and drilling or workover operations are conducted with the barge in
this position.
Domestic Barge Drilling
The Company's principal domestic market for its barge drilling rigs is the
transition zones of the Gulf of Mexico, primarily in Louisiana and, to a lesser
extent, Alabama and Texas, where conventional jackup rigs are unable to operate.
This area historically has been the world's largest market for shallow water
barge drilling. Parker is the second largest operator of barge drilling rigs in
this market, with 16 drilling barges. Barge rigs are also employed inland in
lakes, bays, rivers and marshes.
17
<PAGE> 24
The barge market in the transition zones of the Gulf of Mexico has
undergone significant attrition and consolidation in recent years, with the
number of drilling rigs declining from over 120 in the early 1980s to
approximately 55 today, and the number of competitors decreasing over the same
period from more than 30 to only two significant contractors. Drilling and
workover activity has been increasing in the Gulf of Mexico transition zones,
spurred by (i) the increased use of 3-D seismic technology that has resulted in
the identification of previously undiscovered drilling prospects and (ii) the
settlement of a royalty dispute between the State of Louisiana and Texaco, the
region's largest leaseholder. It is estimated that Texaco holds approximately
45% of the shallow water leases in Louisiana. Pursuant to a settlement reached
in March 1994, Texaco agreed to invest approximately $150 million to drill in
Louisiana over a five-year period. Higher natural gas prices have also
significantly contributed to this increased drilling and workover activity. The
recent increase in drilling and workover activity in the Gulf of Mexico has
resulted in a significant increase in dayrates and utilization for the Company's
rigs. For the period from November 12, 1996 through August 31, 1997, the
Company's marketable deep drilling barge rigs averaged 98% utilization and an
average dayrate of $15,660. As of February 28, 1998, 100% of the Company's
marketable deep drilling barge rigs were in operation at an average dayrate of
$20,554.
The following table sets forth, as of February 28, 1998, the Company's
estimate of the number of barge drilling rigs in the domestic market. The table
does not include rigs that are suitable principally for workover or shallow
drilling.
<TABLE>
<CAPTION>
CONTRACTOR TOTAL ACTIVE
---------- ----- ------
<S> <C> <C>
R&B Falcon Corporation ("R&B Falcon")....................... 41 28
Parker...................................................... 16 13
Nabors Industries, Inc...................................... 1 0
-- --
Total............................................. 58 41
== ==
</TABLE>
A schedule of the Company's deep and intermediate drilling barges located
in the Gulf of Mexico, as of February 28, 1998, is set forth below:
<TABLE>
<CAPTION>
MAXIMUM
YEAR BUILT DRILLING
OR LAST DEPTH
HORSEPOWER REFURBISHED (FEET) STATUS(1)
---------- ----------- -------- ---------
<S> <C> <C> <C> <C>
Deep Drilling:
Rig No. 50............................ 2,000 1993 25,000 Active
Rig No. 51............................ 2,000 1993 25,000 Active
Rig No. 52............................ 2,000 1993 25,000 Stacked
Rig No. 53............................ 1,600 1995 20,000 Active
Rig No. 54............................ 2,000 1995 30,000 Active
Rig No. 55............................ 2,000 1993 30,000 Active
Rig No. 56............................ 2,000 1992 30,000 Active
Rig No. 57............................ 1,500 1997 20,000 Active
Rig No. 58............................ 3,000 1982 30,000 Stacked
Rig No. 59............................ 3,000 1972 30,000 Stacked
Rig No. 60............................ 3,000 1997 30,000 Active
Intermediate Drilling:
Rig No. 8............................. 1,700 1995 15,000 Active
Rig No. 12............................ 1,200 1990 14,000 Active
Rig No. 15(2)......................... 1,000 1998 15,000 Active
Rig No. 17............................ 1,200 1993 13,000 Active
Rig No. 21............................ 1,200 1995 14,000 Active
</TABLE>
- ---------------
(1) "Active" denotes that the rig is currently under contract or available for
contract. "Stacked" denotes that the rig is currently cold stacked and would
need to be refurbished at a significant cost before being placed back into
service.
18
<PAGE> 25
(2) Refurbished into an intermediate drilling barge from a previously stacked
workover barge.
Given the improvement in barge drilling demand and dayrates, the Company
may also contemplate refurbishing its cold stacked barges.
Domestic Barge Workover and Shallow Drilling
The Company is the second largest provider of domestic barge workover
services in the transition zones of the Gulf of Mexico. Parker's domestic barge
workover and shallow drilling business is based in the same geographical area as
its barge drilling business. The same factors that have affected the structure
of the barge drilling sector also have affected this sector, including
considerable consolidation of competitors and reduction of available rigs since
the early 1980s. In June 1997, the Company was awarded a one-year extension of
its alliance to provide barge rig completion and workover services to Texaco in
the transition zones of the Gulf of Mexico.
The following table sets forth, as of February 28, 1998, the Company's
estimate of the number of barge units in the workover and shallow drilling
sector of the domestic market:
<TABLE>
<CAPTION>
CONTRACTOR TOTAL ACTIVE
---------- ----- ------
<S> <C> <C>
R&B Falcon.................................................. 16 11
Parker...................................................... 14 10
-- --
Total............................................. 30 21
== ==
</TABLE>
A schedule of the Company's workover rigs, as of February 28, 1998, which
includes some rigs with shallow drilling capabilities, is set forth below:
<TABLE>
<CAPTION>
MAXIMUM
YEAR BUILT DRILLING
OR LAST DEPTH
HORSEPOWER REFURBISHED (FEET) STATUS(1)
---------- ----------- -------- ---------
<S> <C> <C> <C> <C>
Heavy Workover and Shallow Drilling:
Rig No. 5............................. 800 1991 -- Stacked
Rig No. 10............................ 800 1978 -- Stacked
Rig No. 16............................ 800 1994 11,500 Active
Rig No. 18............................ 800 1993 11,500 Active
Rig No. 20............................ 800 1995 11,500 Active
Rig No. 23............................ 1,000 1993 13,000 Active
Rig No. 24............................ 1,000 1992 13,000 Active
Rig No. 25............................ 1,000 1993 13,000 Active
Rig No. 27............................ 800 1987 -- Stacked
Rig No. 28............................ 800 1987 -- Stacked
Workover and Other:
Rig No. 6............................. 700 1995 -- Active
Rig No. 7............................. 700 1995 -- Active
Rig No. 9............................. 650 1996 -- Active
Rig No. 26............................ 650 1996 -- Active
</TABLE>
- ---------------
(1) "Active" denotes that the rig is currently under contract or available for
contract. "Stacked" denotes that the rig is currently cold stacked and would
need to be refurbished at a significant cost before being placed back into
service.
19
<PAGE> 26
International Barge Drilling
The Company has focused its international barge drilling efforts in the
transition zones of West Africa, where it is one of the leading providers of
barge drilling services in Nigeria, with three of the nine rigs in the market.
International markets are particularly attractive due to the availability of
long-term contracts and the opportunity to earn dayrates higher than domestic
rates. The Company believes that international markets, in which jackup rigs
have historically been utilized for offshore drilling, will utilize an
increasing number of barge rigs over the next several years and that these will
come primarily from rigs currently or formerly employed in the Gulf of Mexico
transition zones. The most promising international barge drilling markets are
currently located in the transition zones of Venezuela, Indonesia, Tunisia, the
Middle East, the Caspian Sea and West Africa.
The Company is one of the largest barge rig operators in the transition
zones of Nigeria. The Company has operated in Nigeria since 1991 and currently
operates three barge rigs under long-term contracts at an average dayrate of
$26,495. The Company has recently received a letter of intent, subject to the
execution of a definitive agreement, from one of its present customers in
Nigeria for a five-year drilling contract in the transition zones of Nigeria,
which will require the construction of a new drilling barge at an estimated cost
of $30 million. One of the Company's drilling rigs, which previously operated
offshore Nigeria, is currently undergoing modifications at a shipyard in
Louisiana for service under a long-term contract in the Caspian Sea.
A schedule of the Company's international drilling barges, as of February
28, 1998, is set forth below:
<TABLE>
<CAPTION>
MAXIMUM
YEAR BUILT DRILLING
OR LAST DEPTH
HORSEPOWER REFURBISHED (FEET) STATUS(1)
---------- ----------- -------- ---------
<S> <C> <C> <C> <C>
Rig No. 71(2).......................... 3,000 1994 30,000 Shipyard
Rig No. 72............................. 3,000 1991 30,000 Active
Rig No. 73............................. 3,000 1991 30,000 Active
Rig No. 74............................. 3,000 1997 30,000 Active
Rig No. 80............................. 2,000 1986 20,000 Active
</TABLE>
- ---------------
(1) "Active" denotes that the rig is currently under contract or available for
contract.
(2) Rig No. 71 is being refurbished for service under a long-term contract in
the Caspian Sea.
OFFSHORE OPERATIONS
Jackup Drilling
Pursuant to the Hercules Acquisition, the Company acquired seven shallow
water jackup rigs. As of February 28, 1998, six of the rigs were in active
service at 100% effective utilization, with an average dayrate of $28,100. The
seventh rig is in a shipyard undergoing modification and is expected to be in
service in July 1998. The Hercules jackup rigs are mobile, self-elevating
drilling platforms equipped with legs that can be lowered to the ocean floor
until a foundation is established to support the hull, which contains the
drilling equipment, jacking system, crew quarters, loading and unloading
facilities, storage areas for bulk and liquid materials, helicopter landing deck
and other related equipment. Five of the rigs are cantilever design, a feature
that permits the drilling platform to be extended out from the hull, allowing
drilling and workover operations to be performed over existing platforms or
structures. Jackup rigs with the cantilever feature historically have achieved
higher dayrates and utilization levels. The other two rigs are slot-type design
configured for the drilling operations to take place through a keyway in the
hull. These two rigs have the added capability of operating in eight feet of
water. Four of the seven jackup rigs are mat-supported rigs and three are
independent leg rigs. The Hercules rigs are capable of drilling to maximum
depths of 25,000 feet and in water depths of up to 215 feet.
The Hercules Acquisition further expands and complements the Company's
business in the Gulf of Mexico shallow water market and augments the Company's
existing platform rig business.
20
<PAGE> 27
The following table sets forth certain information, as of February 28,
1998, with respect to the Parker and Hercules jackup rigs:
<TABLE>
<CAPTION>
MAXIMUM MAXIMUM
WATER DRILLING
DEPTH DEPTH
DESIGN(1) (FEET) (FEET) STATUS(2)
--------- ------- -------- ---------
<S> <C> <C> <C> <C>
Parker:
Rig No. 43......... Sun Contractors (IC) 55 -- Stacked
Hercules:
Rig No. 11(3)...... Bethlehem JU-200 (MC) 200 -- Active
Rig No. 14......... Baker Marine Big Foot (IS) 85 20,000 Shipyard
Rig No. 15......... Baker Marine Big Foot III 100 20,000 Active
(IS)
Rig No. 20......... Bethlehem JU-100 (MC) 110 25,000 Active
Rig No. 21......... Baker Marine BMC-125 (MC) 125 25,000 Active
Rig No. 22......... Le Tourneau Class 51 (MC) 173 18,000 Active
Rig No. 25......... Le Tourneau Class 150-44 (IC) 215 20,000 Active
</TABLE>
- ---------------
(1) IC -- independent leg, cantilevered; IS -- independent leg, slot;
MC -- mat-supported, cantilevered.
(2) "Active" denotes that the rig is currently under contract or available for
contract. "Stacked" denotes that the rig is currently cold stacked and would
need to be refurnished at a significant cost before being placed back into
service.
(3) Workover rig.
Platform Drilling
As a result of the Hercules Acquisition, the Company's fleet of platform
rigs consists of six modular self-erecting rigs. These platform rigs consist of
drilling equipment and machinery arranged in modular packages that are
transported to and self-erected on fixed offshore platforms owned by oil
companies. The Company believes that the modular self-erecting design of the
platform rigs provides a competitive advantage due to lower mobilization costs
and smaller "footprint." The Company intends to expand its presence in the
platform rig market through the refurbishment of its cold-stacked rig and
through the acquisition or construction of additional rigs.
The following table sets forth certain information, as of February 28,
1998, with respect to the Parker and Hercules platform rigs:
<TABLE>
<CAPTION>
MAXIMUM
YEAR BUILT DRILLING
OR LAST DEPTH
HORSEPOWER REFURBISHED (FEET) STATUS(1)
---------- ----------- -------- ---------
<S> <C> <C> <C> <C>
Parker:
Rig No. 41E........................... 1,000 1997 12,500 Active
Rig No. 42E........................... 1,000 1996 12,500 Active
Rig No. 47............................ 750 1993 11,000 Stacked
Hercules:
Rig No. 2............................. 1,000 1982 12,000 Active
Rig No. 3............................. 1,000 1997 12,000 Active
Rig No. 10............................ 650 1989 10,000 Active
</TABLE>
- ---------------
(1) "Active" denotes that the rig is currently under contract or available for
contract. "Stacked" denotes that the rig is currently cold stacked and would
need to be refurbished at a significant cost before being placed back into
service.
21
<PAGE> 28
LAND OPERATIONS
General
The Company is a leading international provider of land contract drilling
services. The Company's land drilling operations specialize in the drilling of
deep and difficult wells and drilling in remote and harsh environments. Since
beginning operations in 1934, the Company has operated in 49 foreign countries
and throughout the United States, making it one of the most geographically
diverse land drilling contractors in the world.
The following table sets forth, as of February 28, 1998, the locations of
the Company's land rigs and their drilling depth ratings:
<TABLE>
<CAPTION>
DRILLING DEPTH RATING IN FEET
--------------------------------------------------------
10,000
OR LESS 15,000 20,000 25,000 30,000 TOTAL
------- ------ ------ ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
International:
South America..................... 6 10 10 3 4 33
Asia Pacific...................... 4 3 11 2 -- 20
Africa and the Former Soviet
Union.......................... 3 2 2 -- -- 7
-- -- -- -- -- --
Total International....... 13 15 23 5 4 60
Domestic:
Gulf Coast........................ -- -- 2 -- 4 6
Rocky Mountains................... -- -- 2 -- 2 4
Mid-Continent..................... -- -- 4 -- -- 4
Alaska............................ -- -- -- -- 1 1
-- -- -- -- -- --
Total Domestic............ -- -- 8 -- 7 15
-- -- -- -- -- --
Total..................... 13 15 31 5 11 75
== == == == == ==
</TABLE>
International Operations
The Company's international land drilling operations are focused primarily
in South America and the Asia Pacific region, where it specializes in drilling
that requires equipment specially designed to be transported by helicopter or
all-terrain vehicles into remote access areas such as jungle, mountainside or
desert locations. Management believes that Parker's 21 heli-rigs, with
technologically advanced pumps and power generation systems that are capable of
drilling difficult wells in excess of 15,000 feet, have established Parker as
the dominant operator in the heli-rig market, with what the Company estimates to
be a 75% worldwide market share. Parker traditionally has been a pioneer in
frontier areas and is currently working for or has recently worked for operators
in China, Russia, Kazakhstan, Poland and Vietnam.
In recent years, many major and independent oil companies have directed a
greater portion of their exploration budgets to foreign markets. This is
particularly true in South America and the Asia Pacific region, where the demand
for land rigs has increased significantly. Parker has benefitted from this trend
due to its long-standing presence in these markets and has been able to deploy
rigs under longer term contracts at higher dayrates and operating margins than
in its domestic operations. Management believes that the demand for drilling
services in international markets will continue to grow as demand for oil and
gas increases and countries dependent on oil and gas revenues seek to increase
their production. The Company intends to capitalize on its global presence and
substantial international experience to pursue growth opportunities in both
current and developing markets.
International markets differ from the domestic market in terms of
competition, nature of customers, equipment and experience requirements. The
majority of international drilling markets have the following characteristics:
(i) a small number of competitors; (ii) customers who are major, large
independent or foreign national oil companies; (iii) drilling programs in remote
locations requiring drilling equipment with a large
22
<PAGE> 29
inventory of spare parts and other ancillary equipment; and (iv) drilling of
difficult wells requiring considerable experience.
South America. The Company has 33 rigs located in the South American
drilling markets of Colombia, Argentina, Paraguay, Peru and Bolivia. Parker's
rigs have been upgraded to meet the demands of deep, difficult drilling in these
areas. Most of these rigs are currently under contract to major or national oil
companies at attractive dayrates. The Company anticipates it will continue to
relocate rigs to the South American market to meet increased demand for
drilling.
Asia Pacific Region. The Company operates 13 of its fleet of 21 helicopter
transportable rigs in the Asia Pacific region due to the remoteness of the
mountainside and jungle drilling performed in this region. Parker entered the
Indonesian geothermal market in 1995, which market is currently being adversely
affected by political and currency instability in Indonesia. Five rigs in the
Indonesian geothermal market currently are inactive and may be remarketed in
other regions if the adverse conditions in the Indonesian market continue to
persist. In 1996, Parker became the first land drilling contractor to enter the
Vietnam market subsequent to the liberalization of Vietnam's trading policy and
the lifting of restrictions on doing business with Vietnam. Also in 1996, Parker
formed an alliance with the national drilling company in China, pursuant to
which Parker is providing project management assistance and rig supervisory
personnel to western oil companies in conjunction with Parker's Chinese partner.
Parker has the longest presence of any foreign drilling contractor in China,
beginning with its first contract in 1980.
Africa and the Former Soviet Union. Seven of the Company's rigs are
currently located in the markets of Africa and the former Soviet Union. After
becoming the first western drilling contractor to enter the Russian drilling
market in 1991, expansion of Parker's business in this country has been hampered
by bureaucratic inefficiencies, constantly changing tax and other laws and
political issues that have retarded the investment of capital by major and large
independent oil companies in Russia. As a result, Parker has relocated all four
of its drilling rigs from Russia to Kazakhstan. As anticipated, the recently
announced agreement regarding the pipeline to be built to accommodate
incremental production from the Tengiz field in Kazakhstan has already increased
exploration efforts in this region. In addition to operating Parker's own rigs,
Parker recently was awarded a five-year alliance contract by the operator of the
Tengiz field to operate and maintain its rigs, including the provision of
expatriate and local drilling crews and management of its warehouse, drilling
base and mobile equipment fleet.
Domestic Operations
In the United States, the Company operates land rigs in the Gulf Coast,
Rocky Mountain and Mid-Continent regions and the arctic region of Alaska.
Industry conditions in the United States land drilling market have improved
after having been depressed through most of the 1980s and early 1990s. The
improved market conditions have resulted in both increased rig utilization and
dayrates and shortages for certain types of rigs. The increased drilling
activity has been reflected in a greater demand for rigs of all depth
capabilities, in particular deep drilling rigs such as those owned by the
Company. The market improvements have been a result of a combination of a
general consolidation trend in the industry, and until very recently, higher
crude oil and natural gas prices and improvements in exploration technology, in
particular the greater use of 3-D seismic data and horizontal drilling.
Of the Company's 15 rigs located in the United States, 14 are SCR electric,
four are equipped with top drive units and all are capable of drilling in excess
of 15,000 feet. Traditionally, Parker has differentiated itself from its
domestic competitors by specializing in the drilling of deep and difficult
wells.
Specialty Services
Helicopter Transportable Rigs. The Company specializes in difficult wells
and drilling in remote areas and harsh environments, primarily in international
locations. A significant factor contributing to Parker's success in obtaining
drilling contracts in remote areas is the use of rigs that are transportable by
air, land and water. These rigs have been specially designed and constructed by
Parker for quick assembly and disassembly under the proprietary designations
"Heli-Hoist(R)" rig, Transportable By Anything(R) ("TBA(R)") rig and All-
23
<PAGE> 30
Terrain ("AT2000E(R)") rig. Management believes that Parker's 21 helicopter
transportable rigs comprise approximately 75% of the operational helicopter
transportable rigs worldwide. The Heli-Hoist(R), TBA(R) and AT2000E(R) rigs
allow Parker to perform drilling operations in remote and otherwise inaccessible
locations such as jungle areas, mountainous areas and offshore platforms.
Deep Drilling. During the U.S. drilling boom of the late 1970s and early
1980s, the Company developed its specialty of deep and difficult drilling,
primarily in the Anadarko Basin of Western Oklahoma and the Overthrust Region in
the Rocky Mountains. The majority of the expansion of Parker's domestic fleet
was built around this deep gas drilling. Parker's largest drilling rig is rated
in excess of 35,000 feet.
During the last several years, drilling activity has shifted from domestic
deep gas drilling to international deep oil and gas drilling. While
international deep drilling is generally in the range of 15,000 feet to 20,000
feet as opposed to the domestic deep drilling which often exceeds 20,000 feet,
Parker has benefitted in the international arena from the development of this
expertise, particularly in the deep drilling markets of the Cusiana and Cupiagua
fields of Colombia and in northern Argentina.
Arctic Drilling. The Company has been one of the pioneers in arctic
drilling conditions and continues to offer new technology to meet the demand for
increased drilling in an ecologically sensitive manner. Parker's most recent
development has been the introduction of a self-contained mobile drilling unit
capable of being moved in one unit by giant "crawlers" similar to the system
used to move rocket thrusters for the space program. The environmentally
sensitive rig also has a complete closed-loop mud system and cuttings processing
system that eliminate the need for mud pits.
Geothermal Drilling. The Company also has developed expertise in the area
of geothermal drilling. Geothermal operations involve drilling into a pocket of
geothermal energy, tapping the source of this energy in the form of steam, hot
water or hot rocks and converting this heat into usable forms of energy.
RENTAL TOOLS
Quail, based in New Iberia, Louisiana, is a provider of premium rental
tools used for land and offshore oil and gas drilling and workover activities.
Approximately 70% of Quail's equipment is utilized in offshore and coastal water
operations. Since its inception in 1978, Quail's principal customers have been
major and independent oil and gas exploration and production companies.
Quail rents specialized equipment utilized in difficult well drilling and
production and workover applications. Quail offers a full line of drill pipe,
drill collars, tubing, high- and low-pressure blowout preventers, choke
manifolds, casing scrapers and cement and junk mills. During fiscal 1997, Quail
entered into a contract with a major oil company to be its preferred provider of
rental tools to the land and offshore Texas markets. In November 1997, the
Company opened a new rental tool facility in Victoria, Texas, in order to
service the increasing demand for tools in that region. Approximately 60% of
Quail's revenues are realized from rentals for production and workover
activities.
The rental tool industry is currently experiencing increasing demand due to
the trend toward outsourcing by oil companies of noncore equipment and services
and the significant increase in drilling activity in the Gulf of Mexico. In
recent years, major and independent oil companies have liquidated certain
ancillary drilling equipment in an effort to improve drilling efficiencies and
returns on drilling programs. In addition, drilling activity has increased
substantially in the Gulf of Mexico, causing an increase in dayrates for
drilling rigs and a further increase in the demand for rental tools. The Company
believes that Quail will benefit from such trends.
During the past three years, Quail has experienced significant growth in
revenue and earnings due in general to the growth trends in the oil and gas
industry and specifically to the increased production and drilling activity in
the Gulf of Mexico and the movement within the industry towards fewer or single
source vendors. Quail derives equipment rental revenue primarily from the daily
rental charges for its tools, pipe, and related equipment and to a lesser extent
by charging customers for ancillary parts and repairs, transportation of the
rental items to the customer's location, inspection of rental items as specified
by the customer, items its sub-rents from other rental tool companies, the
disposal of waste removed from the rental items after their use, and
24
<PAGE> 31
the cost of rental items lost or damaged beyond repair. The operating costs
associated with Quail's rentals consist primarily of expenses associated with
depreciation, transportation, inspection, maintenance and repair, and related
direct overhead.
COMPETITION
The contract drilling industry is a competitive and cyclical business
characterized by high capital and maintenance costs. See "Risk
Factors -- Competition."
Demand in the offshore drilling markets serviced by the Company has
significantly improved from previous years. In the Gulf of Mexico barge drilling
and workover markets, the Company competes with Falcon Drilling.
The land drilling market is generally more competitive than the offshore
market due to the larger number of rigs and companies. Drilling contracts are
generally awarded on a competitive bid basis and, while an operator may consider
factors such as quality of service and type and location of equipment as well as
the ability to provide ancillary services, price and availability of equipment
are significant factors in determining which contractor is awarded a job. In
international markets, experience in operating in certain environments and
customer alliances have also been factors in the selection of the Company in
certain cases, as well as the Company's patented drilling equipment for remote
drilling projects. The Company believes that the market for land drilling
contracts will continue to be competitive for the foreseeable future. Certain of
the Company's competitors have greater financial resources than the Company,
which may enable them to better withstand industry downturns, to compete more
effectively on the basis of price, to build new rigs or to acquire existing
rigs.
Management believes that Quail is one of the four leading rental tool
companies in the offshore Gulf of Mexico. A number of Quail's competitors in the
Gulf of Mexico and in the Gulf Coast land markets are substantially larger than,
and have greater financial resources than, Quail.
CUSTOMERS AND DRILLING CONTRACTS
The Company believes it has developed an international reputation for
providing efficient, quality drilling services. A key for advancing the
Company's business strategy is maintaining and developing relationships and
strategic alliances with its customers. An increasing number of the Company's
customers have been seeking to establish exploration or development drilling
programs based on partnering relationships or alliances with a limited number of
preferred drilling contractors. Such relationships or alliances can result in
longer term work and higher efficiencies that increase profitability for
drilling contractors at a lower overall well cost for oil companies. The Company
is currently a preferred contractor for operators in certain domestic and
international locations, which management believes is a result of the Company's
quality, service and experience.
The Company's drilling rigs are generally operated under individual dayrate
contracts. Drilling contracts generally cover either the drilling of a specified
well or wells for a stated term. Historically, most domestic contracts have been
on a well-to-well basis while contracts in the international markets frequently
are offered on a term basis. Because the Company focuses on drilling deep and
difficult wells in both domestic and international markets, contracts typically
last longer than 90 days. Certain of Parker's contracts in Colombia have
three-year terms with early termination penalties. Mallard's contracts in
Nigeria have two- to three-year stated terms but provide no contractual
penalties for early termination.
The Company's drilling customer base consists of major, independent and
foreign national oil and gas companies. Chevron and British Petroleum accounted
for approximately 19% and 18%, respectively, of total revenues for fiscal year
1996, and Chevron accounted for approximately 13% of total revenues for fiscal
year 1997.
25
<PAGE> 32
LEGAL PROCEEDINGS
The Company is a party to certain legal proceedings that have resulted from
the ordinary conduct of its business. In the opinion of the Company's
management, none of these proceedings is expected to have a material adverse
effect on the Company.
GOVERNMENT REGULATION AND ENVIRONMENTAL MATTERS
The U.S. Gulf Coast market, and particularly the shallow water areas where
the Company's contract drilling service operations are concentrated, are
ecologically sensitive. As a result, environmental issues have led to higher
drilling costs, a more difficult and lengthy well permitting process and, in
general, have adversely affected decisions of the oil companies to drill in
these areas. U.S. laws and regulations applicable to the Company's operations
include those controlling the discharge of materials into the environment,
requiring removal and cleanup of materials that may harm the environment, or
otherwise relating to the protection of the environment. The Company, as an
operator of drilling rigs in navigable U.S. waters and certain offshore areas,
may be liable for damages and costs incurred in connection with oil spills for
which it is held responsible, subject to certain limitations. An oil spill in a
wetland or inland waterway could produce substantial damage to the environment,
including wildlife and ground water. Laws and regulations protecting the
environment have become more stringent in recent years, and may, in certain
circumstances, impose strict liability, rendering a person liable for
environmental damage without regard to negligence or fault on the part of such
person. Such laws and regulations may expose the Company to liability for the
conduct of or conditions caused by others, or for acts of the Company which were
in compliance with all applicable laws at the time such acts were performed. The
application of these requirements or the adoption of the new requirements could
have a material adverse effect on the Company.
The drilling of oil and gas wells is subject to various federal, state,
local and foreign laws, rules and regulations. The Company, as an owner or
operator of both onshore and offshore facilities operating in or near waters of
the United States, may be liable for the costs of removal and damages arising
out of a pollution incident to the extent set forth in the Federal Water
Pollution Control Act, as amended by the Oil Pollution Act of 1990 ("OPA") and
the Outer Continental Shelf Lands Act. In addition, the Company may also be
subject to applicable state law and other civil claims arising out of any such
incident. Certain of the Company's facilities are also subject to regulations of
the Environmental Protection Agency ("EPA") that require the preparation and
implementation of spill prevention, control and countermeasure plans relating to
possible discharge of oil into navigable waters. Other regulations of the EPA
may require certain precautions in storing, handling and transporting hazardous
wastes. State statutory provisions relating to oil and natural gas generally
include requirements as to well spacing, waste prevention, production
limitations, pollution prevention and cleanup, obtaining drilling and dredging
permits and similar matters. The Company believes that it is in substantial
compliance with such laws, rules and regulations.
The OPA and regulations promulgated pursuant thereto impose a variety of
regulations on "responsible parties" related to the prevention of oil spills and
liability for damages resulting from such spills. A "responsible party" includes
the owner or operator of a facility or vessel, or the lessee or permittee of the
area in which an offshore facility is located. The OPA assigns liability to each
responsible party of oil removal costs and a variety of public and private
damages. While liability limits apply in some circumstances, a responsible party
for an Outer Continental Shelf facility must pay all spill removal costs
incurred by a federal, state or local government. The OPA establishes liability
limits (subject to indexing) for offshore drilling rigs. If functioning as an
offshore facility, the offshore drilling rigs are considered "tank vessels" for
spills of oil on or above the water surface, with liability limits of $1,200 per
gross ton or $10 million. To the extent damages and removal costs exceed this
amount, the offshore drilling rigs will be treated as an offshore facility and
the offshore lessee will be responsible up to higher liability limits for all
removal costs plus $75 million. A party cannot take advantage of liability
limits if the spill was caused by gross negligence or willful misconduct or
resulted from violation of a federal safety, construction or operating
regulation. If the party fails to report a spill or to cooperate fully in the
cleanup, liability limits likewise do not apply. Few defenses exist to the
liability imposed by the OPA. The OPA also imposes ongoing requirements on a
responsible party, including proof of financial responsibility (to cover at
least some costs in a potential spill) and preparation of an oil spill
26
<PAGE> 33
contingency plan. Amendments to the OPA adopted earlier this year reduced the
amount of financial responsibility required for "offshore facilities" from $150
million to $35 million, but such amendments did not reduce the amount of
financial responsibility required for "tank vessels." Since the Company's
offshore drilling rigs are typically classified as tank vessels, the recent
amendments to the OPA are not expected to have a significant effect on the
Company's operations. A failure to comply with ongoing requirements or
inadequate cooperation in a spill may even subject a responsible party to civil
or criminal enforcement actions.
In addition, the Outer Continental Shelf Lands Act authorized regulations
relating to safety and environmental protection applicable to lessees and
permittees operating on the Outer Continental Shelf. Specific design and
operational standards may apply to Outer Continental Shelf vessels, rigs,
platforms, vehicles and structures. Violations of environmental-related lease
conditions or regulations issues pursuant to the Outer Continental Shelf Lands
Act can result in substantial civil and criminal penalties as well as potential
court injunctions curtailing operations and the cancellation of leases. Such
enforcement liabilities can result from either governmental or citizen
prosecution.
All of the Company's operating domestic barge drilling rigs have zero
discharge capabilities as required by law. In addition, in recognition of
environmental concerns regarding dredging of inland waters and permitting
requirements, the Company conducts negligible dredging operations and
approximately two-thirds of the Company's offshore drilling contracts involve
directional drilling, which minimizes the need for dredging. However, the
existence of such laws and regulations has had and will continue to have a
restrictive effect on the Company and its customers.
The drilling industry is dependent on the demand for services from the oil
and gas exploration and development industry and, accordingly, is affected by
changes in laws relating to the energy business. The Company's business is
affected generally by political developments and by federal, state, local and
foreign laws and regulations that may relate directly to the oil and gas
industry. The adoption of laws and regulations, both domestic and foreign, that
curtail exploration and development drilling for oil and gas for economic,
environmental and other policy reasons may adversely affect the Company's
operations by limiting available drilling opportunities.
OTHER MATTERS
During fiscal 1997, the Company installed significant financial
applications which are year 2000 compliant and intends to install additional
applications in the future. The Company believes that it will be able to achieve
year 2000 compliance for its significant financial and operating systems by
mid-1999, and does not anticipate any disruption in its operations as a result
of its computer software to be in compliance. The Company is currently in the
process of obtaining information from customers, vendors, banks and other
business relationships concerning their year 2000 compliance.
27
<PAGE> 34
MANAGEMENT
The following table sets forth certain information regarding the directors
and executive officers of the Company as of March 31, 1998.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert L. Parker.......................... 74 Chairman of the Board of Directors
Robert L. Parker Jr....................... 49 President and Chief Executive Officer
James W. Linn............................. 52 Executive Vice President and Chief
Operating Officer
James J. Davis............................ 51 Senior Vice President -- Finance and Chief
Financial Officer
W. Kirk Brassfield........................ 42 Corporate Controller and Chief Accounting
Officer
Bernard J. Duroc-Danner................... 44 Director
David L. Fist............................. 66 Director
Earnest F. Gloyna......................... 76 Director
R. Rudolph Reinfrank...................... 42 Director
James E. Barnes........................... 64 Director
</TABLE>
The following is a brief description of the background and principal
occupation of each director and executive officer:
Robert L. Parker, Chairman of the Board, has been a Director since 1954 and
served as President of the Company from 1954 until October 1977, when he was
elected Chairman and Chief Executive Officer. Since December 1991, he has
retained the position of Chairman. He serves on the board of directors of
Clayton Williams Energy, Inc., a company engaged in exploration and production
of oil and natural gas and BOK Financial Corporation, a bank holding company
organized under the laws of the State of Oklahoma. Mr. Parker also serves on the
board of directors of the American Petroleum Institute and the National
Petroleum Council. He is the father of Robert L. Parker Jr.
Robert L. Parker Jr. has been a Director since 1973 and is President and
Chief Executive Officer. He joined the Company in 1973 and was elected President
and Chief Operating Officer in 1977 and Chief Executive Officer in December
1991. He was elected Vice President in 1973 and Executive Vice President in
1976. He currently serves on the board of directors of Alaska Air Group, Inc.,
the holding company for Alaska Airlines and Horizon Air Industries. He is the
son of Robert L. Parker.
James W. Linn has been a Director since 1986, is Executive Vice President
and Chief Operating Officer of the Company and has general charge of the
Company's business affairs and its officers. He joined the Company in 1973 in
the Company's international department. He then served in the Company's domestic
operations, being named northern U.S. district manager in 1976. Mr. Linn was
elected Vice President of U.S. and Canada operations in 1979, was promoted to
Senior Vice President in September 1981 and was elected to his present position
in December 1991.
James J. Davis serves as Senior Vice President-Finance and Chief Financial
Officer. He joined Parker in November 1991 as Vice President-Finance and Chief
Financial Officer and was promoted to his current position in December 1996.
From 1986 through 1991, Mr. Davis was vice president and treasurer of MAPCO
Inc., a diversified energy company with interests in natural gas liquids
marketing and transportation, oil refining and retail motor fuel marketing. He
serves as a member of the board of directors of Dollar Thrifty Funding Corp.
W. Kirk Brassfield serves as Corporate Controller and Chief Accounting
Officer for the Company. He joined Parker in March 1998 in his present position.
From 1991 through March 1998, Mr. Brassfield served in
28
<PAGE> 35
various positions, including subsidiary Controller and Director of Financial
Planning, of MAPCO Inc., a diversified energy company. From 1979 through 1991
Mr. Brassfield served at the public accounting firm, KPMG Peat Marwick.
Bernard J. Duroc-Danner has been a Director since November 1996. Mr.
Duroc-Danner has been President, Chief Executive Officer and a director of EVI,
Inc., the former parent company of Mallard, for more than the past five years.
EVI, Inc. is an international manufacturer and supplier of oilfield equipment.
Mr. Duroc-Danner is also a director of Dailey International Inc., a provider of
services and equipment to the oil and gas industry.
David L. Fist, a Director since 1986, is a member of the law firm of
Rosenstein, Fist & Ringold, Tulsa, Oklahoma, having been associated with the
firm since 1955. He serves as a director of Peoples State Bank and Alliance
Business Investment Company, a federally licensed small business investment
company.
Earnest F. Gloyna has been a Director since 1978 and is presently a chaired
professor in Environmental Engineering at the University of Texas at Austin. He
served as dean, College of Engineering, from April 1970 to August 1987. He is
also a consultant in environmental engineering through Earnest F. Gloyna
Enterprises, and is president of Gloyna Properties, Inc. Dr. Gloyna serves as a
member of the board of trustees of Southwest Research Institute, a nonprofit
research institute that does contract research work for government and industry.
R. Rudolph Reinfrank has been a Director since 1993. Since January 1, 1997,
he has been Managing General Partner of Coldstream Capital LLC, Los Angeles,
California. From May 1993 to December 1996, Mr. Reinfrank was a managing
director of the Davis Companies, the holding company for the Marvin Davis
family. From January 1, 1988 through June 30, 1993, Mr. Reinfrank was executive
vice president of Shamrock Holdings, Inc., the holding company for the Roy E.
Disney family. From January 1990 through December 1992, Mr. Reinfrank also
served as managing director of Trefoil Investors, Inc. and Shamrock Capital
Advisors, Inc., the general partner and management services company
respectively, for Trefoil Capital Investors, L.P.
James E. Barnes was appointed Director in March 1998, when the board voted
to increase the number of directors. From May 1986 until his retirement in March
1998 when MAPCO, Inc. merged with The Williams Companies, Mr. Barnes served as
the Chairman, President and Chief Executive Officer of MAPCO, Inc. He is also a
director of Kansas City Southern Industries, Inc., BOK Financial Corporation and
SBC Communications Inc.
PRIVATE PLACEMENT
The net proceeds to the Company from the sale of the Series C Notes were
$152.2 million after deducting the estimated fees and expenses of the Series C
Notes Offering. The Company used the proceeds from the sale of the Series C
Notes to repay the outstanding balance under the term loan portion of the Senior
Credit Facility and plans to use the remaining net proceeds for general
corporate purposes, including to fund the Company's capital expenditure program.
Pending these uses, such net proceeds of the Series C Notes Offering is being
invested in interest bearing securities to the extent permitted by the terms of
the Indenture.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the
Exchange Notes offered hereby. In consideration for issuing the Exchange Notes
as contemplated in this Prospectus, the Company will receive in exchange a like
principal amount of Old Notes, the terms of which are identical in all material
respects to the Exchange Notes. The Old Notes surrendered in exchange for the
Exchange Notes will be retired and canceled and cannot be reissued. Accordingly,
issuance of the Exchange Notes will not result in any change in the
capitalization of the Company.
29
<PAGE> 36
CAPITALIZATION
The following table sets forth as of February 28, 1998 the actual cash and
capitalization of the Company and the cash and capitalization of the Company as
adjusted to give effect to the sale of the Series C Notes and the application of
the net proceeds therefrom. This table should be read in conjunction with the
Unaudited Pro Forma Combined Financial Statements and Parker's Consolidated
Financial Statements, including the notes thereto, included elsewhere or
incorporated by reference in this Prospectus.
<TABLE>
<CAPTION>
AT FEBRUARY 28, 1998
-----------------------
ACTUAL AS ADJUSTED
-------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash, cash equivalents and other short-term investments..... $ 4,061 $ 73,166
======== ==========
Long-term debt:
Senior Credit Facility, including current portion of
long-term debt(1)...................................... $ 83,000 $ --
9 3/4% Senior Notes due 2006, Series B, less unamortized
discount of $2,048..................................... 297,952 297,952
9 3/4% Senior Notes due 2006, Series C, plus unamortized
premium of $5,750...................................... -- 155,750
5 1/2% Convertible Subordinated Notes due 2004............ 175,000 175,000
Other long-term debt...................................... 3,844 3,844
-------- ----------
Total long-term debt.............................. $559,796 $ 632,546
-------- ----------
Stockholders' equity:
Preferred Stock, $1.00 par value, 1,942,000 shares
authorized, no shares outstanding...................... -- --
Common Stock, $.16 2/3 par value, 120,000,000 shares
authorized, 76,716,686 shares outstanding and
outstanding, as adjusted(2)............................ 12,786 12,786
Capital in excess of par value............................ 340,687 340,687
Retained earnings (accumulated deficit)................... 18,885 17,985
Other..................................................... (18) (18)
-------- ----------
Total stockholders' equity............................. 372,340 371,440
-------- ----------
Total capitalization.............................. $932,136 $1,003,986
======== ==========
</TABLE>
- ---------------
(1) At the time of consummation of the sale of the Series C Notes, the
outstanding balance of the term loan portion of the Senior Credit Facility
was $83.0 million, which balance was repaid in full from the net proceeds of
the sale of the Series C Notes. At such time, the Company also had maximum
borrowing capacity of $75 million under the revolving credit portion of the
Senior Credit Facility, less the $12.4 million reserved to support
outstanding letters of credit. See "Description of Senior Credit Facility."
(2) No dividends have been paid on common stock since February 1987.
Restrictions contained in the Company's existing Senior Credit Facility
prohibit the payment of dividends and the Indenture for the Senior Notes
restricts the payment of dividends.
30
<PAGE> 37
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial information is derived
from the historical financial statements of Parker, Mallard, Quail and Hercules,
incorporated by reference herein, and certain assumptions deemed appropriate by
the Company. The Unaudited Pro Forma Combined Statements of Operations for the
six months ended February 28, 1998 and for the year ended August 31, 1997
reflect: (i) the Mallard Acquisition, (ii) the Quail Acquisition, (iii) the
Hercules Acquisition, (iv) the issuance of $300 million of the Series A Notes in
November 1996 (subsequently exchanged for Series B Notes in February 1997), (v)
the issuance of $25 million of convertible preferred stock in November 1996 and
the subsequent conversion of such stock into 3,056,600 shares of Common Stock in
December 1996, (vi) the issuance of $175 million of Convertible Notes in July
1997 and (vii) the Series C Notes Offering, in each case as if such transactions
had occurred on September 1, 1996. The Unaudited Pro Forma Combined Balance
Sheet as of February 28, 1998 reflects such transactions when they occurred,
with the exception of the Series C Notes Offering, which is reflected as if it
occurred on February 28, 1998. Such 12 months unaudited pro forma combined
information combines: (i) the audited operating results for the Company for the
fiscal year ended August 31, 1997, (ii) the unaudited operating results for
Mallard and Quail for the period from September 1, 1996 to November 12, 1996
(the date of acquisition by Parker), and (iii) the combined unaudited operating
results of Hercules for the 12 months ended September 30, 1997. Such six months
unaudited pro forma combined information combines the unaudited operating
results of the Company for the six months ended February 28, 1998 and the
unaudited operating results of Hercules from September 1, 1997 to December 30,
1997 (the date of acquisition by the Company). Revenues and net income of
Hercules of approximately $6.2 million and $0.8 million, respectively, for the
month of September, 1997 are included in both the unaudited pro forma combined
statement of operations for the six months ended February 28, 1998 and for the
year ended August 31, 1997. The Hercules financial statements have been derived
from the separate financial statements of HOC and HRC incorporated herein by
reference and are presented on a combined basis with intercompany transactions
between the entities eliminated. The unaudited pro forma combined financial
information should be read in conjunction with the notes thereto and the
historical financial statements of Parker, Mallard, Quail and Hercules,
including the notes thereto, incorporated by reference herein. The unaudited pro
forma combined financial statements exclude any pro forma effect for the Bolifor
Acquisition (acquired effective July 1, 1997) as it is not considered material.
The pro forma adjustments giving effect to the various events described
above are based upon currently available information and upon certain
assumptions that management believes are reasonable. The historical operating
results of Mallard included in the Unaudited Pro Forma Combined Financial
Statements do not reflect any allocation of general corporate, accounting, tax,
legal and other administrative costs incurred by its former parent corporation.
The Company has not incurred any significant amount of additional general and
administrative expense in connection with the incorporation of Mallard's and
Quail's operations, and does not expect to incur any significant amount of such
expenses in connection with the incorporation of Hercules' operations. The
Mallard Acquisition, the Quail Acquisition and the Hercules Acquisition have
been accounted for by the Company under the purchase method of accounting and
the assets and liabilities of Mallard, Quail and Hercules were recorded at their
estimated fair market values at the date of acquisition. The Mallard and Quail
Acquisitions were completed on November 12, 1996, and the Hercules Acquisition
was completed on December 30, 1997.
The unaudited pro forma combined financial information does not purport to
be indicative of the results of operations that would actually have occurred if
the transactions described had occurred as presented in such statements or that
may be obtained in the future. In addition, future results may vary
significantly from the results reflected in such statements due to general
economic conditions, oil and gas commodity prices, the demand and prices for
contract drilling services and rental tools, increases in the number of rigs
available for service, the Company's ability to successfully integrate the
operations of Mallard, Quail and Hercules with its current business and several
other factors, many of which are beyond the Company's control. See "Risk
Factors -- Integration of Acquisitions."
31
<PAGE> 38
PARKER DRILLING COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED FEBRUARY 28, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
-------------------------
HERCULES(2)
SEPT. 1-
AS REPORTED DEC. 30
PARKER(1) 1997 ADJUSTMENTS PRO FORMA
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Drilling.................................... $ 217,584 $25,486 $ (82)(j) $ 242,988
Rental...................................... 16,730 -- -- 16,730
Other....................................... 783 -- -- 783
----------- ------- ------- -----------
Total revenues....................... 235,097 25,486 (82) 260,501
----------- ------- ------- -----------
Operating expense:
Drilling.................................... 138,551 13,746 2,880(d) 155,173
(4)(j)
Rental...................................... 6,610 -- 6,610
Other....................................... 1,040 -- -- 1,040
Depreciation, depletion and amortization.... 31,673 2,386 1,364(b) 35,769
360(c)
(14)(j)
General and administrative.................. 8,545 9,513 (9,513)(d,j,l) 8,545
----------- ------- ------- -----------
Total operating expenses............. 186,419 25,645 (4,927) 207,137
----------- ------- ------- -----------
Operating income.............................. 48,678 (159) 4,845 53,364
----------- ------- ------- -----------
Other income (expense):
Interest expense............................ (24,778) (1,040) (3,391)(e) (28,169)
1,040(f)
Interest income............................. 3,973 -- 3,973
Other....................................... 6,394 -- -- 6,394
----------- ------- ------- -----------
Total other income (expense)......... (14,411) (1,040) (2,351) (17,802)
----------- ------- ------- -----------
Income before income taxes.................... 34,267 (1,199) 2,494 35,562
----------- ------- ------- -----------
Income tax expense (benefit).................. 11,359 (1,051) 1,051(i) 13,869
2,510(i)
-------
Net income.................................... $ 22,908 $ (148) $(1,067) $ 21,693
=========== ======= ======= ===========
Earnings per share, diluted................... $ .29 $ .28
=========== ===========
Weighted average shares outstanding
(diluted)................................... 78,380,903 78,380,903
=========== ===========
Other financial data:
Adjusted EBITDA(3).......................... $ 80,351 $ 89,133
Ratio of earnings to fixed charges(4)....... 2.4x 2.3x
</TABLE>
- ---------------
(1) Includes the operations of Hercules from December 31, 1997 through February
28, 1998.
(2) Reflects combined results of operations of HOC and HRC from September 1,
1997 to December 30, 1997 (the date of acquisition by Parker). See note (k)
for the summary capsular combining statement of operations of HOC and HRC
for the period from September 1, 1997 to December 30, 1997 (the date of
acquisition by Parker).
(3) Adjusted EBITDA represents operating income (loss) before depreciation,
depletion and amortization and provision for reduction in carrying value of
certain assets. EBITDA is frequently used by securities analysts and is
presented hereby to provide additional information about the Company's
operations. EBITDA is not a measurement presented in accordance with
generally accepted accounting principles. EBITDA should not be considered in
isolation or as a substitute for net income, cash flow provided by operating
activities or other income or cash flow data prepared in accordance with
generally accepted accounting principles or as a measure of a company's
profitability or liquidity.
(4) For purposes of these calculations, earnings consist of income (loss) before
income taxes plus interest expense and fixed charges consist of interest
expense.
32
<PAGE> 39
PARKER DRILLING COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
YEAR ENDED AUGUST 31, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------------------
SEPT. 1-NOV. 12,
1996
AS REPORTED ---------------- PRO
PARKER(1) MALLARD QUAIL HERCULES(2) ADJUSTMENTS FORMA
----------- ------- ------ ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Drilling........................ $ 283,598 $23,678 $ -- $64,251 $ (967)(j) $ 370,560
Rental.......................... 25,457 -- 5,387 -- -- 30,844
Other........................... 2,589 -- -- -- -- 2,589
---------- ------- ------ ------- -------- ----------
Total revenues........... 311,644 23,678 5,387 64,251 (967) 403,993
---------- ------- ------ ------- -------- ----------
Operating expense:
Drilling........................ 189,979 14,382 -- 39,090 7,253(d) 250,615
(89)(j)
Rental.......................... 8,549 -- 439 -- 739(d) 9,727
Other........................... 4,722 -- -- -- -- 4,722
Depreciation, depletion and
amortization.................. 46,256 2,695 505 5,715 5,519(b) 62,424
1,922(c)
(188)(j)
General and administrative...... 14,414 1,933 739 5,320 (7,992)(d) 14,414
---------- ------- ------ ------- -------- ----------
Total operating
expenses............... 263,920 19,010 1,683 50,125 7,164 341,902
---------- ------- ------ ------- -------- ----------
Operating income.................. 47,724 4,668 3,704 14,126 (8,131) 62,091
---------- ------- ------ ------- -------- ----------
Other income (expense):
Interest expense................ (32,851) (102) -- (3,068) (22,369)(e) (56,214)
(892)(h)
3,068(f)
Interest income................. 5,367 -- 962 -- (949)(g) 5,380
Other........................... 3,316 (78) 5 -- -- 3,243
---------- ------- ------ ------- -------- ----------
Total other income
(expense).............. (24,168) (180) 967 (3,068) (21,142) (47,591)
---------- ------- ------ ------- -------- ----------
Income before income taxes........ 23,556 4,488 4,671 11,058 (29,273) 14,500
---------- ------- ------ ------- -------- ----------
Income tax expense (benefit)...... 7,241 403 -- 4,808 (4,846)(i) 7,371
(235)(j)
--------
Net income........................ $ 16,315 $ 4,085 $4,671 $ 6,250 $(24,192) $ 7,129
========== ======= ====== ======= ======== ==========
Earnings per share, diluted....... $ .23 $ 0.10
========== ==========
Weighted average shares
outstanding (diluted)........... 71,760,543 72,371,863
========== ==========
Other financial data:
Adjusted EBITDA(3).............. $ 93,980 $ 124,515
Ratio of earnings to fixed
charges(4).................... 1.7x 1.3x
</TABLE>
- ---------------
(1) Includes the operations of Mallard and Quail from November 13, 1996 through
August 31, 1997.
(2) Reflects combined results of operations of HOC and HRC for the 12 months
ended September 30, 1997. See Note (k) for the summary capsular combining
statement of operations of HOC and HRC for the 12 months ended September 30,
1997.
(3) Adjusted EBITDA represents operating income (loss) before depreciation,
depletion and amortization and provision for reduction in carrying value of
certain assets. EBITDA is frequently used by securities analysts and is
presented hereby to provide additional information about the Company's
operations. EBITDA is not a measurement presented in accordance with
generally accepted accounting principles. EBITDA should not be considered in
isolation or as a substitute for net income, cash flow provided by operating
activities or other income or cash flow data prepared in accordance with
generally accepted accounting principles or as a measure of a company's
profitability or liquidity.
(4) For purposes of these calculations, earnings consist of income (loss) before
income taxes plus interest expense, and fixed charges consist of interest
expense.
33
<PAGE> 40
PARKER DRILLING COMPANY AND SUBSIDIARIES
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
HISTORICAL
------------
PARKER
------------
AS OF
FEBRUARY 28,
1998 ADJUSTMENTS PRO FORMA
------------ ----------- ----------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents.......................... $ 4,061 $152,250(a) $ 73,166
(83,145)(e)
Accounts and notes receivable...................... 131,814 131,814
Rig materials and supplies......................... 21,204 21,204
Other current assets............................... 12,794 12,794
---------- -------- ----------
Total current assets....................... 169,873 69,105 238,978
---------- -------- ----------
Property, plant and equipment:
Drilling equipment................................. 934,705 934,705
Rental equipment................................... 31,262 31,262
Buildings, land and improvements................... 17,518 17,518
Other.............................................. 22,998 22,998
Construction in progress........................... 42,965 42,965
---------- ----------
1,049,448 1,049,448
Less accumulated depreciation, depletion and
amortization.................................... 401,779 401,779
---------- -------- ----------
Net property, plant and equipment.................. 647,669 647,669
---------- -------- ----------
Goodwill, net of accumulated amortization............ 209,249 209,249
---------- -------- ----------
Other noncurrent assets.............................. 46,829 (900)(e) 49,429
3,500(a)
Total assets............................... $1,073,620 $ 71,705 $1,145,325
========== ======== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt.................. $ 15,010 $(13,000)(e) $ 2,010
Accounts payable................................... 43,758 43,758
Accrued liabilities................................ 40,096 (145)(e) 39,951
Accrued income taxes............................... 9,199 9,199
----------
Total current liabilities.................. 108,063 (13,145) 94,918
---------- -------- ----------
Long-term debt....................................... 544,786 (70,000)(e) 630,536
155,750(a)
Other long-term liabilities.......................... 48,431 48,431
Preferred stock...................................... --
Stockholders' equity:
Common stock....................................... 12,786 12,786
Capital in excess of par value..................... 340,687 340,687
Retained earnings (accumulated deficit)............ 18,885 (900)(e) 17,985
Other.............................................. (18) (18)
---------- -------- ----------
Total stockholders' equity................. 372,340 (900) 371,440
---------- -------- ----------
Total liabilities and stockholders'
equity................................... $1,073,620 $ 71,705 $1,145,325
========== ======== ==========
</TABLE>
34
<PAGE> 41
PARKER DRILLING COMPANY AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(a) To record the issuance of the Notes.
(b) To adjust depreciation expense on assets acquired using allocated purchase
price and to eliminate accumulated depreciation on Hercules assets.
Depreciation was calculated over 17 1/2 years for barge drilling rigs, 15
years on jackup rigs and seven years for tool rental equipment, using 5%
salvage on all equipment.
(c) To adjust amortization of excess cost over fair value of net assets
acquired over 30 years.
(d) Reclassify the general and administrative expenses of Mallard and Hercules
to drilling expense and of Quail to rental expense.
(e) To adjust interest expense on $450 million of Series B and Series C Notes
at 9.75% and $175 million of Convertible Notes at 5.5%, to adjust
amortization of original issue discount and premium over the term of the
Series B and Series C Notes, respectively, to remove interest expense
related to the $100 million bank term loan and to retire the $100 million
bank term loan with proceeds from the Series C Notes Offering. In addition,
the Company would have recorded $0.9 million extraordinary loss from the
early debt extinguishment.
(f) To eliminate interest expense on Hercules debt not assumed.
(g) To eliminate interest and investment income on Quail cash and investments
not acquired.
(h) To adjust amortization of debt issuance costs over the ten-year term of the
Series B Notes, the remaining term of the Series C Notes and the seven-year
term of the Convertible Notes.
(i) To eliminate current U.S. federal income taxes allocated to Mallard by its
former parent and eliminate current U.S. federal income taxes recorded by
Hercules due to the existence of the Company's net operating loss tax carry
forwards and to record deferred income tax expense.
(j) To eliminate operating results and balance sheet accounts related to Rig
No. 1 which was sold by Hercules in October 1997.
(k) Following is the summary capsular combining statements of operations of HOC
and HRC, as applicable for the periods indicated:
<TABLE>
<CAPTION>
12 MONTHS ENDED SEPTEMBER 30, 1997
---------------------------------------------
HOC HRC ELIMINATIONS COMBINED
------- ------ ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues................................ $64,251 $1,923 $(1,923) $64,251
Total operating expenses................ 50,621 1,427 (1,923) 50,125
Other (income) expense.................. 2,013 1,055 -- 3,068
Income (loss) before income taxes....... 11,617 (559) -- 11,058
Income tax expense...................... 4,808 -- -- 4,808
------- ------ ------- -------
Net income (loss)............. $ 6,809 $ (559) $ -- $ 6,250
======= ====== ======= =======
</TABLE>
35
<PAGE> 42
<TABLE>
<CAPTION>
SEPTEMBER 1, 1997 TO DECEMBER 30, 1997
---------------------------------------------
HOC HRC ELIMINATIONS COMBINED
------- ------ ------------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Revenues................................ $25,486 $2,255 $(2,255) $25,486
Total operating expenses................ 27,396 504 (2,255) 25,645
Other (income) expense.................. 692 348 -- 1,040
Income (loss) before income taxes....... (2,602) 1,403 -- (1,199)
Income tax expense (benefit)............ (1,051) -- -- (1,051)
------- ------ ------- -------
Net income (loss)............. $(1,551) $1,403 $ -- $ (148)
======= ====== ======= =======
</TABLE>
Elimination entries represent the elimination of approximately $1,923,000
and $2,255,000 of HRC's billings to HOC for the 12 months ended September
30, 1997 and from September 1, 1997 to December 30, 1997, respectively, for
HOC's bareboat charter of HRC's drilling and workover rigs.
(l) To adjust the Hercules operating results for non-recurring expenses
associated with the acquisition, consisting primarily of bonuses paid to
certain Hercules employees and costs associated with retiring Hercules'
long term debt.
36
<PAGE> 43
SELECTED CONSOLIDATED FINANCIAL DATA
The historical financial data presented in the table below as of and for
each of the years in the five-year period ended August 31, 1997 are derived from
the Consolidated Financial Statements of the Company. The data presented below
should be read in conjunction with the Company's Consolidated Financial
Statements, including the notes thereto, included elsewhere or incorporated by
reference in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED AUGUST 31, ENDED FEBRUARY 28,
------------------------------------------------------------------- -------------------------
1993 1994(1) 1995 1996 1997(3) 1997 1998
----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues:
Drilling................ $ 96,719 $ 147,480 $ 153,075 $ 145,160 $ 283,598 $ 114,274 $ 217,584
Rental.................. -- -- -- -- 25,457 8,800 16,730
Other................... 4,082 4,944 4,296 11,492 2,589 1,166 783
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total revenues.... 100,801 152,424 157,371 156,652 311,644 124,240 235,097
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating Expenses:
Drilling................ 71,533 117,430 115,963 104,614 189,979 80,555 138,551
Rental.................. -- -- -- -- 8,549 2,025 6,610
Other................... 5,951 6,563 4,928 11,824 4,722 2,417 1,040
Depreciation, depletion
and amortization...... 23,376 23,246 23,745 23,061 46,256 19,612 31,673
General and
administrative........ 12,321 14,320 14,232 15,756 14,414 6,801 8,545
Provision for reduction
in carrying value of
certain assets(1)..... -- 19,718 -- -- -- -- --
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total operating
expenses........ 113,181 181,277 158,868 155,255 263,920 111,410 186,419
----------- ----------- ----------- ----------- ----------- ----------- -----------
Operating income (loss)... (12,380) (28,853) (1,497) 1,397 47,724 12,830 48,678
----------- ----------- ----------- ----------- ----------- ----------- -----------
Other income (expense):
Interest income
(expense) -- net..... 1,676 1,150 1,184 1,507 (27,484) (10,090) (20,805)
Minority interest....... 149 (135) (227) -- -- -- --
Other................... (469) 919 7,640 5,663 3,316 2,087 6,394
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total other income
(expense)....... 1,356 1,934 8,597 7,170 (24,168) (8,003) (14,411)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income (loss) before
income taxes............ (11,024) (26,919) 7,100 8,567 23,556 4,827 34,267
Income tax expense
(benefit)............... (337) 1,887 3,184 4,514 7,241 2,012 11,359
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net income
(loss).......... $ (10,687) $ (28,806) $ 3,916 $ 4,053 $ 16,315 $ 2,815 $ 22,908
=========== =========== =========== =========== =========== =========== ===========
Earnings (loss) per share
(diluted)............... $ (.20) $ (.53) $ .07 $ .07 $ .23 $ .04 $ .29
=========== =========== =========== =========== =========== =========== ===========
Weighted average shares
outstanding (diluted)... 53,082,078 54,247,664 55,112,160 57,261,491 71,760,543 67,504,241 78,380,903
=========== =========== =========== =========== =========== =========== ===========
OTHER FINANCIAL DATA:
Ratio of earnings to fixed
charges(4).............. -- -- 81.7x 64.5x 1.7x 1.4x 2.4x
Capital expenditures:
Maintenance............. $ 3,552 $ 5,444 $ 5,133 $ 6,646 $ 14,702 $ 5,618 $ 9,669
Other................... 15,165 29,320 16,407 24,190 72,724 26,158 71,751
Net cash flows:
Operating............... 13,721 950 17,936 29,971 8,472 (1,830) 66,108
Investing............... (16,779) (2,556) (7,770) (39,143) (466,276) (391,300) (264,170)
Financing............... 2,340 (304) (74) 50,158 606,017 385,989 (7,828)
Adjusted EBITDA(2)........ 10,996 14,111 22,248 24,458 93,980 32,442 80,351
BALANCE SHEET DATA (END OF
PERIOD):
Cash, cash equivalents and
other short-term
investments............. $ 43,989 $ 14,471 $ 22,124 $ 77,985 $ 212,789 $ 57,748 $ 4,061
Property, plant and
equipment, net.......... 139,326 127,178 122,258 124,177 439,651 390,125 647,669
Total assets.............. 236,342 209,348 216,959 275,959 984,136 740,496 1,073,620
Total long-term debt,
including current
portion................. -- -- 2,037 3,378 567,126 402,769 559,796
Total stockholders'
equity.................. 207,679 180,583 186,920 244,048 348,723 273,262 372,340
</TABLE>
37
<PAGE> 44
- ---------------
(1) In fiscal 1994, Parker reorganized its domestic land drilling and
manufacturing operations and made the decision to dispose of certain
drilling equipment, inventories and other properties. Accordingly, Parker
removed 16 rigs from its domestic fleet and recorded a $19.7 million
provision for reduction in carrying value of certain assets.
(2) Adjusted EBITDA represents operating income (loss) before depreciation,
depletion, amortization and provision for reduction in carrying value of
certain assets. EBITDA is frequently used by securities analysts and is
presented here to provide additional information about the Company's
operations. EBITDA is not a measurement presented in accordance with
generally accepted accounting principles. EBITDA should not be considered in
isolation or as a substitute for net income, cash flow provided by operating
activities or other income or cash flow data prepared in accordance with
generally accepted accounting principles or as a measure of a company's
profitability or liquidity.
(3) Results for fiscal 1997 include the results of Mallard and Quail from
November 13, 1996.
(4) For purposes of these calculations, earnings consist of income (loss) before
income taxes plus interest expense and fixed charges consist of interest
expense. Earnings were not sufficient during 1993 and 1994 to cover fixed
charges. The deficiencies were: 1993 -- $11.0 million and 1994 -- $26.9
million.
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<PAGE> 45
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Series C Notes were sold by the Company on March 11, 1998 to the
Initial Purchaser pursuant to the Purchase Agreement. The Initial Purchaser
subsequently placed the Series C Notes with qualified institutional buyers in
reliance on Rule 144A under the Securities Act and accredited institutional
investors. As a condition of the purchase of Series C Notes by the Initial
Purchaser, the Company entered into the Registration Rights Agreement with the
Initial Purchaser, which requires, among other things, that the Company file
with the Commission a registration statement under the Securities Act with
respect to a SUPERtack(TM) offer by the Company to the holders of the Series C
Notes and the Series B Notes to issue and deliver to such holders, in exchange
for such Old Notes, a like principal amount of Exchange Notes. The Company is
required to use its best efforts to cause the Registration Statement relating to
the Exchange Offer to be declared effective by the Commission under the
Securities Act and commence the Exchange Offer. The Exchange Notes are to be
issued without a restrictive legend and may be reoffered and resold by the
holder without restrictions or limitations under the Securities Act (other than
any such holder that is an "affiliate" of the Company within the meaning of Rule
405 under the Securities Act). A copy of the Registration Rights Agreement has
been filed as an exhibit to the Registration Statement of which this Prospectus
is a part.
On November 12, 1996, the Company sold Series A Notes to the Series A
Initial Purchasers. The Series A Initial Purchasers subsequently placed the
Series A Notes with qualified institutional buyers in reliance on Rule 144A
under the Securities Act and to accredited institutional investors. As a
condition to the purchase of the Series A Notes by the Series A Initial
Purchasers, the Company entered into a Registration Rights Agreement with the
Series A Initial Purchasers which required the Company to file with the
Commission a Registration Statement of the Securities Act with respect to an
offer by the Company to the holders of the Series A Notes to issue and deliver
to such holders, in exchange for the Series A Notes, a like principal amount of
Series B Notes. In January 1997, the Company filed a Registration Statement with
respect to the Series B Notes, and in February 1997, all Series A Notes were
exchanged for registered Series B Notes in an exchange offer pursuant thereto.
The Series B Notes are identical in all material respects to the Exchange Notes.
The Company is including the Series B Notes in the Exchange Offer to combine
both series of notes in order to enhance the liquidity of the Exchange Notes.
The term "holder" with respect to the Exchange Offer means any person in
whose name the Series C Notes or the Series B Notes are registered on the books
of the Company or any other person who has obtained a properly completed bond
power from the registered holder.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept all
Series B Notes and Series C Notes properly tendered and not withdrawn prior to
5:00 p.m., New York City time, on the Expiration Date. Holders may tender some
or all of their Old Notes pursuant to the Exchange Offer in integral multiples
of $1,000 principal amount. On the Exchange Date, the Company will issue for
each $1,000 principal amount of Old Notes surrendered to the Company pursuant to
the Exchange Offer a like principal amount of Exchange Notes.
Each holder of Series C Notes who wishes to exchange Old Notes for Exchange
Notes in the Exchange Offer is required to make certain representations,
including that (i) it is neither an affiliate of the Company nor a broker-dealer
tendering Old Notes acquired directly from the Company for its own account, (ii)
any Exchange Notes to be received by it are being acquired in the ordinary
course of its business and (iii) it is not participating in, and it has no
arrangement with any person to participate in, the distribution (within the
meaning of the Securities Act) of the Exchange Notes. In addition, in connection
with any resales of Exchange Notes received in exchange for Series C Notes
pursuant to the Exchange Offer, any broker-dealer who acquired such Exchange
Notes for its own account as a result of market-making activities or other
trading activities must acknowledge that it will deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of such
Exchange Notes. The staff of the SEC has taken the position in no-action letters
issued to third parties including Shearman & Sterling, SEC No-Action Letter
(available July 2, 1993),
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<PAGE> 46
that participating broker-dealers may fulfill their prospectus delivery
requirements with respect to the Exchange Notes (other than a resale of an
unsold allotment from the original sale of Series C Notes) with this Prospectus,
as it may be amended or supplemented from time to time. Under the Registration
Rights Agreement, the Company is required to allow participating broker-dealers
to use this Prospectus, as it may be amended or supplemented from time to time,
in connection with the resale of such Exchange Notes. See "Plan of
Distribution."
The Exchange Offer shall be deemed to have been consummated upon the
earlier to occur of (i) the Company having exchanged Exchange Notes for all
outstanding Old Notes (other than Series C Notes held by a Restricted Holder)
pursuant to the Exchange Offer and (ii) the Company having exchanged, pursuant
to the Exchange Offer, Exchange Notes for all Old Notes that have been tendered
and not withdrawn on the date that is 30 days following the commencement of the
Exchange Offer. After such event, holders of Series C Notes seeking liquidity in
their investment would have to rely on exemptions to registration requirements
under the securities laws, including the Securities Act.
As of the date of this Prospectus, $450,000,000 principal amount of Old
Notes are issued and outstanding ($300,000,000 of Series B Notes and
$150,000,000 of Series C Notes). In connection with the issuance of the Series C
Notes, the Company arranged for the Series C Notes to be eligible for trading in
the Private Offering, Resale and Trading through Automated Linkages (PORTAL)
Market, the National Association of Securities Dealers' screen based, automated
market trading of securities eligible for resale under Rule 144A.
The Company shall be deemed to have accepted for exchange validly tendered
Old Notes when, as and if the Company has given oral or written notice thereof
to the Exchange Agent. See "-- Exchange Agent." The Exchange Agent will act as
agent for the tendering holders of Old Notes for the purpose of receiving
Exchange Notes from the Company and delivering Exchange Notes to such holders.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender or the occurrence of certain other events set forth herein,
certificates for any such unaccepted Old Notes will be returned, without
expense, to the tendering holder thereof as promptly as practicable after the
Expiration Date. Holders of Old Notes who tender in the Exchange Offer will not
be required to pay brokerage commissions or fees or, subject to the instructions
in the Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes, in connection with the Exchange
Offer. See "-- Fees and Expenses."
This Prospectus, together with the accompanying Letter of Transmittal, is
being sent to all registered holders as of the date of this Prospectus.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean June 26, 1998, unless the Company, in
its sole discretion, extends the Exchange Offer, in which case the term
"Expiration Date" shall mean the latest date to which the Exchange Offer is
extended. In order to extend the Expiration Date, the Company will notify the
Exchange Agent of any extension by oral or written notice and will mail to the
record holders of Old Notes an announcement thereof, each prior to 9:00 a.m.,
New York City time, on the next business day after the previously scheduled
Expiration Date. Such announcement may state that the Company is extending the
Exchange Offer for a specified period of time. The Company reserves the right
(i) to delay acceptance of any Old Notes, to extend the Exchange Offer or to
terminate the Exchange Offer and to refuse to accept Old Notes not previously
accepted, if any of the conditions set forth herein under "-- Termination" shall
have occurred and shall not have been waived by the Company (if permitted to be
waived by the Company), by giving oral or written notice of such delay,
extension or termination to the Exchange Agent, and (ii) to amend the terms of
the Exchange Offer in any manner deemed by it to be advantageous to the holders
of the Old Notes. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by oral or written notice
thereof. If the Exchange Offer is amended in a manner determined by the Company
to constitute a material change, the Company will promptly disclose such
amendment in a manner reasonably calculated to inform the holders of the Old
Notes of such amendment. Without limiting the manner in which the Company may
choose to make public announcements of any delay in acceptance,
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<PAGE> 47
extension, termination or amendment of the Exchange Offer, the Company shall
have no obligation to publish, advertise, or otherwise communicate any such
public announcement, other than by making a timely release to the Dow Jones News
Service. The maximum period of time that the Exchange Offer will remain open is
30 business days after the date on which the Registration Statement is declared
effective by the Commission.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest from the later of May 15, 1998 and
the date of issuance of the Exchange Notes at a rate equal to 9.75% per annum
and will be payable semi-annually on May 15 and November 15 of each year
commencing November 15, 1998. Interest on the Series C Notes that are tendered
in exchange for the Exchange Notes that has accrued from the date of issuance of
the Series C Notes (or the most recent Interest Payment Date to which interest
on the Series C Notes has been paid), through the Exchange Date and interest on
the Series B Notes that are tendered in exchange for the Exchange Notes since
the most recent date to which interest on the Series B Notes has been paid
through the Exchange Date will be payable on November 15, 1998. Consequently,
assuming the Exchange Offer is consummated prior to the record date in respect
of the November 15, 1998 interest payment for the Old Notes, holders who
exchange their Old Notes for Exchange Notes will receive the same interest
payment on November 15, 1998 that they would have received had they not accepted
the Exchange Offer. Interest on the Old Notes accepted for exchange will cease
to accrue upon issuance of the Exchange Notes.
PROCEDURES FOR TENDERING
To tender in the Exchange Offer, a holder must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with the Old
Notes and any other required documents, to the Exchange Agent prior to 5:00
p.m., New York City time, on the Expiration Date. The tender by a holder of Old
Notes will constitute an agreement between such holder and the Company in
accordance with the terms and subject to the conditions set forth herein and in
the Letter of Transmittal. Delivery of all documents must be made to the
Exchange Agent at its address set forth herein. Holders may also request that
their respective brokers, dealers, commercial banks, trust companies or nominees
effect such tender for such holders. The method of delivery of Old Notes and the
Letter of Transmittal and all other required documents to the Exchange Agent is
at the election and risk of the holders. Instead of delivery by mail, it is
recommended that holders use an overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure timely delivery. No Letter of
Transmittal or Old Notes should be sent to the Company. Only a holder of Old
Notes may tender such Old Notes in the Exchange Offer.
Any beneficial holder whose Old Notes are registered in the name of such
holder's broker, dealer, commercial bank, trust company or other nominee and who
wishes to tender should contact such registered holder promptly and instruct
such registered holder to tender on behalf of the registered holder. If such
beneficial holder wishes to tender directly, such beneficial holder must, prior
to completing and executing the Letter of Transmittal and delivering his Old
Notes, either make appropriate arrangements to register ownership of the Old
Notes in such holder's name or obtain a properly completed bond power from the
registered holder. The transfer of record ownership may take considerable time.
If the Letter of Transmittal is signed by the record holder(s) of the Old Notes
tendered thereby, the signature must correspond with the name(s) written on the
face of the Old Notes without alteration, enlargement or any change whatsoever.
If the Letter of Transmittal is signed by a participant in DTC, the signature
must correspond with the name as it appears on the security position listing as
the holder of the Old Notes. Signatures on a Letter of Transmittal or a notice
of withdrawal, as the case may be, must be guaranteed by a member firm of a
registered national securities exchange or of the National Association of
Securities Dealers, Inc., a commercial bank or trust company having an office or
correspondent in the United States or an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act (an "Eligible Institution")
unless the Old Notes tendered pursuant thereto are tendered (i) by a registered
holder (or by a participant in DTC whose name appears on a security position
listing as the owner) who has not completed the box entitled "Special Issuance
Instructions" or "Special Delivery Instructions" on the Letter of Transmittal
and the Exchange Notes are being issued directly to such registered holder (or
deposited into the participant's account at DTC) or (ii) for
41
<PAGE> 48
the account of an Eligible Institution. If the Letter of Transmittal is signed
by a person other than the registered holder of any Old Notes listed therein,
such Old Notes must be endorsed or accompanied by appropriate bond powers which
authorize such person to tender the Old Notes on behalf of the registered
holder, in either case signed as the name of the registered holder or holders
appears on the Old Notes. If the Letter of Transmittal or any Old Notes or bond
powers are signed by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
unless waived by the Company, evidence satisfactory to the Company of their
authority to so act must be submitted with the Letter of Transmittal.
A tender will be deemed to have been received as of the date when the
tendering holder's duly signed Letter of Transmittal accompanied by Old Notes
(or a timely confirmation received of a book-entry transfer of Old Notes into
the Exchange Agent's account at DTC) or a Notice of Guaranteed Delivery from an
Eligible Institution is received by the Exchange Agent. Issuances of Exchange
Notes in exchange for Old Notes tendered pursuant to a Notice of Guaranteed
Delivery by an Eligible Institution will be made only against delivery of the
Letter of Transmittal (and any other required documents) and the tendered Old
Notes (or a timely confirmation received of a book-entry transfer of Old Notes
into the Exchange Agent's account at DTC) with the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of the tendered Old Notes will be determined
by the Company in its sole discretion, which determination will be final and
binding. The Company reserves the absolute right to reject any and all Old Notes
not properly tendered or any Old Notes the Company's acceptance of which would,
in the opinion of the Company or its counsel, be unlawful. The Company also
reserves the absolute right to waive any conditions of the Exchange Offer or
defects or irregularities in tender as to particular Old Notes. The Company's
interpretation of the terms and conditions of the Exchange Offer (including the
instructions in the Letter of Transmittal) shall be final and binding on all
parties. Unless waived, any defects or irregularities in connection with tenders
of Old Notes must be cured within such time as the Company shall determine.
Neither the Company, the Exchange Agent nor any other person shall be under any
duty to give notification of defects or irregularities with respect to tenders
of Old Notes nor shall any of them incur any liability for failure to give such
notification. Tenders of Old Notes will not be deemed to have been made until
such irregularities have been cured or waived. Any Old Notes received by the
Exchange Agent that are not properly tendered and as to which the defects or
irregularities have not been cured or waived will be returned without cost by
the Exchange Agent to the tendering holder of such Old Notes unless otherwise
provided in the Letter of Transmittal, as soon as practicable following the
Expiration Date. In addition, the Company reserves the right in its sole
discretion to (i) purchase or make offers for any Old Notes that remain
outstanding subsequent to the Expiration Date, or, as set forth under
"-- Termination," to terminate the Exchange Offer and (ii) to the extent
permitted by applicable law, purchase Old Notes in the open market, in privately
negotiated transactions or otherwise. The terms of any such purchases or offers
may differ from the terms of the Exchange Offer.
BOOK-ENTRY TRANSFER
The Exchange Agent will establish an account with respect to the Old Notes
at DTC within two business days after the date of this Prospectus, and any
financial institution which is a participant in DTC may make book-entry delivery
of the Old Notes by causing DTC to transfer such Old Notes into the Exchange
Agent's account in accordance with DTC's procedure for such transfer. Although
delivery of Old Notes may be effected through book-entry transfer into the
Exchange Agent's account at DTC, the Letter of Transmittal, with any required
signature guarantees and any other required documents, must in any case be
transmitted to and received by the Exchange Agent on or prior to the Expiration
Date at one of its addresses set forth below under "-- Exchange Agent", or the
guaranteed delivery procedure described below must be complied with. DELIVERY OF
DOCUMENTS TO DTC DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. All
references in this Prospectus to deposit or delivery of Old Notes shall be
deemed to include DTC's book-entry delivery method.
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<PAGE> 49
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old Notes and whose Old Notes are not
immediately available or who cannot deliver their Old Notes, the Letter of
Transmittal or any other required documents to the Exchange Agent prior to the
Expiration Date, or who cannot complete the procedure for book-entry transfer on
a timely basis, may effect a tender if: (i) the tender is made by or through an
Eligible Institution; (ii) prior to the Expiration Date, the Exchange Agent
receives from such Eligible Institution a properly completed and duly executed
Notice of Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the holder of the Old Notes, the
registration number or numbers of such Old Notes (if applicable), and the total
principal amount of Old Notes tendered, stating that the tender is being made
thereby and guaranteeing that, within five business days after the Expiration
Date, the Letter of Transmittal, together with the Old Notes in proper form for
transfer (or a confirmation of a book-entry transfer into the Exchange Agent's
account at DTC) and any other documents required by the Letter of Transmittal,
will be deposited by the Eligible Institution with the Exchange Agent; and (iii)
such properly completed and executed Letter of Transmittal, together with the
certificate(s) representing all tendered Old Notes in proper form for transfer
(or a confirmation of such a book-entry transfer) and all other documents
required by the Letter of Transmittal are received by the Exchange Agent within
five business days after the Expiration Date.
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, certain terms and
conditions which are summarized below and are part of the Exchange Offer.
Each holder who participates in the Exchange Offer will be required to
represent that any Exchange Notes received by it will be acquired in the
ordinary course of its business, that such holder is not participating in, and
has no arrangement with any person to participate in, the distribution (within
the meaning of the Securities Act) of the Exchange Notes, and that such holder
is not a Restricted Holder.
Old Notes tendered in exchange for Exchange Notes (or a timely confirmation
of a book-entry transfer of such Old Notes into the Exchange Agent's account at
DTC) must be received by the Exchange Agent, with the Letter of Transmittal and
any other required documents, by the Expiration Date or within the time periods
set forth above pursuant to a Notice of Guaranteed Delivery from an Eligible
Institution. Each holder tendering the Old Notes for exchange sells, assigns and
transfers the Old Notes to the Exchange Agent, as agent of the Company, and
irrevocably constitutes and appoints the Exchange Agent as the holder's agent
and attorney-in-fact to cause the Old Notes to be transferred and exchanged. The
holder warrants that it has full power and authority to tender, exchange, sell,
assign and transfer the Old Notes and to acquire the Exchange Notes issuable
upon the exchange of such tendered Old Notes, that the Exchange Agent, as agent
of the Company, will acquire good and unencumbered title to the tendered Old
Notes, free and clear of all liens, restrictions, charges and encumbrances, and
that the Old Notes tendered for exchange are not subject to any adverse claims
when accepted by the Exchange Agent, as agent of the Company. The holder also
warrants and agrees that it will, upon request, execute and deliver any
additional documents deemed by the Company or the Exchange Agent to be necessary
or desirable to complete the exchange, sale, assignment and transfer of the Old
Notes. All authority conferred or agreed to be conferred in the Letter of
Transmittal by the holder will survive the death, incapacity or dissolution of
the holder and any obligation of the holder shall be binding upon the heirs,
personal representatives, successors and assigns of such holder.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the business day prior to
the Expiration Date, unless previously accepted for exchange. To withdraw a
tender of Old Notes in the Exchange Offer, a written or facsimile transmission
notice of withdrawal must be received by the Exchange Agent at its address set
forth herein prior to 5:00 p.m., New York City time, on the business day prior
to the Expiration Date and prior to acceptance for exchange thereof by the
Company. Any such notice of withdrawal must (i) specify the name of the person
having deposited the Old Notes to be withdrawn (the "Depositor"), (ii) identify
the Old Notes to be withdrawn
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<PAGE> 50
(including, if applicable, the registration number or numbers and total
principal amount of such Old Notes), (iii) be signed by the Depositor in the
same manner as the original signature on the Letter of Transmittal by which such
Old Notes were tendered (including any required signature guarantees) or be
accompanied by documents of transfer sufficient to permit the Trustee with
respect to the Old Notes to register the transfer of such Old Notes into the
name of the Depositor withdrawing the tender, (iv) specify the name in which any
such Old Notes are to be registered, if different from that of the Depositor and
(v) if applicable because the Old Notes have been tendered pursuant to the
book-entry procedures, specify the name and number of the participant's account
at DTC to be credited, if different than that of the Depositor. All questions as
to the validity, form and eligibility (including time of receipt) of such
withdrawal notices will be determined by the Company, whose determination shall
be final and binding on all parties. Any Old Notes so withdrawn will be deemed
not to have been validly tendered for purposes of the Exchange Offer and no
Exchange Notes will be issued with respect thereto unless the Old Notes so
withdrawn are validly retendered. Any Old Notes which have been tendered but
which are not accepted for exchange will be returned to the holder thereof
without cost to such holder as soon as practicable after withdrawal, rejection
of tender or termination of the Exchange Offer. Properly withdrawn Old Notes may
be retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the Expiration Date.
TERMINATION
Notwithstanding any other term of the Exchange Offer, the Company will not
be required to accept for exchange any Old Notes not theretofore accepted for
exchange, and may terminate the Exchange Offer if it determines that the
Exchange Offer violates any applicable law or interpretation of the staff of the
SEC.
If the Company determines that it may terminate the Exchange Offer, as set
forth above, the Company may (i) refuse to accept any Old Notes and return any
Old Notes that have been tendered to the holders thereof, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the Expiration of the
Exchange Offer, subject to the rights of such holders of tendered Old Notes to
withdraw their tendered Old Notes or (iii) waive such termination event with
respect to the Exchange Offer and accept all properly tendered Old Notes that
have not been withdrawn. If such waiver constitutes a material change in the
Exchange Offer, the Company will disclose such change by means of a supplement
to this Prospectus that will be distributed to each registered holder of Old
Notes, and the Company will extend the Exchange Offer for a period of five to
ten business days, depending upon the significance of the waiver and the manner
of disclosure to the registered holders of the Old Notes, if the Exchange Offer
would otherwise expire during such period. Holders of Series C Notes will have
certain rights against the Company under the Registration Rights Agreement
should the Company fail to consummate the Exchange Offer.
EXCHANGE AGENT
Chase Bank of Texas, National Association has been appointed as Exchange
Agent for the Exchange Offer. Questions and requests for assistance and requests
for additional copies of this Prospectus or of the Letter of Transmittal should
be directed to the Exchange Agent addressed as follows:
<TABLE>
<S> <C>
By Mail: By Hand or Overnight Courier:
Chase Bank of Texas, National Association Chase Bank of Texas, National Association
ATTN: Frank Ivins -- Registered Bond ATTN: Frank Ivins -- Registered Bond
Events Events
Personal & Confidential Personal & Confidential
P. O. Box 2320 1201 Main Street, 18th Floor
Dallas, Texas 75221-2320 Dallas, Texas 75202
Facsimile Transmission: (214) 672-5746; Confirm by Telephone: (800) 275-2048
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders pursuant to the Exchange Offer will be
borne by the Company. The principal solicitation for tenders pursuant to the
Exchange Offer is being made by mail. Additional solicitations may be made by
officers and regular employees of the Company and its affiliates in person, by
telegraph or telephone. The Company will not make any payments to brokers,
dealers or other persons
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<PAGE> 51
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
the Exchange Agent for its reasonable out-of-pocket expenses in connection
therewith. The Company may also pay brokerage houses and other custodians,
nominees and fiduciaries the reasonable out-of-pocket expenses incurred by them
in forwarding copies of this Prospectus, Letters of Transmittal and related
documents to the beneficial owners of the Old Notes and in handling or
forwarding tenders for exchange.
The other expenses incurred in connection with the Exchange Offer,
including fees and expenses of the Exchange Agent and Trustee and accounting and
legal fees, will be paid by the Company. The Company will pay all transfer
taxes, if any, applicable to the exchange of Old Notes pursuant to the Exchange
Offer. If, however, Exchange Notes or Old Notes not tendered or accepted for
exchange are to be delivered to, or are to be registered or issued in the name
of, any person other than the registered holder of the Old Notes tendered, or if
tendered Old Notes are registered in the name of any person other than the
person signing the Letter of Transmittal, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
holder or any other persons) will be payable by the tendering holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
ACCOUNTING TREATMENT
No gain or loss for accounting purposes will be recognized by the Company
upon the consummation of the Exchange Offer. The expenses of the Exchange Offer
will be amortized by the Company over the term of the Exchange Notes under
generally accepted accounting principles.
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DESCRIPTION OF SENIOR CREDIT FACILITY
In November 1996, the Company established a Senior Credit Facility with ING
(U.S.) Capital Corporation ("ING") and a syndicate of financial institutions
(the "Lenders"), consisting of a $100 million term loan and a $45 million
revolving credit facility, which was subsequently increased to $75 million in
December 1997. The balance of the term loan of $83 million was repaid with the
proceeds of the Series C Offering, and such term loan was terminated.
The revolving credit facility can be used for general corporate purposes,
including capital expenditures for rig refurbishments and upgrades, working
capital and standby letters of credit. Availability under the revolving credit
facility is subject to certain borrowing base limitations based on eligible
accounts receivable and 50% of rig supplies in inventory. All advances to the
Company under the revolving credit facility bear interest, at the option of the
Company, at prime to prime plus 0.50% or at 1.75% to 2.25% above the one-, two-,
three- and six-month reserve-adjusted LIBOR, depending on the percentage of the
credit used. The revolving credit facility is guaranteed by the principal
subsidiaries of the Company, is secured by substantially all of the assets of
the Company and the stock and assets of the Subsidiary Guarantors. The revolving
credit contains customary representations and warranties and restricts the
Company's ability to, among other things, incur indebtedness, merge or sell
assets, pay dividends or other distributions, make investments and capital
expenditures, and engage in transactions with affiliates. The revolving credit
also requires the Company to maintain a consolidated current ratio of not less
than 1 to 1, maintain a consolidated Cash Flow Coverage Ratio (as defined
therein) of 1.25 to 1 prior to March 1, 1998 and 1.4 to 1 thereafter, maintain a
consolidated Debt-to-Capital Ratio (as defined therein) of not greater than 65%
prior to September 1, 1998 and not greater than 60% thereafter. The revolving
credit facility matures on December 31, 1999.
The Company is obligated to pay the Lenders certain fees on the average
daily unadvanced portion of the commitment on the revolving credit facility, and
certain fees for issuance of letters of credit.
Future advances under the revolving credit portion of the Senior Credit
Facility are conditioned on, among other things, the representations and
warranties being true and correct, the delivery of certain opinions and
certificates, environmental and insurance reviews and no material changes having
occurred in the financial condition, operations or properties of the Company.
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<PAGE> 53
DESCRIPTION OF EXCHANGE NOTES
GENERAL
The Exchange Notes will be issued, and the Series C Notes were issued,
pursuant to the Indenture between the Company and Chase Bank of Texas, National
Association, as trustee (the "Trustee"), dated March 11, 1998. The terms of the
Exchange Notes include those stated in the Indenture and, upon effectiveness of
the Exchange Offer Registration Statement, those made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). The Exchange Notes are subject to all such terms, and holders of Exchange
Notes are referred to the Indenture and the Trust Indenture Act for a statement
thereof. The following summary of certain provisions of the Indenture does not
purport to be complete and is qualified in its entirety by reference to the
Indenture, including the definitions therein of certain terms used below. The
Indenture and the Registration Rights Agreement are exhibits to the Registration
Statement. The definitions of certain terms used in the following summary are
set forth below under "-- Certain Definitions."
As used below in this "Description of Exchange Notes," the "Company" means
Parker Drilling Company, but not any of its Subsidiaries.
The Indenture provides for the issuance of up to $450 million principal
amount of 9 3/4% Senior Notes due 2006, Series D to permit the Company to issue
the Exchange Notes (the Series D Notes) for all of the Series C Notes and Series
B Notes. The Indenture also provides the Company the flexibility of issuing
additional Notes in the future; however, any issuance of additional Notes would
be subject to the covenant described under "-- Certain Covenants -- Incurrence
of Indebtedness and Issuance of Preferred Stock." The Series C Notes, any such
additional Notes and the Exchange Notes are collectively referred to as the
"Notes" in this "Description of Exchange Notes."
The Exchange Notes will rank senior in right of payment to all Subordinated
Indebtedness of the Company. The Exchange Notes will rank pari passu in right of
payment with all other senior Indebtedness of the Company, including borrowings
under the Senior Credit Facility and the Series B Notes. However, the Exchange
Notes will be unsecured obligations of the Company and the borrowings under the
Senior Credit Facility are secured by Liens on substantially all of the assets
of the Company and its Subsidiaries. As a result, the Indebtedness under the
Senior Credit Facility will effectively rank senior to the Exchange Notes to the
extent of the security therefor. The Exchange Notes will be fully and
unconditionally guaranteed on a senior unsecured basis by the Subsidiary
Guarantors, jointly and severally. See "-- Subsidiary Guarantees."
As of the date of the Indenture, all of the Company's Significant
Subsidiaries will be Restricted Subsidiaries. However, certain of the Company's
other Subsidiaries were designated as Unrestricted Subsidiaries at the time the
Indenture was executed. At November 30, 1997, such Unrestricted Subsidiaries had
total assets of approximately $19.1 million. In addition, subject to the
requirements of the Indenture, the Company will be able to designate other
current or future Subsidiaries as Unrestricted Subsidiaries. Unrestricted
Subsidiaries will not be subject to the restrictive covenants set forth in the
Indenture.
Any Series C Notes that remain outstanding after the completion of the
Exchange Offer, together with the Exchange Notes issued in exchange for Series C
Notes and Series B Notes in connection with the Exchange Offer, will be treated
as a single class of debt securities under the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes will mature on November 15, 2006. Interest on the Notes will
accrue at the rate of 9.75% per annum and will be payable semi-annually in
arrears on November 15 and May 15 commencing on November 15, 1998, to holders of
record on the immediately preceding November 1 and May 1. Interest on the Notes
will accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of original issuance. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
OPTIONAL REDEMPTION
The Notes will not be redeemable at the Company's option prior to November
15, 2001. Thereafter, the Notes will be subject to redemption at the option of
the Company, in whole or in part, upon not less than 30
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<PAGE> 54
nor more than 60 days notice, at the redemption prices (expressed as percentages
of principal amount) set forth below plus accrued and unpaid interest and
Liquidated Damages, if any, thereon to the applicable redemption date, if
redeemed during the 12-month period beginning on November 15, of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001...................................................... 104.875%
2002...................................................... 103.250%
2003...................................................... 101.625%
2004 and thereafter....................................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time on or prior to November 15,
1999, the Company may redeem up to 35% of the aggregate principal amount of
Notes originally issued (but disregarding, for this purpose, any Exchange Notes
other than additional Notes) at a redemption price of 109.75% of the principal
amount thereof, plus accrued and unpaid interest and Liquidated Damages thereon
to the redemption date, with the net proceeds of a Public Equity Offering;
provided that at least 65% of the aggregate principal amount of the Notes
originally issued (but disregarding, for this purpose, any Exchange Notes other
than additional Notes) remains outstanding immediately after the occurrence of
such redemption; and, provided, further, that such redemption shall occur within
60 days of the date of the closing of such Public Equity Offering.
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee on a pro rata basis, by lot or
by such method as the Trustee shall deem fair and appropriate; provided that no
Notes of $1,000 or less shall be redeemed in part. Notices of redemption shall
be mailed by first class mail at least 30 but not more than 60 days before the
redemption date to each Holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the redemption date, interest
ceases to accrue on Notes or portions of them called for redemption.
MANDATORY REDEMPTION
Except as set forth below under "-- Repurchase at the Option of Holders,"
the Company is not required to make mandatory redemption or sinking fund
payments with respect to the Notes.
SUBSIDIARY GUARANTEES
Each of the Company's Significant Subsidiaries (other than any Exempt
Foreign Subsidiary, as designated by the Company) on the Issue Date of the
Series C Notes and each other Restricted Subsidiary that provides a guarantee
under the Senior Credit Facility will become a Subsidiary Guarantor under the
Indenture. Each Subsidiary Guarantor will fully and unconditionally guarantee on
a senior basis, jointly and severally, the full and prompt performance of the
Company's obligations under the Indenture and the Notes, including the payment
of principal and interest on the Notes. The obligations of each Subsidiary
Guarantor under its Subsidiary Guarantee will be limited to the maximum amount
as will, after giving effect to all other contingent and fixed liabilities of
such Subsidiary Guarantor and after giving effect to any collections from or
payments made by or on behalf of any other Subsidiary Guarantor in respect of
the obligations of such other Subsidiary Guarantor under its Subsidiary
Guarantee or pursuant to its contribution obligations under the Indenture,
result in the obligations of such Subsidiary Guarantor under the Subsidiary
Guarantee not constituting a fraudulent conveyance or fraudulent transfer under
federal or state law. The terms of the Subsidiary Guarantees will provide that,
for purposes of such limitations and the applicable fraudulent conveyance laws,
any indebtedness of a Subsidiary Guarantor incurred from time to time pursuant
to the Senior Credit Facility and secured by a perfected Lien on the assets of
such Subsidiary Guarantor (assuming,
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<PAGE> 55
for purposes of such determination, that the incurrence of any such indebtedness
and the granting of any such security interest did not violate any such
fraudulent conveyance laws) shall be deemed, to the extent of the value of the
assets subject to such Lien, to have been incurred prior to the incurrence by
such Subsidiary Guarantor of liability under its Subsidiary Guarantee. See "Risk
Factors -- Fraudulent Conveyance."
The Indenture provides that no Subsidiary Guarantor may consolidate with or
merge with or into (whether or not such Subsidiary Guarantor is the surviving
Person) another Person (other than the Company or another Subsidiary Guarantor),
whether or not affiliated with such Subsidiary Guarantor, unless (i) subject to
the provisions of the following paragraph, the Person formed by or surviving any
such consolidation or merger (if other than such Subsidiary Guarantor) shall
execute a Subsidiary Guarantee and deliver an Opinion of Counsel in accordance
with the terms of the Indenture; (ii) immediately after giving effect to such
transaction, no Default or Event of Default exists; (iii) such Subsidiary
Guarantor, or any Person formed by or surviving any such consolidation or
merger, would have Consolidated Net Worth (immediately after giving effect to
such transaction), equal to or greater than the Consolidated Net Worth of such
Subsidiary Guarantor immediately preceding the transaction; (iv) the Company
would be permitted by virtue of the Company's pro forma Fixed Charge Coverage
Ratio, immediately after giving effect to such transaction, to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the covenant described above under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock"; and
(v) such transaction does not violate any of the covenants described under
"-- Certain Covenants."
The Indenture provides that in the event of (i) the designation of any
Subsidiary Guarantor as an Unrestricted Subsidiary or (ii) a sale or other
disposition of all or substantially all of the properties or assets of any
Subsidiary Guarantor to a third party or an Unrestricted Subsidiary, by way of
merger, consolidation or otherwise, or a sale or other disposition of all of the
capital stock of any Subsidiary Guarantor, in either case, in a transaction or
manner that does not violate any of the covenants in the Indenture, then such
Subsidiary Guarantor (in the event of such a designation or a sale or other
disposition, by way of such a merger, consolidation or otherwise, of all of the
capital stock of such Subsidiary Guarantor) or the Person acquiring the property
(in the event of a sale or other disposition of all or substantially all of the
properties or assets of such Subsidiary Guarantor) will be released from and
relieved of any obligations under its Subsidiary Guarantee, provided that any
Net Proceeds of such sale or other disposition are applied in accordance with
the covenant described under the caption "-- Repurchase at the Option of
Holders -- Asset Sales," and provided, further, however, that any such
termination shall occur only to the extent that all obligations of such
Subsidiary Guarantor under all of its guarantees of, and under all of its
pledges of assets or other security interests that secure, any other
Indebtedness of the Company or its Restricted Subsidiaries shall also terminate
upon such release, sale or disposition.
The Indenture provides that (a) if the Company or any of its Restricted
Subsidiaries shall, after the Issue Date, (i) transfer or cause to be
transferred, any assets, businesses, divisions, real property or equipment
having an aggregate fair market or book value in excess of $1 million to any
Restricted Subsidiary that is not a Subsidiary Guarantor or (ii) make any
Investment having an aggregate fair market or book value in excess of $1 million
in any Restricted Subsidiary that is not a Subsidiary Guarantor, or (b) if,
after the Issue Date of the Series C Notes, any Restricted Subsidiary that is
not a Subsidiary Guarantor shall own any assets or properties having an
aggregate fair market or book value in excess of $1 million, then the Company
shall cause such Restricted Subsidiary (other than any Exempt Foreign
Subsidiary) to execute a Subsidiary Guarantee and deliver an opinion of counsel,
in accordance with the terms of the Indenture. In addition, the Company shall
not permit any of its Restricted Subsidiaries, other than a Subsidiary
Guarantor, directly or indirectly, to (i) incur, guarantee or secure through the
granting of Liens the payment of any Indebtedness of the Company or (ii) pledge
any intercompany notes representing obligations of any of its Restricted
Subsidiaries to secure the payment of any Indebtedness of the Company, in each
case, unless the Company shall cause such Restricted Subsidiary to execute a
Subsidiary Guarantee and deliver an opinion of counsel in advance in accordance
with the terms of the Indenture.
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<PAGE> 56
REPURCHASE AT THE OPTION OF HOLDERS
Change of Control
Upon the occurrence of a Change of Control, each holder of Notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such holder's Notes on a Business Day (the
"Change of Control Payment Date") not more than 60 nor less than 30 days
following such Change of Control, pursuant to the offer described below (the
"Change of Control Offer") at an offer price in cash equal to 101% of the
aggregate principal amount thereof plus accrued and unpaid interest and
Liquidated Damages thereon to the date of purchase (the "Change of Control
Payment"). Within 30 days following any Change of Control, the Company will mail
a notice to each holder describing the transaction or transactions that
constitute the Change of Control and offering to repurchase all of the Notes
then outstanding pursuant to the procedures required by the Indenture and
described in such notice. The Company will comply with the requirements of Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent such laws and regulations are applicable in connection
with the repurchase of the Notes as a result of a Change of Control. The Change
of Control Offer is required to remain open for at least 20 Business Days and
until the close of business on the fifth Business Day prior to the Change of
Control Payment Date.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (i) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (ii) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (iii) deliver or cause to be delivered to the
Trustee the Notes so accepted, together with an Officers' Certificate stating
the aggregate principal amount of Notes or portions thereof being purchased by
the Company. The Paying Agent will promptly mail or otherwise deliver to each
holder of Notes so tendered the Change of Control Payment for such Notes, and
the Trustee will promptly authenticate and mail (or cause to be transferred by
book entry) to each holder a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered, if any; provided that each such
new Note will be in a principal amount of $1,000 or an integral multiple
thereof. The Company will publicly announce the results of the Change of Control
Offer on or as soon as practicable after the Change of Control Payment Date.
The Change of Control provisions described above will be applicable whether
or not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the holders of the Notes to require that the Company
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction.
The occurrence of a Change of Control may result in a default under the
Senior Credit Facility and give the Lenders the right to require the Company to
repay all Indebtedness outstanding thereunder. There can be no assurance that
the Company will have available funds sufficient to repay all Indebtedness owing
under the Senior Credit Facility or to fund the purchase of the Notes upon a
Change of Control. In the event a Change of Control occurs at a time when the
Company does not have available funds sufficient to pay for all of the Notes
delivered by holders seeking to accept the Company's repurchase offer, an Event
of Default would occur under the Indenture.
The Company is not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole to any person (as such term is used in Section 13(d)(3) of the
Exchange Act); (ii) the Company consolidates with or merges into another Person
or any Person consolidates with, or merges into, the Company, in any such event
pursuant to a transaction in which the outstanding voting stock of the Company
is changed into or exchanged for cash, securities or other property, other than
any such transaction where
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<PAGE> 57
(a) the outstanding voting stock of the Company is changed into or exchanged for
voting stock of the surviving or resulting Person that is Qualified Capital
Stock and (b) the holders of the voting stock of the Company immediately prior
to such transaction own, directly or indirectly, not less than a majority of the
voting stock of the surviving or resulting Person immediately after such
transaction; (iii) the adoption of a plan relating to the liquidation or
dissolution of the Company; (iv) the consummation of any transaction (including,
without limitation, any merger or consolidation) the result of which is that any
person (as defined above) becomes the "beneficial owner" (as such term is
defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or
indirectly, of more than 50% of the voting stock of the Company; or (v) the
first day on which a majority of the members of the Board of Directors of the
Company are not Continuing Directors. For purposes of this definition, any
transfer of an equity interest of an entity that was formed for the purpose of
acquiring voting stock of the Company will be deemed to be a transfer of such
portion of such voting stock as corresponds to the portion of the equity of such
entity that has been so transferred.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a holder of Notes to require the Company to
repurchase such Notes as a result of a sale, lease, transfer, conveyance or
other disposition of less than all of the assets of the Company and its
Subsidiaries taken as a whole to another Person or group may be uncertain.
Asset Sales
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, engage in an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary is
in the form of cash or Cash Equivalents; provided that the amount of (x) any
liabilities (as shown on the Company's or such Restricted Subsidiary's most
recent balance sheet) of the Company or any Restricted Subsidiary (other than
contingent liabilities and liabilities that are Subordinated Indebtedness or
otherwise by their terms subordinated to the Notes or the Subsidiary Guarantees)
that are assumed by the transferee of any such assets pursuant to a customary
novation agreement that releases the Company or such Restricted Subsidiary from
further liability and (y) any notes or other obligations received by the Company
or any such Restricted Subsidiary from such transferee that are converted by the
Company or such Restricted Subsidiary into cash within 180 days of closing such
Asset Sale (to the extent of the cash received), shall be deemed to be cash for
purposes of this provision.
Within 365 days after the receipt of any Net Proceeds from any Asset Sale,
the Company may (i) apply all or any of the Net Proceeds therefrom to repay
Indebtedness (other than Subordinated Indebtedness) of the Company or any
Restricted Subsidiary, provided, in each case, that the related loan commitment
of any revolving credit facility or other borrowing (if any) is thereby
permanently reduced by the amount of such Indebtedness so repaid, or (ii) invest
all or any part of the Net Proceeds thereof in properties and other capital
assets that replace the properties or other capital assets that were the subject
of such Asset Sale or in other properties or other capital assets that will be
used in the business of the Company and its Restricted Subsidiaries. Pending the
final application of any such Net Proceeds, the Company may temporarily reduce
borrowings under any revolving credit facility or otherwise invest such Net
Proceeds in any manner that is not prohibited by the Indenture. Any Net Proceeds
from Asset Sales that are not applied or invested as provided in the first
sentence of this paragraph will be deemed to constitute "Excess Proceeds." When
the aggregate amount of Excess Proceeds equals or exceeds $15 million, the
Company will be required to (i) make an offer
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to purchase (the "Series A/B Asset Sale Offer") the Series B Notes, if any are
then outstanding, at a price equal to 100% of the principal amount of the Series
B Notes, plus accrued and unpaid interest (ii) in the event that any Excess
Proceeds are not applied to a Series B Asset Sale Offer, to make an offer to all
holders of Notes (an "Asset Sale Offer") to purchase the maximum principal
amount of Notes that may be purchased out of any Excess Proceeds, at an offer
price in cash in an amount equal to 100% of the principal amount thereof, plus
accrued and unpaid interest and Liquidated Damages thereon to the date of
purchase, in accordance with the procedures set forth in the Indenture. To the
extent that the aggregate amount of Notes tendered pursuant to an Asset Sale
Offer is less than the Excess Proceeds, the Company may use any remaining Excess
Proceeds for general corporate purposes. If the aggregate principal amount of
Notes surrendered by Holders thereof exceeds the amount of Excess Proceeds, the
Trustee shall select the Notes to be purchased on a pro rata basis. Upon
completion of such offer to purchase, the amount of Excess Proceeds shall be
reset at zero.
The Company will not permit any Restricted Subsidiary to enter into or
suffer to exist any agreement that would place any restriction of any kind
(other than pursuant to law or regulation) on the ability of the Company to make
an Asset Sale Offer following any Asset Sale. The Company will comply with Rule
14e-1 under the Exchange Act, and any other securities laws and regulations
thereunder, if applicable, in the event that an Asset Sale occurs and the
Company is required to purchase Notes as described above.
CERTAIN COVENANTS
Restricted Payments
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay
any dividend or make any other payment or distribution on account of the
Company's or any of its Restricted Subsidiaries' Equity Interests (including,
without limitation, any payment in connection with any merger or consolidation
involving the Company) or to the direct or indirect holders of the Company's
Equity Interests in their capacity as such (other than dividends or
distributions payable in Equity Interests (other than Disqualified Stock) of the
Company or dividends or distributions payable to the Company or any Wholly Owned
Restricted Subsidiary of the Company); (ii) purchase, redeem or otherwise
acquire or retire for value any Equity Interests of the Company or any Affiliate
of the Company (other than (A) any such Equity Interests owned by the Company or
any Wholly Owned Restricted Subsidiary of the Company that is a Subsidiary
Guarantor and (B) Employee Stock Repurchases); (iii) make any principal payment
on, or purchase, redeem, defease or otherwise acquire or retire for value any
Subordinated Indebtedness, except in accordance with the mandatory redemption or
repayment provisions set forth in the original documentation governing such
Indebtedness; or (iv) make any Restricted Investment (all such payments and
other actions set forth in clauses (i) through (iv) above being collectively
referred to as "Restricted Payments"), unless, at the time of and after giving
effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted
Payment had been made at the beginning of the applicable four-
quarter period, have been permitted to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness)
pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of the covenant described below under the caption
"-- Incurrence of Indebtedness and Issuance of Preferred Stock";
and,
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted
Subsidiaries after the Series A/B Issue Date (excluding Restricted
Payments permitted by clauses (x) and (y) the next succeeding
paragraph is less than the sum of (i) 50% of the Consolidated Net
Income of the Company for the period (taken as one accounting
period) from the beginning of the first fiscal quarter commencing
after the Series A/B Issue Date to the end of the Company's most
recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment
(or, if such
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Consolidated Net Income for such period is a deficit, less 100% of
such deficit), plus (ii) 100% of the aggregate Net Equity Proceeds (A)
received by the Company from the issue or sale, subsequent to the
Series A/B Issue Date, of Qualified Capital Stock of the Company or
(B) of any other Equity Interests or debt securities of the Company
that have been issued subsequent to the Series A/B Issue Date and that
have been converted into such Qualified Capital Stock (other than any
Qualified Capital Stock sold to a Restricted Subsidiary of the Company
or issued upon conversion of the Convertible Preferred Stock), plus
(iii) to the extent not otherwise included in Consolidated Net Income,
the net reduction in Investments in Unrestricted Subsidiaries
resulting from dividends, repayments of loans or advances, or other
transfers of assets, in each case to the Company or a Restricted
Subsidiary after the Series A/B Issue Date from any Unrestricted
Subsidiary or from the redesignation of an Unrestricted Subsidiary as
a Restricted Subsidiary (valued as provided below), plus (iv) $15
million.
The foregoing provisions will not prohibit any of the following: (w) the
payment of any dividend within 60 days after the date of declaration thereof, if
at said date of declaration such payment would have complied with the provisions
of the Indenture; (x) the redemption, repurchase, retirement or other
acquisition of any Equity Interests of the Company in exchange for, or out of
the Net Equity Proceeds of, the substantially concurrent sale (other than to a
Restricted Subsidiary of the Company) of Qualified Capital Stock of the Company
(other than any Disqualified Stock); provided that the amount of any such Net
Equity Proceeds that are utilized for any such redemption, repurchase,
retirement or other acquisition shall be excluded from clause (c)(ii) of the
preceding paragraph; (y) the defeasance, redemption or repurchase of
Subordinated Indebtedness with the net cash proceeds from an incurrence of
Permitted Refinancing Indebtedness or the substantially concurrent sale (other
than to a Restricted Subsidiary of the Company) of Qualified Capital Stock of
the Company; provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement or other acquisition
shall be excluded from clause (c)(ii) of the preceding paragraph.
For purposes of the foregoing provisions, the amount of any Restricted
Payment (other than cash) shall be the fair market value (evidenced by a
resolution of the Board of Directors set forth in an Officers' Certificate
delivered to the Trustee) on the date of the Restricted Payment of the asset(s)
proposed to be transferred by the Company or such Restricted Subsidiary, as the
case may be, pursuant to the Restricted Payment. Not later than the date of
making any Restricted Payment, the Company shall deliver to the Trustee an
Officers' Certificate stating that such Restricted Payment is permitted and
setting forth the basis upon which the calculations required by this "Restricted
Payments" covenant were computed, which calculations may be based upon the
Company's latest available financial statements.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would be permitted by the provisions
of this "Restricted Payments" covenant and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary. For purposes of
making such determination, all outstanding Investments by the Company and its
Restricted Subsidiaries (except to the extent repaid in cash prior to such
designation) in the Restricted Subsidiary so designated will be deemed to be
Restricted Payments at the time of such designation and will reduce the amount
available for Restricted Payments under paragraph (c) of this covenant. All such
outstanding Investments will be deemed to constitute Investments in an amount
equal to the Fair Market Value of such Investments at the time of such
designation.
Incurrence of Indebtedness and Issuance of Preferred Stock
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, issue,
assume, guarantee or otherwise become directly or indirectly liable,
contingently or otherwise, with respect to (collectively, "incur") any
Indebtedness (including Acquired Indebtedness but excluding any Permitted
Indebtedness) and that the Company will not issue any Disqualified Stock and
will not permit any of its Restricted Subsidiaries to issue any shares of
preferred stock; provided, however, that the Company may incur Indebtedness
(including Acquired Indebtedness) or issue
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shares of Disqualified Stock, and any Restricted Subsidiary may incur
Indebtedness (including Acquired Indebtedness), if the Fixed Charge Coverage
Ratio for the Company's most recently ended four full fiscal quarters for which
internal financial statements are available immediately preceding the date on
which such additional Indebtedness is incurred or such Disqualified Stock is
issued would have been at least 2.0 to 1.0, determined on a pro forma basis
(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred, or the Disqualified Stock had been
issued, as the case may be, at the beginning of such four-quarter period.
The Indenture also provides that neither the Company nor any Subsidiary
Guarantor will, directly or indirectly, in any event incur any Indebtedness that
by its terms (or by the terms of any agreement governing such Indebtedness) is
subordinated to any other Indebtedness of the Company or such Subsidiary
Guarantor, as the case may be, unless such Indebtedness is also by its terms (or
by the terms of any agreement governing such Indebtedness) made expressly
subordinate to the Notes or the Subsidiary Guarantee of such Subsidiary
Guarantor, as the case may be, to the same extent and in the same manner as such
Indebtedness is subordinated pursuant to subordination provisions that are most
favorable to the holders of any other Indebtedness of the Company or such
Subsidiary Guarantor, as the case may be.
Liens
The Indenture provides that the Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create, incur, assume, affirm
or suffer to exist or become effective any Lien of any kind, except for
Permitted Liens, upon any of their respective property or assets, whether now
owned or acquired after the Issue Date, or any income, profits or proceeds
therefrom, to secure (a) any Indebtedness of the Company or such Restricted
Subsidiary (if it is not also a Subsidiary Guarantor), unless prior to, or
contemporaneously therewith, the Notes are equally and ratably secured, or (b)
any Indebtedness of any Subsidiary Guarantor, unless prior to, or
contemporaneously therewith, the Subsidiary Guarantees are equally and ratably
secured; provided, however, that if such Indebtedness is expressly subordinated
to the Notes or the Subsidiary Guarantees, the Lien securing such Indebtedness
will be subordinated and junior to the Lien securing the Notes or the Subsidiary
Guarantees, as the case may be, with the same relative priority as such
Indebtedness has with respect to the Notes or the Subsidiary Guarantees. The
foregoing covenant will not apply to any Lien securing Acquired Indebtedness,
provided that any such Lien extends only to the property or assets that were
subject to such Lien prior to the related acquisition by the Company or such
Restricted Subsidiary and was not created, incurred or assumed in contemplation
of such transaction. The incurrence of additional secured Indebtedness by the
Company and its Restricted Subsidiaries is subject to further limitations on the
incurrence of Indebtedness as described under "-- Incurrence of Indebtedness and
Issuance of Preferred Stock."
Sale-and-Leaseback Transactions
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, enter into any sale-and-leaseback
transaction; provided that the Company or any Restricted Subsidiary, as
applicable, may enter into a sale-and-leaseback transaction if (i) the Company
could have (a) incurred Indebtedness in an amount equal to the Attributable
Indebtedness relating to such sale-and-leaseback transaction pursuant to the
Fixed Charge Coverage Ratio test set forth in the first paragraph of the
covenant described above under the caption "-- Incurrence of Additional
Indebtedness and Issuance of Preferred Stock" and (b) incurred a Lien to secure
such Indebtedness pursuant to the covenant described above under the caption
"-- Liens," (ii) the gross cash proceeds of such sale-and-leaseback transaction
are at least equal to the fair market value (as determined in good faith by the
Board of Directors and set forth in an Officers' Certificate delivered to the
Trustee) of the property that is the subject of such sale-and-leaseback
transaction and (iii) the transfer of assets in such sale-and-leaseback
transaction is permitted by, and the Company applies the proceeds of such
transaction in compliance with, the covenant described above under the caption
"-- Repurchase at the Option of Holders -- Asset Sales."
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Transactions with Affiliates
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, (a) sell, lease, transfer or otherwise
dispose of any of its properties, assets or securities to, (b) purchase or lease
any property, assets or securities from, (c) make any Investment in, or (d)
enter into or suffer to exist any other transaction or series of related
transactions with, or for the benefit of, any Affiliate of the Company unless
(i) such transaction or series of transactions is on terms that are no less
favorable to the Company or such Restricted Subsidiary, as the case may be, than
those that would be available in a comparable arm's length transaction with an
unrelated third party, (ii) with respect to any one transaction or series of
related transactions involving aggregate payments in excess of $1 million, the
Company delivers an Officers' Certificate to the Trustee certifying that such
transaction or series of related transactions complies with clause (i) above,
and (iii) with respect to a transaction or series of related transactions
involving payments in excess of $5 million, the Company delivers an Officers'
Certificate to the Trustee certifying that (A) such transaction or series of
related transactions complies with clause (i) above and (B) such transaction or
series of related transactions has been approved by a majority of the
Disinterested Directors of the Company; provided, however, that the foregoing
restriction shall not apply to (u) any arrangements in effect on the Series A/B
Issue Date, (v) transactions between or among the Company and its Wholly Owned
Restricted Subsidiaries, (w) loans or advances to officers, directors and
employees of the Company or any Restricted Subsidiary made in the ordinary
course of business and consistent with past practices of the Company and its
Restricted Subsidiaries in an aggregate amount not to exceed $1 million
outstanding at any one time, (x) indemnities of officers, directors and
employees of the Company or any Restricted Subsidiary permitted by bylaw or
statutory provisions, (y) the payment of reasonable and customary regular fees
to directors of the Company or any of its Restricted Subsidiaries who are not
employees of the Company or any Affiliate and (z) the Company's employee
compensation and other benefit arrangements.
Issuances and Sales of Capital Stock of Wholly Owned Subsidiaries
The Indenture provides that the Company (i) will not, and will not permit
any Wholly Owned Restricted Subsidiary of the Company to, transfer, convey,
sell, or otherwise dispose of any Capital Stock of any Wholly Owned Restricted
Subsidiary of the Company to any Person (other than the Company or a Wholly
Owned Restricted Subsidiary of the Company), unless (a) such transfer,
conveyance, sale, or other disposition is of all the Capital Stock of such
Wholly Owned Restricted Subsidiary and (b) the cash Net Proceeds from such
transfer, conveyance, sale, or other disposition are applied in accordance with
the covenant described above under the caption "-- Repurchase at the Option of
Holders -- Asset Sales," and (ii) will not permit any Wholly Owned Restricted
Subsidiary of the Company to issue any of its Equity Interests to any Person
other than to the Company or a Wholly Owned Restricted Subsidiary of the
Company; except, in the case of both clauses (i) and (ii) above, with respect to
dispositions or issuances by a Wholly Owned Restricted Subsidiary of the Company
as contemplated in clauses (i) and (ii) of the definition of "Wholly Owned
Restricted Subsidiary."
Dividend and Other Payment Restrictions Affecting Subsidiaries
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1) on
its Capital Stock or (2) with respect to any other interest or participation in,
or measured by, its profits, or (b) pay any indebtedness owed to the Company or
any of its Restricted Subsidiaries, (ii) make loans or advances to the Company
or any of its Restricted Subsidiaries or (iii) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (r) Existing
Indebtedness as in effect on the Series A/B Issue Date, (s) the Senior Credit
Facility as in effect as of the date of the Indenture, and any amendments,
modifications, restatements, renewals, increases, supplements, refunds,
replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refunds,
replacement or refinancings are no more restrictive with respect to
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such dividend and other payment restrictions than those contained in the Senior
Credit Facility as in effect on the Series A/B Issue Date, (t) the Indenture,
the Series A/B Indenture, the Notes and the Series A/B Notes, (u) applicable
law, (v) any instrument governing Indebtedness or Capital Stock of a Person
acquired by the Company or any of its Restricted Subsidiaries as in effect at
the time of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired, provided that, in the case of Indebtedness, such
Indebtedness was permitted by the terms of the Series A/B Indenture and the
Indenture to be incurred, (w) by reason of customary nonassignment provisions in
leases entered into in the ordinary course of business and customary provisions
in other agreements that restrict assignment of such agreements or rights
thereunder, (x) customary restrictions contained in asset sale agreements
limiting the transfer of such assets pending the closing of such sale, (y)
purchase money obligations for property acquired in the ordinary course of
business that impose restrictions of the nature described in clause (iii) above
on the property so acquired, or (z) Permitted Refinancing Indebtedness with
respect to any indebtedness referred to in clauses (r), (t) and (v) above,
provided that the restrictions contained in the agreements governing such
Permitted Refinancing Indebtedness are no more restrictive than those contained
in the agreements governing the Indebtedness being refinanced.
Merger, Consolidation or Sale of Assets
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
Person unless (i) the Company is the surviving corporation or the Person formed
by or surviving any such consolidation or merger (if other than the Company) or
to which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made is a corporation organized or existing under the laws of
the United States, any state thereof or the District of Columbia; (ii) the
Person formed by or surviving any such consolidation or merger (if other than
the Company) or the Person to which such sale, assignment, transfer, lease,
conveyance or other disposition shall have been made assumes all the obligations
of the Company under the Notes and the Indenture pursuant to a supplemental
indenture in a form reasonably satisfactory to the Trustee; (iii) except in the
case of a merger of the Company with or into a Wholly Owned Subsidiary of the
Company, immediately after such transaction no Default or Event of Default
exists; and (iv) except in the case of a merger of the Company with or into a
Wholly Owned Subsidiary of the Company, the Company or the Person formed by or
surviving any such consolidation or merger (if other than the Company), or to
which such sale, assignment, transfer, lease, conveyance or other disposition
shall have been made (A) will have Consolidated Net Worth immediately after the
transaction equal to or greater than the Consolidated Net Worth of the Company
immediately preceding the transaction and (B) will, at the time of such
transaction and after giving pro forma effect thereto as if such transaction had
occurred at the beginning of the applicable four-quarter period, be permitted to
incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to the Fixed Charge Coverage Ratio test set forth in the
first paragraph of the covenant described above under the caption "-- Incurrence
of Indebtedness and Issuance of Preferred Stock."
Business Activities
The Indenture provides that the Company will not, and will not permit any
Restricted Subsidiary to, engage in any business other than (i) the Drilling
Business, (ii) such other businesses as the Company or its Restricted
Subsidiaries are engaged in on the Series A/B Issue Date and (iii) such other
business activities as are reasonably related or incidental thereto.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Commission, so long as any Notes are outstanding, the Company
will furnish to the holders of Notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on
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Forms 10-Q and 10-K if the Company were required to file such Forms, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" that describes the consolidated financial condition and results of
operations of the Company and, with respect to the annual information only, a
report thereon by the Company's certified independent accountants and (ii) all
information that would be required to be contained in a filing with the
Commission on Form 8-K if the Company were required to file such Form. In
addition, whether or not required by the rules and regulations of the
Commission, the Company will file a copy of all such information and reports
with the Commission for public availability (unless the Commission will not
accept such a filing) and make such information available to securities analysts
and prospective investors upon request. In addition, the Company and the
Subsidiary Guarantors have agreed that, for so long as any Notes remain
outstanding, they will furnish to the holders and to securities analysts and
prospective investors, upon their request, the information required to be
delivered pursuant to Rule 144A(d)(4) under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes; (ii) default in payment when due
of the principal of or premium, if any, on the Notes; (iii) failure by the
Company to comply with the provisions described under the caption "-- Repurchase
at the Option of Holders" or "-- Certain Covenants -- Merger, Consolidation or
Sale of Assets"; (iv) failure by the Company for 45 days after notice to comply
with any of its other agreements in the Indenture or the Notes; (v) default
under any mortgage, indenture or instrument under which there may be issued or
by which there may be secured or evidenced any Indebtedness for money borrowed
by the Company or any of its Restricted Subsidiaries (or the payment of which is
guaranteed by the Company or any of its Restricted Subsidiaries) whether such
Indebtedness or guarantee now exists, or is created after the date of the
Indenture, which default (A) is caused by a failure to pay principal of or
premium, if any, or interest on such Indebtedness prior to the expiration of the
grace period provided in such Indebtedness on the date of such default (a
"Payment Default") or (B) results in the acceleration of such Indebtedness prior
to its express maturity and, in each case, the principal amount of any such
Indebtedness, together with the principal amount of any other such Indebtedness
under which there has been a Payment Default or the maturity of which has been
so accelerated, aggregates $7.5 million or more; (vi) failure by the Company or
any of its Subsidiaries to pay final judgments aggregating in excess of $10.0
million, which judgments are not paid, discharged or stayed for a period of 60
days; (vii) any Subsidiary Guarantee shall for any reason cease to be, or be
asserted by the Company or any Subsidiary Guarantor, as applicable, not to be,
in full force and effect (except pursuant to the release of any Subsidiary
Guarantee in accordance with the Indenture); and (viii) certain events of
bankruptcy or insolvency with respect to the Company or any of its Restricted
Subsidiaries that constitute a Significant Subsidiary or any group of Restricted
Subsidiaries that, taken together, would constitute a Significant Subsidiary.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of the then outstanding
Notes may declare all the Notes to be due and payable immediately.
Notwithstanding the foregoing, in the case of an Event of Default arising from
certain events of bankruptcy or insolvency, with respect to the Company, any
Restricted Subsidiary that constitutes a Significant Subsidiary or any group of
Restricted Subsidiaries that, taken together, would constitute a Significant
Subsidiary, all outstanding Notes will become due and payable without further
action or notice. Holders of the Notes may not enforce the Indenture or the
Notes except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in aggregate principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power. The Trustee
may withhold from Holders of the Notes notice of any continuing Default or Event
of Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.
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The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company,
as such, shall have any liability for any obligations of the Company under the
Notes, the Indenture or for any claim based on, in respect of, or by reason of,
such obligations or their creation. Each Holder of Notes by accepting a Note
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Notes. Such waiver may not be effective to
waive liabilities under the federal securities laws and it is the view of the
Commission that such a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of the
obligations of itself and the Subsidiary Guarantors discharged with respect to
the outstanding Notes ("Legal Defeasance") except for (i) the rights of Holders
of outstanding Notes to receive payments in respect of the principal of,
premium, if any, and interest and Liquidated Damages on such Notes when such
payments are due from the trust referred to below, (ii) the Company's
obligations with respect to the Notes concerning issuing temporary Notes,
registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payment and money for security payments
held in trust, (iii) the rights, powers, trusts, duties and immunities of the
Trustee, and the Company's obligations in connection therewith and (iv) the
Legal Defeasance provisions of the Indenture. In addition, the Company may, at
its option and at any time, elect to have the obligations of the Company
released with respect to certain covenants that are described in the Indenture
("Covenant Defeasance") and thereafter any omission to comply with such
obligations shall not constitute a Default or Event of Default with respect to
the Notes. In the event Covenant Defeasance occurs, certain events (not
including nonpayment, bankruptcy, receivership, rehabilitation and insolvency
events) described under the caption "-- Events of Default and Remedies" will no
longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest and Liquidated Damages on
the outstanding Notes on the stated maturity or on the applicable redemption
date, as the case may be, and the Company must specify whether the Notes are
being defeased to maturity or to a particular redemption date; (ii) in the case
of Legal Defeasance, the Company shall have delivered to the Trustee an opinion
of counsel in the United States reasonably acceptable to the Trustee confirming
that (A) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of the Indenture, there
has been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such opinion of counsel shall confirm that,
the Holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred; (iv) no Default or Event
of Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of funds
to be applied to such deposit) or insofar as Events of Default from bankruptcy
or insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance
will not result in a breach or
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violation of, or constitute a default under, any material agreement or
instrument (other than the Indenture) to which the Company or any of its
Subsidiaries is a party or by which the Company or any of its Subsidiaries is
bound; (vi) the Company must have delivered to the Trustee an opinion of counsel
to the effect that after the 91st day following the deposit, the trust funds
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally; (vii) the
Company must deliver to the Trustee an Officers' Certificate stating that the
deposit was not made by the Company with the intent of preferring the holders of
Notes over the other creditors of the Company with the intent of defeating,
hindering, delaying or defrauding creditors of the Company or others; and (viii)
the Company must deliver to the Trustee an Officers' Certificate and an opinion
of counsel, which, taken together, state that all conditions precedent provided
for relating to the Legal Defeasance or the Covenant Defeasance have been
complied with.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the holders of at
least a majority in aggregate principal amount of the Notes then outstanding
(including, without limitation, consents obtained in connection with a purchase
of, or tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the holders of a majority in aggregate principal amount of the
then outstanding Notes (including consents obtained in connection with a tender
offer or exchange offer for Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting holder): (i) reduce the
principal amount of Notes whose holders must consent to an amendment, supplement
or waiver; (ii) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the Notes (other than
provisions relating to the covenants described above under the caption
"-- Repurchase at the Option of Holders"); (iii) reduce the rate of or change
the time for payment of interest on any Note; (iv) waive a Default or Event of
Default in the payment of principal of or premium, if any, or interest on the
Notes (except a rescission of acceleration of the Notes by the Holders of at
least a majority in aggregate principal amount of the Notes and a waiver of the
payment default that resulted from such acceleration); (v) make any Note payable
in money other than that stated in the Notes; (vi) make any change in the
provisions of the Indenture relating to waivers of past Defaults or the rights
of holders of Notes to receive payments of principal of or premium, if any, or
interest on the Notes; (vii) waive a redemption payment with respect to any Note
(other than a payment required by one of the covenants described above under the
caption "-- Repurchase at the Option of Holders"); (viii) alter the ranking of
the Notes relative to other Indebtedness of the Company; or (ix) make any change
in the foregoing amendment and waiver provisions. In addition, without the
consent of holders of not less than 66 2/3% in aggregate principal amount of the
Notes then outstanding, no such amendment, supplement or waiver may amend,
change or modify the obligation of the Company to make and consummate a Change
of Control Offer in the event of a Change of Control or make and consummate an
Asset Sale Offer with respect to any Asset Sale or modify any of the provisions
or definitions with respect thereto.
Notwithstanding the foregoing, without the consent of any holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption
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of the Company's obligations to holders of Notes in the case of a merger or
consolidation, to make any change that would provide any additional rights or
benefits to the holders of Notes or that does not adversely affect the legal
rights under the Indenture of any such holder, to secure the Notes pursuant to
the requirements of the "Liens" covenant or otherwise or to comply with
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
The holders of a majority in aggregate principal amount of the then
outstanding Notes will have the right to direct the time, method and place of
conducting any proceeding for exercising any remedy available to the Trustee,
subject to certain exceptions. The Indenture provides that in case an Event of
Default shall occur (which shall not be cured), the Trustee will be required, in
the exercise of its power, to use the degree of care of a prudent man in the
conduct of his own affairs. Subject to such provisions, the Trustee will be
under no obligation to exercise any of its rights or powers under the Indenture
at the request of any holder of Notes, unless such holder shall have offered to
the Trustee security and indemnity satisfactory to it against any loss,
liability or expense.
Chase Bank of Texas, National Association acts as trustee under the
Indenture pursuant to which the Series A/B Notes were issued.
GOVERNING LAW
The Indenture, the Exchange Notes and the Subsidiary Guarantees provide
that they will be governed by the laws of the State of New York.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the Exchange Notes initially
will be issued in the form of one or more fully registered global Exchange Notes
(collectively, the "Global Exchange Note"). The Global Exchange Note will be
deposited on the Exchange Date with, or on behalf of, The Depository Trust
Company (the "Depository") and registered in the name of Cede & Co., as nominee
of the Depository (such nominee being referred to herein as the "Global Exchange
Note Holder").
Exchange Notes whose holders elect to take physical delivery of their
certificates instead of holding their interests through the Global Exchange Note
(and which are thus ineligible to trade through the Depository) will be issued
in registered certificated form ("Certificated Exchange Securities").
The Depository is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depository's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depository's
Participants include securities brokers and dealers (including the Initial
Purchaser), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depository's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depository's Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depository only thorough the Depository's
Participants or the Depository's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depository (i) upon deposit of the Global Exchange Note, the Depository will
credit on its internal system, the principal amount of the Exchange Notes of the
individual beneficial interests represented by such Global Exchange Note to the
respective
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accounts of exchanging holders who have accounts with the Depository and (ii)
ownership of the Exchange Notes evidenced by the Global Exchange Note will be
shown on, and the transfer of ownership thereof will be effected only through,
records maintained by the Depository (with respect to the interests of the
Depository's Participants), the Depository's Participants and the Depository's
Indirect Participants. Prospective purchasers are advised that the laws of some
states require that certain persons take physical delivery in definitive form of
securities that they own. Consequently, the ability to transfer Exchange Notes
evidenced by the Global Exchange Note will be limited to such extent. For
certain other restrictions on the transferability of the Series C Notes, see
"Transfer Restrictions on Series C Notes."
So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole holder under the Indenture of any
Notes evidenced by the Global Exchange Note. Beneficial owners of Exchange Notes
evidenced by the Global Exchange Note will not be considered the owners or
holders thereof under the Indenture for any purpose, including with respect to
the giving of any directions, instructions or approvals to the Trustee
thereunder. Neither the Company nor the Trustee will have any responsibility or
liability for any aspect of the records of the Depository or for maintaining,
supervising or reviewing any records of the Depository relating to the Exchange
Notes.
Payments in respect of the principal of, premium, if any and interest on
any Exchange Notes registered in the name of the Global Exchange Note Holder on
the applicable record date will be made by the Company through the paying agent
to or at the direction of the Global Exchange Note Holder in its capacity as the
registered holder under the Indenture. Under the terms of the Indenture, the
Company and the Trustee may treat the persons in whose names Exchange Notes,
including the Global Exchange Note, are registered as the owners thereof for the
purpose of receiving such payments. Consequently, neither the Company nor the
Trustee has or will have any responsibility or liability for the payment of such
amounts to beneficial owners of Exchange Notes. The Company believes, however,
that it is currently the policy of the Depository to immediately credit the
accounts of the relevant Participants with such payments, in amounts
proportionate to their respective holdings of beneficial interests in the
relevant security as shown on the records of the Depository. Payments by the
Depository's Participants and the Depository's Indirect Participants to the
beneficial owners of Exchange Notes will be governed by standing instructions
and customary practice and will be the responsibility of the Depository's
Participants or the Depository's Indirect Participants.
As long as the Exchange Notes are represented by a Global Exchange Note,
the Depository's nominee will be the holder of the Exchange Notes and therefore
will be the only entity that can exercise a right to repurchase the Notes. See
"-- Certain Covenants" and "-- Repurchase at the Option of Holders." Notice by
Participants or Indirect Participants or by owners of beneficial interests in a
Global Exchange Note held through such Participants or Indirect Participants of
the exercise of the option to elect repurchase of beneficial interests in
Exchange Notes represented by Global Exchange Note must be transmitted to the
Depository in accordance with its procedures on a form required by the
Depository and provided to Participants. In order to ensure that the
Depository's nominee will timely exercise a right to repurchase with respect to
a particular Exchange Note, the beneficial owner of such Exchange Note must
instruct the broker or other Participant or Indirect Participant through which
it holds an interest in such Exchange Note to notify the Depository of its
desire to exercise a right to repurchase. Different firms have different cut-off
times for accepting instructions from their customers and, accordingly, each
beneficial owner should consult the broker or other Participant or Indirect
Participant through which it holds an interest in an Exchange Note in order to
ascertain the cut-off time by which such an instruction must be given in order
for timely notice to be delivered to the Depository. The Company will not be
liable for any delay in delivery to the paying agent of notices of the exercise
of any option to elect repurchase.
If (i) the Company notifies the Trustee in writing that the Depository is
no longer willing or able to act as a depository and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Exchange
Notes in the form of Certificated Securities under the Indenture, then, upon
surrender by the Global Note Holder of its Global Exchange Note, Exchange Notes
in such form will be issued to each person that the Global Exchange Note Holder
and the Depository identify as being the beneficial owner of the related
Exchange Notes.
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Neither the Company nor the Trustee will be liable for any delay by the
Global Exchange Note Holder or the Depository in identifying the beneficial
owners of Exchange Notes and the Company and the Trustee may conclusively rely
on, and will be protected in relying on, instructions from the Global Exchange
Note Holder or the Depository for all purposes.
Same-Day Settlement and Payment
The Indenture requires that payments in respect of the Exchange Notes
represented by the Global Exchange Note (including principal, premium, if any
and interest) be made by wire transfer of immediately available funds to the
accounts specified by the Global Exchange Note Holder. With respect to
Certificated Exchange Securities, the Company will make all payments of
principal, premium, if any, and interest by wire transfer of immediately
available funds to the accounts specified by the holders thereof or, if no such
account is specified, by mailing a check to each such holder's registered
address. The Exchange Notes represented by the Global Exchange Note are expected
to trade in the Depository's Same-Day Funds Settlement System, and any permitted
secondary market trading activity in such Notes will, therefore, be required by
the Depository to be settled in immediately available funds. The Company expects
that secondary trading in any Certificated Exchange Securities will also be
settled in immediately available funds.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Indebtedness" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Additional Series D Notes" means any Exchange Notes issued in exchange for
Series A/B Notes pursuant to the Exchange Offer.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition to any Person other than the Company or any of its Restricted
Subsidiaries (including, without limitation, by means of a sale-and-leaseback
transaction or a merger or consolidation) (collectively, for purposes of this
definition, a "transfer"), directly or indirectly, in one or a series of related
transactions, of (a) any Capital Stock of any Restricted Subsidiary held by the
Company or any other Restricted Subsidiary, (b) all or substantially all of the
properties and assets of any division or line of business of the Company or any
of its Restricted Subsidiaries, (c) any Event of Loss or (d) any other
properties or assets of the Company or any of its Restricted Subsidiaries other
than transfers of cash, Cash Equivalents, accounts receivable, or properties or
assets in the ordinary course of business; provided that the sale, lease,
conveyance or other disposition of all or substantially all of the properties or
assets of the Company and its Restricted Subsidiaries, taken as a whole, will be
governed by the provisions of the Indenture described above under the caption
"-- Repurchase at the Option of Holders -- Change of Control" and/or the
provisions described above under the caption "-- Certain Covenants -- Merger,
Consolidation or Sale of Assets" and not by the provisions of the "Asset Sales"
covenant. For the purposes of this definition, the term "Asset Sale" also shall
not include any of the following: (i) any transfer of properties or assets to an
Unrestricted Subsidiary, if such transfer is permitted under the "Restricted
Payments" covenant described above; (ii) sales of damaged, worn-out or obsolete
equipment or
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assets that, in the Company's reasonable judgment, are either (A) no longer used
or (B) no longer useful in the business of the Company or its Restricted
Subsidiaries; (iii) any lease of any property entered into in the ordinary
course of business and with respect to which the Company or any Restricted
Subsidiary is the lessor, except any such lease that provides for the
acquisition of such property by the lessee during or at the end of the term
thereof for an amount that is less than the fair market value thereof at the
time the right to acquire such property is granted; (iv) any trade or exchange
by the Company or any Restricted Subsidiary of one or more drilling rigs for one
or more other drilling rigs owned or held by another Person, provided that (A)
the Fair Market Value of the drilling rig or rigs traded or exchanged by the
Company or such Restricted Subsidiary (including any cash or Cash Equivalents to
be delivered by the Company or such Restricted Subsidiary) is reasonably
equivalent to the Fair Market Value of the drilling rig or rigs (together with
any cash or Cash Equivalents) to be received by the Company or such Restricted
Subsidiary and (B) such exchange is approved by a majority of the Disinterested
Directors of the Company; (v) any transfer by the Company or any Restricted
Subsidiary to its customers of drill pipe, tools and associated drilling
equipment utilized in connection with a drilling contract for the employment of
a drilling rig in the ordinary course of business and consistent with past
practice; and (vi) any transfers that, but for this clause (vi), would be Asset
Sales, if (A) the Company elects to designate such transfers as not constituting
Asset Sales and (B) after giving effect to such transfers, the aggregate Fair
Market Value of the properties or assets transferred in such transaction or any
such series of related transactions so designated by the Company does not exceed
$500,000.
"Attributable Indebtedness" in respect of a sale-and-leaseback transaction
means, at the time of determination, the present value (discounted at the rate
of interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale-and-leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended). As used in the preceding sentence, the "net rental
payments" under any lease for any such period shall mean the sum of rental and
other payments required to be paid with respect to such period by the lessee
thereunder, excluding any amounts required to be paid by such lessee on account
of maintenance and repairs, insurance, taxes, assessments, water rates or
similar charges. In the case of any lease that is terminable by the lessee upon
payment of penalty, such net rental payment shall also include the amount of
such penalty, but no rent shall be considered as required to be paid under such
lease subsequent to the first date upon which it may be so terminated.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated) of
corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited), (iv) in the case of a limited liability
corporation or similar entity, any membership or other similar interests
therein; and (v) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"Cash Equivalents" means (i) any evidence of Indebtedness with a maturity
of 365 days or less issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided that
the full faith and credit of the United States of America is pledged in support
thereof); (ii) demand and time deposits and certificates of deposit or
acceptances with a maturity of 365 days or less of any financial institution
that is a member of the Federal Reserve System having combined capital and
surplus and undivided profits of not less than $500 million; (iii) commercial
paper with a maturity of 270 days or less issued by a corporation that is not an
Affiliate of the Company and is organized under the laws of any state of the
United States or the District of Columbia and rated at least A-2 by Standard and
Poor's Ratings Group (or its successors) or at least P-2 by Moody's Investors
Service, Inc. (or its successors); (iv) repurchase obligations with a term of
not more than seven days for underlying securities of the types described in
clause (i) above entered into with any commercial bank meeting the
specifications of clause (ii) above; (v) overnight bank deposits and bankers'
acceptances at any commercial bank meeting the qualifications specified in
clause (ii) above; (vi) deposits available for withdrawal on demand with any
commercial bank not
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meeting the qualifications specified in clause (ii) above, provided all such
deposits do not exceed $5 million in the aggregate at any one time; (vii) demand
and time deposits and certificates of deposit with any commercial bank organized
in the United States not meeting the qualifications specified in clause (ii)
above, provided that such deposits and certificates support bond, letter of
credit and other similar types of obligations incurred in the ordinary course of
business: and (viii) investments in money market or other mutual funds
substantially all of whose assets comprise securities of the types described in
clauses (i) through (v) above.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss realized in connection with an
Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Restricted Subsidiaries for such period, to the
extent that such provision for taxes was included in computing such Consolidated
Net Income, plus (iii) consolidated net interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued and whether or
not capitalized (including, without limitation, amortization of original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable
Indebtedness, commissions, discounts and other fees and charges incurred in
respect of letter of credit or bankers' acceptance financings, and net payments
(if any) pursuant to Interest Rate Protection Obligations), to the extent that
any such expense was deducted in computing such Consolidated Net Income, plus
(iv) depreciation, amortization (including amortization of goodwill, debt
issuance costs and other intangibles but excluding amortization of prepaid cash
expenses that were paid in a prior period) and other non-cash charges (including
any provision for the reduction in the carrying value of assets recorded in
accordance with GAAP but excluding any such non-cash charge to the extent that
it represents an accrual of or reserve for cash charges in any future period or
amortization of a prepaid cash expense that was paid in a prior period) of such
Person and its Restricted Subsidiaries for such period to the extent that such
depreciation, amortization and other non-cash charges were deducted in computing
such Consolidated Net Income, minus (v) any non-cash items increasing the
Consolidated Net Income of such Person and its Restricted Subsidiaries during
such period (excluding any such items that represent the reversal of any accrual
of, or cash reserve for, anticipated cash charges in any prior period commencing
subsequent to the Series A/B Issue Date), in each case, on a consolidated basis
and determined in accordance with GAAP. Notwithstanding the foregoing, the
provision for taxes on the income or profits of, and the depreciation and
amortization and other noncash charges of, a Restricted Subsidiary of the
referent Person shall be added to Consolidated Net Income to compute
Consolidated Cash Flow only to the extent (and in same proportion) that the Net
Income of such Restricted Subsidiary was included in calculating the
Consolidated Net Income of such Person and only if a corresponding amount would
be permitted at the date of determination to be dividended to the Company by
such Restricted Subsidiary without prior governmental approval (that has not
been obtained), and without direct or indirect restriction pursuant to the terms
of its charter and all agreements, instruments, judgments, decrees, orders,
statutes, rules and governmental regulations applicable to that Restricted
Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Restricted Subsidiary
thereof that is a Subsidiary Guarantor; (ii) the Net Income of any Restricted
Subsidiary shall be excluded to the extent that the declaration or payment of
dividends or similar distributions by that Restricted Subsidiary of that Net
Income is not at the date of determination permitted without any prior
governmental approval (that has not been obtained) or, directly or indirectly,
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders; (iii) the Net Income of any Person
acquired in a pooling of interests transaction for any period prior to the date
of such acquisition shall be excluded; and (iv) the cumulative effect of a
change in accounting principles shall be excluded.
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"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Restricted Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Stock) that by
its terms is not entitled to the payment of dividends unless such dividends may
be declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the Series A/B Issue Date in the book value of
any asset owned by such Person or a consolidated Restricted Subsidiary of such
Person, (y) all investments as of such date in unconsolidated Subsidiaries and
in Persons that are not Subsidiaries (except, in each case, Permitted
Investments), and (z) all unamortized debt discount and expense and unamortized
deferred charges as of such date, all of the foregoing determined in accordance
with GAAP.
"Currency Hedge Obligations" means, at any time as to any Person, the
obligations of such Person at such time that were incurred in the ordinary
course of business pursuant to any foreign currency exchange agreement, option
or futures contract or other similar agreement or arrangement designed to
protect against or manage such Person's or any of its Subsidiaries exposure to
fluctuations in foreign currency exchange rates.
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Disinterested Director" means, with respect to any transaction or series
of transactions in respect of which the Board of Directors of the Company is
required to deliver a resolution of the Board of Directors under the Indenture,
a member of the Board of Directors of the Company who does not have any material
direct or indirect financial interest (other than an interest arising solely
from the beneficial ownership of Capital Stock of the Company) in or with
respect to such transaction or series of transactions.
"Disqualified Stock" means the Convertible Preferred Stock and any other
Capital Stock that, by its terms (or by the terms of any security into which it
is convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or redeemable at the option of the Holder thereof, in
whole or in part, on or prior to the date on which the Notes mature.
"Drilling Business" means (i) the drilling for oil, gas or other
hydrocarbons, whether offshore or onshore, and whether as an agent or principal,
and (ii) any business relating to or arising from drilling for oil, gas or other
hydrocarbons, including, without limitation, the rental of drill pipe, tools or
other equipment.
"Employee Stock Repurchases" means purchases by the Company of any of its
Capital Stock from employees for the purpose of permitting such employees to pay
personal income tax obligations with the proceeds, provided that the aggregate
amount of all such purchases shall not exceed $500,000 during any fiscal year of
the Company.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Event of Loss" means, with respect to any drilling rig or similar or
related property or asset of the Company or any Restricted Subsidiary, (i) any
damage to such drilling rig or similar or related property or asset that results
in an insurance settlement with respect thereto on the basis of a total loss or
a constructive or compromised total loss or (ii) the confiscation, condemnation
or requisition of title to such drilling rig or similar or related property or
asset by any government or instrumentality or agency thereof. An Event of Loss
shall be deemed to occur as of the date of the insurance settlement,
confiscation, condemnation or requisition of title, as applicable.
"Exchange Notes" means the Company's 9.75% Senior Notes due 2006, Series D
issued in exchange for the Series C Notes pursuant to an Exchange Offer and
shall also include any Additional Series D Notes.
"Exempt Foreign Subsidiary" means (i) any Restricted Subsidiary engaged in
the Drilling Business exclusively outside the United States of America,
irrespective of its jurisdiction of incorporation and (ii) any other Restricted
Subsidiary whose assets (excluding any cash and Cash Equivalents) consist
exclusively of
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Capital Stock or Indebtedness of one or more Restricted Subsidiaries described
in clause (i) of this definition, that, in any case, is so designated by the
Company in an Officers' Certificate delivered to the Trustee and (a) is not a
guarantor of, and has not granted any Lien to secure, the Senior Credit Facility
or any other Indebtedness of the Company or any Restricted Subsidiary other than
another Exempt Foreign Subsidiary and (b) does not have total assets that, when
aggregated with the total assets of any other Exempt Foreign Subsidiary, exceed
10% of the Company's consolidated total assets, as determined in accordance with
GAAP, as reflected on the Company's most recent quarterly or annual balance
sheet. The Company may revoke the designation of any Exempt Foreign Subsidiary
by notice to the Trustee.
"Existing Indebtedness" means up to $8 million in aggregate principal
amount of Indebtedness of the Company and its Subsidiaries (other than
Indebtedness under the Senior Credit Facility) in existence on the Series A/B
Issue Date, until such amounts are repaid.
"Fair Market Value" means, with respect to any asset or Investment, the
fair market value of such asset or Investment at the time of the event requiring
such determination, and, with respect to any assets or Investment in excess of
$5 million (other than cash or Cash Equivalents) as determined by a reputable
appraisal firm that is, in the reasonable judgment of the Board of Directors of
the Company, qualified to perform the task for which such firm has been engaged
and independent with respect to the Company.
"Fixed Charges" means, with respect to any Person for any period, the sum
of (i) the consolidated interest expense (net of any interest income) of such
Person and its Restricted Subsidiaries for such period, whether paid or accrued
(excluding amortization of debt issuance costs and including, without
limitation, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Indebtedness, commissions,
discounts and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net payments (if any) pursuant to Interest
Rate Protection Obligations); (ii) the consolidated interest expense of such
Person and its Restricted Subsidiaries that was capitalized during such period;
(iii) any interest expense on Indebtedness of another Person that is guaranteed
by such Person or one of its Restricted Subsidiaries or secured by a Lien on
assets of such Person or one of its Restricted Subsidiaries (whether or not such
guarantee or Lien is called upon); and (iv) the product of (A) all cash dividend
payments (and noncash dividend payments in the case of a Person that is a
Restricted Subsidiary) on any series of preferred stock of such Person, to the
extent such preferred stock is owned by Persons other than such Person or its
Restricted Subsidiaries, times (B) a fraction, the numerator of which is one and
the denominator of which is one minus the then current combined federal, state
and local statutory tax rate of such Person, expressed as a decimal, in each
case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person for
such period. In the event that the Company or any of its Restricted Subsidiaries
incurs, assumes, guarantees or redeems any Indebtedness (other than revolving
credit borrowings) or issues preferred stock subsequent to the commencement of
the period for which the Fixed Charge Coverage Ratio is being calculated but
prior to the date on which the event for which the calculation of the Fixed
Charge Coverage Ratio is made (the "Calculation Date"), then the Fixed Charge
Coverage Ratio shall be calculated giving pro forma effect to such incurrence,
assumption, guarantee or redemption of Indebtedness, or such issuance or
redemption of preferred stock, as if the same had occurred at the beginning of
the applicable four-quarter reference period. In addition, for purposes of
making the computation referred to above, (i) acquisitions of businesses that
have been made by the referent Person or any of its Restricted Subsidiaries,
including through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period; (ii) the
Consolidated Cash Flow attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded; and (iii) the Fixed Charges attributable to
discontinued operations, as determined in accordance with GAAP, and operations
or businesses disposed of prior to the Calculation Date, shall be excluded, but
only to the extent that the obligations giving rise to such Fixed
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Charges will not be obligations of the referent Person or any of its Restricted
Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect from time to time.
The term "guarantee" means, as applied to any obligation, (i) a guarantee
(other than by endorsement of negotiable instruments for collection in the
ordinary course of business), direct or indirect, in any manner, of any part or
all of such obligation and (ii) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of nonperformance) of all or any
part of such obligation, including, without limiting the foregoing, the payment
of amounts drawn down under letters of credit. When used as a verb, "guarantee"
has a corresponding meaning.
"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any obligations in respect of
Currency Hedge Obligations or Interest Rate Protection Obligations, except any
such balance that constitutes an accrued expense or trade payable, if and to the
extent any of the foregoing indebtedness (other than letters of credit, Currency
Hedge Obligations and Interest Rate Protection Obligations) would appear as a
liability upon a balance sheet of such Person prepared in accordance with GAAP,
as well as all indebtedness of others secured by a Lien on any asset of such
Person (whether or not such indebtedness is assumed by such Person) and, to the
extent not otherwise included, the guarantee by such Person of any Indebtedness
of any other Person.
"Interest Rate Protection Obligations" means the obligations of any Person
pursuant to any arrangement with any other Person whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such Person
calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements or arrangements designed to protect
against or manage such Person's or any of its Subsidiaries exposure to
fluctuations in interest rates.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP;
provided that the following shall not constitute Investments: (i) an acquisition
of assets, Equity Interests or other securities by the Company for consideration
consisting of common equity securities of the Company, (ii) extensions of trade
credit or other advances to customers on commercially reasonable terms in
accordance with normal trade practices or otherwise in the ordinary course of
business, (iii) Interest Rate Protection Obligations and Currency Hedge
Obligations, but only to the extent that the same constitute Permitted
Indebtedness, and (iv) endorsements of negotiable instruments and documents in
the ordinary course of business. If the Company or any Subsidiary of the Company
sells or otherwise disposes of any Equity Interests of any direct or indirect
Subsidiary of the Company such that, after giving effect to any such sale or
disposition, such Person is no longer a Subsidiary of the Company, the Company
shall be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Equity Interests of such
Subsidiary not sold or disposed of.
"Issue Date" means the date on which the Series C Notes were first issued
under the Indenture.
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"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction other
than a precautionary financing statement respecting a lease not intended as a
security agreement).
"Net Equity Proceeds" means (i) in the case of any sale by the Company of
Qualified Capital Stock of the Company, the aggregate net proceeds received by
the Company, after payment of expenses, commissions and the like incurred in
connection therewith, whether such proceeds are in cash or in other property
(valued as determined reasonably and in good faith by the Board of Directors of
the Company, as evidenced by a written resolution of said Board of Directors, at
the fair market value thereof at the time of receipt) and (ii) in the case of
any exchange, exercise, conversion or surrender of any outstanding Indebtedness
of the Company or any Restricted Subsidiary for or into shares of Qualified
Capital Stock of the Company, the amount of such Indebtedness (or, if such
Indebtedness was issued at an amount less than the stated principal amount
thereof, the accrued amount thereof as determined in accordance with GAAP) as
reflected in the consolidated financial statements of the Company prepared in
accordance with GAAP as of the most recent date next preceding the date of such
exchange, exercise, conversion or surrender (plus any additional amount required
to be paid by the holders of such Indebtedness to the Company or to any Wholly
Owned Restricted Subsidiary of the Company upon such exchange, exercise,
conversion or surrender and less any and all payments made to the holders of
such Indebtedness, and all other expenses incurred by the Company in connection
therewith), in the case of each of clauses (i) and (ii) to the extent
consummated after the Series A/B Issue Date.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), other than any gains associated with reimbursements for lost or damaged
rental tools in the ordinary course of business, together with any related
provision for taxes on such gain (but not loss), realized in connection with (a)
any Asset Sale (including, without limitation, dispositions pursuant to sale and
leaseback transactions) or other sale of assets or (b) the disposition of any
securities by such Person or any of its Restricted Subsidiaries or the
extinguishment of any Indebtedness of such Person or any of its Restricted
Subsidiaries; (ii) any extraordinary or nonrecurring gain (but not loss),
together with any related provision for taxes on such extraordinary or
nonrecurring gain (but not loss); and (iii) any interest income, together with
any related provision for taxes on such interest income.
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), amounts required to be applied to the repayment of Indebtedness
(other than Indebtedness under the Senior Credit Facility) secured by a Lien on
the asset or assets that were the subject of such Asset Sale, amounts required
to be paid to any Person (other than the Company or any Restricted Subsidiary)
owning a beneficial interest in the asset or assets that were the subject of
such Asset Sale, and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
"Non-Recourse Indebtedness" means Indebtedness (i) as to which neither the
Company nor any of its Restricted Subsidiaries (A) provides credit support of
any kind (including any undertaking, agreement or instrument that would
constitute Indebtedness), (B) is directly or indirectly liable (as a Subsidiary
Guarantor or otherwise), or (C) constitutes the lender; (ii) no default with
respect to which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness of the
Company or any of its Restricted Subsidiaries to declare a default on such other
Indebtedness or cause the payment thereof to be accelerated or payable prior to
its stated maturity; and (iii) as to which the lenders have been notified in
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writing that they will not have any recourse to the stock or assets of the
Company or any of its Restricted Subsidiaries.
"Non-Recourse Purchase Money Indebtedness" means Indebtedness or that
portion of Indebtedness of the Company or any Restricted Subsidiary incurred in
connection with the acquisition by the Company or such Restricted Subsidiary,
subsequent to the Series A/B Issue Date, of any property or assets and as to
which (i) the holders of such Indebtedness agree that they will look solely to
the property or assets so acquired (or, in the case of the acquisition of all of
the outstanding Capital Stock of a Person, the underlying properties and assets
of such Person at the time of such acquisition, including proceeds thereof) and
securing such Indebtedness for payment on or in respect of such Indebtedness,
and neither the Company nor any Restricted Subsidiary (a) provides credit
support, including any undertaking, agreement or instrument which would
constitute Indebtedness or (b) is directly or indirectly liable for such
Indebtedness, and (ii) no default with respect to such Indebtedness would permit
(after notice or passage of time or both), according to the terms thereof, any
holder of any Indebtedness of the Company or a Restricted Subsidiary to declare
a default on such Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity; and, provided, however, that any portion
of the purchase price of such property or assets that is not financed through
the incurrence of such Indebtedness, shall be deemed to be a "Restricted
Investment" under the Indenture, and shall only be permitted to be expended by
the Company or any Restricted Subsidiary to the extent that the Company would be
permitted to make a Restricted Payment in such amount under the terms of the
covenant described above under "-- Certain Covenants -- Restricted Payments."
"Permitted Indebtedness" means any of the following:
(i) Indebtedness (and any guarantee thereof) under the Revolving
Credit Facility in an aggregate principal amount at any one time
outstanding not to exceed the greater of (A) $50 million, less any amounts
derived from Asset Sales and applied to the permanent reduction of the
Indebtedness thereunder as contemplated by the covenant described above
under the caption "Repurchase at the Option of Holders -- Asset Sales" or
(B) the sum of (1) 80% of the Company's Eligible Accounts Receivable (as
defined in for purposes of the Revolving Credit Facility) and (2) 50% of
the rig materials and supplies of the Company and its Restricted
Subsidiaries determined in accordance with GAAP (the "Maximum Bank Facility
Amount"), and any renewals, amendments, extensions, supplements,
modifications, deferrals, refinancing or replacements (each, for purposes
of this clause (i), a "refinancing") thereof, including any successive
refinancing thereof, so long as the aggregate principal amount of any such
new Indebtedness, together with the aggregate principal amount of all other
Indebtedness outstanding pursuant to this clause (i), shall not at any one
time exceed the Maximum Bank Facility Amount;
(ii) Indebtedness under the Series A/B Notes, the Series C Notes
issued on the Issue Date and the Exchange Notes;
(iii) Indebtedness under the Term Credit Facility, any Existing
Indebtedness, and any Indebtedness under Letters of Credit existing on the
Series A/B Issue Date;
(iv) Indebtedness under Interest Rate Protection Obligations, provided
that (A) such Interest Rate Protection Obligations are related to payment
obligations on Permitted Indebtedness or Indebtedness otherwise permitted
by the initial paragraph of the "Incurrence of Indebtedness and Issuance of
Preferred Stock" covenant, and (B) the notional principal amount of such
Interest Rate Protection Obligations does not exceed the principal amount
of such Indebtedness to which such Interest Rate Protection Obligations
relate;
(v) Indebtedness under Currency Hedge Obligations, provided that (A)
such Currency Hedge Obligations are related to payment obligations on
Permitted Indebtedness or Indebtedness otherwise permitted by the initial
paragraph of the "Incurrence of Indebtedness and Issuance of Preferred
Stock" covenant or to the foreign currency cash flows reasonably expected
to be generated by the Company and its Restricted Subsidiaries, and (B) the
notional principal amount of such Currency Hedge Obligations
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does not exceed the principal amount of such Indebtedness and the amount of
such foreign currency cash flows to which such Currency Hedge Obligations
relate;
(vi) the Subsidiary Guarantees of the Series A/B Notes, the Series C
Notes issued on the Issue Date, any additional Notes subsequently issued,
but only to the extent that the Indebtedness represented by such additional
Notes is otherwise permitted under the Indenture, and the Exchange Notes
(and any assumption of the obligations guaranteed thereby);
(vii) Indebtedness of the Company to a Wholly Owned Restricted
Subsidiary and Indebtedness of any Restricted Subsidiary of the Company to
the Company or a Wholly Owned Restricted Subsidiary, provided, however,
that upon any subsequent issuance or transfer of any Capital Stock or any
other event which results in any such Wholly Owned Restricted Subsidiary
ceasing to be a Wholly Owned Restricted Subsidiary or any other subsequent
transfer of any such Indebtedness (except to the Company or a Wholly Owned
Restricted Subsidiary), such Indebtedness shall be deemed, in each case, to
be incurred and shall be treated as an incurrence for purposes of the
initial paragraph of the "Incurrence of Indebtedness and Issuance of
Preferred Stock" covenant at the time the Wholly Owned Restricted
Subsidiary in question ceased to be a Wholly Owned Restricted Subsidiary or
the time such subsequent transfer occurred;
(viii) Indebtedness in respect of bid, performance or surety bonds
issued for the account of the Company or any Restricted Subsidiary thereof
in the ordinary course of business, including guarantees or obligations of
the Company or any Restricted Subsidiary thereof with respect to letters of
credit supporting such bid, performance or surety obligations (in each case
other than for an obligation for money borrowed);
(ix) the incurrence by the Company or its Restricted Subsidiaries of
Non-Recourse Purchase Money Indebtedness;
(x) any Permitted Refinancing Indebtedness incurred by the Company or
a Restricted Subsidiary of any Indebtedness incurred pursuant to clause
(ii) or (iii) of this definition, including any successive refinancing by
the Company or such Restricted Subsidiary; and
(xi) any additional Indebtedness in an aggregate principal amount not
in excess of $30 million at any one time outstanding and any guarantee
thereof.
"Permitted Investments" means any of the following: (i) Investments in Cash
Equivalents; (ii) Investments in the Company or any of its Wholly Owned
Restricted Subsidiaries; (iii) Investments by the Company or any of its
Restricted Subsidiaries in another Person, if as a result of such Investment (A)
such other Person becomes a Wholly Owned Restricted Subsidiary or (B) such other
Person is merged or consolidated with or into, or transfers or conveys all or
substantially all of its properties and assets to, the Company or a Wholly Owned
Restricted Subsidiary; (iv) Investments permitted under the covenant described
above under the caption "-- Repurchase at the Option of Holders -- Asset Sales";
(v) Investments made in the ordinary course of business in prepaid expenses,
lease, utility, workers' compensation, performance and other similar deposits;
(vi) Investments in stock, obligations or securities received in settlement of
debts owing to the Company or any Restricted Subsidiary as a result of
bankruptcy or insolvency proceedings or upon the foreclosure, perfection or
enforcement of any Lien in favor of the Company or any Restricted Subsidiary, in
each case as to debt owing to the Company or any Restricted Subsidiary that
arose in the ordinary course of business of the Company or any such Restricted
Subsidiary, provided that any stocks, obligations or securities received in
settlement of debts that arose in the ordinary course of business (and received
other than as a result of bankruptcy or insolvency proceedings or upon
foreclosure, perfection or enforcement of any Lien) that are, within 30 days of
receipt, converted into cash or Cash Equivalents shall be treated as having been
cash or Cash Equivalents at the time received; and (vii) other Investments in
joint ventures, corporations, limited liability companies or partnerships formed
with or organized by third Persons, which joint ventures, corporations, limited
liability companies or partnerships, engage in the Drilling Business and are not
Unrestricted Subsidiaries at the time of such Investment, provided such
Investments do not, in the aggregate, exceed $12 million.
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"Permitted Liens" means the following types of Liens:
(a) Liens existing as of the Series A/B Issue Date;
(b) Liens securing the Series A/B Notes, the Notes, the Exchange Notes
or the Subsidiary Guarantees;
(c) Liens in favor of the Company;
(d) Liens securing Indebtedness that constitutes Permitted
Indebtedness pursuant to clause (i) or (iii) of the definition of Permitted
Indebtedness;
(e) Liens for taxes, assessments and governmental charges or claims
either (i) not delinquent or (ii) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries
shall have set aside on its books such reserves as may be required pursuant
to GAAP;
(f) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(g) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, or to secure the payment or performance of
tenders, statutory or regulatory obligations, surety and appeal bonds,
bids, government contracts and leases, performance and return of money
bonds and other similar obligations (exclusive of obligations for the
payment of borrowed money);
(h) judgment Liens not giving rise to an Event of Default so long as
any appropriate legal proceedings which may have been duly initiated for
the review of such judgment shall not have been finally terminated or the
period within which such proceeding may be initiated shall not have
expired;
(i) any interest or title of a lessor under any Capital Lease
Obligation or operating lease;
(j) Liens securing Non-Recourse Purchase Money Indebtedness and other
purchase money Liens; provided, however, that (i) the related Non-Recourse
Purchase Money Indebtedness or other purchase money Indebtedness shall not
be secured by any property or assets of the Company or any Restricted
Subsidiary other than the property or assets so acquired and any proceeds
therefrom and (ii) the Lien securing any such Indebtedness shall be created
within 90 days of such acquisition;
(k) Liens securing obligations under or in respect of either Currency
Hedge Obligations or Interest Rate Protection Obligations;
(l) Liens upon specific items of inventory or other goods of any
Person securing such Person's obligations in respect of bankers acceptances
issued or created for the account of such Person to facilitate the
purchase, shipment or storage of such inventory or other goods;
(m) Liens securing reimbursement obligations with respect to
commercial letters of credit that encumber documents and other property or
assets relating to such letters of credit and products and proceeds
thereof;
(n) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual or warranty requirements of the Company
or any of its Restricted Subsidiaries, including rights of offset and
set-off; and
(o) Liens on, or related to, properties or assets to secure all or
part of the costs incurred in the ordinary course of business for the
exploration, drilling, development or operation thereof.
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries;
provided that:
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(i) the principal amount (or accreted value, if applicable) of such Permitted
Refinancing Indebtedness does not exceed the principal amount (or accreted
value, if applicable) of the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of reasonable expenses incurred
in connection therewith); (ii) such Permitted Refinancing Indebtedness has a
final maturity date later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; (iii) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right of payment to
the Notes, such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and is subordinated in right of payment
to, the Notes on terms at least as favorable to the Holders of Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) with respect to
any such Indebtedness of the Company being extended, refinanced, renewed,
replaced, defeased or refunded, such Permitted Refinancing Indebtedness shall
not be incurred by any Restricted Subsidiary.
"Person" means any individual, corporation, limited liability company,
partnership, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Public Equity Offering" means an underwriter offer and sale of common
stock of the Company pursuant to a registration statement that has been declared
effective by the Commission pursuant to the Securities Act (other than a
registration statement on Form S-8 or otherwise relating to equity securities
issuable under any employee benefit plan of the Company).
"Qualified Capital Stock" of any Person means any and all Capital Stock of
such Person other than Disqualified Stock.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Restricted Investment" means (without duplication) (i) the designation of
a Subsidiary as an Unrestricted Subsidiary in the manner described in the
definition of Unrestricted Subsidiary, (ii) any Investment other than a
Permitted Investment and (iii) any amount constituting a "Restricted Investment"
as contemplated in the definition of "Non-Recourse Purchase Money Indebtedness."
"Revolving Credit Facility" means the revolving loan facility under the
Senior Credit Facility.
"Series A/B Indenture" means the Indenture dated as of November 12, 1996
between the Company and Chase Bank of Texas National Association (formerly Texas
Commerce Bank, National Association), as Trustee, providing for the issuance of
the Series A/B Notes in the aggregate principal amount of $300 million, as such
may be amended and supplemented from time to time.
"Series A/B Issue Date" means November 12, 1996, the date on which the
Series A/B Notes were originally issued under the Series A/B Indenture.
"Series A/B Notes" means the Company's 9.75% Senior Notes due 2006, Series
B issued pursuant to the Series A/B Indenture, as such may be amended or
supplemented from time to time.
"Senior Credit Facility" means, collectively, the Revolving Credit
Agreement and the Term Loan Agreement, each dated as of November 8, 1996, among
the Company, ING (U.S.) Capital Corporation ("ING") and the other lenders
identified therein, and ING, as agent, each as amended, modified, supplemented,
extended, restated, or renewed from time to time.
"Significant Subsidiary" means any (a) Subsidiary that would be a
significant subsidiary as defined in Article 1, Rule 1-02 of Regulation S-X,
promulgated pursuant to the Securities Act, as such Regulation is in effect on
the date hereof and (b) any other Subsidiary that contributed more than 10% of
the Company's Consolidated Cash Flow for the most recent four fiscal quarters
for which financial statements are available.
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"Subordinated Indebtedness" means any Indebtedness of the Company or a
Subsidiary Guarantor that is expressly subordinated in right of payment to the
Notes or the Subsidiary Guarantees, as the case may be, including, without
limitation, the 5.50% Convertible Subordinated Notes due 2004 of the Company.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (A) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (B)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Subsidiary Guarantee" means any guarantee of the Notes by any Subsidiary
Guarantor in accordance with the provisions described under "-- Subsidiary
Guarantees."
"Subsidiary Guarantors" means each of (i) the Company's Significant
Subsidiaries on the Issue Date (other than any Exempt Foreign Subsidiary, as
designated by the Company) or any other Restricted Subsidiary that provides a
guarantee under the Senior Credit Facility, (ii) any other Subsidiary that
executes a Subsidiary Guarantee in accordance with the provisions of the
Indenture, and (iii) their respective successors and assigns, as required under
the Indenture.
"Term Credit Facility" means the term loans under the Senior Credit
Facility in an aggregate amount not to exceed $100 million, less any amounts
derived from Asset Sales and applied to the permanent reduction of Indebtedness
thereunder as contemplated by the covenant described above under the caption
"-- Repurchase at the Option of Holders -- Asset Sales."
"Unrestricted Subsidiary" means any Subsidiary (or any successor to any of
them) that is designated by the Board of Directors as an Unrestricted Subsidiary
pursuant to a resolution of the Board of Directors; but only to the extent that
such Subsidiary (i) has no Indebtedness other than Non-Recourse Indebtedness;
(ii) is not party to any agreement, contract, arrangement or understanding with
the Company or any Restricted Subsidiary of the Company unless the terms of any
such agreement, contract, arrangement or understanding are no less favorable to
the Company or such Restricted Subsidiary than those that might be obtained at
the time from Persons who are not Affiliates of the Company; (iii) is a Person
with respect to which neither the Company nor any of its Restricted Subsidiaries
has any direct or indirect obligation (A) to subscribe for additional Equity
Interests or (B) to maintain or preserve such Person's financial condition or to
cause such Person to achieve any specified levels of operating results; and (iv)
has not guaranteed or otherwise directly or indirectly provided credit support
for any Indebtedness of the Company or any of its Restricted Subsidiaries. Any
such designation by the Board of Directors shall be evidenced to the Trustee by
filing with the Trustee a certified copy of the resolution of the Board of
Directors giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and was
permitted by the covenant described above under the caption "-- Certain
Covenants -- Restricted Payments." If, at any time, any Unrestricted Subsidiary
would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it
shall thereafter cease to be an Unrestricted Subsidiary for purposes of the
Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred
by a Restricted Subsidiary of the Company as of such date (and, if such
Indebtedness is not permitted to be incurred as of such date under the covenant
described under the caption "-- Certain Covenants -- Incurrence of Indebtedness
and Issuance of Preferred Stock," the Company shall be in default of such
covenant). The Board of Directors of the Company may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation shall be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of the Company of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation shall only be permitted if (i) such Indebtedness
is permitted under the covenant described under the caption "-- Certain
Covenants -- Incurrence of Indebtedness and Issuance of Preferred Stock," and
(ii) no Default or Event of Default would be in existence following such
designation.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (A) the amount of each
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then remaining installment, sinking fund, serial maturity or other required
payments of principal, including payment at final maturity, in respect thereof,
by (B) the number of years (calculated to the nearest one-twelfth) that will
elapse between such date and the making of such payment, by (ii) the then
outstanding principal amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary to the
extent (i) all of the Capital Stock or other ownership interests in such
Restricted Subsidiary, other than any directors' qualifying shares mandated by
applicable law, is owned directly or indirectly by the Company or (ii) such
Restricted Subsidiary is organized in a foreign jurisdiction and is required by
the applicable laws and regulations of such foreign jurisdiction to be partially
owned by the government of such foreign jurisdiction or individual or corporate
citizens of such foreign jurisdiction in order for such Restricted Subsidiary to
transact business in such foreign jurisdiction, provided that the Company,
directly or indirectly, owns the remaining Capital Stock or ownership interests
in such Restricted Subsidiary and, by contract or otherwise, controls the
management and business of such Restricted Subsidiary and derives the economic
benefits of ownership of such Restricted Subsidiary to substantially the same
extent as if such Restricted Subsidiary were a wholly owned Subsidiary.
"Wholly Owned Subsidiary" means any Subsidiary to the extent (i) all of the
Capital Stock or other ownership interests in such Subsidiary, other than any
directors' qualifying shares mandated by applicable law, is owned directly or
indirectly by the Company or (ii) such Subsidiary is organized in a foreign
jurisdiction and is required by the applicable laws and regulations of such
foreign jurisdiction to be partially owned by the government of such foreign
jurisdiction or individual or corporate citizens of such foreign jurisdiction in
order for such Subsidiary to transact business in such foreign jurisdiction,
provided that the Company, directly or indirectly, owns the remaining Capital
Stock or ownership interests in such Subsidiary and, by contract or otherwise,
controls the management and business of such Subsidiary and derives the economic
benefits of ownership of such Subsidiary to substantially the same extent as if
such Subsidiary were a wholly owned Subsidiary.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain United States federal income tax
consequences of the purchase, ownership and disposition of the Exchange Notes
which may be relevant to a holder or prospective purchaser of one or more of
such Exchange Notes. The tax consequences to a holder of the Exchange Notes may
vary depending upon the particular situation of such holder. The legal
conclusions expressed in this summary are based upon current provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury
Regulations ("Regulations"), judicial authority and administrative rulings and
practice, all as in effect as of the date of this Prospectus, and all of which
are subject to change, either prospectively or retroactively. These authorities
are subject to various interpretations and it is therefore possible that the tax
treatment of the Exchange Notes may differ from the treatment described below.
Legislative, judicial or administrative changes or interpretations may be
forthcoming that could alter or modify the statements and conclusions set forth
herein. Any such changes or interpretations may or may not be retroactive and
could affect the tax consequences to holders.
This summary deals only with persons who will hold the Exchange Notes as
capital assets, and does not address tax considerations applicable to investors
who may be subject to special tax rules, such as financial institutions, tax
exempt organizations, insurance companies, foreign persons, dealers in
securities or currencies, persons who hold Exchange Notes as a hedge or as a
position in a "straddle" for tax purposes, and persons who have a "functional
currency" other than the U.S. dollar. In addition, the following summary is
limited to the United States federal income tax consequences relevant to a U.S.
Holder of the Exchange Notes. A U.S. Holder of an Exchange Note means a citizen
or resident of the United States, a corporation, partnership or other entity
created or organized under the laws of the U.S. or any political subdivision
thereof, or a person otherwise subject to U.S. federal income tax on a net
income basis. In addition, the description does not consider the effect of any
applicable foreign, state, local or other tax laws or estate or gift tax
considerations.
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PERSONS CONSIDERING THE ACQUISITION OF EXCHANGE NOTES SHOULD CONSULT THEIR
OWN TAX ADVISORS CONCERNING THE APPLICATION OF U.S. FEDERAL INCOME TAX LAWS, AS
WELL AS THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION, TO THEIR
PARTICULAR SITUATIONS.
PAYMENT OF INTEREST
Subject to the discussions of amortizable bond premium below, interest on
an Exchange Note generally will be includable in the income of a Holder as
ordinary income at the time such interest is received or accrued, in accordance
with such Holder's method of accounting for United States federal income tax
purposes.
AMORTIZABLE BOND PREMIUM
Generally, if the tax basis of an obligation held as a capital asset (in
the case of the Exchange Notes, the initial purchase price of the Old Note
exchanged for such Exchange Note) exceeds the amount payable at maturity of the
obligation, such excess will constitute amortizable bond premium that the holder
may elect to amortize under the constant interest rate method and deduct over
the period from his acquisition date to the obligation's maturity date (or to an
earlier call date, if the use of such a date results in a smaller amount of
amortizable bond premium). A holder who elects to amortize bond premium must
reduce his tax basis in the related obligation by the amount of the aggregate
deductions allowable for amortizable bond premium. Amortizable bond premium will
be treated under the Code as an offset to interest income on the related debt
instrument for federal income tax purposes, subject to the promulgation of
Treasury Regulations altering such treatment.
EXCHANGE OFFER
Pursuant to the Regulations, the exchange of Old Notes for Exchange Notes
pursuant to the Exchange Offer should not constitute a significant modification
of the terms of the Old Notes, and, accordingly, such exchange should be treated
as a "non-event" for federal income tax purposes. Therefore, such exchange
should have no federal income tax consequences to Holders of Old Notes.
SALES, EXCHANGE OR RETIREMENT OF NOTES
Upon the sale, exchange or retirement (including redemption) of an Exchange
Note, other than the exchange of an Old Note for an Exchange Note (see
"-- Exchange Offer" above), a holder of an Exchange Note generally will
recognize gain or loss in an amount equal to the difference between the amount
of cash and the fair market value of any property received on the sale, exchange
or retirement of the Exchange Note (other than in respect of accrued and unpaid
interest on the Exchange Note, which such amounts are treated as ordinary
interest income) and such holder's adjusted tax basis in the Exchange Note. Such
gain or loss will generally be capital gain or loss, and will generally be
long-term capital gain if the Exchange Note is held for more than 12 months. For
individuals, long term capital gains generally are subject to a maximum tax rate
of 28% (20% for assets held more than 18 months). The deductibility of capital
losses is subject to limitations.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting requirements will apply to interest
payments on the Exchange Notes made to Holders other than certain exempt
recipients (such as corporations) and to proceeds realized by such Holders on
dispositions of Exchange Notes. A 31% backup withholding tax will apply to such
amounts only if the Holder: (i) fails to furnish its social security or other
taxpayer identification number ("TIN") within a reasonable time after request
therefor, (ii) furnishes an incorrect TIN, (iii) fails to report properly
interest or dividend income, or (iv) fails, under certain circumstances, to
provide a certified statement, signed under penalty of perjury, that the TIN
provided is its correct number and that is not subject to backup withholding.
Any amount withheld from a payment to a Holder under the backup withholding
rules is allowable as a refund or as a credit against such Holder's federal
income tax liability, provided that the required information is furnished to the
Service. Holders of Exchange Notes should consult their tax advisors as to their
qualification for exemption from backup withholding and the procedure for
obtaining such an exemption.
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PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes in exchange for Series C
Notes for its own account pursuant to the Exchange Offer must acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes. This Prospectus, as it may be amended or supplemented from time to time,
may be used by a broker-dealer in connection with resales of Exchange Notes
received in exchange for Series C Notes where such Series C Notes were acquired
as a result of market-making activities or other trading activities. The Company
has agreed that it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale for a
period of 180 days after consummation of the Exchange Offer, or such shorter
period as will terminate when all Series C Notes acquired by broker-dealers for
their own accounts as a result of market-making activities or other trading
activities have been exchanged for Exchange Notes and resold by such
broker-dealers. A broker-dealer that delivers such a prospectus to purchasers in
connection with such resales will be subject to certain of the civil liability
provisions under the Securities Act and will be bound by the provisions of the
Registration Rights Agreement (including certain indemnification rights and
obligations).
The Company will not receive any proceeds from any sale of Exchange Notes
by broker-dealers. Exchange Notes received in exchange for Series C Notes
pursuant to the Exchange Offer by broker-dealers for their own account pursuant
to the Exchange Offer may be sold from time to time in one or more transactions
in the over-the-counter market, in negotiated transactions, through the writing
of options on the Exchange Notes or a combination of such methods of resale, at
market prices prevailing at the time of resale, at prices related to such
prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any broker-
dealer that resells Exchange Notes that were received by it for its own account
pursuant to the Exchange Offer in exchange for Series C Notes pursuant to the
Exchange Offer and any broker or dealer that participates in a distribution of
such Exchange Notes may be deemed to be an "underwriter" within the meaning of
the Securities Act and any profit on any such resale of Exchange Notes and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. For a period of 180 days
after consummation of the Exchange Offer, or such shorter period as will
terminate when all Series C Notes acquired by broker-dealers for their own
accounts as a result of market-making activities or other trading activities
have been exchanged for Exchange Notes and resold by such broker-dealers, the
Company will promptly send additional copies of this Prospectus and any
amendment or supplement to this Prospectus to any broker-dealer that requests
such documents in the Letter of Transmittal. The Company has agreed in the
Registration Rights Agreement to indemnify such broker-dealers against certain
liabilities, including liabilities under the Securities Act.
TRANSFER RESTRICTIONS ON SERIES C NOTES
The Series C Notes have not been registered under the Securities Act and
may not be offered or sold within the United States or to, or for the account or
benefit of, U.S. persons except pursuant to an exemption from, or in a
transaction not subject to, the registration requirements of the Securities Act.
Accordingly, the Series C Notes were offered and sold by the Initial Purchaser
only (1) to "Qualified Institutional Buyers" (as defined in Rule 144A under the
Securities Act) in compliance with Rule 144A and (2) to a limited number of
other institutional "Accredited Investors" (as defined in Rule 501(a)(1), (2),
(3) or (7) under the Securities Act) that, prior to their purchase of any Series
C Notes, delivered to the Initial Purchaser a letter containing certain
representations and agreements.
Each purchaser of Series C Notes, by its acceptance thereof, is deemed to
have acknowledged, represented and agreed as follows:
(1) it was purchasing the Series C Notes for its own account or an
account with respect to which it exercises sole investment discretion and
that it and any such account is a Qualified Institutional Buyer or an
Accredited Investor, in each case for investment and not with a view to
distribution;
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(2) the Series C Notes have not been registered under the Securities
Act and may not be offered or sold within the United States or to, or for
the account or benefit of, U.S. persons except as set forth below;
(3) if it should resell or otherwise transfer the Series C Notes
within two years after the original issuance of the Series C Notes, it will
do so only (a) to the Company or any of its subsidiaries, (b) inside the
United States to a Qualified Institutional Buyer in compliance with Rule
144A, (c) inside the United States to an Accredited Investor that, prior to
such transfer, furnishes to the Trustee a signed letter containing certain
representations and agreements relating to the restrictions on transfer of
the Series C Notes (the form of which letter can be obtained from such
Trustee), (d) outside the United States in compliance with Rule 904 of
Regulation S under the Securities Act, (e) pursuant to Rule 144 under the
Securities Act, or (f) pursuant to an effective registration statement
under the Securities Act;
(4) it will give to each transferee of the Series C Notes notice of
any restrictions on transfer of such Series C Notes;
(5) none of the Company or the Initial Purchaser or any person
representing the Company or the Initial Purchaser has made any
representation to it with respect to the Company or the offering or sale of
any Series C Notes, other than the information contained in the Offering
Circular dated March 5, 1998, provided in connection with the sale of the
Series C Notes, which has been delivered to it and upon which it is relying
in making its investment decision with respect to the Series C Notes;
accordingly, it acknowledges that no representation or warranty is made by
the Company or the Initial Purchaser as to the accuracy or completeness of
such materials;
(6) it has had access to such financial and other information
concerning the Company and the Series C Notes as it has deemed necessary in
connection with its decision to purchase the Series C Notes, including an
opportunity to ask questions of and request information from the Company
and the Initial Purchaser;
(7) the Trustee will not be required to accept for registration of
transfer any Series C Notes acquired by it, except upon presentation of
evidence satisfactory to the Company and the Trustee that the restrictions
set forth herein have been complied with;
(8) the Company, the Trustee, the Initial Purchaser and others will
rely upon the truth and accuracy of the foregoing acknowledgments,
representations and agreements and agrees that, if any of the
acknowledgments, representations or agreements deemed to have been made by
its purchase of the Series C Notes are no longer accurate, it shall
promptly notify the Initial Purchaser; and
(9) if it is acquiring the Notes as a fiduciary or agent for one or
more investor accounts, it represents that it has sole investment
discretion with respect to each such account and it has full power to make
the foregoing acknowledgments, representations and agreements on behalf of
each account.
Each Accredited Investor that is an original purchaser of the Series C
Notes from the Initial Purchaser was required to sign an agreement to the
foregoing effect.
Each certificate representing the Series C Notes bears the following
legend:
"THE NOTE (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED IN A
TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE NOTE
EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION THEREFROM. EACH
PURCHASER OF THE NOTE EVIDENCED HEREBY IS HEREBY NOTIFIED THAT THE SELLER
MAY BE RELYING ON THE EXEMPTION PROVIDED BY RULE 144A UNDER THE SECURITIES
ACT. THE HOLDER OF THE NOTE EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE
ISSUER THAT (A) SUCH NOTE MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED,
ONLY (1)(A) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS A QUALIFIED
INSTITU-
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TIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (B) IN A TRANSACTION
MEETING THE REQUIREMENTS OF RULE 144 UNDER THE SECURITIES ACT, (C) OUTSIDE
THE UNITED STATES TO A FOREIGN PERSON IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT OR (D) IN ACCORDANCE WITH
ANOTHER EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT
(AND BASED UPON AN OPINION OF COUNSEL IF THE ISSUER SO REQUESTS), (2) TO
THE ISSUER OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT AND, IN
EACH CASE, IN ACCORDANCE WITH THE APPLICABLE SECURITIES LAWS OF ANY STATE
OF THE UNITED STATES OR ANY OTHER APPLICABLE JURISDICTION AND (B) THE
HOLDER WILL, AND EACH SUBSEQUENT HOLDER IS REQUIRED TO, NOTIFY ANY
PURCHASER OF THE NOTE EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH
IN (A) ABOVE."
Any Series C Notes not exchanged in the Exchange Offer for Exchange Notes
will remain subject to the transfer restrictions described above.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Exchange Notes
offered hereby will be passed upon for the Company by Vinson & Elkins L.L.P.,
Houston, Texas.
EXPERTS
The consolidated balance sheets of Parker Drilling Company and subsidiaries
(the "Company") as of August 31, 1997 and 1996, and the consolidated statements
of operations, redeemable preferred stock and stockholders' equity, and cash
flows for each of the three years in the period ended August 31, 1997,
incorporated by reference in this Prospectus, have been audited by Coopers &
Lybrand L.L.P., independent accountants, given on the authority of that firm as
experts in auditing and accounting. With respect to the unaudited interim
financial information for the periods ended February 28, 1998 and 1997 and
November 30, 1997 and 1996, incorporated by reference in this Prospectus, the
independent accountants have reported that they have applied limited procedures
in accordance with professional standards for a review of such information.
However, their separate report included in the Company's quarterly report on
Form 10-Q for the quarters ended February 28, 1998 and November 30, 1997, and
incorporated by reference herein, states that they did not audit and they do not
express an opinion on that interim financial information. Accordingly, the
degree of reliance on their report on such information should be restricted in
light of the limited nature of the review procedures applied. The accountants
are not subject to the liability provision of Section 11 of the Securities Act
for their report on the unaudited interim financial information because that
report is not a "report" or a "part" of the Registration Statement prepared or
certified by the accountants within the meaning of Section 7 or Section 11 of
the Securities Act.
The combined balance sheets of Mallard Bay Drilling Division of EVI, Inc.
as of December 31, 1995 and 1994 and the combined statements of income, equity
investments and cash flows for each of the three years in the period ended
December 31, 1995, incorporated by reference in this Prospectus, have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, and are incorporated by reference herein in
reliance upon the authority of said firm as experts in accounting and auditing
in giving said report.
The balance sheets of Quail Tools, Inc. as of December 31, 1995 and 1994
and the related statements of earnings and retained earnings and cash flows for
each of the years in the three-year period ended December 31, 1995, have been
incorporated by reference in this Prospectus in reliance upon the report of KPMG
Peat Marwick LLP, independent certified public accountants, incorporated by
reference, and upon the authority of said firm as experts in accounting and
auditing. The report of KPMG Peat Marwick LLP refers to the adoption in 1994 of
the method of accounting for certain investments in debt and equity securities
prescribed by Statement of Financial Accounting Standards No. 115.
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The balance sheet of Hercules Offshore Corporation as of December 31, 1996
and the related statement of income (loss), shareholder's equity and cash flows
of the Predecessor Company as restated for the four months ended April 30, 1996
and the statement of income, shareholder's equity and cash flows of Hercules
Offshore Corporation for the eight months ended December 31, 1996, have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto, which report is incorporated by reference
herein in reliance upon the authority of Arthur Andersen LLP as experts in
accounting and auditing in giving said report.
The balance sheet of Hercules Rig Corp. as of December 31, 1996 and the
related statements of income, shareholder's equity and cash flows for the year
ended December 31, 1996 have been audited by Arthur Andersen LLP, independent
public accountants as indicated in their report with respect thereto, which
report is incorporated by reference herein in reliance upon the authority of
Arthur Andersen LLP as experts in accounting and auditing in giving said report.
79
