<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 3, 1998
REGISTRATION NO. 333-53897
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
POOL ENERGY SERVICES CO.
(Exact Name Of Registrant As Specified In Its Charter)
(SEE TABLE OF ADDITIONAL REGISTRANTS)
<TABLE>
<S> <C> <C>
TEXAS 1389 76-0263755
(State Or Other Jurisdiction of (Primary Standard (I.R.S. employer
incorporation or organization) Industrial Code Number) identification number)
G. GEOFFREY ARMS
VICE PRESIDENT AND GENERAL COUNSEL
10375 RICHMOND AVENUE POOL ENERGY SERVICES CO.
HOUSTON, TEXAS 77042 10375 RICHMOND AVENUE
(713) 954-3000 HOUSTON, TEXAS 77042
(Address, including zip code, and telephone (713) 954-3000
number, (Name, address, including zip code, and
including area code, of registrant's principal telephone number,
executive offices) including area code, of agent for service)
</TABLE>
Copy to:
DAVID N. BROWN
COVINGTON & BURLING
1201 PENNSYLVANIA AVENUE, N.W.
WASHINGTON, D.C. 20004
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
- ------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
- ------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
TABLE OF ADDITIONAL REGISTRANTS
<TABLE>
<CAPTION>
PRIMARY
STATE OR OTHER I.R.S. STANDARD
JURISDICTION EMPLOYER INDUSTRIAL
EXACT NAME OF EACH SUBSIDIARY GUARANTOR OF INCORPORATION IDENTIFICATION CLASSIFICATION
REGISTRANT AS SPECIFIED IN ITS CHARTER OR ORGANIZATION NUMBER CODE NO.
--------------------------------------- ---------------- -------------- --------------
<S> <C> <C> <C>
Associated Petroleum Services, Inc. ............ Texas 74-2072647 1389
Big Ten Fishing Tool Company, Inc. ............. California 95-3500592 1389
The International Air Drilling Company.......... Texas 75-6019288 1389
Kuukpik/Pool Arctic Alaska...................... Alaska 92-0143028 1389
PCNV, Inc. ..................................... Nevada 88-0373934 1389
Pool Alaska, Inc. .............................. Texas 76-0043503 1389
Pool Americas, Inc. ............................ Texas 75-1298868 1389
Pool-Australia, Inc. ........................... Texas 75-1399219 1389
Pool California Energy Services, Inc. .......... California 95-2835140 1389
Pool Company.................................... Delaware 76-0306172 1389
Pool Company Houston Ltd. ...................... Texas 76-0520770 1389
Pool Company Texas Ltd. ........................ Texas 76-0520769 1389
Pool International, Inc. ....................... Texas 75-1419163 1389
Pool Production Services, Inc. ................. Oklahoma 76-0178149 1389
PTX, Inc. ...................................... Texas 76-0264573 1389
Sea Mar, Inc. .................................. Louisiana 72-1162457 4424
Sea Mar Management, Inc. ....................... Louisiana 72-1184226 4424
</TABLE>
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JUNE 3, 1998
PROSPECTUS
POOL ENERGY SERVICES CO.
OFFER TO EXCHANGE ITS 8 5/8% SENIOR SUBORDINATED NOTES DUE 2008,
SERIES B FOR ANY AND ALL OF ITS OUTSTANDING 8 5/8% SENIOR
SUBORDINATED NOTES DUE 2008, SERIES A.
THE EXCHANGE OFFER AND WITHDRAWAL OF RIGHTS THEREUNDER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON [ ], 1998, UNLESS EXTENDED.
Pool Energy Services Co., a Texas 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 its 8 5/8% Senior Subordinated Notes due 2008, Series B (the "New
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 any and all of its outstanding
8 5/8% Senior Subordinated Notes due 2008, Series A (the "Old Notes," and,
together with the New Notes, the "Notes"), of which $150,000,000 principal
amount is outstanding. The Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Old Notes being tendered for exchange. However,
the Exchange Offer is subject to the absence of certain conditions which may be
waived by the Company. See "The Exchange Offer -- Certain Conditions to the
Exchange Offer." Subject to the absence or waiver of such conditions, the
Company will accept for exchange any and all Old Notes validly tendered on or
prior to 5:00 p.m., New York City time, on , 1998, unless
the Exchange Offer is extended (the "Expiration Date"). Old Notes may be
tendered only in integral multiples of $1,000. The date of acceptance and
exchange of the Old Notes (the "Exchange Date") will be the fourth business day
following the Expiration Date, unless an earlier date is selected by the
Company. Old Notes tendered pursuant to the Exchange Offer may be withdrawn at
any time prior to 5:00 p.m., New York City time, on the Expiration Date;
otherwise such tenders are irrevocable. The New Notes will be issued and
delivered promptly after the Exchange Date.
The terms of the New Notes are identical in all material respects to the
terms of the Old Notes, except that the New Notes have been registered under the
Securities Act and are generally freely transferable by holders thereof and are
issued without any covenant by the Company regarding registration under the
Securities Act. See "The Exchange Offer -- Resale of New Notes." The New 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). For a complete
description of the terms of the New Notes, see "Description of Notes." There
will be no cash proceeds to the Company from this Exchange Offer.
(Continued on next page)
---------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE
CONSIDERED IN EVALUATING AN INVESTMENT IN THE NEW 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 , 1998.
<PAGE> 4
(Continued from cover page)
As with the Old Notes, interest on the New Notes is payable semi-annually
on April 1 and October 1 of each year, commencing October 1, 1998. The Notes
will be redeemable at the option of the Company, in whole or in part, at any
time on or after April 1, 2003, at the redemption prices set forth herein. The
Company may also redeem up to 35% of the aggregate principal amount of the Notes
at its option, from time to time on or prior to April 1, 2001, at a redemption
price equal to 108.625% of the principal amount thereof, plus accrued and unpaid
interest and Special Interest (as defined herein), if any, to the redemption
date, with the net proceeds of one or more Equity Offerings (as defined herein);
provided, that at least $97.5 million of the aggregate principal amount of Notes
remains outstanding after such redemption. Upon the occurrence of a Change of
Control (as defined herein), the Company will be required to make an offer to
repurchase all or any part of each holder's Notes at a price equal to 101% of
the aggregate amount thereof, plus accrued and unpaid interest and Special
Interest, if any, to the date of purchase.
The Notes are general unsecured obligations of the Company and will be
unconditionally guaranteed, jointly and severally on an unsecured senior
subordinated basis (the "Note Guarantees"), by each of the Subsidiary Guarantors
(as defined herein) to the extent set forth in the Note Guarantees. The New
Notes and each Note Guarantee will be subordinated to all Senior Indebtedness
(as defined herein) of the Company and the applicable Subsidiary Guarantors,
including obligations under the Credit Agreement (as defined herein). As of
March 31, 1998, the Company had approximately $19.5 million of Senior
Indebtedness (excluding letters of credit, operating leases and other contingent
liabilities). The indenture pursuant to which the New Notes will be issued
permits the Company and its subsidiaries (including the Subsidiary Guarantors)
to incur additional indebtedness, subject to certain limitations.
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company and the Subsidiary Guarantors contained in the
Registration Rights Agreement dated March 31, 1998 (the "Registration Rights
Agreement"), among the Company, the Subsidiary Guarantors and SBC Warburg Dillon
Read Inc., Morgan Stanley & Co. Incorporated and Johnson Rice & Company L.L.C.
(the "Initial Purchasers"), with respect to the initial sale of the Old Notes.
The Old Notes were originally issued and sold on March 31, 1998, (the "Notes
Offering") in transactions that were not registered under the Securities Act in
reliance upon the exemption provided in Section 4(2) of the Securities Act. The
Initial Purchasers subsequently resold the Old Notes to "qualified institutional
buyers" in reliance upon Rule 144A under the Securities Act and pursuant to
offers and sales that occurred outside the United States within the meaning of
Regulation S under the Securities Act. Accordingly, the Old Notes may not be
reoffered, resold or otherwise transferred unless they are registered under the
Securities Act or unless an applicable exemption from the registration
requirements of the Securities Act is available. See "The Exchange
Offer -- Purpose of the Exchange Offer."
Based on existing interpretations of the staff of the Securities and
Exchange Commission (the "Commission" or "SEC") issued to third-parties, the
Company believes that New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale, resold and otherwise
transferred by holders 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
requirements of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such holders' business and such holders are not engaged
in, have no arrangement with any person to participate in, and do not intend to
engage in any public distribution of the New Notes. Each broker-dealer that
receives New Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a resale prospectus in connection with any
resale of such New 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
New Notes. The Company has agreed that, for such period of time as such
broker-dealers must comply with the prospectus delivery requirements of the
Securities Act in order to resell the Notes, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
The New Notes will constitute a new issue of securities with no established
trading market. The Company does not intend to list any Notes on a national
securities exchange or to apply for quotation of any
<PAGE> 5
(Continued from cover page)
Notes through the National Association of Securities Dealers Automated Quotation
System. Any Old Notes not tendered and accepted in the Exchange Offer will
remain outstanding. To the extent that Old Notes are tendered and accepted in
the Exchange Offer, a holder's ability to sell untendered and tendered but
unaccepted Old Notes could be adversely affected. Following consummation of the
Exchange Offer, the holders of Old Notes will continue to be subject to the
existing restrictions on transfers thereof, and the Company will have no further
obligation to such holders to provide for the registration under the Securities
Act of the Old Notes held by them except if a holder of Old Notes shall notify
the Company, within 20 business days following the consummation of the Exchange
Offer, that (i) such holder was prohibited by law or the policy of the
Commission from participating in the Exchange Offer, or (ii) such holder may not
resell the New Notes acquired by it in the Exchange Offer to the public without
delivering a prospectus, and this Prospectus (including any amendment or
supplement thereto) is not appropriate or available for such resales by such
holder. See "The Exchange Offer -- Purpose of the Exchange Offer." No assurance
can be given as to the liquidity of the trading market for either the Old Notes
or the New Notes.
Holders of Old Notes whose Old Notes are not tendered and accepted in the
Exchange Offer will continue to hold such Old Notes and will be entitled to all
the rights and preferences and will be subject to the limitations applicable
thereto under the Indenture, and with respect to transfer, under the Securities
Act. The Company will not receive any proceeds from the Exchange Offer and will
pay all the expenses incident to the Exchange Offer. Any Old Notes not accepted
for exchange for any reason will be returned without expense to the tendering
holders thereof as promptly as practicable after the expiration or termination
of the Exchange Offer. See "The Exchange Offer." There is no public market for
the Old Notes. The New Notes will not be listed on any securities exchange, but
the Old Notes are included in the Private Offerings, Resales and Trading through
Automated Linkages ("PORTAL") Market for trading among "qualified institutional
buyers." There can be no assurance that an active trading market for the New
Notes will develop. To the extent that a market for the New Notes does develop,
the market value of the New Notes will depend on market conditions (such as
yields on alternative investments), general economic conditions, the Company's
financial condition and certain other factors. Such conditions might cause the
New Notes, to the extent that they are traded, to trade at a significant
discount from face value. See "Risk Factors -- Absence of Prior Public Market
for New Notes."
NEW HAMPSHIRE RESIDENTS ONLY
Neither the fact that a registration statement or an application for a
license has been filed under Chapter 421-B of the New Hampshire Revised Statutes
with the State of New Hampshire nor the fact that a security is effectively
registered or a person is licensed in the State of New Hampshire constitutes a
finding by the Secretary of State that any document filed under Chapter 421-B of
the New Hampshire Statutes is true, complete and not misleading. Neither any
such fact nor the fact that an exemption or exception is available for a
security or a transaction means that the Secretary of State has passed in any
way upon the merits or qualifications of, or recommended or given approval to,
any person, security or transaction. It is unlawful to make, or cause to be
made, to any prospective purchaser, customer or client any representation
inconsistent with the provisions of this paragraph.
<PAGE> 6
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 statements and other information with the
Commission, which can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Judiciary Plaza, Room
1024, Washington, D.C. 20549; and at the regional offices of the Commission at
500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511 and at Seven
World Trade Center, New York, New York 10048. Copies of such material can be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549 at prescribed rates. The
Company is an electronic filer under the EDGAR (Electronic Data Gathering,
Analysis and Retrieval) system maintained by the Commission. The Commission
maintains a Website (http://www.sec.gov) on the Internet that contains reports,
proxy and information statements and other information regarding companies that
file electronically with the Commission. In addition, documents filed by the
Company can be inspected at the offices of the Nasdaq Market, 1735 K Street,
N.W., Washington, D.C. 20006.
The Company and the Subsidiary Guarantors have filed with the Commission, a
registration statement on Form S-4 (the "Registration Statement") under the
Securities Act, with respect to the New Notes offered hereby. This Prospectus
does not contain all of the information contained in the Registration Statement.
Reference is hereby made to the Registration Statement and the exhibits thereto,
which may be obtained at the public reference facilities maintained by the
Commission as provided in the preceding paragraph, for further information with
respect to the Company and the securities offered hereby. Statements contained
herein concerning the provisions of such documents are necessarily summaries of
such documents, and each such statement is qualified in its entirety by
reference to the copy of the applicable document filed with the Commission.
While any Notes remain outstanding, the Company will, upon request, make
available 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 Pool Energy Services Co., 10375 Richmond
Avenue, Houston, Texas 77042, attention: Mr. David Oatman (telephone number:
(713) 954-3316).
The Indenture (as defined herein) provides that the Company will furnish to
the Trustee (as defined herein) and to the holders of the Notes such
supplementary and periodic information, documents and reports that would be
required pursuant to Section 13 of the Exchange Act in respect of a security
listed and registered on a national securities exchange as may be prescribed
from time in such rules and regulations. The Indenture provides that the Company
will file a copy of such information and reports with the Commission (unless the
Commission will not accept such a filing). The Company must provide copies of
such information and reports to the holders of the Notes and to the Trustee
within 15 days of the filing of such information and reports with the
Commission.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission pursuant to the Exchange Act (File No. 0-18437), are incorporated in
this Prospectus by reference and shall be deemed to be a part hereof:
(a) Annual Report on Form 10-K for the year ended December 31, 1997;
(b) Current Report on Form 8-K filed with the Commission on March 11,
1998;
(c) Current Report on Form 8-K filed with the Commission on April 6,
1998; and
(d) Quarterly Report on Form 10-Q for the quarterly period ended March
31, 1998.
i
<PAGE> 7
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to the date of this
Prospectus and prior to the termination of the offering made hereby (by the
filing of a post-effective amendment to the Registration Statement which
indicates that all securities offered hereby have been sold, or which
deregisters all securities then remaining unsold) shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date of filing of such document. 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.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of such person, a copy of any or all documents that have
been incorporated herein by reference (not including exhibits to the documents
that have been incorporated herein by reference unless such exhibits are
specifically incorporated by reference in the documents this Prospectus
incorporates). Requests should be directed to Pool Energy Services Co., 10375
Richmond Avenue, Houston, Texas 77042, attention: Mr. David Oatman (telephone
number: (713) 954-3316).
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 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.
DISCLOSURE REGARDING FORWARD-LOOKING INFORMATION
The statements included in this Prospectus regarding future financial
performance and results of operations and other statements that are not
historical facts are forward-looking statements within the meaning of Section
27A of the Securities Act and Section 21E of the Exchange Act. Generally, these
statements relate to business plans or strategies, projected or anticipated
benefits or other consequences of such plans or strategies, or projections
involving anticipated revenues, expenses, earnings, levels of capital
expenditures or other aspects of operating results. Statements to the effect
that the Company or management "anticipates," "believes," "estimates,"
"expects," "predicts," or "projects" a particular result or course of events, or
that such result or course of events "should" occur, and similar expressions,
are also intended to identify forward-looking statements. Such statements are
subject to numerous risks, uncertainties and assumptions, including but not
limited to uncertainties relating to industry and market conditions, prices of
crude oil and natural gas, foreign exchange and currency fluctuations, political
instability in foreign jurisdictions, the ability of the Company to integrate
newly acquired operations and other factors discussed in this Prospectus and in
the Company's filings with the Commission. Should one or more of these risks or
uncertainties materialize, or should underlying assumptions prove incorrect,
actual results may vary materially from those stated. Important factors that
could cause actual results to differ materially from the Company's expectations
are disclosed herein in "Risk Factors," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and elsewhere in this Prospectus.
ii
<PAGE> 8
PROSPECTUS SUMMARY
The following summary is qualified in its entirety, and should be read in
conjunction with, the financial statements and more detailed information
included elsewhere herein or incorporated by reference in this Prospectus.
Unless the context requires otherwise or otherwise indicated, references to the
"Company" means Pool Energy Services Co., it subsidiaries and its unconsolidated
affiliates. Unless otherwise indicated, all pro forma information herein assumes
that the Company's acquisition (the "Acquisition" or the "Sea Mar Acquisition")
of Sea Mar, Inc. ("Sea Mar") occurred at the beginning of the periods to which
such information relates.
THE COMPANY
GENERAL
Pool Energy Services Co. is a leading worldwide provider of well-servicing,
workover and drilling rig services and related transportation services for both
land and offshore markets to a diverse group of multi-national, foreign national
and independent oil and natural gas producers. The Company performs the ongoing
maintenance and major overhauls necessary to optimize the level of production
from existing oil and natural gas wells and provides certain ancillary services
during the drilling and completion of new oil and natural gas wells. The Company
also provides contract drilling services in Alaska, the Gulf of Mexico, certain
international locations and on occasion in the lower forty-eight states.
Typically, the Company provides a well-servicing, workover or drilling rig, the
crew to operate the rig and such other specialized equipment as may be needed to
meet a customer's requirements. In addition, the Company owns and operates a
fleet of offshore support vessels that provides marine transportation of
drilling materials, supplies and crews for offshore rig operations and support
for other offshore facilities.
As of March 31, 1998, the Company's worldwide rig fleet included 791 land
well-servicing/workover rigs, 27 land drilling rigs and 27 offshore rigs (15
platform workover rigs, five platform drilling rigs and seven jack-up rigs). The
Company also owns or leases and operates 370 fluid hauling trucks, 1,060 fluid
storage tanks, 14 salt water disposal wells and other auxiliary equipment used
in its domestic operations. The Company also operates a fleet of 23 support
vessels to complement its offshore rig fleet.
The Company operates both domestically and internationally. In the United
States, the Company operates in several oil and natural gas producing states,
with specific concentration onshore in Texas, California, Oklahoma, New Mexico,
North Dakota, Montana, Utah and Alaska, and offshore in the Gulf of Mexico,
offshore California and in the Cook Inlet of Alaska. Revenues from domestic
operations represented approximately 85% of the Company's pro forma 1997
revenues. International markets where the Company has an established presence
include land operations in Argentina, Ecuador, Guatemala, Oman, Pakistan and
Saudi Arabia and offshore operations in Australia, Malaysia and Saudi Arabia.
Revenues from international operations represented approximately 15% of the
Company's pro forma 1997 revenues.
The Company is a Texas corporation with its principal offices located at
10375 Richmond Avenue, Houston, Texas 77042. Its telephone number is (713)
954-3000.
BUSINESS STRATEGY
The Company's business strategy is to further strengthen its competitive
position and market share in the oilfield services industry, in order to achieve
growth in revenues, earnings and EBITDA (as defined herein). Key components of
the Company's business strategy include:
- Pursuing expansion opportunities in existing core market areas through
selective acquisitions that result in an expanded market presence and in
consolidation cost savings.
- Upgrading and enhancing the capabilities of the Company's existing rig
fleet and constructing specialized rigs and equipment to operate in
markets with high levels of activity and strong pricing fundamentals.
1
<PAGE> 9
- Offering a broad and integrated array of additional services and
equipment that complement the Company's businesses in its existing
locations.
- Entering new foreign markets that offer significant development and
production activity.
IMPLEMENTATION OF BUSINESS STRATEGY
The Company has been significantly expanding its core operations through
acquisitions and rig enhancement. In 1997, the Company expanded its domestic
land well-servicing operations with purchases of 111 well-serving rigs, 128
oilfield trucks, 430 fluid storage tanks, five coiled tubing units and related
assets for an aggregate of approximately $50 million. The Company also acquired
an offshore jackup workover rig for its Gulf of Mexico operations for $8 million
and its Saudi Arabia affiliate purchased four land rigs for $9 million. During
1998, the Company has completed the construction of a large offshore platform
drilling rig and has made substantial modifications to four land drilling rigs
at an aggregate estimated cost of $38 million. Such rigs began operating during
1998 in Alaska, the Gulf of Mexico and Saudi Arabia under long-term contracts.
The Company's Alaska operation is in the process of constructing a new land
drilling rig and substantially modifying another land drilling rig at an
aggregate estimated cost of $29 million. Such rigs are committed under long-term
contracts and are expected to be in operation commencing in late 1998 and early
1999, respectively. In addition, with the Sea Mar Acquisition, the Company
broadened the range of services it offers to its customers to include offshore
support vessel services.
RECENT TRANSACTIONS
SEA MAR ACQUISITION
The Company agreed, on February 10, 1998, to acquire all of the outstanding
capital stock of Sea Mar. On March 31, 1998, the Company acquired Sea Mar for
approximately $75.9 million in cash (including an estimated $14.7 million in
post-closing purchase price adjustments) and 1,538,462 common shares of the
Company. In addition, the Company has agreed to pay additional cash
consideration contingent upon Sea Mar exceeding EBITDA (as defined in the stock
purchase agreement for the Sea Mar Acquisition) targets for the fiscal years
ending December 31, 1998 and 1999 of $25 million and $35 million, respectively.
The additional consideration for each year will be equal to the amount by which
EBITDA exceeds the EBITDA target for the applicable year, up to a maximum of $10
million in each year. The Company also repaid Sea Mar's existing debt of $15.7
million. The Sea Mar Acquisition was accounted for under the purchase method of
accounting.
Sea Mar operates offshore support vessels in the Gulf of Mexico. Sea Mar's
services include the marine transportation of drilling materials, supplies and
crews for offshore rig operations and support for other offshore facilities. Sea
Mar also provides offshore logistical support to drilling and workover
operations, pipelaying and other construction, production platforms and
geophysical operations. Sea Mar's existing fleet consists of 23 support vessels,
including one anchor handling/tug supply vessel, 13 supply vessels, seven
mini-supply vessels and two research vessels. In addition, during 1997 a
contract was entered into with a marine shipbuilder for the construction of ten
additional vessels at an estimated aggregate cost of $77.6 million, net of
deposits. These new vessels are scheduled to be delivered between late 1998 and
early 2000.
NOTES OFFERING AND AMENDMENT OF CREDIT AGREEMENT
Initially, the Company considered funding the Sea Mar Acquisition through a
private placement of the Company's debt securities or through borrowings under
the Company's existing syndicated bank revolving credit agreement (the "Credit
Agreement"). In contemplation of the latter possibility and in view of the
Company's increased capital requirements following the Sea Mar Acquisition, the
Credit Agreement was amended to increase the maximum availability thereunder
from $130 million to $180 million. On March 31, 1998, the Company completed a
private placement of $150,000,000 aggregate principal amount of the Old Notes
pursuant to a purchase agreement, dated March 26, 1998 by and among SBC Warburg
Dillon Read Inc., Morgan Stanley & Co. Incorporated, and Johnson Rice & Company
L.L.C. and the Company and the
2
<PAGE> 10
Subsidiary Guarantors. The net proceeds of the Notes Offering were used to
effect the Sea Mar Acquisition, to repay outstanding debt of Sea Mar and to
reduce the outstanding balance under the Credit Agreement. The Old Notes were
issued pursuant to an indenture (the "Indenture") dated March 31, 1998, by and
between the Company, the Subsidiary Guarantors and Marine Midland Bank as
trustee (the "Trustee").
THE EXCHANGE OFFER
As used in this section of the Summary and in "The New Notes," "The
Exchange Offer" and "Description of Notes," the Company refers only to Pool
Energy Services Co. and does not include its subsidiaries.
The Exchange Offer......... The Company is offering to exchange up to
$150,000,000 aggregate principal amount of the New
Notes for any and all of its outstanding Old Notes.
The terms of the New Notes are identical in all
material respects (including principal amount,
interest rate and maturity) to the terms of the Old
Notes for which they may be exchanged pursuant to
the Exchange Offer, except that the New Notes will
be registered under the Securities Act and will be
freely transferable by holders thereof (other than
as provided herein), and are not entitled to the
benefit of any covenant regarding registration
under the Securities Act. See "The Exchange Offer."
Expiration Date; Withdrawal
of Tender.................. The Exchange Offer will expire at 5:00 p.m. New
York City time, on , 1998,
unless the Exchange Offer is extended by the
Company, in which case the term "Expiration Date"
means the latest date and time to which the
Exchange Offer is extended. See "The Exchange
Offer -- Expiration Date; Extension; Termination;
Amendment." Tenders may be withdrawn at any time
prior to 5:00 p.m., New York City time, on the
Expiration Date. See "The Exchange Offer --
Withdrawal Rights."
Interest Payments.......... Interest on the New Notes shall accrue from the
last interest payment date (April 1 or October 1,
each an "Interest Payment Date") on which interest
was paid on the Old Notes so surrendered or, if no
interest has been paid on such Old Notes, from
April 1, 1998.
No Minimum Condition....... The Exchange Offer is not conditioned upon any
minimum aggregate principal amount of Old Notes
being tendered for exchange.
Exchange Date.............. The date of acceptance and exchange of the Old
Notes will be the fourth business day following the
Expiration Date, unless an earlier date is selected
by the Company and the Company notifies the
Exchange Agent (as defined herein) of such earlier
date.
Conditions to the Exchange
Offer.................... The Company shall not be required to accept for
exchange, or to issue New Notes in exchange for,
any Old Notes and may terminate or amend the
Exchange Offer, if any of certain conditions exist,
the occurrence of which may be waived by the
Company. The Company currently expects that each of
the conditions will be satisfied and that no
waivers will be necessary. See "The Exchange
Offer -- Certain Conditions to the Exchange Offer."
Procedures for Tendering
Old Notes.................. Each holder of Old Notes wishing to tender such
notes must complete, sign and date the Letter of
Transmittal, or a facsimile thereof, in
3
<PAGE> 11
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with the Old Notes and any other required
documentation to the Exchange Agent at the address
set forth in the Letter of Transmittal. See "The
Exchange Offer -- Procedures for Tendering Old
Notes" and "Plan of Distribution."
Use Of Proceeds............ There will be no proceeds to the Company from the
exchange of New Notes pursuant to the Exchange
Offer. For a discussion of the use of the net
proceeds received by the Company from the issuance
of the Old Notes see "Use of Proceeds."
Federal Income Tax
Considerations........... The exchange of New Notes pursuant to the Exchange
Offer should not be a taxable event for federal
income tax purposes. See "Certain U.S. Federal
Income Tax Considerations."
Special Procedures for
Beneficial Owners.......... Any beneficial owner whose Old 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
beneficial owner's own behalf, such beneficial
owner must, prior to completing and executing the
Letter of Transmittal and delivering the Old Notes,
either make appropriate arrangements to register
ownership of the Old Notes in such beneficial
owner's name or obtain a properly completed bond
power from the registered holder. The transfer of
registered ownership may take considerable time.
See "The Exchange Offer -- Procedures for Tendering
Old Notes."
Guaranteed Delivery
Procedures............... Holders of Old Notes 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 documents
required by the Letter of Transmittal to the
Exchange Agent prior to the Expiration Date must
tender their Old Notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer -- Procedures for Tendering Old Notes."
Acceptance of Old Notes and
Delivery of New Notes.... On the Exchange Date, the Company will accept for
exchange any and all Old Notes which are properly
tendered in the Exchange Offer prior to 5:00 p.m.,
New York City time, on the Expiration Date. The New
Notes issued pursuant to the Exchange Offer will be
delivered promptly following the Exchange Date. See
"The Exchange Offer -- Acceptance of Old Notes for
Exchange; Delivery of New Notes."
Consequences of Failure to
Exchange................. Holders of the Old Notes who do not tender their
Old Notes in the Exchange Offer will continue to
hold such Old Notes and will be entitled to all the
rights and will be subject to all the limitations
applicable thereto under the Indenture, except for
any such rights under the Registration Rights
Agreement that by their terms terminate or cease to
have further effectiveness as a result of the
making of, and the acceptance for exchange of all
validly tendered Old Notes pursuant to the
4
<PAGE> 12
Exchange Offer. Holders of Old Notes who do not
exchange their Old Notes for New Notes pursuant to
the Exchange Offer will continue to be subject to
the restrictions on transfer of such Old Notes as
set forth in the legend therein and, except in
limited circumstances, will no longer have any
registration rights with respect to the Old Notes.
In general, the Old Notes may not be offered or
sold, unless registered under the Securities Act,
except pursuant to an exemption from, or in a
transaction not subject to, the Securities Act and
applicable state securities laws. The Company does
not currently anticipate that it will register the
Old Notes under the Securities Act. To the extent
that Old Notes are tendered and accepted in the
Exchange Offer, the trading market for untendered
or tendered but unaccepted Old Notes could be
adversely affected. See "The Exchange
Offer -- Consequences of Failure to Exchange."
Registration Rights........ The Company and the Subsidiary Guarantors entered
into a Registration Rights Agreement dated as of
March 31, 1998 with the Initial Purchasers, for the
benefit of all holders of Old Notes, in which it
agreed to make the Exchange Offer. The Registration
Rights Agreement provides that, among other
conditions, if the Company fails to consummate the
Exchange Offer on or prior to 45 days following the
effectiveness date of the Exchange Offer
Registration Statement, the Company will file a
shelf registration statement (the "Shelf
Registration Statement") to cover resales of New
Notes by Holders who provide certain information
required for inclusion in the Shelf Registration
Statement, and who agree to be bound by the terms
of the Registration Rights Agreement. Upon a
Registration Default (as defined herein), the
Company will be required to pay Special Interest
(as defined herein) to the affected holders of the
Notes. See "Exchange Offer; Registration Rights."
Exchange Agent............. Marine Midland Bank is serving as exchange agent
(the "Exchange Agent") in connection with the
Exchange Offer. See "The Exchange Offer -- Exchange
Agent."
Resale of New Notes........ Based upon interpretations by the staff of the SEC
issued to third parties, the Company believes the
New Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale,
resold and otherwise transferred by holders thereof
(other than any holder which is a broker-dealer or
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 New Notes are acquired in the ordinary
course of business and such holders have no
arrangement with any person to participate in the
distribution of such New Notes. Each broker-dealer
that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge
that it will deliver a prospectus in connection
with a resale of such New Notes. This Prospectus,
as it may be amended or supplemented from time to
time, may be used by such broker-dealers in
connection with such resales. See "The Exchange
Offer -- Resale of New Notes."
5
<PAGE> 13
THE NEW NOTES
The form and terms of the New Notes are identical to the form and terms of
the Old Notes except for certain transfer restrictions and registration rights
relating to the Old Notes. See "Description of Notes." The New Notes will
evidence the same debt as the Old Notes and will be entitled to all the benefits
of the Indenture under which the Old Notes were, and the New Notes will be,
issued. See "Description of Notes."
Issuer..................... The Notes are obligations of Pool Energy Services
Co.
Notes Offered.............. $150,000,000 principal amount of 8 5/8% Senior
Subordinated Notes due 2008.
Maturity Date.............. April 1, 2008.
Interest Payment Dates..... April 1 and October 1 of each year, commencing
October 1, 1998.
Sinking Fund............... None.
Ranking.................... The Notes are general unsecured obligations of the
Company, subordinated in right of payment to all
existing and future Senior Indebtedness (as defined
herein) of the Company (including the Company's
obligations under the Credit Agreement). On March
31, 1998 after the Sea Mar Acquisition and the
Notes Offering and the application of net proceeds
therefrom, the Company had approximately $19.5
million of Senior Indebtedness outstanding
(excluding letters of credit, operating leases and
other contingent liabilities).
Guarantees................. The Notes are unconditionally guaranteed on an
unsecured senior subordinated basis by each of the
domestic Restricted Subsidiaries (as defined
herein) of the Company (the "Subsidiary Guarantors"
or "Guarantors"). Each of the Note Guarantees is a
general unsecured obligation of the Subsidiary
Guarantor thereof, subordinated in right of payment
to the Subsidiary Guarantor's guarantee of the
Company's obligations under the Credit Agreement
and to all other Senior Indebtedness of such
Subsidiary Guarantor.
Optional Redemption........ The Notes are redeemable at the option of the
Company, in whole or in part, at any time on or
after April 1, 2003, at the redemption prices set
forth herein, plus accrued and unpaid interest and
Special Interest (as defined herein), if any, to
the redemption date. The Company may also redeem up
to 35% of the aggregate principal amount of the
Notes at its option, from time to time prior to
April 1, 2001, at a redemption price equal to
108.625% of the principal amount thereof, plus
accrued and unpaid interest and Special Interest,
if any, to the redemption date, with the net
proceeds of one or more Equity Offerings (as
defined herein); provided, however, that at least
$97.5 million of the aggregate principal amount of
Notes remains outstanding following each such
redemption. See "Description of Notes -- Optional
Redemption of the Notes."
Change of Control.......... Upon the occurrence of a Change of Control, the
Company will be required to offer to purchase all
or any part of each holder's Notes at a price equal
to 101% of the principal amount thereof, plus
accrued and unpaid interest and Special Interest,
if any, to the date of purchase. There can be no
assurance that the Company will have the financial
resources necessary, or be permitted by its debt or
other agreements, to purchase the Notes upon a
Change of Control. See "Description of
Notes -- Change of Control."
6
<PAGE> 14
Certain Covenants.......... The Indenture governing the Notes contains certain
covenants that, among other things, limit the
ability of the Company and the Restricted
Subsidiaries (as defined herein) to incur
additional indebtedness; issue capital stock of
Restricted Subsidiaries; pay dividends or make
other restricted payments; incur liens; enter into
certain transactions with affiliates; or enter into
certain mergers or consolidations or sell all or
substantially all of the assets of the Company and
its subsidiaries. These covenants are subject to a
number of significant exceptions and
qualifications. See "Description of
Notes -- Certain Covenants."
Absence of Public Market... There is no public market for the New Notes, and
the New Notes will not be listed on any securities
exchange. The Company has been advised by the
Initial Purchasers, that following consummation of
the Exchange Offer, the Initial Purchasers intend
to make a market in the New Notes; however, any
market making may be discontinued at any time
without notice. If an active public market does not
develop, the market price and liquidity of the New
Notes may be adversely affected. See "Risk
Factors." For definitions of certain capitalized
terms used herein, see "Description of Notes."
RISK FACTORS
For a discussion of certain factors that should be considered in connection
with an investment in the New Notes, see "Risk Factors."
7
<PAGE> 15
SELECTED HISTORICAL AND PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL DATA
The following table sets forth certain historical and pro forma
consolidated financial data of the Company. The historical data have been
derived from the Company's audited consolidated financial statements as of and
for the five years ended December 31, 1997 and unaudited consolidated financial
statements for the three months ended March 31, 1998 and 1997. Fiscal year 1997
results include the results from A.A. Oilfield Services, Inc. ("A.A.") since its
November 1997 acquisition, Trey Services, Inc. ("Trey") since its October 1997
acquisition and DA&S Oil Well Servicing, Incorporated ("DA&S") since its June
1997 acquisition. Fiscal year 1996 results include the results from Antah
Drilling Sdn. Bhd. ("Antah Drilling"), now Pool International Malaysia Sdn. Bdn.
("Pool Malaysia"), since the acquisition of the interest of the Company's former
partner in October 1996 and Pool International Argentina S.A. ("PIASA") since
the Company's August 1996 purchase of a 51% interest. Fiscal year 1995 results
include the results of Golden Pacific Corp. ("GPC") since its June 1995
acquisition. Fiscal year 1994 results include the results of Pool Arctic Alaska
since the acquisition of the interest of the Company's former partner in
September 1994. All of these acquisitions were accounted for under the purchase
method of accounting. See Note 3 of the Company's Notes to Consolidated
Financial Statements appearing elsewhere in this Prospectus. The unaudited
selected pro forma income statement data for the year ended December 31, 1997
and the three months ended March 31, 1998 gives effect to the completion of the
Sea Mar Acquisition and the Notes Offering and the application of the net
proceeds therefrom as if the Sea Mar Acquisition and the Notes Offering had been
consummated on January 1, 1997 and January 1, 1998, respectively. Neither the
summary historical financial data nor the summary pro forma financial data are
necessarily indicative of either the future results of operations or the results
of operations that would have occurred if those events had been consummated on
the indicated dates. The following financial data should be read in conjunction
with and are qualified by reference to, the Unaudited Pro Forma Condensed
Consolidated Financial Data of the Company and the notes thereto, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and notes thereto and other financial
information all of which are included elsewhere in this Prospectus. The results
of the three months ended March 31, 1998 are not necessarily indicative of the
results expected for the full year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 YEAR ENDED DECEMBER 31
------------------------------ ---------------------------------------------------------------
PRO PRO
FORMA HISTORICAL FORMA HISTORICAL
-------- ------------------- -------- ----------------------------------------------------
1998 1998 1997 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues..................... $131,245 $117,712 $ 98,384 $497,736 $451,922 $348,558 $277,305 $229,175 $240,524
Earnings (Loss) Attributable
to Unconsolidated
Affiliates................. (71) (71) 1,004 3,080 3,080 2,244 2,955 5,016 6,860
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total.................. 131,174 117,641 99,388 500,816 455,002 350,802 280,260 234,191 247,384
-------- -------- -------- -------- -------- -------- -------- -------- --------
Cost and Expenses:
Operating expenses......... 87,867 83,363 74,716 349,703 334,592 267,692 219,074 182,012 187,412
Selling, general and
administrative
expenses................. 14,116 13,175 12,761 56,080 53,343 46,773 39,927 36,927 37,797
Depreciation and
amortization............. 9,858 7,510 5,703 34,429 25,022 18,545 15,002 13,760 16,307
Acquisition related
costs.................... -- -- -- 77 77 33 622 -- --
Provision for leasehold
impairment(1)............ -- -- -- -- -- -- -- 23,551 --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total.................. 111,841 104,048 93,180 440,289 413,034 333,043 274,625 256,250 241,516
-------- -------- -------- -------- -------- -------- -------- -------- --------
Other Income
(Expense) -- Net........... 461 403 558 5,009 4,617 2,095 1,289 1,202 2,239
Interest Expense............. 3,927 1,763 785 16,437 4,288 2,793 1,811 253 508
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income (Loss) Before Income
Taxes and Minority
Interest................... 15,867 12,233 5,981 49,099 42,297 17,061 5,113 (21,110) 7,599
Income Tax Provision
(Credit)................... 6,117 4,780 2,272 18,209 15,706 7,524 1,981 (8,381) 1,399
Minority Interest in Loss of
Consolidated Subsidiary.... -- -- (96) (87) (87) (103) -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net Income (Loss)............ $ 9,750 $ 7,453 $ 3,805 $ 30,977 $ 26,678 $ 9,640 $ 3,132 $(12,729) $ 6,200
======== ======== ======== ======== ======== ======== ======== ======== ========
Earnings (Loss) Per Share of
Common Stock -- basic...... $ .46 $ .38 $ .20 $ 1.49 $ 1.39 $ .58 $ .23 $ (.94) $ .46
======== ======== ======== ======== ======== ======== ======== ======== ========
Weighted Average Shares
Outstanding -- basic....... 21,005 19,484 19,140 20,795 19,257 16,505 13,840 13,559 13,526
======== ======== ======== ======== ======== ======== ======== ======== ========
Earnings (Loss) Per Share of
Common Stock -- assuming
dilution................... $ .46 $ .38 $ .20 $ 1.47 $ 1.36 $ .58 $ .23 $ (.94) $ .46
======== ======== ======== ======== ======== ======== ======== ======== ========
Weighted Average Shares
Outstanding -- assuming
dilution................... 21,290 19,769 19,404 21,115 19,577 16,677 13,881 13,589 13,572
======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
8
<PAGE> 16
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 YEAR ENDED DECEMBER 31
------------------------------ ---------------------------------------------------------------
PRO PRO
FORMA HISTORICAL FORMA HISTORICAL
-------- ------------------- -------- ----------------------------------------------------
1998 1998 1997 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD
END):
Cash and Cash Equivalents.... $ 29,351 $ 15,239 $ 18,993 $ 21,837 $ 5,492 $ 2,560 $ 4,603
Working Capital.............. 54,128 51,068 59,070 47,636 26,979 33,030 40,553
Property, Plant and
Equipment -- Net........... 381,364 190,430 259,793 189,125 124,024 101,536 85,297
Total Assets................. 675,597 344,729 479,195 341,217 248,443 209,818 193,154
Total Debt................... 169,547 31,170 80,347 33,695 20,569 2,095 --
Shareholders' Equity......... 276,314 201,722 233,738 197,123 136,027 128,639 141,345
CASH FLOW DATA:
Net cash provided by
operating
activities................. $ 17,082 $ 844 $ 42,387 $ 17,715 $ 23,595 $ 8,324 $ 16,002
Net cash used for investing
activities................. (75,818) (5,435) (84,902) (50,556) (24,109) (12,438) (11,212)
Net cash provided by (used
for) financing
activities................. 69,094 (2,007) 39,671 49,186 3,446 2,071 (3,370)
SELECTED OTHER DATA AND RATIOS:
EBITDA(2).................... $ 29,652 $ 21,506 $ 12,469 $ 99,965 $ 71,607 $ 38,399 $ 21,926 $ (7,097) $ 24,414
Property Additions(3)........ 26,055 25,918 6,999 69,682 60,355 30,662 23,436 10,897 14,223
Expenditures for
acquisitions, including
acquisition costs, less
cash acquired.............. 50,374 50,374 -- 106,129 32,869 22,366 3,431 11,250 --
Earnings to Fixed
Charges(4)................. 4.30x 5.72x 4.34x 3.36x 6.47x 3.77x 1.65x -- .77x
EBITDA/Cash Interest
Expense(5)................. 8.31x 6.91x
</TABLE>
- ---------------
(1) See Note 7 of Notes to Consolidated Financial Statements for a discussion of
the $23.6 million pretax ($15.3 million, or $1.13 per share, after-tax)
provision for leasehold impairment.
(2) EBITDA (earnings before interest, taxes, depreciation and amortization and
minority interest) is not a measure of financial performance under generally
accepted accounting standards, but is presented here to provide additional
information about the Company's operations. EBITDA should not be considered
as an alternative to net income as an indicator of the Company's operating
performance or as an alternative to cash flows as a better measure of
liquidity. EBITDA presented above may not be comparable to similarly titled
measures of other companies. Excluding the $23.6 million non-cash pretax
provision for leasehold impairment, the 1994 EBITDA would be $16.5 million
(see Note 7 of Notes to Consolidated Financial Statements).
(3) Excluding acquisitions of businesses.
(4) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (earnings before income taxes plus
fixed charges less capitalized interest) by fixed charges (interest expense
plus capitalized interest plus the portion of operating lease rental expense
that represents the interest factor which is deemed to be one-third of
rentals). In the year ended December 31, 1994, earnings (following a
significant one-time non-cash charge for leasehold impairment) were
inadequate to cover fixed charges by $3.3 million.
(5) Cash interest expense represents total interest expense ($3,927 for the pro
forma quarter ended March 31, 1998 and $16,437 for the pro forma year ended
December 31, 1997) less amortization of deferred financing costs and other
non-cash interest charges ($359 for the pro forma quarter ended March 31,
1998 and $1,980 for the pro forma year ended December 31, 1997).
9
<PAGE> 17
RISK FACTORS
In evaluating the exchange offer, holders of the Old Notes should carefully
consider the following factors in addition to those discussed elsewhere in this
prospectus prior to accepting the Exchange Offer. Holders of Old Notes should
also consider that such factors are generally applicable to the Old Notes as
well as the New Notes. The Old Notes and the New Notes are collectively referred
to herein as the "Notes."
SUBSTANTIAL LEVERAGE
As a result of the Sea Mar Acquisition and the Notes Offering, the Company
has substantial leverage. At March 31, 1998, giving effect to the completion of
the Sea Mar Acquisition, the Notes Offering, and the application of net proceeds
therefrom, the total debt of the Company was $170 million and its stockholders'
equity was $276 million. Subject to the restrictions in the Indenture and the
Credit Agreement, the Company may incur additional indebtedness from time to
time to provide working capital, to finance acquisitions or capital expenditures
and for other corporate purposes. The level of the Company's indebtedness may
affect owners of the Notes in a number of ways including: (i) a substantial
portion of the Company's cash flow from operations must be dedicated to debt
service and will not be available for other purposes, (ii) the Company's ability
to obtain additional debt financing in the future for working capital,
acquisitions or capital expenditures may be limited, (iii) certain of the
Company's indebtedness contains financial and other restrictive covenants which,
if breached, could result in an event of default under such indebtedness, (iv)
the Company's borrowings under the Credit Agreement are and will continue to be
at variable rates of interest, which causes the Company to be vulnerable to
increases in interest rates and (v) the Company's level of indebtedness could
limit its flexibility in planning for and reacting to, and make it more
vulnerable to, competitive pressures and changes in industry and economic
conditions generally.
The Company's ability to pay interest and principal on the Notes and to
satisfy its other debt obligations will depend upon its future operating
performance. Future operating performance will be affected by prevailing
economic conditions and financial, business and other factors, many of which are
beyond the Company's control. Based on the current level of operations and
anticipated future growth, the Company believes that its operating cash flow,
together with borrowings under the Credit Agreement, will be sufficient to meet
its operating expenses and its capital debt service requirements. There can be
no assurance that the Company's business will continue to generate cash flow at
or above current levels or that anticipated future growth can be achieved. If
the Company is unable to generate sufficient cash flow to service its
indebtedness and fund its capital or other expenditures, it will be forced to
adopt an alternative strategy that may include reducing or delaying capital
expenditures, selling assets or refinancing of its indebtedness (including the
Notes), or seeking additional equity or debt capital. There can be no assurance
that any of these strategies could be effected on satisfactory terms, if at all,
particularly in view of the Company's substantial leverage following the Sea Mar
Acquisition and the Notes Offering.
RESTRICTIVE COVENANTS
The terms of the Credit Agreement, the Indenture and the other agreements
governing the Company's indebtedness impose operating and financing restrictions
on the Company. Such restrictions affect, and in many respects limit or
prohibit, among other things, the ability of the Company to incur additional
indebtedness, pay dividends or repurchase stock or make other distributions,
create liens, make certain investments, sell assets, or enter into mergers or
consolidations. The Credit Agreement requires the Company to comply with certain
financial ratios and tests under which the Company is required to maintain a
minimum net worth, a maximum interest coverage ratio, a minimum fixed charge
coverage ratio, a maximum leverage ratio and a maximum debt-to-equity ratio.
During the past year, the Company has been in compliance with each of these
covenants and has not been at risk of not being in compliance. The restrictions
imposed by the Credit Agreement could limit the ability of the Company to plan
for or react to market conditions or meet extraordinary capital needs or
otherwise could restrict corporate activities. There can be no assurance that
such restrictions will not adversely affect the Company's ability to finance its
future operations or capital needs or to engage in other business activities
that would be in the interest of the Company. Moreover, any default
10
<PAGE> 18
under the documents governing the indebtedness of the Company could have a
significant adverse effect on the market value of the Notes.
HOLDING COMPANY STRUCTURE; EFFECTIVE SUBORDINATION
The Company is a holding company whose only assets consist of ownership
interests in its subsidiaries. Consequently, the Company's ability to obtain
cash from its subsidiaries for the purpose of meeting its debt service
obligations, including the payment of principal and interest on the Notes,
depends on the earnings of its subsidiaries and its ability to receive funds
from such subsidiaries through dividends, repayment of intercompany notes, or
other payments. The ability of the Company's subsidiaries to pay dividends,
repay intercompany notes or make other advances of payments to the Company may
be subject to restrictions imposed by applicable law, tax considerations and the
terms of other agreements governing the Company's subsidiaries (including
restrictions imposed by the Credit Agreement).
The payment of principal of and interest on, and any premium or other
amounts owing in respect of, the Notes is subordinated to the prior payment in
full of all existing and future Senior Indebtedness of the Company and the
Subsidiary Guarantors, including all amounts owing or guaranteed under the
Credit Agreement. In addition, the Notes are structurally subordinated to all
obligations (including trade payables and accrued liabilities) of the Company's
subsidiaries, other than any subsidiary that issues a Note Guarantee. None of
the Company's current or future foreign subsidiaries is required to provide a
Note Guarantee. In the event of a bankruptcy, liquidation, dissolution,
reorganization or similar proceeding with respect to the Company or a Subsidiary
Guarantor, assets of the Company or such Subsidiary Guarantor will be available
to pay obligations on the Notes or Note Guarantees only after all Senior
Indebtedness of the Company or the Subsidiary Guarantors, as applicable, has
been paid in full, and there can be no assurance that there will be sufficient
assets to pay amounts due on any or all of the Notes. In addition, neither the
Company nor any Subsidiary Guarantor may pay principal, premium, interest or
other amounts on account of the Notes or any Note Guarantee in the event of
payment default in respect of Designated Senior Debt (as defined herein), or in
the event of certain other defaults. See "Description of Notes
-- Subordination." As of March 31, 1998, after giving effect to the Sea Mar
Acquisition and the Notes Offering, the Company had $19.5 million of Senior
Indebtedness outstanding (excluding letters of credit, operating leases and
other contingent liabilities).
VOLATILITY OF OIL AND NATURAL GAS MARKET
Demand for the Company's services depends on conditions in the worldwide
oil and natural gas industry, particularly on the level of development,
production and exploration activity of, and the corresponding spending by, oil
and natural gas companies. Such activity and expenditure levels are directly
impacted by trends in oil and natural gas prices, expectations about future
prices, governmental regulations, global weather conditions (including the
effects of El Nino), worldwide political, military and economic conditions,
including the ability of the Organization of Petroleum Exporting Countries
("OPEC") to set and maintain production levels and prices, the level of
production by non-OPEC countries, the policies of various governments regarding
the exploration and development of their oil and natural gas reserves and the
level of demand for oil and natural gas in various countries and geographic
regions. These factors have contributed to, and are likely to continue to
contribute to, oil and natural gas price volatility. A substantial amount of the
Company's operations are in United States markets where, despite occasional
upturns, the demand for the Company's well-servicing, workover and production
services has at times been adversely affected by periods of weakness in oil and
natural gas prices during the past decade. Since October 1997, the average
prices of oil and natural gas have declined. Prolonged low oil or natural gas
prices would likely depress activity by producers and reduce the demand for the
Company's services. In addition, redeployment or reactivation of equipment or
new construction of equipment could adversely affect the Company's rates and
utilization levels, even in an environment of stronger oil and natural gas
prices and increased activity by producers.
INTERNATIONAL RISKS
The Company's foreign operations are subject to various risks associated
with doing business in foreign countries, such as the possibility of armed
conflict and civil disturbance, political instability, the instability of
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foreign economies, currency fluctuations and devaluations, adverse tax policies
and governmental activities that may limit or disrupt markets, restrict payments
or the movement of funds or result in the deprivation of contract rights or the
expropriation of property. Additionally, the ability of the Company to compete
overseas may be adversely affected by foreign governmental regulations that
encourage or mandate the hiring of local contractors, or by regulations that
require foreign contractors to employ citizens of, or purchase supplies from, a
particular jurisdiction.
The Company is subject to taxation in many jurisdictions, and the final
determination of its tax liabilities involves the interpretation of the statutes
and requirements of various domestic and foreign taxing authorities. Foreign
income tax returns of foreign subsidiaries, unconsolidated affiliates and
related entities are routinely examined by foreign tax authorities and such
examinations may result in assessments of additional taxes and/or penalties.
RISKS OF FAILURE TO IDENTIFY OR SUCCESSFULLY INTEGRATE FUTURE ACQUISITION
TARGETS
A significant portion of the Company's growth has resulted from the
acquisition of other oilfield services businesses and assets. There can be no
assurance, however, that the Company will be able to continue to identify
attractive acquisition opportunities at reasonable prices, negotiate acceptable
acquisition terms, obtain financing for acquisitions on satisfactory terms or
successfully acquire identified targets. In addition, there can be no assurance
that the Company will successfully integrate the operations and assets of any
acquired business with its own or that the Company's management will be able to
manage effectively the increased size of the Company or operate a new service
line. Any inability on the part of the Company to integrate and manage acquired
businesses could have a material adverse effect on the Company's results of
operations and financial condition.
As indicated above under "Substantial Leverage," the ability of the Company
to pursue acquisition opportunities may be affected by limitations on its
financing flexibility imposed by the Credit Agreement and the Indenture.
Moreover, there can be no assurance that the competition for acquisition
opportunities in the industry will not escalate, thereby increasing the cost to
the Company of making further acquisitions or causing the Company to refrain
from making acquisitions. Acquisitions may result in increased depreciation and
amortization expense, increased interest expense, increased financial leverage
or decreased operating income, any of which could have a material adverse effect
on the Company's operating results.
SUPPLY VESSEL OPERATIONS
Supply vessel operations are subject to a number of risks that could
adversely affect the Company's operating results. In addition to the risks
described under other captions in "Risk Factors," these risks include:
Seasonality
The Company may be affected by seasonal risks with respect to Sea Mar's
operations. Utilization rates for support vessels typically have reached their
lowest levels in the first quarter, when offshore marine activity generally
declines as oil and gas companies defer discretionary activity until more
favorable weather conditions are likely. Accordingly, the results of any one
quarter are not necessarily indicative of annual results or continuing trends.
Age of Fleet
As of March 31, 1998, the average age of Sea Mar's vessels (based on the
date of construction) was approximately 17.4 years. The industry expectation is
that normally after a vessel has been in service in excess of 30 years, repair,
vessel certification and maintenance costs may become no longer economically
justifiable. There can be no assurance that Sea Mar will be able to maintain its
fleet by extending the economic life of existing vessels through major
refurbishment or by acquiring new or used vessels.
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<PAGE> 20
Risks of New Construction, Upgrade and Refurbishment Projects
The Company intends to make significant expenditures to construct new
vessels and to construct, upgrade and refurbish, supply vessels and related
equipment. These projects are subject to cost overruns inherent in large
construction and refurbishment projects, including shipyard availability,
shortages of materials or skilled labor, unforeseen engineering problems, work
stoppages, weather interruptions, unanticipated cost increases, nonavailability
of necessary equipment and inability to obtain any of the requisite permits or
approvals. Significant delays could also have a material adverse effect on the
Company's marketing plans for such vessels. In addition, there is no assurance
as to the rates new vessels will earn when placed in service. Although Sea Mar
has entered into term contracts for four of the ten new vessels that it has
under construction, these contracts are subject to a pending legal dispute.
Dependence on Key Personnel
Sea Mar's operations are dependent in large part on the continued
employment of Mr. Al A. Gonsoulin as Sea Mar's Vice President and General
Manager. Mr. Gonsoulin was formerly the President and Chief Executive Officer of
Sea Mar and, in connection with the Sea Mar Acquisition, entered into a
three-year employment contract with the Company. The loss of Mr. Gonsoulin
before the end of this three-year period could adversely affect Sea Mar's
operations.
Additional Risks
The Sea Mar Acquisition also involved the assumption of potential
liabilities, disclosed or undisclosed, associated with the Sea Mar business. In
addition, there is the risk that the Sea Mar operations will not be able to be
successfully integrated into the Company. There can be no assurance that such
operations will ultimately have a positive impact on the Company, its financial
condition or results of operations.
COMPETITION
Although the number of available rigs has substantially decreased over the
past ten years, the well-servicing, workover and drilling industry remains very
competitive. The number of rigs available for contracts continues to exceed
demand, resulting in keen price competition. Many contracts are awarded on a bid
basis, which further increases competition based on price. In all of the
Company's market areas, competitive factors also include the availability and
condition of equipment to meet both special and general customer needs; the
availability of trained personnel possessing the required specialized skills;
the overall quality of service and safety record; and domestically, the ability
to offer ancillary services such as fluid hauling, fluid storage tank rental and
salt water disposal.
In addition, the Company faces significant competition with respect to the
operations of Sea Mar. The marine support services industry is highly
competitive. Competitive factors in the marine support services industry include
(i) price, (ii) service, including the reputation of vessel operators and crews,
(iii) availability of vessels of the types and sizes needed by the customer and
(iv) quality of vessels and related equipment.
OPERATING RISKS AND INSURANCE
The Company's operations involve workers conducting activities with and
around machinery and equipment in close proximity to highly flammable oil and
natural gas, and are subject to hazards inherent in the oil and natural gas
industry, including, without limitation, blowouts, fires, explosions and other
casualties. Incidents involving such hazards can cause personal injury or loss
of life, damage to or destruction of property, including equipment, oil and
natural gas production and producing formations and to the environment, and
suspension of operations. The frequency and severity of such incidents affect
the Company's operating costs and its relationship with customers, employees and
regulators, and any significant increase in the frequency or severity of such
incidents, or the general level of compensation awards with respect thereto,
could affect the Company's ability to obtain insurance and could have a material
adverse effect on the Company. Although the Company has generally been able to
obtain insurance on terms it considers to be reasonable, there can be no
assurance that insurance will continue to be available on reasonable terms.
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The Company maintains insurance coverage of types and amounts that it
believes to be customary in the industry. The Company also endeavors to
negotiate contractual indemnification provisions in its contracts with customers
to cover risks which are customarily retained by the customer. It is possible,
however, that significant liabilities could arise that would not be covered, and
for which the applicable contract between the Company and its customer would not
provide indemnity protection to the Company for the particular loss involved.
Additionally, it is possible that liabilities could arise that would exceed
applicable policy limits. Liabilities for which the Company is not insured, or
which exceed the policy limits of applicable insurance, and for which the
Company is not otherwise contractually protected through indemnification by
customers, could have a material adverse effect on the Company.
The Company is also subject to operating and insurance risks with respect
to the operations of Sea Mar. Marine support vessels are subject to operating
risks such as catastrophic marine disasters, adverse weather conditions,
mechanical failure, collisions, oil and hazardous substance spills and
navigation errors. The occurrence of any of these events may result in damages
to or loss of Sea Mar's vessels and such vessels' tow or cargo or other property
and injury to passengers and personnel. Such occurrences may also result in a
significant increase in operating costs or liability to third parties. Sea Mar
maintains insurance coverage against certain of these risks, which management
considers to be customary in the industry. There can be no assurance, however,
that Sea Mar's existing insurance coverage can be renewed at commercially
reasonable rates or that such coverage will be adequate to cover future claims
that may arise.
POSSIBLE IMPACT OF ENVIRONMENTAL REGULATION AND CLAIMS AND OTHER GOVERNMENTAL
REGULATIONS
The Company's well-servicing, workover and production services operations
routinely involve the handling of significant amounts of waste materials, some
of which are classified as hazardous substances. The Company's operations and
facilities are subject to numerous state and federal environmental laws, rules
and regulations including, without limitation, laws concerning the containment
and disposal of hazardous substances, oil field waste and other waste materials,
the use of underground storage tanks and the use of underground injection wells.
Sea Mar's operations, like the Company's other operations, also are subject to
federal, state and local laws and regulations which control the discharge of
pollutants into the environment and which otherwise relate to environmental
protection. Sea Mar and the Company are also subject to other laws that regulate
the activities of offshore service vessels, require vessel owners and operators
to demonstrate financial and operational responsibility and provide for certain
limitations on the liability of vessel owners and operators. Failure to comply
with these laws, rules and regulations may result in civil and even criminal
actions against the Company.
Laws protecting the environment generally have become more stringent than
in the past and are expected to continue to do so. Environmental laws and
regulations typically impose "strict liability," which means that in some
situations the Company could be exposed to liability for cleanup costs and other
damages as a result of conduct of the Company that was lawful at the time it
occurred or conduct of, or conditions caused by, prior operators or other third
parties. Cleanup costs, natural resource damages and other damages arising as a
result of environmental laws, and costs associated with changes in environmental
laws and regulations, could be substantial and could have a material adverse
effect on the Company's financial condition. From time to time, claims have been
made and litigation has been brought against the Company under such laws.
Changes in federal and state environmental regulations may also negatively
impact oil and natural gas exploration and production companies, which in turn
could have a material adverse effect on the Company. For example, legislation
has been proposed from time to time in Congress which would reclassify oil and
natural gas production wastes as "hazardous wastes." If enacted, such
legislation could dramatically increase operating costs for domestic oil and
natural gas companies, and this could reduce the market for the Company's
services by making many wells and/or oilfields uneconomical to operate. To date,
such legislation has not made significant progress toward enactment.
With respect to Sea Mar's operations, the Company is affected by additional
government regulations. Under the Merchant Marine Act of 1920, as amended, if
persons other than U.S. citizens own in the aggregate in excess of 25% of the
Company's outstanding stock, Sea Mar's U.S. flagged vessels would lose the
privilege
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of engaging in the transportation of merchandise in the U.S. coastwise trade. In
addition, Sea Mar's operations are materially affected by federal, state and
local regulation, as well as certain international conventions and private
industry organizations. These regulations govern worker health and safety and
the manning, construction and operation of vessels. Private industry
organizations establish safety criteria and are authorized to investigate vessel
accidents and recommend approved safety standards. The failure to comply with
the requirements of any of these laws or the rules or regulations of these
agencies and organizations could have a material adverse effect on Sea Mar's
operations.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control (as defined herein), the Company
will be required to offer to purchase all of the outstanding Notes at 101% of
the principal amount thereof, plus accrued and unpaid interest (including
Special Interest, if any) to the date of purchase. There can be no assurance
that the Company will have sufficient funds available, will be able to raise
sufficient funds through a refinancing of the Notes, or will be permitted by its
other debt agreements to purchase the Notes upon the occurrence of a Change of
Control. In addition, a Change of Control may require the Company to offer to
purchase other outstanding indebtedness and would cause a default under the
Credit Agreement. The inability to purchase all of the tendered Notes would
constitute an Event of Default (as defined) under the Indenture. See
"Description of Notes -- Change of Control." Under the Company's Shareholder
Rights Plan, in the event of a triggering event causing the rights thereunder to
become exercisable, the Company may be obligated to pay amounts to holders of
the rights that would exceed the Limitations on Restricted Payments covenant of
the Indenture and cause an event of default thereunder. See "Description of
Notes -- Certain Covenants" and Note 2 to the Company's Notes to Consolidated
Financial Statements.
The Change of Control provision may not necessarily afford the holders of
Notes protection in the event of a highly leveraged transaction, including a
reorganization, restructuring, merger, or similar transaction involving the
Company that would adversely affect the holders because such transactions may
not involve a shift in voting power or beneficial ownership, may not involve a
shift of the required magnitude or may not otherwise fit within the definition
of Change of Control.
FRAUDULENT CONVEYANCE LAWS
Various fraudulent conveyance laws enacted for the protection of creditors
may apply to a Subsidiary Guarantor's issuance of a Note Guarantee. To the
extent that a court were to find that (x) a Note 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 Note Guarantee and such Subsidiary
Guarantor (i) was insolvent, (ii) was rendered insolvent by reason of the
issuance of such Note 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 Note Guarantee in favor of the Subsidiary Guarantor's creditors. Among
other things, a legal challenge of a Note Guarantee on fraudulent conveyance
grounds may focus on the benefits, if any, realized by the Subsidiary Guarantor
as a result of the issuance by the Company of the Notes. The Indenture contains
a savings clause, which generally limits the obligations of each Subsidiary
Guarantor under a 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 Note
Guarantee of any Subsidiary Guarantor was avoided as a fraudulent conveyance or
held unenforceable for any other reason, holders of the Notes would cease to
have any claim against such Subsidiary Guarantor and would be creditors solely
of the Company and each Subsidiary Guarantor whose Note Guarantee was not
avoided or held unenforceable. In such event, the claims of the holders of the
Notes against the issuer of an invalid Note Guarantee would be subject to the
prior payment of all liabilities of such Subsidiary Guarantor. There can be no
assurance that,
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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 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 market value of all
its assets at a fair valuation or if the present fair market 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.
Each of the Company and the Subsidiary Guarantors believes that it received
equivalent value at the time the indebtedness under the Old Notes was incurred.
In addition, neither the Company nor any Subsidiary Guarantor, after giving
effect to the consummation of the Notes Offering and Sea Mar Acquisition: (i)
believes that it was insolvent or rendered insolvent; (ii) believes that it was
engaged in a business or transaction for which its remaining assets constituted
unreasonably small capital or (iii) intended to incur, or believes that it would
incur, debts beyond its ability to pay as they mature. These beliefs are based
on the Company's analysis of internal cash flow projections and estimated values
of assets and liabilities of the Company and the Subsidiary Guarantors at the
time of the Notes Offering. There can be no assurance, however, that a court
passing on the issues would make the same determination.
ABSENCE OF PRIOR PUBLIC MARKET FOR NEW NOTES
The New Notes will constitute a new class of securities with no established
trading market. Although the New Notes will generally be permitted to be resold
or otherwise transferred by nonaffiliates of the Company without compliance with
the registration requirements under the Securities Act, the Company does not
intend to apply for a listing of the New Notes on any securities exchange or to
arrange for the New Notes to be quoted on the NASDAQ National Market or other
quotation system. As a result there can be no assurance that an active trading
market for the New Notes will develop. If a market were to develop, the New
Notes could trade at prices that may be lower than the initial market values
thereof depending on many factors, including prevailing interest rates, the
Company's operating results and the market for similar securities.
RESTRICTIONS ON RESALE
The Old Notes were offered and sold by the Company in a private offering
exempt from registration pursuant to the Securities Act and have been resold
pursuant to Rule 144A, Regulation S and certain other available exemptions under
the Securities Act. As a result, the Old Notes may not be reoffered or resold by
purchasers, except pursuant to an effective registration statement under the
Securities Act, or pursuant to an applicable exemption from such registration.
Based on interpretations by the staff of the Commission, the Company
believes that each holder (other than (i) a broker-dealer who purchased Old
Notes directly from the Company for resale pursuant to Rule 144A of the
Securities Act or any other available exemption under the Securities Act, (ii)
an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act or (iii) a broker-dealer who acquired the Old Notes as a result
of market-making or other trading activities) who duly exchanges Old Notes for
New Notes in the Exchange Offer will receive notes that are freely transferable
under the Securities Act, provided, that such New Notes are acquired in the
ordinary course of such holder's business and that such holder is not
participating, and has no arrangement or understanding with any other person to
participate, in a distribution (within the meaning of the Securities Act) of the
New Notes. The Company has not, however, sought its own no-action letter from
the staff of the Commission regarding resales of the New Notes and there can be
no assurance that the staff of the Commission would make a similar determination
with respect to the resale of the New Notes. Any holder of Old Notes who is not
able to rely upon such staff interpretations must comply with the registration
and prospectus delivery requirements of the Securities Act in connection with
any sale of such Old Notes, unless such sale is made pursuant to an exemption
from such requirements. See "Prospectus Summary -- The Exchange Offer."
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<PAGE> 24
CONSEQUENCES OF FAILURE TO EXCHANGE
To the extent that Old Notes are tendered and accepted for exchange
pursuant to the Exchange Offer, the trading market for Old Notes that remain
outstanding may be significantly more limited, which might adversely affect the
liquidity of the Old Notes not tendered for exchange. The extent of the market
therefor and the availability of price quotations would depend upon a number of
factors, including the number of holders of Old Notes remaining at such time and
the interest in maintaining a market in such Old Notes on the part of securities
firms. An issue of securities with a smaller outstanding market value available
for trading (the "float") may command a lower price than would a comparable
issue of securities with a greater float. As a result, the market price for Old
Notes that are not exchanged in the Exchange Offer may be affected adversely to
the extent that the amount of Old Notes exchanged pursuant to the Exchange Offer
reduces the float. The reduced float also may make the trading price of the Old
Notes that are not exchanged more volatile. In addition, holders of Old Notes
who do not exchange their Old Notes for New Notes pursuant to the Exchange Offer
will continue to be subject to restrictions on transfer of such Old Notes
contained in the legend thereon and, except in certain limited circumstances,
will no longer have any registration rights with respect to the Old Notes. In
general, the Old Notes may not be offered or sold unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. The Company
does not currently anticipate that it will register the Old Notes under the
Securities Act. See "The Exchange Offer -- Consequences of Failure to Exchange."
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THE EXCHANGE OFFER
GENERAL
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal (which
together constitute the Exchange Offer), to exchange up to $150 million
aggregate principal amount of New Notes for a like aggregate principal amount of
Old Notes properly tendered on or prior to the Expiration Date and not withdrawn
as permitted pursuant to the procedures described below. The Exchange Offer is
being made with respect to any and all of the Old Notes. As of the date of this
Prospectus, $150 million aggregate principal amount of the Old Notes is
outstanding.
The Company's obligation to accept Old Notes for exchange pursuant to the
Exchange Offer is subject to certain conditions set forth under "-- Certain
Conditions to the Exchange Offer" below. The Company currently expects that each
of the conditions will be satisfied and that no waivers will be necessary.
PURPOSE OF THE EXCHANGE OFFER
The New Notes are being offered hereunder in order to satisfy certain
obligations of the Company and the Subsidiary Guarantors contained in the
Registration Rights Agreement dated March 31, 1998 (the "Registration Rights
Agreement"), among the Company, the Subsidiary Guarantors and SBC Warburg Dillon
Read Inc., Morgan Stanley & Co. Incorporated and Johnson Rice & Company L.L.C.
(the "Initial Purchasers"), with respect to the initial sale of the Old Notes.
The Old Notes were originally issued and sold on March 31, 1998, (the "Notes
Offering") in transactions that were not registered under the Securities Act in
reliance upon the exemption provided in Section 4(2) of the Securities Act. The
Initial Purchasers subsequently resold the Old Notes to "qualified institutional
buyers" in reliance upon Rule 144A under the Securities Act and pursuant to
offers and sales that occurred outside the United States within the meaning of
Regulation S under the Securities Act. Accordingly, the Old Notes may not be
reoffered, resold or otherwise transferred unless they are registered under the
Securities Act or unless an applicable exemption from the registration
requirements of the Securities Act is available. See "The Exchange
Offer -- Purpose of the Exchange Offer."
In connection with the issuance and sale of the Old Notes, the Company
entered into the Registration Rights Agreement, which requires that, among other
things, the Company file with the SEC a registration statement relating to the
Exchange Offer not later than 60 days after the date of issuance of the Old
Notes, use its best efforts to cause the registration statement relating to the
Exchange Offer to become effective under the Securities Act not later than 120
days after the date of issuance of the Old Notes and cause the Exchange Offer to
be consummated not later than 45 business days after the date of the
effectiveness of the Registration Statement (or use its best efforts to cause to
become effective a shelf registration statement with respect to resales of the
Old Notes by the 60th calendar day after the date on which the Company becomes
obligated to file such shelf registration statement). A copy of the Registration
Rights Agreement has been filed as an exhibit to the Registration Statement.
The Exchange Offer is being made by the Company to satisfy its obligations
with respect to the Registration Rights Agreement. The term "holder," with
respect to the Exchange Offer, means any person in whose name Old Notes are
registered on the note register of the Company or any other person who has
obtained a properly completed bond power from the registered holder, or any
person whose Old Notes are held of record by The Depository Trust Company. Other
than pursuant to the Registration Rights Agreement, the Company is not required
to file any registration statement to register any outstanding Old Notes.
Holders of Old Notes who do not tender their Old Notes or whose Old Notes are
tendered but not accepted would have to rely on exemptions to registration
requirements under the securities laws, including the Securities Act, if they
wish to sell their Old Notes.
The Company is making the Exchange Offer in reliance on the position of the
staff of the SEC as set forth in certain interpretive letters addressed to third
parties in other transactions. However, the Company has not sought its own
interpretive letter and there can be no assurance that the staff would make a
similar determination with respect to the Exchange Offer as it has in such
interpretive letters to third parties. Based
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<PAGE> 26
on these interpretations by the staff, the Company believes that the New Notes
issued pursuant to the Exchange Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by a holder (other than any holder
who is a broker-dealer or an "affiliate" of the Company within the meaning of
Rule 405 of the Securities Act) without further compliance with the registration
and prospectus delivery requirements of the Securities Act, provided that such
New Notes are acquired in the ordinary course of such holder's business and that
such holder is not participating, and has no arrangement or understanding with
any person to participate, in a distribution (within the meaning of the
Securities Act) of such New Notes. See "-- Resale of New Notes." Each
broker-dealer that receives New Notes for its own account in exchange for Old
Notes, where such Old 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 resale of such New Notes. See
"Plan of Distribution."
The Registration Rights Agreement provides that if (i) the Company is not
required to file the Exchange Offer Registration Statement because the Exchange
Offer is not permitted by applicable law or Commission policy or (ii) any holder
of Transfer Restricted Securities (as defined herein) notifies the Company
within 20 days after the commencement of the Exchange Offer that (a) it is
prohibited by law or Commission policy from participating in the Exchange Offer
or (b) it may not resell the New Notes acquired by it in the Exchange Offer to
the public without delivering a prospectus, and the Prospectus contained in the
Exchange Offer Registration Statement is not appropriate or available for such
resales or (c) it is a broker-dealer and holds Old Notes acquired directly from
the Company or an affiliate of the Company, the Company will file with the
Commission a shelf registration statement (the "Shelf Registration Statement")
to cover resales of the Notes by the holders thereof who satisfy certain
conditions relating to the provision of information in connection with the Shelf
Registration Statement. For purposes of the foregoing, "Transfer Restricted
Securities" means each Old Note or New Note until (i) the date on which such Old
Note has been exchanged by a person other than a broker-dealer for a New Note in
the Exchange Offer, (ii) following the exchange by a broker-dealer in the
Exchange Offer of an Old Note for a New Note, the date on which such New Note is
sold to a purchaser who receives from such broker-dealer on or prior to the date
of such sale a copy of the prospectus contained in the Registration Statement,
(iii) the date on which such Old Note has been effectively registered under the
Securities Act and disposed of in accordance with the Shelf Registration
Statement or (iv) the date on which such Old Note could be resold pursuant to
Rule 144 under the Securities Act.
The Registration Rights Agreement provides that if (a) the Company fails to
file within 60 days of the date the Old Notes were issued, or cause to become
effective within 120 days of the date the Old Notes were issued, the
Registration Statement or (b) the Company is obligated to file the Shelf
Registration Statement and such Shelf Registration Statement is not filed within
60 days, or declared effective within 120 days, of the date on which the Company
became so obligated or (c) the Company fails to consummate the Exchange Offer
within 45 days of the Exchange Offer Effective Date or (d) the Shelf
Registration Statement or the Registration Statement is declared effective but
thereafter ceases to be effective or usable in connection with resales of
Transfer Restricted Securities during the periods specified in the Registration
Rights Agreement (each such event referred to in clauses (a) through (d) above a
"Registration Default"), interest ("Special Interest") will accrue on the
principal amount of the Old Notes and the New Notes (in addition to the stated
interest on the Old Notes and the New Notes) from and including the date on
which any such Registration Default shall occur to but excluding the date on
which any such Registration Defaults have been cured. Special Interest will
accrue at a rate of 0.25% per annum during the 90-day period immediately
following the occurrence of any Registration Default and shall increase by 0.25%
per annum at the end of each subsequent 90-day period, but in no event shall
such rate exceed 1.5% per annum.
TERMS OF THE EXCHANGE
The Company hereby offers to exchange, subject to the conditions set forth
herein and in the Letter of Transmittal accompanying this Prospectus, $1,000 in
principal amount of New Notes for each $1,000 in principal amount of the Old
Notes. The terms of the New Notes are identical in all material respects to the
terms of the Old Notes for which they may be exchanged pursuant to this Exchange
Offer, except that the New Notes will generally be freely transferable by
holders thereof and will not be subject to any covenant
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<PAGE> 27
regarding registration under the Securities Act. The New Notes will evidence the
same indebtedness as the Old Notes and will be entitled to the benefits of the
Indenture. See "Description of Notes."
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered for exchange.
The Company has not requested, and does not intend to request, an
interpretation by the staff of the SEC with respect to whether the New Notes
issued pursuant to the Exchange Offer in exchange for the Old Notes may be
offered for sale, resold or otherwise transferred by any holder without
compliance with the registration and prospectus delivery provisions of the
Securities Act. Instead, based on an interpretation by the staff of the SEC, set
forth in a series of no-action letters issued to third parties, the Company
believes that New Notes issued pursuant to the Exchange Offer in exchange for
Old Notes may be offered for sale, resold and otherwise transferred by any
holder of such New Notes (other than any such holder that is a broker-dealer or
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 New Notes are acquired in
the ordinary course of such holder's business and such holder has no arrangement
or understanding with any person to participate in the distribution of such New
Notes and neither such holder nor any other such person is engaging in or
intends to engage in a distribution of such New Notes. Since the SEC has not
considered the Exchange Offer in the context of a no-action letter, there can be
no assurance that the staff of the SEC would make a similar determination with
respect to the Exchange Offer. Any holder who is an affiliate of the Company or
who tenders in the Exchange Offer for the purpose of participating in a
distribution of the New Notes may be deemed to have received restricted
securities and cannot rely on such interpretation by the staff of the SEC and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. Each holder, other
than a broker-dealer, must acknowledge that it is not engaged in, and does not
intend to engage in, a distribution of New Notes. Each broker-dealer that
receives New Notes for its own account in exchange for Old Notes, where such Old
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 resale of such New Notes. See "Plan of
Distribution."
Interest on the New Notes will accrue from the last Interest Payment Date
on which interest was paid on the Old Notes so surrendered, or if no interest
has been paid on such Old Notes, from April 1, 1998.
Tendering holders of the Old Notes shall 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 the Old Notes
pursuant to the Exchange Offer.
EXPIRATION DATE; EXTENSION; TERMINATION; AMENDMENT
The Exchange Offer will expire at 5:00 p.m., New York City time, on
, 1998, unless the Company, has extended the period of time for
which the Exchange Offer is open (such date, as it may be extended, is referred
to herein as the "Expiration Date"). The Expiration Date will be at least 20
business days after the commencement of the Exchange Offer in accordance with
Rule 14e-1(a) under the Exchange Act. The Company expressly reserves the right,
at any time or from time to time, in its sole discretion, to extend the period
of time during which the Exchange Offer is open, and thereby delay acceptance
for exchange of any Old Notes, by giving oral or written notice to the exchange
agent and by timely public announcement no later than 9:00 a.m. New York City
time, on the next business day after the previously scheduled Expiration Date.
During any such extension, all Old Notes previously tendered will remain subject
to the Exchange Offer unless properly withdrawn.
The Company expressly reserves the right to (i) terminate or amend the
Exchange Offer and not to accept for exchange any Old Notes not theretofore
accepted for exchange upon the occurrence of any of the events specified below
under "-- Certain Conditions to the Exchange Offer" which have not been waived
by the Company and (ii) amend the terms of the Exchange Offer in any manner
which, in its good faith judgment, is advantageous to the holders of the Old
Notes, whether before or after any tender of the Old Notes. If any such
termination or amendment occurs, the Company will notify the Exchange Agent and
will
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<PAGE> 28
either issue a press release or give oral or written notice to the holders of
the Old Notes as promptly as practicable.
For purposes of the Exchange Offer, a "business day" means any day other
than Saturday, Sunday or a date on which banking institutions are required or
authorized by New York State law to be closed, and consists of the time period
from 12:01 a.m. through 12:00 midnight, New York City time. Unless the Company
terminates the Exchange Offer prior to 5:00 p.m., New York City time, on the
Expiration Date, the Company will, subject to the conditions described under
"-- Certain Conditions to the Exchange Offer," exchange the New Notes for the
Old Notes on the Exchange Date.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal.
A holder of Old Notes may tender the same by (i) properly completing and
signing the Letter of Transmittal or a facsimile thereof (all references in this
Prospectus to the Letter of Transmittal shall be deemed to include a facsimile
thereof) and delivering the same, together with the certificate or certificates
representing the Old Notes being tendered and any required signature guarantees
and any other documents required by the Letter of Transmittal, to the Exchange
Agent at its address set forth below on or prior to the Expiration Date (or
complying with the procedure for book-entry transfer described below) or (ii)
complying with the guaranteed delivery procedures described below.
Any beneficial owner whose Old 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 beneficial owner's own behalf, such
beneficial owner must, prior to completing and executing the Letter of
Transmittal and delivering the Old Notes, either make appropriate arrangements
to register ownership of the Old Notes in such beneficial owner's name or obtain
a properly completed bond power from the registered holder. The transfer of
registered ownership may take considerable time.
THE METHOD OF DELIVERY OF OLD NOTES, LETTERS OF TRANSMITTAL AND ALL OF THE
REQUIRED DOCUMENTS IS AT THE ELECTION AND RISK OF THE HOLDER. IF SUCH DELIVERY
IS BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL PROPERLY INSURED, WITH RETURN
RECEIPT REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
INSURE TIMELY DELIVERY. NO OLD NOTES OR LETTERS OF TRANSMITTAL SHOULD BE SENT TO
THE COMPANY.
If tendered Old Notes are registered in the name of the signer of the
Letter of Transmittal and the New Notes to be issued in exchange therefor are to
be issued (and any untendered Old Notes are to be reissued) in the name of the
registered holder (which term, for the purposes described herein, shall include
any participant in The Depository Trust Company (the "Book-Entry Transfer
Facility") whose name appears on a security listing as the owner of Old Notes),
the signature of such signer need not be guaranteed. In any other case, the
tendered Old Notes must be endorsed or accompanied by written instruments of
transfer in form satisfactory to the Company and duly executed by the registered
holder, and the signature on the endorsement or instrument of transfer must be
guaranteed by a bank, broker, dealer, credit, union, savings association,
clearing agency or other institution (each an "Eligible Institution") that is a
member of a recognized signature guarantee medallion program within the meaning
of Rule 17Ad-L5 under the Exchange Act. If the New Notes and/or Old Notes not
exchanged are to be delivered to an address other than that of the registered
holder appearing on the note register for the Old Notes, the signature in the
Letter of Transmittal must be guaranteed by an Eligible Institution.
The Exchange Agent will make a request within two business days after the
date of receipt of this Prospectus to establish accounts with respect to the Old
Notes at the Book-Entry Transfer Facility for the
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<PAGE> 29
purpose of facilitating the Exchange Offer, and subject to the establishment
thereof, any financial institution that is a participant in the Book-Entry
Transfer Facility's system may make book-entry delivery of Old Notes by causing
such Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account with respect to the Old Notes in accordance with the Book-Entry
Transfer Facility's procedures for such transfer. Although delivery of Old Notes
may be effected through book-entry transfer into the Exchange Agent's account at
the Book-Entry Transfer Facility, an appropriate Letter of Transmittal with any
required signature guarantee and all other required documents must in each case
be transmitted to and received or confirmed by the Exchange Agent at its address
set forth below on or prior to the Expiration Date, or, if the guaranteed
delivery procedures described below are complied with, within the time period
provided under such procedures.
If a holder desires to tender Old Notes in the Exchange Offer and time will
not permit a Letter of Transmittal or Old Notes to reach the Exchange Agent
before the Expiration Date or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be effected if the Exchange Agent has
received at its address set forth below on or prior to the Expiration Date, a
letter, telegram or facsimile transmission (receipt confirmed by telephone and
an original delivered by guaranteed overnight courier) from an Eligible
Institution setting forth the name and address of the tendering holder, the
names in which the Old Notes are registered and, if possible, the certificate
numbers of the Old Notes to be tendered, and stating that the tender is being
made thereby and guaranteeing that within three business days after the
Expiration Date, the Old Notes in proper form for transfer (or a confirmation of
book-entry transfer of such Old Notes into the Exchange Agent's account at the
Book-Entry Transfer Facility), will be delivered by such Eligible Institution
together with a properly completed and duly executed Letter of Transmittal (and
any other required documents). Unless Old Notes being tendered by the
above-described method are deposited with the Exchange Agent within the time
period set forth above (accompanied or preceded by a properly completed Letter
of Transmittal and any other required documents), the Company may, at its
option, reject the tender. Copies of the notice of guaranteed delivery ("Notice
of Guaranteed Delivery") which may be used by Eligible Institutions for the
purposes described in this paragraph are available from the Exchange Agent.
A tender will be deemed to have been received as of the date when (i) the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old Notes (or a confirmation of book-entry transfer of such
Old Notes into the Exchange Agent's account at the Book-Entry Transfer Facility)
is received by the Exchange Agent, or (ii) a Notice of Guaranteed Delivery or
letter, telegram or facsimile transmission to similar effect (as provided above)
from an Eligible Institution is received by the Exchange Agent. Issuances of New
Notes in exchange for Old Notes tendered pursuant to a Notice of Guaranteed
Delivery or letter, telegram or facsimile transmission to similar effect (as
provided above) by an Eligible Institution will be made only against deposit of
the Letter of Transmittal (and any other required documents) and the tendered
Old Notes.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined by
the Company in its sole discretion, which determination shall be final and
binding on all parties. The Company reserves the absolute right to reject any
and all tenders of any particular Old Notes not properly tendered or not to
accept any particular Old Notes which acceptance might, in the judgment of the
Company or its counsel, be unlawful. The Company also reserves the absolute
right to waive any defects or irregularities or conditions of the Exchange Offer
as to any particular Old Notes either before or after the Expiration Date
(including the right to waive the ineligibility of any holder who seeks to
tender Old Notes in the Exchange Offer). The interpretation of the terms and
conditions of the Exchange Offer (including the Letter of Transmittal and the
instructions thereto) by the Company shall be final and binding on all parties.
Unless waived, any defects or irregularities in connection with tenders of Old
Notes for exchange must be cured within such reasonable period of 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 any defect or
irregularity with respect to any tender of Old Notes for exchange, nor shall any
of them incur any liability for failure to give such notification.
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<PAGE> 30
If the Letter of Transmittal is signed by a person or persons other than
the registered holder or holders of Old Notes, such Old Notes must be endorsed
or accompanied by appropriate powers of attorney, in either case signed exactly
as the name or names of the registered holder or holders appear on the Old
Notes.
If the Letter of Transmittal or any Old Notes or powers of attorney 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, proper evidence satisfactory to the Company of their authority to
so act must be submitted.
By tendering, each holder will represent to the Company that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being acquired
in the ordinary course of business of the person receiving such New Notes,
whether or not such person is the holder, that neither the holder nor any such
other person has an arrangement or understanding with any person to participate
in the distribution of such New Notes and that neither the holder nor any such
other person is an "affiliate," as defined under Rule 405 of the Securities Act,
of the Company, or if it is an affiliate, it will comply with the registration
and prospectus requirements of the Securities Act to the extent applicable.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes where such Old Notes were acquired by such broker-dealer as a
result of market-making activities or other trading activities (other than Old
Notes acquired directly from the Company) must acknowledge that it will deliver
a prospectus in connection with any resale of such New Notes. See "Plan of
Distribution."
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among others things, the following
terms and conditions, which are part of the Exchange Offer.
The party tendering Old Notes for exchange (the "Transferor") exchanges,
assigns and transfers the Old Notes to the Company and irrevocably constitutes
and appoints the Exchange Agent as the Transferor's agent and attorney-in-fact
to cause the Old Notes to be assigned, transferred and exchanged. The Transferor
represents and warrants that it has full power and authority to tender,
exchange, assign and transfer the Old Notes and to acquire New Notes issuable
upon the exchange of such tendered Old Notes, and that, when the same are
accepted for exchange, the Company will acquire good and unencumbered title to
the tendered Old Notes, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim. The Transferor also warrants
that it will, upon request, execute and deliver any additional documents deemed
by the Exchange Agent or the Company to be necessary or desirable to complete
the exchange, assignment and transfer of tendered Old Notes or transfer
ownership of such Old Notes on the account books maintained by a Book-Entry
Transfer Facility. The Transferor further agrees that acceptance of any tendered
Old Notes by the Company and the issuance of New Notes in exchange therefor
shall constitute performance in full by the Company of certain of its
obligations under the Registration Rights Agreement. All authority conferred by
the Transferor will survive the death or incapacity of the Transferor and every
obligation of the Transferor shall be binding upon the heirs, legal
representatives, successors, assigns, executors and administrators of such
Transferor.
The Transferor certifies that it is not an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act and that it is acquiring
the New Notes offered hereby in the ordinary course of such Transferor's
business and that such Transferor has no arrangement with any person to
participate in the distribution of such New Notes. Each holder, other than a
broker-dealer, must acknowledge that it is not engaged in, and does not intend
to engage in a distribution of New Notes. Each Transferor which is a broker-
dealer receiving New Notes for its own account must acknowledge that it will
deliver a prospectus in connection with any resale of such New Notes. 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 New Notes received in
exchange for Old Notes where such Old Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. The
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<PAGE> 31
Company will make copies of this Prospectus available to any broker-dealer for
use in connection with any such resale.
WITHDRAWAL RIGHTS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date.
For a withdrawal to be effective, a written notice of withdrawal sent by
telegram, facsimile transmission (receipt confirmed by telephone) or letter must
be received by the Exchange Agent at the address set forth herein prior to the
Expiration Date. Any such notice of withdrawal must (i) specify the name of the
person having tendered the Old Notes to be withdrawn (the "Depositor"), (ii)
identify the Old Notes to be withdrawn (including the certificate number or
numbers and principal amount of such Old Notes), (iii) specify the principal
amount of Old Notes to be withdrawn, (iv) include a statement that such holder
is withdrawing his election to have such Old Notes exchanged, (v) be signed by
the holder in the same manner as the original signature on the Letter of
Transmittal by which such Old Notes were tendered or as otherwise described
above (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee under the Indenture
register the transfer of such Old Notes into the name of the person withdrawing
the tender and (vi) specify the name in which any such Old Notes are to be
registered, if different from that of the Depositor. The Exchange Agent will
return the properly withdrawn Old Notes promptly following receipt of notice of
withdrawal. If Old Notes have been tendered pursuant to the procedure for
book-entry transfer, any notice of withdrawal must specify the name and number
of the account at the Book-Entry Transfer Facility to be credited with the
withdrawn Old Notes or otherwise comply with the Book-Entry Transfer Facility's
procedure. All questions as to the validity of notices of withdrawals, including
time of receipt, will be determined by the Company in its sole discretion and
such determination will be final and binding on all parties.
Any Old Notes so withdrawn will be deemed not to have been validly tendered
for exchange for purposes of the Exchange Offer. Any Old Notes which have been
tendered for exchange but which are not exchanged for any reason will be
returned to the holder thereof without cost to such holder (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
the Book-Entry Transfer Facility pursuant to the book-entry transfer procedures
described above, such Old Notes will be credited to an account with such Book
Entry Transfer Facility specified by the 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 under "-- Procedures for Tendering Old Notes" above at any time on or
prior to the Expiration Date.
ACCEPTANCE OF OLD NOTE FOR EXCHANGE; DELIVERY OF NEW NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly on the Exchange Date, all Old Notes properly
tendered and will issue the New Notes promptly after such acceptance. See
"-- Certain Conditions to the Exchange Offer" below. For purposes of the
Exchange Offer, the Company shall be deemed to have accepted properly tendered
Old Notes for exchange when, as and if the Company has given oral or written
notice thereof to the Exchange Agent.
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely book-entry
confirmation of such Old Notes into the Exchange Agent's account at the Book-
Entry Transfer Facility, a properly completed and duly executed Letter of
Transmittal and all other required documents. If any tendered Old Notes are not
accepted for any reason set forth in the terms and conditions of the Exchange
Offer or if Old Notes are submitted for a greater principal amount than the
holder desires to exchange, such unaccepted or non-exchanged Old Notes will be
returned without expense to the tendering holder thereof (or, in the case of Old
Notes tendered by book-entry transfer into the Exchange Agent's
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<PAGE> 32
account at the Book-Entry Transfer Facility pursuant to the book-entry transfer
procedures described above, such non-exchanged Old Notes will be credited to an
account maintained with such Book-Entry Transfer Facility) as promptly as
practicable after the Exchange Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Company shall not be required to accept for exchange,
or to issue New Notes in exchange for, any Old Notes and may terminate or amend
the Exchange Offer (by oral or written notice to the Exchange Agent or by a
timely press release) if at any time before the acceptance of such Old Notes for
exchange or the exchange of the New Notes for such Old Notes, any of the
following conditions exist:
(a) any action or proceeding is instituted or threatened in any court
or by or before any governmental agency or regulatory authority or any
injunction, order or decree is issued with respect to the Exchange Offer
which, in the sole judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer or have a
material adverse affect on the contemplated benefits of the Exchange Offer
to the Company; or
(b) any change (or any development involving a prospective change)
shall have occurred or be threatened in the business, properties, assets,
liabilities, financial condition, operations, results of operations or
prospects of the Company that is or may be adverse to the Company, or the
Company shall have become aware of facts that have or may have adverse
significance with respect to the value of the Old Notes or the New Notes or
that may materially impair the contemplated benefits of the Exchange Offer
to the Company; or
(c) any law, rule or regulation or applicable interpretations of the
staff of the SEC is issued or promulgated which, in the good faith
determination of the Company, do not permit the Company to effect the
Exchange Offer; or
(d) any governmental approval has not been obtained, which approval
the Company, in its sole discretion, deems necessary for the consummation
of the Exchange Offer; or
(e) there shall have been proposed, adopted or enacted any law,
statute, rule or regulation (or an amendment to any existing law statute,
rule or regulation) which, in the sole judgement of the Company, might
materially impair the ability of the Company to proceed with the Exchange
Offer or have a material adverse effect on the contemplated benefits of the
Exchange Offer to the Company; or
(f) there shall occur a change in the current interpretation by the
staff of the SEC which permits the New Notes issued pursuant to the
Exchange Offer in exchange for Old Notes to be offered for resale, resold
and otherwise transferred by holders thereof (other than any such holder
that is a broker dealer or 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 New Notes are acquired in the ordinary course of such
holders' business and such holders have no arrangement with any person to
participate in the distribution of such New Notes; or
(g) there shall have occurred (i) any general suspension of,
shortening of hours for, or limitation on prices for, trading in securities
on any national securities exchange or in the over-the-counter market
(whether or not mandatory), (ii) any limitation by any governmental agency
or authority which may adversely affect the ability of the Company to
complete the transactions contemplated by the Exchange Offer, (iii) a
declaration of a banking moratorium or any suspension of payments in
respect of banks by Federal or state authorities in the United States
(whether or not mandatory), (iv) a commencement of a war, armed hostilities
or other international or national crisis directly or indirectly involving
the United States, (v) any limitation (whether or not mandatory) by any
governmental authority on, or other event having a reasonable likelihood of
affecting, the extension of credit by banks or other leading institutions
in the United States, or (vi) in the case of any of the foregoing existing
at the time of the commencement of the Exchange Offer, a material
acceleration or worsening thereof.
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<PAGE> 33
The Company expressly reserves the right to terminate the Exchange Offer
and not accept for exchange any Old Notes upon the occurrence of any of the
foregoing conditions (which represent all of the material conditions to the
acceptance by the Company of properly tendered Old Notes). In addition, the
Company may amend the Exchange Offer at any time prior to the Expiration Date if
any of the conditions set forth above occur. Moreover, regardless of whether any
of such conditions has occurred, the Company may amend the Exchange Offer in any
manner which, in its good faith judgment, is advantageous to holders of the Old
Notes.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition or may be waived by the Company in whole or in part at any time and
from time to time in its sole discretion. The failure by the Company at any time
to exercise any of the foregoing rights shall not be deemed a waiver of any such
right and each such right shall be deemed an ongoing right which may be asserted
at any time and from time to time. If the Company waives or amends the foregoing
conditions, it will, if required by law, extend the Exchange Offer for a minimum
of five business days from the date that the Company first gives notice, by
public announcement or otherwise, of such waiver or amendment, if the Expiration
Date would otherwise occur within such five business-day period. Any
determination by the Company concerning the events described above will be final
and binding upon all parties.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes, if
at such time any stop order shall be threatened or in effect with respect to the
Registration Statement of which this Prospectus constitutes a part or the
qualification of the Indenture under the Trust Indenture Act of 1939, as
amended. In any such event the Company is required to use every reasonable
effort to obtain the withdrawal of any stop order at the earliest possible time.
The Exchange Offer is not conditioned upon any minimum principal amount of
Old Notes being tendered for exchange.
EXCHANGE AGENT
Marine Midland Bank has been appointed as the Exchange Agent for the
Exchange Offer. All executed Letters of Transmittal should be directed to the
Exchange Agent at one of the addresses set forth below:
<TABLE>
<S> <C>
BY HAND/OVERNIGHT COURIER: BY MAIL: (INSURED OR REGISTERED
Marine Midland Bank RECOMMENDED)
Attention: Corporate Trust Operations Marine Midland Bank
140 Broadway, Level A Attention: Corporate Trust
New York, New York 10005-1180 Operations
New York, New York 10005-1180
BY FACSIMILE: (212) 658-6425
Attention: Frank Godino
Telephone: (212) 658-6433
</TABLE>
Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal and requests for Notice of
Guaranteed Delivery should be directed to the Exchange Agent at the address and
telephone number set forth in the Letter of Transmittal.
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH IN THE LETTER OF
TRANSMITTAL, OR TRANSMISSIONS OF INSTRUCTIONS VIA A FACSIMILE OR TELEX NUMBER
OTHER THAN THE ONES SET FORTH IN THE LETTER OF TRANSMITTAL, WILL NOT CONSTITUTE
A VALID DELIVERY.
SOLICITATION OF TENDERS, FEES AND EXPENSES
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for
26
<PAGE> 34
its reasonable out-of-pocket expenses in connection therewith. The Company will
also pay brokerage houses and other custodians, nominees and fiduciaries the
reasonable out-of-pocket expenses incurred by them in forwarding copies of this
and other related documents to the beneficial owners of the Old Notes and in
handling or forwarding tenders for their customers.
The estimated cash expenses to be incurred in connection with the Exchange
Offer will be paid by the Company and are estimated in the aggregate to be
approximately $100,000 which includes fees and expenses of the Exchange Agent,
Trustee, registration fees, accounting, legal, printing and related fees and
expenses.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Prospectus. If given or made, such information or representations should
not be relied upon as having been authorized by the Company.
Neither the delivery of this Prospectus nor any exchange made hereunder
shall, under any circumstances, create any implication that there has been no
change in the affairs of the Company since the respective dates as of which
information is given herein. The Exchange Offer is not being made to (nor will
tenders be accepted from or on behalf of) holders of Old Notes in any
jurisdiction in which the making of the Exchange Offer or the acceptance thereof
would not be in compliance with the laws of such jurisdiction. However, the
Company may, at its discretion, take such action as it may deem necessary to
make the Exchange Offer in any such jurisdiction and extend the Exchange Offer
to holders of Old Notes in such jurisdiction.
TRANSFER TAXES
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes or Old Notes for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be 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
The New Notes will be recorded at the carrying value of the Old Notes as
reflected in the Company's accounting records on the Exchange Date. Accordingly,
no gain or loss for accounting purposes will be recognized by the Company upon
the exchange of New Notes for Old Notes. Expenses incurred in connection with
the issuance of the New Notes will be amortized over the term of the New Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old Notes who do not tender their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon and, except in
certain limited circumstances, will no longer have any registration rights with
respect to the Old Notes. Old Notes not exchanged pursuant to the Exchange Offer
will continue to remain outstanding in accordance with their terms. In general,
the Old Notes may not be offered or sold unless registered under the Securities
Act, except pursuant to an exemption from, or in a transaction not subject to,
the Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Old Notes under the Securities
Act.
Participation in the Exchange Offer is voluntary, and holders of Old Notes
should carefully consider whether to participate. Holders of Old Notes are urged
to consult their financial and tax advisors in making their own decision whether
or not to tender their Old Notes. See "Certain U.S. Federal Income Tax
Considerations."
27
<PAGE> 35
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old Notes pursuant to the terms of, this Exchange Offer, the
Company will have fulfilled certain covenants contained in the Registration
Rights Agreement. Holders of Old Notes who do not tender their Old Notes in the
Exchange Offer will continue to hold such Old Notes and will be entitled to all
the rights and preferences and will be subject to the limitations applicable
thereto under the Indenture, except for any such rights under the Registration
Rights Agreement that by their terms terminate or cease to have further
effectiveness as a result of the making of this Exchange Offer. All untendered
Old Notes will continue to be subject to the restrictions on transfer set forth
in the legend thereon. To the extent that Old Notes are tendered and accepted in
the Exchange Offer, the trading market for untendered Old Notes could be
adversely affected.
The Company may in the future seek to acquire, subject to the terms of the
Indenture, untendered Old Notes in open market or privately negotiated
transactions, through subsequent exchange offers or otherwise. The Company has
no present plan to acquire any Old Notes which are not tendered in the Exchange
Offer.
RESALE OF NEW NOTES
The Company is making the Exchange Offer in reliance on the position of the
staff of the SEC as set forth in certain interpretive letters addressed to third
parties in other transactions. However, the Company has not sought its own
interpretive letter and there can be no assurance that the staff would make a
similar determination with respect to the Exchange Offer as it has in such
interpretative letters to third parties. Based on these interpretations by the
staff, the Company believes that the New Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold and otherwise
transferred by a holder (other than any holder who is a broker-dealer or an
"affiliate" of the Company within the meaning of rule 405 of the Securities Act)
without further compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such holder's business and that such holder is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such New Notes. However, any holder who is an "affiliate" of the Company or who
has an arrangement or understanding with respect to the distribution of the New
Notes to be acquired pursuant to the Exchange Offer, or any broker-dealer who
purchased Old Notes from the Company to resell pursuant to Rule 144A or any
other available exemption under the Securities Act (i) cannot rely on the
applicable interpretations of the staff and (ii) must comply with the
registration and prospectus delivery requirements of the Securities Act. A
broker-dealer who holds Old Notes that were acquired for its own account as a
result of market-making or other trading activities may be deemed to be an
"underwriter" within the meaning of the Securities Act and must, therefore,
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of New Notes. Each such broker dealer that receives
New Notes for its own account in exchange for Old Notes, where such Old Notes
were acquired by such broker-dealer as a result of market-making activities or
other trading activities (other than Old Notes acquired directly from the
Company) must acknowledge in the Letter of Transmittal that it will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus, as
it may be amended or supplemented from time to time, may be used by such
broker-dealers in connection with such resales. See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions,
if applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. The Company has
agreed, pursuant to the Registration Rights Agreement and subject to certain
specified limitations therein, to cooperate with the Holders of the New Notes in
connection with the registration and qualification (or exemption from such
registration or qualification) of the New Notes for offer or sale under the
securities or blue sky laws of such jurisdictions as any holder of the New Notes
reasonably requests in writing. Such registration or qualification may require
the imposition of restrictions or conditions (including suitability requirements
for offerees or purchasers) in connection with the offer or sale of any New
Notes.
28
<PAGE> 36
USE OF PROCEEDS
The Company will not receive any cash proceeds or incur any additional
indebtedness as a result of the issuance of the New Notes pursuant to the
Exchange Offer.
The net proceeds to the Company from the offering of the Old Notes were
approximately $145.7 million, after deducting the Initial Purchasers' discount
and other expenses related to the Notes Offering. The Company used the net
proceeds of the Notes Offering as follows: (i) approximately $75.9 million to
consummate the Sea Mar Acquisition, (ii) $15.7 million to repay the debt of Sea
Mar, and (iii) approximately $54.1 million to reduce the outstanding balance
under the Credit Agreement.
29
<PAGE> 37
CAPITALIZATION
The following table sets forth the actual consolidated (i) cash and cash
equivalents, (ii) current portion of long-term debt and (iii) capitalization of
the Company as of March 31, 1998. The actual capitalization reflects the Sea Mar
Acquisition and the Notes Offering which were consummated on March 31, 1998.
This table should be read in conjunction with "Prospectus Summary -- Recent
Transactions -- Sea Mar Acquisition" and the Consolidated Financial Statements
of the Company and of Sea Mar and the notes thereto, all of which are included
elsewhere herein.
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------
ACTUAL
--------------
(UNAUDITED)
(DOLLARS IN
THOUSANDS)
<S> <C>
Cash and Cash Equivalents................................... $ 29,351
========
Current Portion of Long-Term Debt........................... $ 1,025
========
Long-Term Debt(1):
Credit Agreement.......................................... $ 5,000
9% Notes due 2003......................................... 9,650
10% Notes due 2002........................................ 3,872
8 5/8% Senior Subordinated Notes due 2008, Series A....... 150,000
--------
Total Long-Term Debt.............................. 168,522
--------
Shareholders' Equity
Common Stock (40,000,000 shares authorized; 21,030,293
shares issued and outstanding)(2)...................... 231,561
Retained earnings......................................... 45,682
Unearned compensation -- restricted stock................. (607)
Cumulative foreign currency translation adjustments....... (322)
--------
Total Shareholders' Equity........................ 276,314
--------
Total Capitalization.............................. $444,836
========
</TABLE>
- ---------------
(1) Reflects the March 31, 1998 repayment of $70.8 million of borrowings under
the Credit Agreement ($54.1 million with proceeds from the Notes Offering
and $16.7 million with other available cash) and the retirement of $15.7
million of Sea Mar debt.
(2) Includes the issuance on March 31, 1998 of 1,538,462 shares of the
Company's common stock as partial consideration for the purchase of all the
outstanding capital stock of Sea Mar.
30
<PAGE> 38
SELECTED HISTORICAL AND PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL DATA
The following table sets forth certain historical and pro forma
consolidated financial data of the Company. The historical data have been
derived from the Company's audited consolidated financial statements as of and
for the five years ended December 31, 1997 and unaudited consolidated financial
statements for the three months ended March 31, 1998 and 1997. Fiscal year 1997
results include the results from A.A. Oilfield Services, Inc. ("A.A.") since its
November 1997 acquisition, Trey Services, Inc. ("Trey") since its October 1997
acquisition and DA&S Oil Well Servicing, Incorporated ("DA&S") since its June
1997 acquisition. Fiscal year 1996 results include the results from Antah
Drilling Sdn. Bhd. ("Antah Drilling"), now Pool International Malaysia Sdn. Bdn.
("Pool Malaysia"), since the acquisition of the interest of the Company's former
partner in October 1996 and Pool International Argentina S.A. ("PIASA") since
the Company's August 1996 purchase of a 51% interest. Fiscal year 1995 results
include the results of Golden Pacific Corp. ("GPC") since its June 1995
acquisition. Fiscal year 1994 results include the results of Pool Arctic Alaska
since the acquisition of the interest of the Company's former partner in
September 1994. All of these acquisitions were accounted for under the purchase
method of accounting. See Note 3 of the Company's Notes to Consolidated
Financial Statements appearing elsewhere in this Prospectus. The unaudited
selected pro forma income statement data for the year ended December 31, 1997
and the three months ended March 31, 1998 gives effect to the completion of the
Sea Mar Acquisition and the Notes Offering and the application of the net
proceeds therefrom as if the Sea Mar Acquisition and the Notes Offering had been
consummated on January 1, 1997 and January 1, 1998, respectively. Neither the
summary historical financial data nor the summary pro forma financial data are
necessarily indicative of either the future results of operations or the results
of operations that would have occurred if those events had been consummated on
the indicated dates. The following financial data should be read in conjunction
with and are qualified by reference to, the Unaudited Pro Forma Condensed
Consolidated Financial Data of the Company and the notes thereto, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Consolidated Financial Statements and notes thereto and other financial
information all of which are included elsewhere in this Prospectus. The results
of the three months ended March 31, 1998 are not necessarily indicative of the
results expected for the full year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 YEAR ENDED DECEMBER 31
------------------------------ ---------------------------------------------------------------
PRO PRO
FORMA HISTORICAL FORMA HISTORICAL
-------- ------------------- -------- ----------------------------------------------------
1998 1998 1997 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
OPERATING DATA:
Revenues..................... $131,245 $117,712 $ 98,384 $497,736 $451,922 $348,558 $277,305 $229,175 $240,524
Earnings (Loss) Attributable
to Unconsolidated
Affiliates................. (71) (71) 1,004 3,080 3,080 2,244 2,955 5,016 6,860
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total.................. 131,174 117,641 99,388 500,816 455,002 350,802 280,260 234,191 247,384
-------- -------- -------- -------- -------- -------- -------- -------- --------
Cost and Expenses:
Operating expenses......... 87,867 83,363 74,716 349,703 334,592 267,692 219,074 182,012 187,412
Selling, general and
administrative
expenses................. 14,116 13,175 12,761 56,080 53,343 46,773 39,927 36,927 37,797
Depreciation and
amortization............. 9,858 7,510 5,703 34,429 25,022 18,545 15,002 13,760 16,307
Acquisition related
costs.................... -- -- -- 77 77 33 622 -- --
Provision for leasehold
impairment(1)............ -- -- -- -- -- -- -- 23,551 --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Total.................. 111,841 104,048 93,180 440,289 413,034 333,043 274,625 256,250 241,516
-------- -------- -------- -------- -------- -------- -------- -------- --------
Other Income
(Expense) -- Net........... 461 403 558 5,009 4,617 2,095 1,289 1,202 2,239
Interest Expense............. 3,927 1,763 785 16,437 4,288 2,793 1,811 253 508
-------- -------- -------- -------- -------- -------- -------- -------- --------
Income (Loss) Before Income
Taxes and Minority
Interest................... 15,867 12,233 5,981 49,099 42,297 17,061 5,113 (21,110) 7,599
Income Tax Provision
(Credit)................... 6,117 4,780 2,272 18,209 15,706 7,524 1,981 (8,381) 1,399
Minority Interest in Loss of
Consolidated Subsidiary.... -- -- (96) (87) (87) (103) -- -- --
-------- -------- -------- -------- -------- -------- -------- -------- --------
Net Income (Loss)............ $ 9,750 $ 7,453 $ 3,805 $ 30,977 $ 26,678 $ 9,640 $ 3,132 $(12,729) $ 6,200
======== ======== ======== ======== ======== ======== ======== ======== ========
Earnings (Loss) Per Share of
Common Stock -- basic...... $ .46 $ .38 $ .20 $ 1.49 $ 1.39 $ .58 $ .23 $ (.94) $ .46
======== ======== ======== ======== ======== ======== ======== ======== ========
Weighted Average Shares
Outstanding -- basic....... 21,005 19,484 19,140 20,795 19,257 16,505 13,840 13,559 13,526
======== ======== ======== ======== ======== ======== ======== ======== ========
Earnings (Loss) Per Share of
Common Stock -- assuming
dilution................... $ .46 $ .38 $ .20 $ 1.47 $ 1.36 $ .58 $ .23 $ (.94) $ .46
======== ======== ======== ======== ======== ======== ======== ======== ========
Weighted Average Shares
Outstanding -- assuming
dilution................... 21,290 19,769 19,404 21,115 19,577 16,677 13,881 13,589 13,572
======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
31
<PAGE> 39
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 YEAR ENDED DECEMBER 31
------------------------------ ---------------------------------------------------------------
PRO PRO
FORMA HISTORICAL FORMA HISTORICAL
-------- ------------------- -------- ----------------------------------------------------
1998 1998 1997 1997 1997 1996 1995 1994 1993
-------- -------- -------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS AND RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (AT PERIOD
END):
Cash and Cash Equivalents.... $ 29,351 $ 15,239 $ 18,993 $ 21,837 $ 5,492 $ 2,560 $ 4,603
Working Capital.............. 54,128 51,068 59,070 47,636 26,979 33,030 40,553
Property, Plant and
Equipment -- Net........... 381,364 190,430 259,793 189,125 124,024 101,536 85,297
Total Assets................. 675,597 344,729 479,195 341,217 248,443 209,818 193,154
Total Debt................... 169,547 31,170 80,347 33,695 20,569 2,095 --
Shareholders' Equity......... 276,314 201,722 233,738 197,123 136,027 128,639 141,345
CASH FLOW DATA:
Net cash provided by
operating
activities................. $ 17,082 $ 844 $ 42,387 $ 17,715 $ 23,595 $ 8,324 $ 16,002
Net cash used for investing
activities................. (75,818) (5,435) (84,902) (50,556) (24,109) (12,438) (11,212)
Net cash provided by (used
for) financing
activities................. 69,094 (2,007) 39,671 49,186 3,446 2,071 (3,370)
SELECTED OTHER DATA AND RATIOS:
EBITDA(2).................... $ 29,652 $ 21,506 $ 12,469 $ 99,965 $ 71,607 $ 38,399 $ 21,926 $ (7,097) $ 24,414
Property Additions(3)........ 26,055 25,918 6,999 69,682 60,355 30,662 23,436 10,897 14,223
Expenditures for
acquisitions, including
acquisition costs, less
cash acquired.............. 50,374 50,374 -- 106,129 32,869 22,366 3,431 11,250 --
Earnings to Fixed
Charges(4)................. 4.30x 5.72x 4.34x 3.36x 6.47x 3.77x 1.65x -- .77x
EBITDA/Cash Interest
Expense(5)................. 8.31x 6.91x
</TABLE>
- ---------------
(1) See Note 7 of Notes to Consolidated Financial Statements for a discussion of
the $23.6 million pretax ($15.3 million, or $1.13 per share, after-tax)
provision for leasehold impairment.
(2) EBITDA (earnings before interest, taxes, depreciation and amortization and
minority interest) is not a measure of financial performance under generally
accepted accounting standards, but is presented here to provide additional
information about the Company's operations. EBITDA should not be considered
as an alternative to net income as an indicator of the Company's operating
performance or as an alternative to cash flows as a better measure of
liquidity. EBITDA presented above may not be comparable to similarly titled
measures of other companies. Excluding the $23.6 million non-cash pretax
provision for leasehold impairment, the 1994 EBITDA would be $16.5 million
(see Note 7 of Notes to Consolidated Financial Statements).
(3) Excluding acquisitions of businesses.
(4) The ratio of earnings to fixed charges has been computed by dividing
earnings available for fixed charges (earnings before income taxes plus
fixed charges less capitalized interest) by fixed charges (interest expense
plus capitalized interest plus the portion of operating lease rental expense
that represents the interest factor which is deemed to be one-third of
rentals). In the year ended December 31, 1994, earnings (following a
significant one-time non-cash charge for leasehold impairment) were
inadequate to cover fixed charges by $3.3 million.
(5) Cash interest expense represents total interest expense ($3,927 for the pro
forma quarter ended March 31, 1998 and $16,437 for the pro forma year ended
December 31, 1997) less amortization of deferred financing costs and other
non-cash interest charges ($359 for the pro forma quarter ended March 31,
1998 and $1,980 for the pro forma year ended December 31, 1997).
32
<PAGE> 40
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following presents summary unaudited combined condensed pro forma
financial data of the Company and Sea Mar. The accompanying unaudited pro forma
condensed statements of consolidated operations for the three months ended March
31, 1998 and 1997 and for the year ended December 31, 1997 were prepared
assuming the Sea Mar Acquisition had occurred on January 1, 1997. The unaudited
pro forma condensed statements of consolidated operations are based upon (i) the
historical statements of consolidated operations of the Company for the periods
indicated and (ii) the historical consolidated statements of operations of Sea
Mar for the periods indicated. The Unaudited Pro Forma Consolidated Financial
Data and the Notes thereto should be read in conjunction with "Use of Proceeds,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the historical financial statements of the Company and Sea Mar,
including notes thereto included elsewhere herein.
The pro forma adjustments are derived from available information and are
based upon certain assumptions and estimates described in the Notes to the
Unaudited Pro Forma Condensed Financial Data. The purchase accounting
adjustments, including the allocation of the purchase price to the assets
acquired and liabilities assumed based on their respective fair values, are
preliminary. Accordingly, the purchase accounting adjustments reflected in the
pro forma information are also preliminary and have been made solely for
purposes of developing such information. The Company's management believes,
however, that the pro forma adjustments and the underlying assumptions and
estimates reasonably present the significant effects of the transactions
reflected thereby and that any subsequent changes in the underlying assumptions
and estimates will not materially affect the pro forma financial statements. The
pro forma condensed statements of consolidated operations do not purport to
represent what the Company's results of operations actually would have been had
such transaction occurred on January 1, 1997 or to project the Company's results
of operations for any future date or period. Furthermore, the unaudited pro
forma condensed statements of consolidated operations do not reflect changes
that may occur as the result of post-combination activities and other matters
including, but not limited to, the ultimate contingent consideration that may be
paid (up to a maximum of $20 million) if Sea Mar operations exceed certain
EBITDA (as defined in the Stock Purchase Agreement for the Sea Mar Acquisition)
targets for fiscal years ending December 31, 1998 and 1999. See Note (g) to the
Unaudited Pro Forma Condensed Financial Data.
33
<PAGE> 41
POOL ENERGY SERVICES CO.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1998
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------------- PRO FORMA
POOL ENERGY AND NOTES OFFERING PRO FORMA
SERVICES CO. SEA MAR, INC. COMBINED ADJUSTMENTS AS ADJUSTED
------------ ------------- -------- ------------------ -----------
<S> <C> <C> <C> <C> <C>
Revenues........................... $117,712 $13,533 $131,245 $ $131,245
Loss Attributable to Unconsolidated
Affiliates....................... (71) -- (71) (71)
-------- ------- -------- --------
Total..................... 117,641 13,533 131,174 131,174
-------- ------- -------- --------
Costs and Expenses:
Operating expenses............... 83,363 4,504 87,867 87,867
Selling, general and
administrative expenses........ 13,175 941 14,116 14,116
Depreciation and amortization.... 7,510 609 8,119 1,739(a)(g) 9,858
-------- ------- -------- ------- --------
Total..................... 104,048 6,054 110,102 1,739 111,841
-------- ------- -------- ------- --------
Other Income (Expense) -- Net...... 403 962 1,365 (904)(b) 461
Interest Expense................... 1,763 323 2,086 1,841(c) 3,927
-------- ------- -------- ------- --------
Income Before Income Taxes......... 12,233 8,118 20,351 (4,484) 15,867
Income Tax Provision............... 4,780 2,841 7,621 (1,504)(d) 6,117
-------- ------- -------- ------- --------
Net Income................ $ 7,453 $ 5,277 $12,730 $(2,980) $ 9,750
======== ======= ======== ======= ========
Earnings Per Share of Common
Stock............................ $ .38 $ .46
======== ========
Weighted Average Shares
Outstanding...................... 19,484 1,521(e) 21,005
======== ======= ========
Earnings Per Share of Common
Stock -- assuming dilution....... $ .38 $ .46
======== ========
Weighted Average Shares
Outstanding...................... 19,769 1,521(e) 21,290
======== ======= ========
</TABLE>
34
<PAGE> 42
POOL ENERGY SERVICES CO.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL
--------------------------------------- PRO FORMA
POOL ENERGY AND NOTES OFFERING PRO FORMA
SERVICES CO. SEA MAR, INC. COMBINED ADJUSTMENTS AS ADJUSTED
------------ ------------- -------- ------------------ -----------
<S> <C> <C> <C> <C> <C>
Revenues........................... $98,384 $10,499 $108,883 $ $108,883
Earnings Attributable to
Unconsolidated Affiliates........ 1,004 -- 1,004 1,004
------- ------- -------- --------
Total..................... 99,388 10,499 109,887 109,887
------- ------- -------- --------
Costs and Expenses:
Operating expenses............... 74,716 3,567 78,283 78,283
Selling, general and
administrative expenses........ 12,761 713 13,474 13,474
Depreciation and amortization.... 5,703 479 6,182 1,790(a)(g) 7,972
------- ------- -------- ------- --------
Total..................... 93,180 4,759 97,939 1,790 99,729
------- ------- -------- ------- --------
Other Income (Expense) -- Net...... 558 48 606 606
Interest Expense................... 785 370 1,155 2,824(c) 3,979
------- ------- -------- ------- --------
Income Before Income Taxes and
Minority Interest................ 5,981 5,418 11,399 (4,614) 6,785
Income Tax Provision............... 2,272 1,896 4,168 (1,600)(d) 2,568
Minority Interest in Loss of
Consolidated Subsidiary.......... (96) -- (96) (96)
------- ------- -------- ------- --------
Net Income................ $ 3,805 $ 3,522 $ 7,327 $(3,014) $ 4,313
======= ======= ======== ======= ========
Earnings Per Share of Common
Stock............................ $ .20 $ .21
======= ========
Weighted Average Shares
Outstanding...................... 19,140 1,538(e) 20,678
======= ======= ========
Earnings Per Share of Common
Stock -- assuming dilution....... $ .20 $ .21
======= ========
Weighted Average Shares
Outstanding...................... 19,404 1,538(e) 20,942
======= ======= ========
</TABLE>
35
<PAGE> 43
POOL ENERGY SERVICES CO.
UNAUDITED PRO FORMA CONDENSED STATEMENT OF CONSOLIDATED OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
--------------------------------------- AND NOTES
POOL ENERGY OFFERING PRO FORMA
SERVICES CO. SEA MAR, INC. COMBINED ADJUSTMENTS AS ADJUSTED
------------ ------------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues................................ $451,922 $45,814 $497,736 $ $497,736
Earnings Attributable to Unconsolidated
Affiliates............................ 3,080 -- 3,080 3,080
-------- ------- -------- --------
Total.......................... 455,002 45,814 500,816 500,816
-------- ------- -------- --------
Costs and Expenses:
Operating expenses.................... 334,592 15,111 349,703 349,703
Selling, general and administrative
expenses............................ 53,343 6,837 60,180 (4,100)(f) 56,080
Depreciation and amortization......... 25,022 1,932 26,954 7,475(a)(g) 34,429
Acquisition related costs............. 77 -- 77 77
-------- ------- -------- -------- --------
Total.......................... 413,034 23,880 436,914 3,375 440,289
-------- ------- -------- -------- --------
Other Income (Expense) -- Net........... 4,617 392 5,009 5,009
Interest Expense........................ 4,288 1,437 5,725 10,712(c) 16,437
-------- ------- -------- -------- --------
Income Before Income Taxes and Minority
Interest.............................. 42,297 20,889 63,186 (14,087) 49,099
Income Tax Provision.................... 15,706 7,166 22,872 (4,663)(d) 18,209
Minority Interest in Loss of
Consolidated Subsidiary............... (87) -- (87) (87)
-------- ------- -------- -------- --------
Net Income..................... $ 26,678 $13,723 $40,401 $ (9,424) $ 30,977
======== ======= ======== ======== ========
Earnings Per Share of Common Stock...... $ 1.39 $ 1.49
======== ========
Weighted Average Shares Outstanding..... 19,257 1,538(e) 20,795
======== ======== ========
Earnings Per Share of Common Stock --
assuming dilution..................... $ 1.36 $ 1.47
======== ========
Weighted Average Shares Outstanding..... 19,577 1,538(e) 21,115
======== ======== ========
</TABLE>
36
<PAGE> 44
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL DATA
(IN THOUSANDS)
(a) Reflects additional depreciation expense using a remaining weighted average
estimated depreciable life of 12 years, amortization of goodwill using a 25
year amortization period and amortization of the portion of the purchase
price allocated to a five-year noncompete agreement.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 YEAR ENDED
------------------ DECEMBER 31,
1998 1997 1997
------- ------- ------------
<S> <C> <C> <C>
Depreciation expense................................. $1,499 $1,550 $6,515
Amortization of goodwill............................. 215 215 860
Amortization of noncompete agreement................. 25 25 100
------ ------ ------
$1,739 $1,790 $7,475
====== ====== ======
</TABLE>
(b) Reflects reduction of historical gains on sales of Sea Mar's assets as the
purchase price allocation to assign fair values to the net assets acquired
would eliminate the gain for the assets sold during the three months ended
March 31, 1998.
(c) Reflects estimated increase in expense resulting from the issuance of $150
million Notes at an interest rate of 8 5/8% and amortization of the related
debt issuance costs over ten years, offset by a decrease in interest
expense from the repayment of the existing debt of Sea Mar concurrent with
the consummation of the Sea Mar Acquisition ($15.7 million outstanding at
March 31, 1998, $17.1 million outstanding at December 31, 1997 and $19.3
million outstanding at March 31, 1997, which bore interest at a floating
rate which was 7.66% at March 31, 1998 and December 31, 1997 and 7.44% at
March 31, 1997 and had a maturity date of December 2001) and repayments on
the Credit Agreement ($70.8 million at March 31, 1998, $51.8 million at
December 31, 1997 and no amount was outstanding at March 31, 1997).
(d) Reflects estimated income taxes for Sea Mar and the pro forma adjustments,
using a combined federal and state rate of 36.8%.
(e) Estimated increase in weighted average shares outstanding due to issuance
of 1,538,462 shares of the Company's common stock in connection with the
Sea Mar Acquisition.
(f) Reflects elimination of historical nonrecurring charges of $4.1 million.
Such charges were for expenditures related to a guarantee no longer in
place as a result of the Sea Mar Acquisition and supplemental compensation
to the chief executive officer of Sea Mar (which will not be recurring as a
result of a new employment agreement related to the Sea Mar Acquisition).
(g) Total estimated purchase price for the Sea Mar Acquisition does not include
any of the additional maximum $20 million cash consideration that is
contingent upon Sea Mar exceeding EBITDA targets for the fiscal years
ending December 31, 1998 and 1999 of $25 million and $35 million,
respectively. The additional purchase consideration for each year will be
equal to the amount by which EBITDA exceeds the EBITDA target for the
applicable year up to a maximum of $10 million in each year. The additional
purchase consideration, if any, will be reflected as additional goodwill.
Pro forma annual goodwill amortization for the Sea Mar Acquisition as shown
in note (a) would increase $0.2 million per year for each $5.0 million of
additional purchase consideration.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the consolidated financial statements and the notes thereto included elsewhere
in this Prospectus.
RESULTS OF OPERATIONS
The Company is a leading worldwide provider of well-servicing, workover and
drilling rig services and related transportation services for both land and
offshore markets to a diverse group of multi-national, foreign national and
independent oil and natural gas producers. From 1993 to 1997, the Company's
revenues increased from $240.5 million to $451.9 million, representing a
compound annual growth rate ("CAGR") of 17.1%. During the same period, the
Company's EBITDA increased from $24.4 million to $71.6 million, representing a
CAGR of 30.9%. The Company believes its growth in revenues and EBITDA was the
result of implementing its business strategies and capitalizing on its
competitive strengths as well as improved market conditions. The Company
believes its competitive strengths include: (i) availability and condition of
equipment to meet both special and general customer needs; (ii) availability of
trained personnel possessing the required specialized skills; (iii) the overall
quality of service and safety record; (iv) the ability to offer support vessel
services in the Gulf of Mexico; and (v) domestically the ability to offer
ancillary services such as fluid hauling, fluid storage tank rental and salt
water disposal.
Over the last several years, there has been significant industry
consolidation activity in the Company's principal service lines of business. In
addition to opportunities for achieving cost savings, consolidation is being
driven by the expanding needs of customers for a broader range of services,
equipment and related technical skills. The Company has been an active
participant in this industry consolidation and, since the beginning of fiscal
year 1995, has completed four domestic land business acquisitions for total
consideration of approximately $64.7 million, acquired an offshore support
vessel company for approximately $76 million in cash and 1.5 million shares of
the Company's common stock, acquired the 51% interest that it did not already
own in Antah Drilling for $9.0 million and acquired a 51% interest in PIASA for
$8.7 million. These acquisitions, together with rig and equipment purchases and
rig enhancements and upgrades during this period (at an aggregate cost of
approximately $45.3 million), were designed to increase the Company's market
presence, increase the Company's geographic diversity (both domestically and
internationally), expand the range of services the Company provides to its
customers and provide opportunities for consolidation cost savings. For a
further description of the Company's acquisitions, see Note 3 of Notes to
Consolidated Financial Statements and Note 5 of Notes to Interim Condensed
Consolidated Financial Statements appearing elsewhere in this Prospectus.
Notes Offering
On March 31, 1998, the Company completed a private placement of 8 5/8%
senior subordinated notes due 2008 in the aggregate principal amount of $150
million. The net proceeds from the sale of the Notes were used to fund the cash
portion of the purchase price for the Sea Mar Acquisition, to repay the existing
debt of Sea Mar and to reduce the outstanding balance under the Credit
Agreement. The Notes are general unsecured obligations of the Company
subordinated in right of payment to all existing and future senior indebtedness
of the Company and are unconditionally guaranteed, jointly and severally, by
each of the Subsidiary Guarantors. The Notes contain certain covenants that,
among other things, limit the ability of the Company and its Subsidiary
Guarantors to incur additional indebtedness, issue capital stock of Subsidiary
Guarantors, pay dividends or make other restricted payments, incur liens, enter
into certain transactions with affiliates, enter into certain mergers or
consolidations or sell all or substantially all of the assets of the Company and
its subsidiaries.
Acquisitions
Sea Mar, Inc. On March 31, 1998, the Company acquired all of the
outstanding capital stock of Sea Mar, a privately owned Louisiana-based offshore
vessel company with operations primarily in the Gulf of
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Mexico, for approximately $75.9 million in cash (including an estimated $14.7
million in post-closing purchase price adjustments) and 1,538,462 shares of the
Company's common stock. In addition, the Company agreed to pay additional cash
consideration contingent upon Sea Mar exceeding certain financial targets for
the fiscal years ending December 31, 1998 and 1999, up to a maximum $10 million
in each year. See "Description of Other Indebtedness."
As a result of the Sea Mar Acquisition, the Company now operates a
diversified fleet of 23 offshore support vessels in the Gulf of Mexico. In
addition, Sea Mar has a contract with a marine shipbuilder for the construction
of ten offshore support vessels at an estimated aggregate cost of $77.6 million,
net of deposits. These new vessels are scheduled to be delivered between late
1998 and early 2000. The Company anticipates that these expenditures will be
financed by internally generated funds and borrowings under the Credit Agreement
as needed.
A.A. Oilfield Service, Inc. ("A.A.") In November 1997, the Company
acquired A.A. for $4.1 million in cash. This acquisition included 18 oilfield
trucks, one salt water disposal well and related equipment based in Hobbs, New
Mexico. See "Description of Other Indebtedness."
Trey Services, Inc. ("Trey") In October 1997, the Company acquired all of
the outstanding capital stock of Trey and certain associated operating assets
for $31.3 million in cash. Prior to the acquisition, Trey, through its
wholly-owned subsidiary, R&H Well Service, Inc. ("R&H"), operated a fleet of
approximately 67 land well-servicing rigs, 104 oilfield trucks, 430 fluid
storage tanks and five brine and disposal wells in the Permian Basin of West
Texas. See "Description of Other Indebtedness."
D A & S Oil Well Servicing, Incorporated. ("DA&S") In June 1997, the
Company acquired all the outstanding capital stock of DA&S for $10.5 million.
Prior to the acquisition, DA&S operated a fleet of 37 land well-servicing rigs
from yards in Hobbs and Eunice, New Mexico and Andrews, Texas. See "Description
of Other Indebtedness."
Antah Drilling Sdn. Bhd. ("Antah Drilling") In October 1996, the Company
acquired the 51% beneficial ownership interest that it did not already own in
Antah Drilling (now Pool Malaysia). The purchase price and the repayment of
certain indebtedness that Antah Drilling owed to the Company's former partner in
that venture totaled $9.0 million. Pool Malaysia's assets include Rig 489, a
2,000 horsepower offshore platform drilling rig, which commenced a three-year
contract in Australia in August 1996, and an offshore platform workover rig
currently operating under a contract in Malaysia. See "Description of Other
Indebtedness."
Pool International Argentina S.A. ("PIASA") In August 1996, the Company
acquired for approximately $8.7 million in cash a 51% interest in PIASA. PIASA's
nine land drilling rigs and 11 land workover rigs operate in the Mendoza and
Neuquen basins of Argentina. See Note 1 of Notes to Consolidated Financial
Statements and Note 2 of Notes to Interim Condensed Consolidated Financial
Statements.
Western Oil Well Service Co. ("Western Oil") In June 1996, the Company
purchased the operating assets (including approximately 23 land well-servicing
rigs) of Western Oil for approximately $4.0 million in cash.
Golden Pacific Corp. ("GPC") In June 1995, the Company acquired all of the
outstanding capital stock of GPC. GPC's assets included a fleet of approximately
155 land well-servicing rigs and related equipment in California. See
"Description of Other Indebtedness."
Quarter Ended March 31, 1998 Compared to Quarter Ended March 31, 1997
The Company generated net income of $7.5 million in the first quarter of
1998, compared with $3.8 million in the first quarter of 1997, despite the fact
that the average price of crude oil was approximately 30% lower in the first
quarter of 1998 than in the first quarter of 1997, and average domestic natural
gas prices decreased approximately 16% comparing the same periods. Results from
the Company's domestic operations improved primarily due to (i) higher land
drilling activity in Alaska, including the operation of Rig 8, a recently
upgraded drilling rig which commenced a five-year contract in February 1998,
(ii) inclusion of results from the land well-servicing rigs acquired in the
October 1997 Trey acquisition and in the June 1997 DA&S acquisition (see
"-- Acquisitions"), and (iii) increased activity and rates for the Company's
jackup workover rigs and platform drilling rigs in the Gulf of Mexico, including
newly constructed Rig 16 which was placed in service in February 1998. Rig hours
for the Company's domestic onshore operation were 14% higher
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<PAGE> 47
in the first quarter of 1998 than in the corresponding quarter of 1997. The
Company's offshore rig fleet in the Gulf of Mexico experienced rig utilization
of 59% in the first quarter of 1998, compared to 65% in the comparable period of
1997, but average rig rates were 26% higher in the 1998 period. Results from the
Company's international operations improved due to increased land drilling rig
activity in Ecuador, Pakistan and Guatemala.
Revenues. Revenues were $117.7 million in the first quarter of 1998, a 20%
increase over revenues of $98.4 million in the first quarter of 1997. This
increase was attributable to (i) the inclusion of revenues from the 67 land
well-servicing rigs acquired in the October 1997 Trey acquisition and the 37
land well-servicing rigs acquired in the June 1997 DA&S acquisition (see
"-- Acquisitions"), (ii) higher land drilling activity in Alaska, including
operation of Rig 8, (iii) increased activity and rates for the Company's jackup
workover rigs and platform drilling rigs in the Gulf of Mexico, including Rig
16, and (iv) increased land drilling activity in Ecuador, Guatemala and
Pakistan. These revenue increases were offset partly by lower revenues from
operations in Oman due to the transfer of a land drilling rig to Saudi Arabia
where the rig is being leased to Pool Arabia, Ltd., the Company's Saudi Arabia
affiliate, and reduced platform workover rig activity in the Gulf of Mexico. In
addition, the Company's revenues in the first quarter of 1998 did not include
revenues related to PIASA, the Company's Argentina affiliate, as a result of
changing its accounting for its 51% investment in PIASA to the equity method due
to the adoption of EITF 96-16, compared to the inclusion of $3.6 million of
revenues for PIASA in the first quarter of 1997 (see Note 2 to the Interim
Condensed Consolidated Financial Statements and "-- Earnings Attributable to
Unconsolidated Affiliates"). Domestic onshore well-servicing and production
services revenues increased $14.6 million or 25% in the first quarter of 1998
from the corresponding quarter of 1997, chiefly as a result of the inclusion of
results from rigs acquired from the Trey and DA&S acquisitions. Domestic onshore
rig utilization was 54% in the first quarter of 1998, compared to 55% in the
first quarter of 1997. Domestic onshore well-servicing rig hours increased from
approximately 291,000 in the first quarter of 1997 to approximately 330,000 in
the first quarter of 1998. Gulf of Mexico offshore workover and drilling
revenues increased $2.1 million or 13%, international operations revenues
decreased $2.2 million or 13%, (however, excluding the $3.6 million of revenues
from PIASA in the first quarter of 1997, international operations revenues
increased $1.5 million or 12%), and Alaska operations revenues increased $4.8
million or 78%, compared to the first quarter of 1997.
Earning Attributable to Unconsolidated Affiliates. The loss attributable
to unconsolidated affiliates was $0.1 million in the first quarter of 1998,
compared to earnings of $1.0 million in the first quarter of 1997. This decrease
was due to a $0.9 million loss attributable to PIASA in the first quarter of
1998. In August 1996, the Company acquired a 51% interest in PIASA, a newly
formed Argentina corporation. Prior to 1998, for financial reporting purposes,
100% of the assets, liabilities, results of operations and cash flows of PIASA
were consolidated with those of the Company. The minority shareholder's interest
in PIASA and the earnings or losses therefrom were reflected as "minority
interest" in the Company's financial statements. As a result of the adoption of
EITF 96-16, the Company concluded that PIASA no longer qualifies for full
consolidation and beginning January 1, 1998 is accounting for PIASA under the
equity method (see Note 2 to the Interim Condensed Consolidated Financial
Statements).
Earnings attributable to Pool Arabia, Ltd. were $0.8 million in the first
quarter of 1998, a $0.2 million decrease from the comparable period of 1997 due
to a non-recurring income item in the first quarter of 1997.
Costs and Expenses. The Company's costs and expenses were $104.0 million
in the first quarter of 1998, a 12% increase compared to costs and expenses of
$93.2 million in the corresponding quarter of 1997; however, operating expenses
declined to 71% of revenues in the first quarter of 1998 from 76% of revenues in
the first quarter of 1997. The increase in costs and expenses was primarily due
to the inclusion of costs and expenses related to operating the land
well-servicing rigs acquired in the acquisition of Trey in October 1997 and DA&S
in June 1997 and increased land drilling activity in Alaska. The increase was
partly offset by decreased costs and expenses in Oman due to the transfer of a
land drilling rig to Saudi Arabia where the rig is being leased to Pool Arabia,
Ltd. In addition, the Company's costs and expenses in the first quarter of 1997
included $4.0 million of costs and expenses related to PIASA (see "-- Earnings
Attributable to Unconsolidated Affiliates").
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Other Income -- Net. Other income-net was $0.2 million lower in the first
quarter of 1998 than in the corresponding quarter of 1997, primarily due to
lower gains on dispositions of equipment.
Interest Expense. Interest expense was $1.0 million higher in the first
quarter of 1998 than in the corresponding quarter of 1997, primarily due to
interest expense under the Credit Agreement and the $10.1 million in long-term
notes issued in connection with the DA&S acquisition in June 1997, partially
offset by a reduction in interest expense due to certain term loans being paid
off in October 1997 with borrowings under the Credit Agreement and a reduction
in the outstanding principal amount of certain 10% notes issued in connection
with the 1995 purchase of Golden Pacific Corp.
Income Taxes. The Company recorded income tax expense of $4.8 million
(which included $2.3 million of deferred taxes) on income before income taxes of
$12.2 million in the first quarter of 1998, compared to income tax expense of
$2.3 million (which included $2.0 million of deferred taxes) on income before
income taxes and minority interest of $6.0 million in the first quarter of 1997.
The increase in income tax expense in the first quarter of 1998 compared to the
first quarter of 1997 was primarily due to an increase in pre-tax income in the
first quarter of 1998, as a result of the factors described above. The Company's
interim period tax expense is determined by utilizing the aggregate of estimated
annual effective tax rates for each of the Company's domestic and foreign
locations.
1997 Compared To 1996
The Company generated net income of $26.7 million in 1997, compared with
$9.6 million in 1996, despite the fact that the average price of crude oil was
approximately 7% lower in 1997 than in 1996 and average domestic natural gas
prices decreased approximately 2% comparing the same periods. Results from the
Company's domestic operations improved primarily due to (i) increased activity
and rates for the jack-up and platform rigs in the Gulf of Mexico, including the
full-year effect of operating Rig 18, a previously idle platform drilling rig
which was refurbished and placed in service in the Gulf of Mexico in
mid-September 1996, (ii) inclusion of results from the land well-servicing rigs
acquired from Western Oil in June 1996, from the DA&S acquisition in June 1997
and from the Trey acquisition in October 1997 (see "-- Acquisitions"), (iii)
increased land rig activity and rates in California and the Austin Chalk and
lower Gulf coast areas of Texas, and (iv) increased production services activity
and rates in Texas. The Company's domestic onshore operation rig hours were 13%
higher for 1997 than in 1996. The Company's offshore operation in the Gulf of
Mexico experienced rig utilization of 76% in 1997, compared to 71% in 1996; and
average rig rates were 35% higher in the 1997 period. Results from the Company's
international operations increased primarily due to the full-year effect of
operating Rig 489 (an offshore platform drilling rig owned by Pool Malaysia that
was newly constructed in 1996 and commenced a three-year contract in Australia
in August 1996) and higher rig activity in Oman and Saudi Arabia.
Revenues. Revenues were $451.9 million in 1997, a 30% increase over
revenues of $348.6 million in 1996. This increase was attributable to (i)
increased activity and rates for the Company's jack-up and platform rigs in the
Gulf of Mexico, including the full-year effect of operating Rig 18, (ii) the
inclusion of revenues from the 23 land well-servicing rigs purchased from
Western Oil in June 1996, the 37 land well-servicing rigs acquired in the June
1997 DA&S acquisition and the 67 land well-servicing rigs acquired in the
October 1997 Trey acquisition (see "-- Acquisitions"), (iii) higher domestic
land well-servicing activity and rates in California and the Austin Chalk and
lower Gulf coast areas of Texas, (iv) the inclusion of revenues from the two
offshore platform rigs owned by Pool Malaysia (previously Antah Drilling), the
results of which were included in earnings attributable to unconsolidated
affiliates in the first nine months of 1996 (see "-- Acquisitions -- Antah
Drilling Sdn. Bhd."), (v) the full-year effect of revenues from the Argentina
rigs owned by PIASA (see "-- Acquisitions -- Pool International Argentina
S.A."), (vi) higher production services activity and rates in Texas, and (vii)
higher rig activity in Oman and Guatemala during 1997. These revenue increases
were offset partly by lower revenues from operations in Ecuador, Pakistan and
Tunisia, where land rig activity declined.
Domestic onshore well-servicing and production services revenues increased
$47.7 million or 22% in 1997 from 1996, chiefly as a result of the inclusion of
results from rigs acquired from Western Oil and the DA&S
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and Trey acquisitions. Domestic onshore rig utilization was 56% in 1997,
compared to 52% in 1996. Domestic onshore well-servicing rig hours increased
from approximately 1,119,000 in 1996 to approximately 1,259,000 in 1997. Gulf of
Mexico offshore workover and drilling revenues increased $22.4 million or 38%,
international operations revenues increased $31.1 million or 68%, and Alaska
operations revenues increased $2.2 million or 9%, compared to 1996.
Earnings Attributable to Unconsolidated Affiliates. Earnings attributable
to unconsolidated affiliates were $3.1 million in 1997, compared to $2.2 million
in 1996. Earnings attributable to Pool Arabia, Ltd., the Company's Saudi Arabia
affiliate, increased $1.4 million from 1996 to $3.1 million in 1997 partly as a
result of higher rig utilization during 1997 and a day rate increase for one of
the drilling rigs in 1997. Earnings from Antah Drilling (now Pool Malaysia)
ceased to be included in earnings attributable to unconsolidated affiliates
immediately following the Company's purchase of its partner's interest in
October 1996.
Costs and Expenses. The Company's costs and expenses were $413.0 million
in 1997, a 24% increase compared to costs and expenses of $333.0 million in
1996; however, as a percentage of revenues, operating expenses declined to 74%
of revenues in 1997 from 77% of revenues in 1996. The increase in costs and
expenses was primarily due to the inclusion of costs and expenses related to (i)
increased domestic onshore rig and production services activity, including costs
and expenses of operating the land well-servicing rigs acquired from Western Oil
in June 1996, and in the acquisitions of DA&S in June 1997 and Trey in October
1997, (ii) the operation of Rig 18 for a full year and increased jack-up and
platform rig activity in the Gulf of Mexico, (iii) a full year of operations by
PIASA in Argentina, (iv) the inclusion, after the Company's acquisition of its
partner's interest in Antah Drilling (now Pool Malaysia) in October 1996, of
costs and expenses associated with the operation of two offshore platform rigs
owned by Pool Malaysia, and (v) higher rig activity in Oman and Guatemala. The
increase was partly offset by decreased costs and expenses in Ecuador, Pakistan
and Tunisia due to lower land rig activity in those operations during 1997.
Other Income -- Net. Other income-net was $2.5 million higher in 1997 than
in 1996 primarily due to higher gains on dispositions of equipment, including a
$0.7 million pre-tax gain on the sale of an obsolete offshore rig which had been
idle for several years and $1.9 million in pre-tax gains from insurance
settlements in 1997.
Interest Expense. Interest expense was $1.5 million higher in 1997 than in
1996 primarily due to interest expense on borrowings under the Credit Agreement,
the term loans assumed in the October 1996 Antah Drilling acquisition and the
$10.1 million in long-term notes issued in connection with the DA&S acquisition
in June 1997, partially offset by a reduction in interest expense due to the
scheduled principal payments made on the Company's other debt and a reduction in
the outstanding principal amount of certain 10% notes issued in connection with
the 1995 purchase of GPC. See Note 6 of Notes to Consolidated Financial
Statements.
Income Taxes. The Company recorded income tax expense of $15.7 million
(which included $10.7 million of deferred taxes) on income before income taxes
and minority interest of $42.3 million in 1997, compared to income tax expense
of $7.5 million on income before income taxes and minority interest of $17.1
million in 1996. The increase in income tax expense in 1997 compared to 1996 was
primarily due to an increase in pre-tax income in 1997, as a result of the
factors described above. See Note 5 of Notes to Consolidated Financial
Statements for the reconciliation between income taxes computed at the U.S.
federal statutory rate and the Company's income taxes for financial reporting
purposes.
1996 Compared To 1995
The Company generated net income of $9.6 million in 1996, compared with
$3.1 million in 1995. The 1995 net income included a $0.4 million after-tax
charge for costs related to the GPC acquisition. The average price of crude oil
was approximately 20% higher in 1996 than in 1995, and average natural gas
prices increased approximately 64%, comparing the same periods. Results from the
Company's domestic operations improved primarily due to the higher activity and
increased rates for the Company's jackup rigs in the Gulf of Mexico and the
inclusion in 1996 of a full year's results from rigs and equipment acquired in
the June 1995 GPC acquisition. The Company's domestic onshore operation reported
rig hours 12% higher for 1996 than 1995, primarily due to the inclusion of rigs
acquired in the GPC acquisition. The Company's offshore operation in
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the Gulf of Mexico experienced rig utilization of 71% in 1996, compared to 65%
in 1995; average rig rates were 29% higher in the 1996 period. Results from the
Company's international operations increased primarily due to higher land
drilling activity in Ecuador and the operation of two new offshore platform rigs
in Australia (Rig 453, an offshore platform workover rig constructed in 1995,
and Rig 489, an offshore platform drilling rig constructed in 1996 which is
owned by Pool Malaysia). See "-- Acquisitions -- Antah Drilling Sdn. Bhd."
Revenues. Revenues were $348.6 million in 1996, compared to $277.3 million
in 1995. This increase was attributable to (i) the inclusion of revenues for the
entire year of 1996 from rigs and equipment acquired in the June 1995 GPC
acquisition (see "-- Acquisitions -- Golden Pacific Corp."), (ii) higher
activity and increased rates for the jackup rigs, increased rates for the
platform rigs and increased labor contract activity in the Gulf of Mexico, (iii)
a full year's revenues for Rig 453 in Australia, (iv) higher land drilling
activity in Ecuador, (v) the inclusion since October 1996 of revenues from the
two offshore rigs owned by Pool Malaysia (see "-- Acquisitions -- Antah Drilling
Sdn. Bhd."), (vi) the inclusion since August 1996 of revenues from the Argentina
rigs acquired in the PIASA acquisition (see "-- Acquisitions -- Pool
International Argentina S.A."), and (vii) higher revenues from the winter
operation of an Arctic land drilling rig that had been on standby status for all
of 1995.
Domestic onshore well-servicing and production services revenues increased
$26.6 million or 14% in 1996 from 1995, chiefly as a result of the GPC
acquisition. Domestic onshore rig utilization was 52% in both 1996 and 1995.
Domestic onshore well-servicing rig hours increased from approximately 1,003,000
in 1995 to approximately 1,119,000 in 1996, due primarily to the GPC
acquisition. In 1996, Gulf of Mexico offshore workover and drilling revenues
increased $21.1 million or 56%, international operations revenues increased
$19.3 million or 73%, and Alaska operations revenues increased $4.2 million or
21%, compared to 1995.
Earnings Attributable to Unconsolidated Affiliates. Earnings attributable
to unconsolidated affiliates were $2.2 million in 1996, compared to $3.0 million
in 1995. Earnings attributable to Pool Arabia, Ltd., the Company's Saudi Arabia
affiliate, decreased $0.6 million from 1995 to $1.7 million in 1996 primarily as
a result of higher margins earned on rig moves during 1995. Earnings from Antah
Drilling (now Pool Malaysia) ceased to be included in earnings attributable to
unconsolidated affiliates immediately following the Company's purchase of its
partner's interest in October 1996.
Costs and Expenses. The Company's costs and expenses were $333.0 million
in 1996, compared to $274.6 million in 1995; however, as a percentage of
revenues, operating expenses declined to 77% of revenues in 1996 from 79% of
revenues in 1995. The increase in costs and expenses was chiefly attributable to
the inclusion in 1996 of a full year's costs and expenses related to the rigs
and equipment obtained in the June 1995 acquisition of GPC. In addition, costs
and expenses increased due to (i) the higher jackup rig and labor contract
activity in the Gulf of Mexico, (ii) a full year's operating costs for Rig 453
in Australia, (iii) higher land drilling activity in Ecuador, (iv) the inclusion
since October 1996 of costs and expenses related to the rigs owned by Pool
Malaysia, (v) the inclusion since August 1996 of costs and expenses related to
the Argentina rigs owned by PIASA, (vi) higher costs and expenses relating to
the operation of the Arctic land drilling rig that had been on standby status
for all of 1995, and (vii) higher corporate expenses due to increased bonus and
supplementary executive retirement plans expenses. Costs and expenses in 1995
included $0.6 million of expenses related to the GPC acquisition, primarily for
yard closings.
Other Income -- Net. Other income-net was $0.8 million higher in 1996 than
in 1995 primarily due to interest income earned on temporary cash investments.
Interest Expense. Interest expense was $1.0 million higher in 1996 than in
1995 primarily due to the term loan used to refinance the construction costs for
Rig 453 located in Australia, the GPC acquisition debt and the term loans
assumed in the Antah Drilling acquisition, offset partly by lower average
borrowings in 1996 under the Company's syndicated bank revolving line of credit.
Income Taxes. The Company recorded income tax expense of $7.5 million on
income before income taxes and minority interest of $17.1 million in 1996,
compared to income tax expense of $2.0 million on income before income taxes of
$5.1 million in 1995. The increase in income tax expense was primarily due to
stronger operating results in 1996 compared to 1995. The 1995 income tax expense
included the effect of
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certain amendments to prior period U.S. federal tax returns, partly offset by
the reversal of no longer needed deferred foreign taxes for 1990 income tax
indemnities and the elimination of the Company's valuation allowance related to
its U.S. federal net operating loss carryforwards.
FINANCIAL CONDITION AND LIQUIDITY
The Company had cash and cash equivalents of $29.4 million at March 31,
1998 compared to $19.0 million at December 31, 1997 and $21.8 million at
December 31, 1996. Working capital was $54.1 million, $59.1 million and $47.6
million at March 31, 1998 and December 31, 1997 and 1996, respectively.
Cash Flows
For the quarter ended March 31, 1998, net cash flows provided by operating
activities included $8.6 million of proceeds from lump sum fees received for rig
mobilizations (i.e. the preparation of certain rigs and their transportation to
new work locations), which fees will be amortized over the respective terms of
each related contract. The Company used a net $75.8 million for investing
activities in the first quarter of 1998, primarily for capital expenditures of
$25.9 million and $50.4 million, net of cash acquired, for the purchase of Sea
Mar. The Company used a net $5.4 million for investing activities in the first
quarter of 1997, primarily for capital expenditures of $7.0 million, partially
offset by $0.9 million of proceeds from dispositions of equipment. The Company's
cash provided by operating activities increased by $24.7 million in 1997 to
$42.4 million, compared to $17.7 million in 1996. This increase was primarily
due to a $17.0 million increase in net income, a $6.5 million increase in
depreciation and amortization due to recent acquisitions and rig upgrades and a
$6.6 million increase in deferred income taxes resulting primarily from higher
property additions. These increases were offset in part by changes in the
working capital components including an increase in cash useage of $4.9 million
in receivables primarily as a result of higher revenues generated in 1997 and a
$4.8 million increase in cash useage related to inventory due to new
international rig contracts, offset in part by a $8.9 million decrease in cash
useage for trade accounts payable and accrued liabilities related to higher
accruals for rig construction and upgrade projects. For the year ended December
31, 1997, net cash flows provided by operating activities were $42.4 million,
compared with $17.7 million and $23.6 million in 1996 and 1995, respectively.
The Company used a net $84.9 million for investing activities in 1997, primarily
for capital expenditures of $60.4 million, including $9.1 million for the
purchase and modification of a jack-up workover rig and $8.3 million toward the
construction of a new platform drilling rig, both for operation in the Gulf of
Mexico. Cash used for investing activities in 1997 also included $28.9 million,
net of cash acquired, for the purchase of Trey, $3.5 million, net of cash
acquired, for the purchase of A.A., and $0.4 million, net of cash acquired, for
the purchase of DA&S, partially offset by $6.8 million of proceeds from
dispositions of equipment and the return of $1.0 million of cash that had been
placed in escrow as collateral in connection with a sale and leaseback
arrangement. The Company's cash provided by operating activities decreased by
$5.9 million in 1996 to $17.7 million, compared to $23.6 million in 1995. This
decrease was primarily due to changes in the working capital components
including a $18.1 million increase in cash useage for receivables primarily as a
result of higher revenues generated in 1996. This cash useage was offset in part
by a $6.5 million increase in net income, a $3.5 million increase in
depreciation and amortization due to acquisitions and a $2.9 million increase in
deferred income taxes resulting primarily from higher property additions. The
Company used a net $50.6 million for investing activities in 1996, primarily for
capital expenditures of $30.7 million, including $8.4 million for the
refurbishment of Rig 18. Cash used for investing activities during 1996 also
included $8.9 million, net of cash acquired, for the purchase of 51% of Antah
Drilling, $8.7 million for the acquisition of a 51% interest in PIASA, and $4.0
million for the purchase of the operating assets of Western Oil, offset partly
by $2.3 million of proceeds from dispositions of equipment. The Company used a
net $24.1 million for investing activities in 1995, primarily for capital
expenditures of $23.4 million, including $6.9 million for the construction of a
new offshore platform workover rig, Rig 453, which began earning revenues in
Australia in the third quarter of 1995, and $3.4 million, net of cash acquired,
used in connection with the GPC acquisition and the related direct acquisition
costs, partly offset by $2.4 million of proceeds from dispositions of equipment.
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Public Equity Offering
In July 1996, the Company completed the sale to the public of 4,600,000
shares of its common stock, no par value, from which it received cash proceeds
of approximately $47.5 million, net of expenses. The Company used the net
proceeds principally as follows: (i) $10.9 million in connection with the August
1996 PIASA acquisition, (ii) approximately $9 million in connection with the
October 1996 Antah Drilling acquisition, (iii) $4.5 million in connection with
the June 1996 Western Oil asset acquisition, (iv) $8.4 million in connection
with the refurbishment of Rig 18, a previously idle platform drilling rig in the
Gulf of Mexico, and (v) for repayment of debt under the Company's syndicated
bank revolving line of credit and general corporate purposes. The amounts
described above include both acquisition expenditures and related working
capital advances.
Long-Term Debt
$150 Million Senior Subordinated Notes. On March 31, 1998, the Company
completed a private placement of 8 5/8% Senior Subordinated Notes in the
aggregate principal amount of $150 million (see Note 4 to the Interim Condensed
Consolidated Financial Statements and "-- Notes Offering"). The Company incurred
$4.2 million of debt financing costs during the first three months of 1998 in
connection with the Notes Offering.
$180 Million Credit Agreement. In March 1998, concurrent with the issuance
of the Notes and the closing of the Sea Mar Acquisition, the Company executed an
amendment to its Credit Agreement to increase maximum availability thereunder
from $130 million to $180 million, including up to $15 million that may be used
to support letters of credit. See "Description of Other Indebtedness."
Borrowings under the Credit Agreement bear interest, at the Company's
option, at either (i) the Base Rate (defined as the administrative agent bank's
prime lending rate or 1/2 of 1% in excess of the federal funds rate) plus a
margin ranging from zero to .50%, or (ii) the Eurodollar Rate (equivalent to the
London Interbank Offered Rate plus a margin ranging from 1% to 1.75% with the
Company's choice of a one-, two-, three- or six-month interest period. The
applicable margin for each interest option depends on the Company's leverage
ratio for the fiscal quarter preceding the interest period; however, through
September 1998, the applicable Eurodollar margin shall not be less than 1.50%.
Based upon the Company's leverage ratio at December 31, 1997, the applicable
Eurodollar margin would have been 1.00%. The Credit Agreement will mature on
October 2, 2000 and is subject to one-year extensions at the discretion of the
Lenders. Notes issued under the Credit Agreement are prepayable at any time and
are due at expiration on October 2, 2000. The Credit Agreement imposes certain
financial covenants, including ones requiring the maintenance of a minimum net
worth, a minimum interest coverage ratio, a minimum fixed charge coverage ratio,
a maximum leverage ratio and a maximum debt-to-equity ratio. It also imposes
certain other restrictions, including ones relating to liens, other
indebtedness, asset sales, investments, acquisitions or mergers and the payment
of dividends. Advances under the Credit Agreement are secured by a pledge of 66%
of the capital stock of certain of the Company's foreign subsidiaries. The
Company incurred $0.5 million and $1.6 million of debt financing costs during
the first quarter of 1998 and during 1997, respectively in connection with the
Credit Agreement, which are being amortized over the term of the agreement.
For a more detailed description of the Credit Agreement and a description
of other long-term debt, see "Description of Other Indebtedness."
Capital Expenditures
The Company anticipates that 1998 capital expenditures, excluding business
acquisitions, will consist of (i) approximately $50 million for additions and
improvements to its existing rig fleet, (ii) approximately $10 million toward
the upgrade of an Arctic land drilling rig, (iii) approximately $14 million
toward the construction of a new Arctic land drilling rig, (iv) approximately
$4.5 million for the electrification and upgrade of a platform workover rig
located in the Gulf of Mexico and (v) $2.3 million for the purchase of two
jack-up workover rigs located in the Gulf of Mexico that the Company currently
leases.
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In addition, the Company expects to make capital expenditures in 1998 of
approximately $17 million with respect to Sea Mar's vessel fleet, including
approximately $16 million for payment of the balance of the purchase price for
two vessels currently under construction which are scheduled for delivery in
late 1998.
The Company anticipates that these expenditures will be financed by
internally generated funds and borrowings under the Credit Agreement as needed.
Acquisitions of additional assets and businesses are expected to continue to be
an important part of the Company's strategy for growth. The Company believes
that it would, under certain circumstances, need to obtain additional debt
and/or equity financing to fund such acquisitions.
OTHER MATTERS
Accounting Standards
In February 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 132, "Employers'
Disclosures about Pensions and Other Postretirement Benefits." This statement
standardizes the disclosure requirements for pensions and other postretirement
benefits to the extent practicable, requires additional information on changes
in the benefit obligations and fair values of plan assets and eliminates certain
disclosures no longer considered useful. The Company plans to adopt this
statement in the fourth quarter of 1998. Its adoption is not expected to have a
material effect on the Company's financial position or results of operations and
any effect will be limited to the form and content of the disclosure it
requires.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and display of
comprehensive income and its components. The Company adopted this statement in
the first quarter of 1998 and there was no effect on the Company's financial
statements.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This statement establishes
standards for the way that public business enterprises report information about
operating segments in interim and annual financial statements. The Company plans
to adopt this statement in the fourth quarter of 1998. Its adoption is not
expected to have a material effect on the Company's financial statements, and
any effect will be limited to the form and content of the disclosure it
requires.
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share," which
establishes new standards for computing and presenting earnings per share. This
statement was adopted in the fourth quarter of 1997 and had no material effect
on the Company's computation of earnings per share.
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This
statement requires that long-lived assets including certain identifiable
intangibles held and used by the Company be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. The adoption of this statement in 1996 had no effect on
the Company's financial statements.
In October 1995, the FASB issued SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), which sets forth alternative accounting and
disclosure requirements for stock-based compensation arrangements. SFAS 123 does
not rescind the existing accounting for employee stock-based compensation under
APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25").
Companies may continue to follow the current accounting to measure and recognize
employee stock-based compensation; however, SFAS 123 requires disclosure of pro
forma net income and earnings per share that would have been reported under the
"fair value" based recognition provisions of SFAS 123. The Company has elected
to continue to follow the provisions of APB 25 for employee compensation and has
disclosed the pro forma information required under SFAS 123 in Note 2 of Notes
to Consolidated Financial Statements.
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San Angelo Lease Commitment
The Company has an operating lease, effective through March 2003, for a
65-acre facility at San Angelo, Texas, which it previously used for rig and
equipment manufacturing and storage. Annual lease payments are $2.2 million
through March 1998 and $4.4 million thereafter for the remaining five years of
the lease. Effective October 1, 1994, the Company vacated this facility and
subleased it in its entirety for $0.5 million per year under an operating
sublease which expired in September 1997. In September 1988, the Company,
anticipating that it would not be able to fully utilize the facility for a
period of years, accrued a $15.9 million liability for the expected
underutilization. After September 1988, the cost associated with the unutilized
portion of the facility was charged against this accrued liability, which as of
the fourth quarter of 1994 had substantially been used. In the fourth quarter of
1994, the Company recorded a provision for leasehold impairment of $23.6
million, as the Company did not anticipate utilizing any of this facility in its
future operations nor did it expect to be able to sublease this facility to
third parties for an amount equivalent to the annual lease payments. This
provision recognized all future lease expense, net of anticipated sublease
income. Future lease payments will be charged against such provision.
Impact of The Year 2000 Issue
The Year 2000 Issue is the result of computer programs having been written
using two digits rather than four to define the applicable year. Any computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions, send invoices, or engage
in similar normal business activities.
The Company is currently assessing what computer software will require
modification or replacement so that its computer systems will properly utilize
dates beyond December 31, 1999. The operation of the Company's rigs, however,
will not be directly affected by this Year 2000 Issue, since only a few of the
Company's rigs have any functions controlled by computer. The software vendors
for the Company's two primary computer systems, the accounting system for its
domestic operations and the human resources/payroll system, have recently issued
releases which are Year 2000 compliant. The Company plans to implement these new
releases before the end of 1998. The Company has several smaller computer
systems, particularly in its foreign locations, which are expected to be
modified or replaced by mid-1999 in order to become Year 2000 compliant. The
Company will use both internal and external resources to reprogram, or replace,
and test its software for Year 2000 modifications. The Company presently
believes that with modifications to existing software and conversions to new
software, the Year 2000 Issue can be resolved in a timely manner. However, if
such modifications and conversions are not made, or are not completed timely,
the Year 2000 Issue could have a material impact on the operations of the
Company. The Company presently does not believe that costs to become Year 2000
compliant will have a material adverse effect on the Company's financial
statements.
The costs of becoming Year 2000 compliant and the dates on which the
Company plans to complete the Year 2000 modifications are based on management's
best estimates, which were derived utilizing numerous assumptions regarding
future events, including the continued availability of certain resources, third
party modification plans and other factors. However, there can be no guarantee
that these cost or time estimates will be achieved, and actual results could
differ materially. Specific factors that might cause such material differences
include, but are not limited to, the availability of personnel trained in this
area, the ability to locate and correct all relevant computer codes, and similar
uncertainties.
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BUSINESS
Pool Energy Services Co. is a leading worldwide provider of well-servicing,
workover and drilling rig services and related transportation services for both
land and offshore markets to a diverse group of multi-national, foreign national
and independent oil and natural gas producers. The Company performs the ongoing
maintenance and major overhauls necessary to optimize the level of production
from existing oil and natural gas wells and provides certain ancillary services
during the drilling and completion of new oil and natural gas wells. The Company
also provides contract drilling services in Alaska, the Gulf of Mexico, certain
international locations and on occasion in the lower forty-eight states.
Typically, the Company provides a well-servicing, workover or drilling rig, the
crew to operate the rig and such other specialized equipment as may be needed to
meet a customer's requirements. In addition, the Company owns a fleet of
offshore support vessels that provides marine transportation of drilling
materials, supplies and crews for offshore rig operations and support for other
offshore facilities.
As of March 31, 1998, the Company's worldwide fleet included 791 land
well-servicing/workover rigs, 27 land drilling rigs and 27 offshore rigs (15
platform workover rigs, five platform drilling rigs and seven jack-up rigs). The
Company also owns or leases and operates 370 fluid hauling trucks, 1,060 fluid
storage tanks, 14 salt water disposal wells and other auxiliary equipment used
in its domestic operations. The Company also operates a fleet of 23 support
vessels to complement its offshore rig fleet.
The Company operates both domestically and internationally. In the United
States, the Company operates in several oil and natural gas producing states,
with specific concentration onshore in Texas, California, Oklahoma, New Mexico,
North Dakota, Montana, Utah and Alaska, and offshore in the Gulf of Mexico,
offshore California and in the Cook Inlet of Alaska. Revenues from domestic
operations represented approximately 85% of the Company's pro forma 1997
revenues. International markets where the Company has an established presence
include land operations in Argentina, Ecuador, Guatemala, Oman, Pakistan and
Saudi Arabia and offshore operations in Australia, Malaysia and Saudi Arabia.
Revenues from international operations represented approximately 15% of the
Company's pro forma 1997 revenues.
BUSINESS STRATEGY
The Company's business strategy is to further strengthen its competitive
position and market share in the oilfield services industry, in order to achieve
growth in revenues, earnings and EBITDA. Key components of the Company's
business strategy include: (i) pursuing expansion opportunities in existing core
market areas through selective acquisitions that result in expanded market
presence and in consolidation cost savings; (ii) upgrading and enhancing the
capabilities of the Company's existing rig fleet and constructing specialized
rigs and equipment to operate in markets with high levels of activity and strong
pricing fundamentals; (iii) offering a broad and integrated array of additional
services and equipment that complement the Company's businesses in its existing
locations; and (iv) entering new foreign markets that offer significant
development and production activity.
STRATEGY IMPLEMENTATION
In addition to the Sea Mar Acquisition, notable events in the
implementation of the Company's business strategy include:
Expansion of Domestic Onshore Operations
- In November 1997, the Company acquired A.A. for $4.1 million in cash.
This acquisition included 18 oilfield trucks, one salt water disposal
well and related equipment based in Hobbs, New Mexico.
- In October 1997, the Company purchased the operating assets (including
three coiled tubing units, six pump trucks and a bulk cementing plant) of
Anchor Cementing Service in California for $2.5 million in cash.
- In October 1997, the Company acquired Trey and certain associated
operating assets for $31.3 million in cash. Prior to the acquisition,
Trey, through its wholly-owned subsidiary R & H, operated a fleet of
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approximately 67 land well-servicing rigs, 104 oilfield trucks, 430 fluid
storage tanks and five brine and disposal wells in the Permian Basin of
West Texas.
- In August 1997, the Company purchased the operating assets (including
seven land well-servicing rigs) of Dean's Well Servicing, Inc. in
Oklahoma for $1.0 million in cash.
- In June 1997, the Company acquired DA&S for $10.5 million. This
acquisition included among other assets, a fleet of 37 land
well-servicing rigs operating from yards in Hobbs and Eunice, New Mexico
and Andrews, Texas.
- In June 1996, the Company purchased the operating assets (including
approximately 23 land well-servicing rigs) of Western Oil in the
Williston Basin for approximately $4.0 million in cash.
- In June 1995, the Company acquired GPC for $18.8 million. This
acquisition included, among other assets, the GPC fleet of approximately
155 land well-servicing rigs in California. The Company is now the market
leader in California with a total of 259 land well-servicing rigs.
Expansion of Gulf of Mexico Offshore Operations
- In February 1998, the Company completed construction of a new 1,500
horsepower offshore platform drilling rig, Rig 16, at a cost of
approximately $12 million, and began operation of such rig in the Gulf of
Mexico for Forcenergy, Inc. under a two-year contract.
- In August 1997, the Company acquired an offshore jack-up workover rig for
$8.2 million in cash, for operation in the Gulf of Mexico.
- In March 1996, the Company received a term contract for Rig 18, a
previously idle platform drilling rig, which was refurbished for a cost
of approximately $8.4 million and placed in service in the Gulf of
Mexico.
Expansion of Alaska Operations
- The Company is procuring the materials and equipment necessary to convert
one of its Arctic exploration rigs for development drilling. As currently
configured, the rig is generally limited to working only in the winter
season; following the upgrade, the rig will be capable of year-round
work. The upgrade, expected to cost $15 million, will begin after the rig
completes its winter operations in April 1998. This rig is expected to
begin year-round drilling operations in September 1998, under a
three-year contract with ARCO Alaska, Inc. on the North Slope of Alaska.
- The Company is currently procuring materials to construct a new 1,000
horsepower Arctic land drilling rig at an estimated cost of $13.8
million. This new rig is expected to begin year-round operations on the
North Slope of Alaska under a three-year contract for ARCO Alaska, Inc.
in January 1999.
- In February 1998 the Company commenced operations for BP Exploration
(Alaska), Inc. on the North Slope of Alaska under a five-year contract
using one of its Arctic drilling rigs which was recently upgraded at a
cost of $5.3 million to enable it to operate on the North Slope.
- In September 1994, the Company acquired the 60.7% partnership interest
that it did not already own in Pool Arctic Alaska for $12.1 million in
cash. This acquisition expanded the Company's wholly-owned Alaska
operation to include the three specialized Arctic land drilling rigs and
related equipment formerly owned by the partnership.
Expansion of Saudi Arabia and Other International Operations
- In April 1998, the Company's Saudi Arabia joint venture company, Pool
Arabia, Ltd. ("Pool Arabia"), began operating a 1,500 horsepower land
drilling rig in Saudi Arabia under a three-year contract. The Company
upgraded and transported this rig from the United States to Saudi Arabia
at a cost of $9.4 million and is leasing the rig to Pool Arabia.
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- In February 1998, Pool Arabia began operating a 1,000 horsepower land
drilling rig in Saudi Arabia under a three-year contract. Pool Arabia,
upgraded and transported this rig from Oman to Saudi Arabia at a cost of
$3.6 million. The Company is leasing this rig to Pool Arabia.
- In October 1997, Pool Arabia acquired a 3,000 horsepower land drilling
rig and three land workover rigs for $9.0 million from a competitor in
Saudi Arabia. In March 1998, after a $7.8 million upgrade, the drilling
rig began a new three-year contract. One of the workover rigs is
currently working under a three-year contract that commenced in March
1997.
- In October 1996, the Company acquired the 51% interest that it did not
already own in Antah Drilling and repaid indebtedness that Antah Drilling
owed to the Company's former partner in that venture for a total of $9.0
million in cash. The assets of Antah Drilling, now Pool International
(Malaysia) Sdn. Bhd. ("Pool Malaysia"), include Rig 489, a 2,000
horsepower offshore platform drilling rig, which commenced operations in
August 1996 on a three-year term contract for Esso Australia, Ltd. in
Australia and an offshore platform workover rig currently operating under
a term contract in Malaysia.
- In August 1996, the Company acquired for approximately $8.7 million in
cash a 51% interest in PIASA, a newly formed Argentina corporation which
provides well-servicing, workover and drilling services in Argentina.
PIASA owns nine land drilling rigs and 11 land workover rigs, all of
which are located in Argentina.
DESCRIPTION OF SERVICES PROVIDED
The Company estimates that there are approximately 900,000 producing oil
wells in the world today, of which approximately 570,000 are in the United
States. In addition, there are approximately 300,000 producing natural gas wells
in the United States and a large number in the rest of the world. While some
wells in the United States flow oil to the surface without mechanical
assistance, most are in mature production areas that require pumping or some
other form of artificial lift. Pumping oil wells characteristically require more
maintenance than flowing wells due to the operation of the mechanical pumping
equipment installed. The extent and type of services provided by the Company on
producing wells is dependent upon many variables. The following is a summary of
the services the Company provides.
Well-Servicing/Maintenance Services
The Company provides maintenance services on the mechanical apparatus used
to pump or lift oil from producing wells. These services include, among other
things, repairing and replacing pumps, sucker rods and tubing. The Company
provides the rigs, equipment and crews for these tasks, which are performed on
both oil and natural gas wells, but which are more commonly required on oil
wells. Well-servicing rigs have the same basic components as drilling rigs
(i.e., a derrick, a hoisting mechanism and an engine). Many of these rigs also
have pumps and tanks that can be used for circulating fluids into and out of the
well. Maintenance jobs typically take less than 48 hours to complete.
Workover Services
In addition to needing periodic maintenance, producing oil and natural gas
wells occasionally require major repairs or modifications, called "workovers."
Workovers may be done, for example, to remedy equipment failures, deepen a well
in order to reach a new producing reservoir, plug back the bottom of a well to
reduce the amount of water being produced with the oil and natural gas, clean
out and recomplete a well if production has declined, repair leaks, or convert a
producing well to an injection well for secondary or enhanced recovery projects.
These extensive workover operations are normally carried out with a well-
servicing rig that includes additional specialized accessory equipment, which
may include rotary drilling equipment, mud pumps, mud tanks and blowout
preventers, depending upon the particular type of workover operation. Most of
the Company's well-servicing rigs are designed and can be equipped to handle the
more complex workover operations. A workover may last anywhere from a few days
to several weeks.
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Completion Services
The kinds of activities necessary to carry out a workover operation are
essentially the same as those that are required to "complete" a well when it is
first drilled. The completion process may involve selectively perforating the
well casing at the depth of discrete producing zones, stimulating and testing
these zones and installing down-hole equipment. Oil and gas production companies
often find it more efficient to move a larger and more expensive drilling rig
off location after an oil or natural gas well has been drilled and to move in a
specialized well-servicing rig to perform completion operations. The Company's
rigs are often used for this purpose. The completion process may require from a
few days to several weeks.
Contract Drilling Services
The Company provides contract drilling services to oil and natural gas
operators in all the markets in which it operates, except that the amount of
such services it provides onshore in the lower forty-eight states is minimal.
Workover rigs can be used for drilling, although specialized drilling rigs are
typically used for such operations. The Company also provides specialized
accessory equipment, including pumps, rotary drilling equipment, top drive
units, trucks, camps and cranes. Several of the Company's land drilling rigs are
equipped for self-sustained operations in remote areas in Alaska and certain
overseas locations.
Offshore Services
The Company generally utilizes its offshore jackup and platform rigs to
service wells located on platforms. Platform rigs consist of well-servicing
and/or drilling equipment and machinery arranged in modular packages which are
transported to and assembled and installed on fixed offshore platforms owned by
the customer. Fixed offshore platforms are steel tower-like structures that
stand on the ocean floor, with the top portion, which is above the water level,
forming the foundation upon which the platform rig is placed. Certain of the
Company's heavy platform rigs are capable of operating at well depths of as much
as 18,000 feet or more, and several of the Company's platform rigs are
specifically designed for drilling. The Company is performing an increasing
amount of drilling and horizontal re-entry services utilizing portable top
drives, enhanced pumps and solids control equipment for drilling fluids. Jackup
rigs are mobile, self-elevating 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 and/or workover equipment, jacking system, crew quarters,
loading and unloading facilities, storage areas for bulk and liquid materials,
helicopter landing deck and other related equipment. The rig legs may operate
independently or have a mat attached to the lower portion of the legs in order
to provide a more stable foundation in soft bottom areas. All of the Company's
jackup rigs are cantilever design -- a feature that permits the drilling
platform to be extended out from the hull, allowing it to perform drilling or
workover operations over fixed platforms.
The Company's fleet of offshore support vessels provides marine
transportation of drilling materials, supplies and crews for offshore rig
operations and support for other offshore facilities. In addition, the Company
provides offshore logistical support to drilling and workover operations,
pipelaying and other construction, production platforms and geophysical
operations.
Production and Other Specialized Services
The Company provides other specialized services that are required, or can
be used effectively, in conjunction with the previously described basic
services. The main additional services are production services, consisting of
the provision of onsite temporary fluid-storage facilities, the provision,
removal and disposal of specialized fluids used during certain completion and
workover operations, and the removal and disposal of salt water that is often
produced in conjunction with the production of oil and natural gas. The Company
also provides plugging services for wells from which the oil and natural gas has
been depleted and further production has become uneconomical.
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BUSINESS BY GEOGRAPHIC AREA
Financial data by geographic area for the three years ended December 31,
1997 are presented in Note 11 of Notes to Consolidated Financial Statements.
BUSINESS BY SERVICE LINE
The Company operates in only one business segment -- the oilfield services
industry. Within that segment, the Company conducts business in the following
distinct markets or business lines: domestic onshore well-servicing and
production services, Gulf of Mexico offshore workover/drilling, offshore support
vessel operations, international workover/drilling and related services and
Alaska onshore and offshore workover/ drilling.
Domestic Onshore
The Company's domestic onshore operation, which provides well-servicing,
workover and production services, has locations in many of the major oil and
natural gas producing fields in the lower forty-eight states. This operation
currently provides services in 11 states and is divided into two separate
geographic divisions: (i) the Central division (principally Texas and Oklahoma)
and (ii) the California division. The Company's domestic onshore operation has
758 well-servicing rigs, of which 340 are located in Texas, 259 in California,
61 in Oklahoma, 38 in New Mexico, 27 in North Dakota, and 33 in Montana,
Arkansas, Utah and Louisiana. During the year ended December 31, 1997,
approximately 60% of the Company's domestic onshore rig hours were related to
well-servicing/maintenance with the balance related to workover, completion and
plugging operations.
In general, well-servicing rigs are provided to customers on a call-out
basis. The Company is paid an hourly rate and work is generally performed five
days a week during daylight hours.
The Company's domestic onshore operation also provides production services
consisting chiefly of fluid hauling and fluid storage tank rental. The
production services assets, located primarily in Texas, consist of 370 fluid
hauling trucks and 14 salt water disposal wells, which are utilized for the
transportation and disposal of drilling and used completion fluids and salt
water produced from operating wells, and 1,060 fluid storage tanks, which are
utilized for the storage of fluids used in the fracturing of producing zones
during the completion or workover of wells.
Gulf of Mexico Offshore
Offshore in the Gulf of Mexico, the Company provides workover,
well-servicing, completion and drilling services with its fleet of 15 platform
rigs, including newly constructed Rig 16, and six jack-up rigs. The Company also
provides crews to oil and natural gas well operators under labor contracts.
During the year ended December 31, 1997, approximately 71% of the Company's Gulf
of Mexico offshore rig hours were related to workover, well-servicing and
completion operations with the balance related to contract drilling. Offshore
operations are normally conducted 24 hours a day, seven days a week, under a
term contract that is either for a specific period of time or until a program of
work is completed. The Company is paid on a daily rate basis for its services.
Offshore Support Vessels
See "-- Business of Sea Mar."
International
Internationally, the Company provides workover, well-servicing and drilling
services, both onshore and offshore, with specialized rigs designed and
fabricated to meet various types of operating conditions. During 1997, the
Company operated in nine foreign countries. The Company has 59 rigs in foreign
locations, of which 26 are located in the Middle East, principally in Saudi
Arabia, 30 in South America, principally in Argentina, two in Australia and one
in Malaysia. Rig operations are normally conducted 24 hours a day, seven days a
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week, under a term contract that is for a specific period of time or until a
customer's program is completed. The Company is paid on a daily rate basis for
its services. The Company currently conducts a part of its foreign operations
through unconsolidated joint venture companies in each of which it has
approximately a 50% participation. The principal joint venture operations are
conducted in Saudi Arabia (Pool Arabia, Ltd.) and in Argentina (Pool
International Argentina S.A.). The Company uses the equity method to account for
its unconsolidated affiliates. See Note 10 of Notes to Consolidated Financial
Statements and Note 6 of Notes to Interim Condensed Consolidated Financial
Statements.
Alaska
In Alaska, the Company provides contract drilling, and on occasion workover
services, with its fleet of five specialized Arctic land drilling rigs and one
offshore platform rig. The Company also provides crews to oil and natural gas
well operators in Alaska under labor contracts. The Company's services are
principally provided onshore on the North Slope and offshore in the Cook Inlet.
Rig operations are normally conducted 24 hours a day, seven days a week, under a
term contract that is for a specific period of time or until a program is
completed. The Company is paid on a daily rate basis for its services.
FINANCIAL DATA BY SERVICE LINES
The following table presents information by service lines:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31 FOR THE YEAR ENDED DECEMBER 31
----------------------------- -----------------------------------------
PRO PRO
FORMA HISTORICAL FORMA HISTORICAL
-------- ------------------ -------- ------------------------------
1998 1998 1997 1997 1997 1996 1995
-------- -------- ------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Domestic onshore well-servicing and production
services:
Central division............................. $ 51,077 $ 51,077 $36,853 $171,118 $171,118 $138,428 $134,423
California division.......................... 23,181 23,181 22,787 96,419 96,419 81,416 58,780
Gulf of Mexico offshore workover/drilling...... 18,259 18,259 16,168 80,957 80,957 58,545 37,415
Sea Mar Acquisition............................ 13,533 45,814
International workover/drilling and related
services..................................... 14,276 14,276 16,433 76,631 76,631 45,536 26,260
Alaska workover/drilling....................... 10,919 10,919 6,143 26,797 26,797 24,633 20,427
-------- -------- ------- -------- -------- -------- --------
Total.................................... $131,245 $117,712 $98,384 $497,736 $451,922 $348,558 $277,305
======== ======== ======= ======== ======== ======== ========
Earnings (Loss) Attributable to Unconsolidated
Affiliates(1):
International workover/drilling and related
services..................................... $ (71) $ (71) $ 1,004 $ 3,080 $ 3,080 $ 2,244 $ 2,955
======== ======== ======= ======== ======== ======== ========
Depreciation and Amortization:
Domestic onshore well-servicing and production
services:
Central division............................. $ 2,764 $ 2,764 $ 1,415 $ 7,072 $ 7,072 $ 5,094 $ 5,238
California division.......................... 1,076 1,076 910 3,820 3,820 3,230 2,134
Gulf of Mexico offshore workover/drilling...... 1,406 1,406 996 4,435 4,435 3,028 2,212
Sea Mar Acquisition............................ 2,348 9,407
International workover/drilling and related
services..................................... 1,343 1,343 1,566 6,410 6,410 3,810 2,424
Alaska workover/drilling....................... 882 882 781 3,141 3,141 3,248 2,845
Corporate...................................... 39 39 35 144 144 135 149
-------- -------- ------- -------- -------- -------- --------
Total.................................... $ 9,858 $ 7,510 $ 5,703 $ 34,429 $ 25,022 $ 18,545 $ 15,002
======== ======== ======= ======== ======== ======== ========
</TABLE>
53
<PAGE> 61
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED
MARCH 31 FOR THE YEAR ENDED DECEMBER 31
----------------------------- -----------------------------------------
PRO PRO
FORMA HISTORICAL FORMA HISTORICAL
-------- ------------------ -------- ------------------------------
1998 1998 1997 1997 1997 1996 1995
-------- -------- ------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Income (Loss) Before Income Taxes and Minority
Interest:
Domestic onshore well-servicing and production
services:
Central division............................. $ 4,453 $ 4,453 $ 2,686 $ 18,195 $ 18,195 $ 8,903 $ 5,927
California division.......................... 1,578 1,578 938 6,800 6,800 4,531 3,828
Gulf of Mexico offshore workover/drilling...... 2,975 2,975 1,791 15,917 15,917 6,536 161
Sea Mar Acquisition............................ 5,798 18,951
International workover/drilling and related
services..................................... 4,005 4,005 2,031 11,170 11,170 4,954 2,682
Alaska workover/drilling....................... 3,095 3,095 594 2,157 2,157 1,259 (367)
Corporate...................................... (6,037) (3,873) (2,059) (24,091) (11,942) (9,122) (7,118)
-------- -------- ------- -------- -------- -------- --------
Total.................................... $ 15,867 $ 12,233 $ 5,981 $ 49,099 $ 42,297 $ 17,061 $ 5,113
======== ======== ======= ======== ======== ======== ========
</TABLE>
- ------------
(1) Some of the Company's operations are conducted through unconsolidated
affiliates, which are accounted for using the equity method. See Note 3 of
Notes to Consolidated Financial Statements for information related to the
Antah Drilling acquisition in 1996 and see Note 2 of Notes to Interim
Condensed Consolidated Financial Statements for information related to the
change in the Company's method of accounting for PIASA implemented January
1, 1998.
RIG AND EQUIPMENT FLEET
The following table sets forth the type, number and location of the
domestic onshore equipment operated by the Company (excluding Alaska) as of
March 31, 1998:
<TABLE>
<CAPTION>
WELL- FLUID FLUID SALT WATER
SERVICING HAULING STORAGE DISPOSAL
RIGS TRUCKS TANKS WELLS
--------- ------- ------- ----------
<S> <C> <C> <C> <C>
Central Division:
Western District (west Texas and New Mexico)...... 198 129 344 7
Eastern District (central and east Texas and
Louisiana)..................................... 34 53 175 2
Southwest Texas District.......................... 91 99 394 2
South Texas District.............................. 45 61 120 1
Rocky Mountain District (North Dakota, Montana and
Utah).......................................... 52 2 - -
Oklahoma District (north Texas, Arkansas and
Oklahoma)...................................... 79 16 27 2
--- --- ----- --
499 360 1,060 14
--- --- ----- --
California Division:
Northern District................................. 179 10 - -
Southern District................................. 80 - - -
--- --- ----- --
259 10 - -
--- --- ----- --
Total..................................... 758 370 1,060 14
=== === ===== ==
</TABLE>
54
<PAGE> 62
The following table sets forth the type, number and location of the Alaska,
Gulf of Mexico, California offshore and international rigs owned by the Company
and its unconsolidated affiliates as of March 31, 1998:
<TABLE>
<CAPTION>
LAND PLATFORM JACKUP
------------------- ------------------- -------------------
DRILLING WORKOVER DRILLING WORKOVER DRILLING WORKOVER TOTAL
-------- -------- -------- -------- -------- -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Alaska.......................... 4 1 1 - - - 6
Gulf of Mexico.................. - - 3 12 - 6 21
California Offshore............. - - - 1 - - 1
International:
Saudi Arabia.................. 7 11 - - 1 - 19
Oman.......................... 1 3 - - - - 4
Pakistan...................... 1 2 - - - - 3
Ecuador....................... 4 5 - - - - 9
Argentina..................... 9 11 - - - - 20
Guatemala..................... 1 - - - - - 1
Malaysia...................... - - - 1 - - 1
Australia..................... - - 1 1 - - 2
-- -- -- -- -- -- --
Total International... 23 32 1 2 1 - 59
-- -- -- -- -- -- --
Total................. 27 33 5 15 1 6 87
== == == == == == ==
</TABLE>
As of March 31, 1998, the average age of the Company's rig fleet (based on
age of construction or refurbishment) by service line was as follows: domestic
onshore well-servicing rig fleet -- 20 years; Gulf of Mexico offshore rig
fleet -- 4 years; International: land rig fleet -- 10 years and offshore rig
fleet -- 6 years; and Alaska rig fleet -- 8 years. The components of the rigs
such as engines and transmissions are routinely replaced every three to five
years. The Company believes that the vast majority of its rig fleet is in good
operating condition.
BUSINESS OF SEA MAR
Sea Mar operates offshore support vessels in the Gulf of Mexico. Sea Mar's
services include the marine transportation of drilling materials, supplies and
crews for offshore rig operations and support for other offshore facilities. Sea
Mar also provides offshore logistical support to drilling and workover
operations, pipelaying and other construction, production platforms and
geophysical operations. See "Prospectus Summary -- Recent Transactions -- Sea
Mar Acquisition."
Sea Mar's existing fleet consists of 23 support vessels, including one
anchor handling/tug supply vessel, 13 supply vessels, seven mini-supply vessels
and two research vessels.
55
<PAGE> 63
SEA MAR FLEET
The following tables set forth the type, number, age and description of Sea
Mar's existing fleet of vessels as of March 31, 1998. Both tables exclude the
additional ten, 200+ foot supply and AHTS vessels, currently under construction,
which Sea Mar expects to be delivered between late 1998 and early 2000.
<TABLE>
<CAPTION>
NUMBER OF
VESSEL TYPE VESSELS DESCRIPTION
----------- --------- -----------
<S> <C> <C>
AHTS.................... 1 Used to tow rigs to offshore locations and position anchors
of floating drilling rigs and pipelaying vessels. The vessel
is 200 feet long with 6,140 horsepower and could be
converted to a larger supply vessel if market conditions
warranted.
Supply.................. 13 Used as the primary freight-carrying vessel for drill pipe,
tubing, casing, drilling mud and other equipment to drilling
rigs and production platforms. One vessel is bareboat
chartered. Lengths range from 166 to 220 feet.
Mini-Supply............. 7 Used primarily in support of well service and production
operations, such as moving offshore pipe, fluids and
equipment for offshore workovers. Lengths range from 130 to
150 feet.
Research................ 2 Used to carry equipment and personnel necessary to perform
offshore seismic surveys. Lengths range from 150 to 175
feet, with the larger of the two vessels recently converted
into a dedicated remotely operated vehicle ("ROV") support
vessel. ROVs are used for subsea construction and
inspection.
</TABLE>
<TABLE>
<CAPTION>
ESTIMATED
REMAINING USEFUL LIFE
AS OF
MARCH 31, 1998
YEAR BUILT/REBUILT (IN YEARS)
------------------ ---------------------
<S> <C> <C>
AHTS (BOAT LENGTH)
Cape Cod (200(#))........................................ 1983/1997 15(1)
SUPPLY (BOAT LENGTH)
Cape Breton (220(#))..................................... 1984/1996 14
Cape Hatteras (220(#))................................... 1990/1996 14
Cape Fear (185(#))....................................... 1983/1997 15
Cape Lookout (185(#)).................................... 1978/1995 13
Cape San Lucas (180(#)).................................. 1981/1993 11
Cape Sable (180(#))...................................... 1978/1994 13
Cape Hunter (180(#))..................................... 1978/1996 14
Cape Spencer (180(#)).................................... 1975/1993 11
Cape Misty (180(#))...................................... 1975/1993 11
Cape Spear (175(#))...................................... 1982/1997 15(1)
Cape Henry (166(#))...................................... 1978/1990 8
Cape May (166(#))........................................ 1980/1994 12
Cape Charles (166(#)).................................... N/A N/A(2)
MINI-SUPPLY (BOAT LENGTH)
Cape Sabine (150(#))..................................... 1978/1990 8
Cape Horn (145(#))....................................... 1982 10
Cape San Blas (145(#))................................... 1981/1994 12
Cape St. George (145(#))................................. 1981/1995 13
Cape Race (130(#))....................................... 1982 10
</TABLE>
56
<PAGE> 64
<TABLE>
<CAPTION>
ESTIMATED
REMAINING USEFUL LIFE
AS OF
MARCH 31, 1998
YEAR BUILT/REBUILT (IN YEARS)
------------------ ---------------------
<S> <C> <C>
Cape Christian (130(#)).................................. 1981/1996 14
Cape Cook (130(#))....................................... 1980/1996 14
RESEARCH (BOAT LENGTH)
Cape Scott (175(#))...................................... 1983/1997 15(1)
Cape Romano (150(#))..................................... 1983/1996 14
</TABLE>
- ---------------
(1) Useful life upon completion of rebuild.
(2) Bareboat chartered.
In addition, Sea Mar has a contract with a marine shipbuilder for the
construction of ten offshore support vessels at an estimated aggregate cost of
$77.6 million, net of deposits. The ten new vessels are scheduled to be
delivered between late 1998 and early 2000. Each new vessel is 200 or more feet
in length and 4,000 or more in horsepower. All of the new vessels have design
features, including modifiable length and propulsion characteristics, which
allow them to be supplemented with dynamic positioning equipment. Such features
will enhance the ability of these vessels to provide services to floating
drilling rigs in the deep water region of the Gulf of Mexico.
OTHER PROPERTIES
The Company's corporate offices are located in Houston, Texas, where the
Company leases office space from ENSERCH Corporation at market rates under an
agreement that expires in December 2002. The Company also leases from an
unrelated party a 65-acre former rig and equipment manufacturing and storage
facility in San Angelo, Texas, which includes approximately 245,000 square feet
of buildings and other structural facilities. The annual lease payments are $2.2
million through March 1998 and $4.4 million thereafter for the remaining five
years of the lease. Effective October 1, 1994, the Company vacated this facility
and subleased it in its entirety for $0.5 million per year under an operating
sublease which expired in September 1997. Based on a conclusion that none of the
facility is likely to be used in its future operations, the Company, in the
fourth quarter of 1994, recorded a provision of $23.6 million to recognize all
future lease expense, net of anticipated sublease income. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations -- San
Angelo Lease Commitment." The Company owns 41 and leases 66 domestic office and
yard locations of which nine locations are not currently used. Internationally,
the Company leases office and yard facilities at 12 locations and owns
facilities at five locations, all of which are currently used. In Alaska, the
Company leases an office and yard facility in Anchorage and a yard facility on
the North Slope.
As partial consideration for the acquisition of DA&S in 1997 and GPC in
1995, the Company issued notes which are collateralized by the well-servicing
rigs and related equipment and certain real property obtained in the respective
acquisitions.
EMPLOYEES
At March 31, 1998, the Company had 6,721 employees, of whom 947 were
employed by unconsolidated affiliates. Approximately 181 employees in Argentina
and 94 employees in Australia are represented by collective bargaining units.
Management believes that the Company's relationship with its employees is
excellent.
LEGAL PROCEEDINGS
The Company from time to time is involved in ordinary and routine
litigation incidental to its business, which often involves claims for
significant monetary amounts, some, but not all, of which would be covered by
57
<PAGE> 65
insurance. In the opinion of management, none of the existing litigation will
have any material adverse effect on the Company. See also "-- Environmental
Regulation and Claims and Other Governmental Regulation."
The Company previously disclosed, at the time it announced signing of the
purchase agreement for the Sea Mar Acquisition, that Sea Mar had entered into
term charter agreements with respect to four out of the ten new vessels that Sea
Mar has under construction. Subsequently, Sea Mar was notified by Rowan
Companies, Inc. ("Rowan") that it was repudiating and terminating such charter
agreements. Sea Mar and its prior owner, Mr. Gonsoulin, sued Rowan seeking
specific performance and any damages that may result from wrongful breach of the
charter agreements. Rowan subsequently filed suit seeking a declaration that the
charter agreements are void. Regardless of the outcome of this matter, the
Company fully expects that this development will not have a material adverse
impact on the Company.
ENVIRONMENTAL REGULATION AND CLAIMS AND OTHER GOVERNMENTAL REGULATION
The Company's well-servicing, workover and production services operations
routinely involve the handling of significant amounts of waste materials, some
of which are classified as hazardous substances. The Company's operations and
facilities are subject to numerous state and federal environmental laws, rules
and regulations, including, without limitation, laws concerning the containment
and disposal of hazardous substances, oilfield waste and other waste materials,
the use of underground storage tanks and the use of underground injection wells.
The Company's offshore support vessel operations also are subject to federal,
state and local laws and regulations which control the discharge of pollutants
into the environment and which otherwise relate to environmental protection.
Other laws regulate the activities of offshore service vessels, require vessel
owners and operators to demonstrate financial and operational responsibility and
provide for certain limitations on the liability of vessel owners and operators.
Failure to comply with these laws, rules, and regulations may result in civil
and even criminal actions.
The Company employs personnel responsible for monitoring environmental
compliance and arranging for remedial actions that may be required from time to
time and also uses outside experts to advise on and assist with the Company's
environmental compliance efforts. Costs incurred by the Company to investigate
and remediate contaminated sites are expensed unless the remediation extends the
useful lives of the assets employed at the site. Remediation costs that extend
the useful lives of the assets are capitalized and amortized over the remaining
useful lives of such assets. Liabilities are recorded when the need for
environmental assessments and/or remedial efforts become known or probable and
the cost can be reasonably estimated.
Laws protecting the environment have generally become more stringent than
in the past and are expected to continue to do so. Environmental laws and
regulations typically impose "strict liability," which means that in some
situations the Company could be exposed to liability for cleanup costs, natural
resource damages and other damages as a result of conduct of the Company that
was lawful at the time it occurred or conduct of, or conditions caused by, prior
operators or other third parties. Cleanup costs and other damages arising as a
result of environmental laws, and costs associated with changes in environmental
laws and regulations could be substantial and could have a material adverse
effect on the Company's financial condition. From time to time, claims have been
made and litigation has been brought against the Company under such laws.
However, the costs incurred in connection with such claims and other costs of
environmental compliance have not had any material adverse effect on the
Company's operations or financial statements in the past, and management is not
currently aware of any situation or condition that it believes is likely to have
any such material adverse effect in the future.
Under the Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), also known as Superfund, and related state laws and regulations,
joint and several liability can be imposed without regard to fault or the
legality of the original conduct on certain classes of persons that contributed
to the release of a "hazardous substance" into the environment. Under CERCLA,
such persons may be liable for the costs of cleaning up the hazardous substances
that have been released into the environment and for damages to natural
resources, and it is not uncommon for the neighboring land owners and other
third parties to file claims for personal injury, property damage and recovery
of response costs allegedly caused by the hazardous substances released into the
environment. The Company has been notified of its possible
58
<PAGE> 66
responsibility with respect to the cleanup of a federal national priority list
("NPL") site and a state abandoned site, which were formerly operated by parties
unrelated to the Company as oilfield waste disposal facilities. In addition, the
Company was named as a potentially responsible party with respect to the cleanup
of one other site which was formerly operated by various parties unrelated to
the Company as an oil refining and reclamation facility. The Company believes
that its costs to clean up the site will be less than $0.1 million. Although at
this time information regarding the Company's possible responsibility with
respect to cleanup of the federal NPL site and the state abandoned site has not
been fully developed and it is not feasible to predict such outcome with
certainty, management is of the opinion that their ultimate resolution should
not have a material adverse effect on the Company's financial position or
results of operations.
Changes to federal and state environmental regulations may also negatively
impact oil and natural gas exploration and production companies, which in turn
could have a material adverse effect on the Company. For example, while the
Company currently does not handle large amounts of "hazardous wastes" (which are
subject to regulation under the federal Resource Conservation and Recovery Act
("RCRA")) in connection with its operations, legislation has been proposed from
time to time in Congress which would reclassify oil and natural gas production
wastes as RCRA hazardous wastes. If enacted, such legislation could dramatically
increase operating costs for domestic oil and natural gas companies and this
could reduce the market for the Company's services by making many wells and/or
oilfields uneconomical to operate. To date, such legislation has not made
significant progress toward enactment.
With respect to Sea Mar's operations, the Company is affected by additional
governmental regulations. Under the Merchant Marine Act of 1920, as amended, if
persons other than U.S. citizens own in the aggregate in excess of 25% of the
Company's outstanding stock, Sea Mar's U.S. flagged vessels would lose the
privilege of engaging in the transportation of merchandise in the U.S. coastwise
trade. In addition, Sea Mar's operations are materially affected by federal,
state and local regulation, as well as certain international conventions and
private industry organizations. These regulations govern worker health and
safety and the manning, construction and operation of vessels. Private industry
organizations establish safety criteria and are authorized to investigate vessel
accidents and recommend approved safety standards. The failure to comply with
the requirements of any of these laws or the rules or regulations of these
agencies and organizations could have a material adverse effect on Sea Mar's
operations.
The Oil Pollution Act of 1990, as amended ("OPA"), contains provisions
specifying responsibility for removal costs and damages resulting from
discharges of oil into navigable waters or onto the adjoining shorelines. Among
other requirements, OPA requires owners and operators of vessels over 300 gross
tons to provide the U.S. Coast Guard with evidence of financial responsibility
to cover the costs of cleaning up oil spills from such vessels. The Company
believes that Sea Mar has provided satisfactory evidence of financial
responsibility to the U.S. Coast Guard for all of its vessels over 300 tons. In
addition, the Outer Continental Shelf Lands Act ("OCSLA") provides the federal
government with broad discretion in regulating the leasing of offshore oil and
gas production sites. Because Sea Mar's operations rely on offshore oil and gas
exploration and production, if the government were to exercise its authority
under OCSLA to restrict the availability of offshore oil and gas leases, such an
action could have a material adverse effect on the Company's financial position
and results of operations.
PATENTS AND TRADEMARKS
The Company owns several U.S. patents on designs for various types of
oilfield equipment and on methods for conducting certain oilfield activities.
The Company uses some of these designs and methods in the conduct of its
business. The patents expire at various times through the year 2014. The Company
also has several trademarks and service marks that it uses in various aspects of
its business. While management believes the Company's patent and trademark
rights are valuable, the expiration or loss thereof would not have a material
adverse effect on the Company's financial statements.
59
<PAGE> 67
COMPETITIVE CONDITIONS
Although the number of available rigs has materially decreased over the
past ten years, the well-servicing, workover and drilling industry remains very
competitive. The number of rigs continues to exceed demand, resulting in keen
price competition. Many of the total available contracts are currently awarded
on a bid basis, which further increases competition based on price. In all of
the Company's market areas, competitive factors also include: the availability
and condition of equipment to meet both special and general customer needs; the
availability of trained personnel possessing the required specialized skills;
the overall quality of service and safety record; and domestically, the ability
to offer ancillary services such as fluid hauling, fluid storage tank rental and
salt water disposal. As an enhancement to its competitive position, the Company
has been able to establish strategic alliances with major customers in its
domestic onshore, international and Alaska markets. Many smaller competitors may
not be able to allocate the resources necessary to enter into such alliances.
One customer, Shell Oil Company and its affiliates, accounted for approximately
11% of the Company's consolidated revenues during both 1996 and 1995. During
1997, no single customer accounted for more than 10% of the Company's
consolidated revenues.
Certain competitors are present in more than one of the Company's markets,
although no one competitor operates in all of these areas. In the domestic
onshore market, the Company, with 758 land well-servicing rigs, and Key Energy
Group, Inc., with a similar number of land well-servicing rigs, are the two
largest well-servicing providers. In this market, the third largest competitor
has approximately 500 land well-servicing rigs, and numerous competitors have
smaller regional or local rig operations. In each of its domestic onshore
locations in the lower forty-eight states, the Company competes with several
firms of varying size. In the Gulf of Mexico, the Company is among five
principal competitors providing workover/maintenance services, the two largest
of which are Pride Petroleum Services, Inc. and an affiliate of Nabors
Industries, Inc. Internationally, the Company competes directly with various
competitors at each location where it operates, none of which is dominant. In
Alaska, the Company has four major competitors, the largest of which are Nabors
Industries, Inc. and Doyon Drilling, Inc.
The Company faces significant competition with respect to the operations of
Sea Mar. The marine support services industry is highly competitive. Competitive
factors in the marine support services industry include (i) price, (ii) service,
including reputation of vessel operators and crews, (iii) availability of
vessels of the types and sizes needed by the customer and (iv) quality of
vessels and related equipment. Tidewater, Inc. is the dominant competitor in the
Gulf of Mexico marine support services market.
60
<PAGE> 68
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth the names, ages and positions of the
executive officers and directors of the Company as well as the years in which
they commenced serving as executive officers or directors of the Company or the
Company's predecessor, Pool Company.
<TABLE>
<CAPTION>
EXECUTIVE OFFICER
NAME AGE POSITION OR DIRECTOR SINCE
---- --- -------- -----------------
<S> <C> <C> <C>
James T. Jongebloed................. 56 Chairman, President and Chief 1981
Executive Officer
William J Myers..................... 61 Group Vice President -- U.S. 1988
Operations
Ronald G. Hale...................... 49 Group Vice 1989
President -- International
Operations
Ernest J. Spillard.................. 58 Senior Vice President, Finance 1986
G. Geoffrey Arms.................... 55 Vice President and General Counsel, 1985
Corporate Secretary
Louis E. Dupre...................... 51 Vice President, Human Resources 1994
William H. Mobley................... 56 Director 1990
Joseph R. Musolino.................. 61 Director 1994
James L. Payne...................... 61 Director 1992
Donald D. Sykora.................... 67 Director 1989
</TABLE>
Set forth below are descriptions of the backgrounds of the executive
officers and directors of the Company and their principal occupations for at
least the past five years.
Mr. Jongebloed has been Chairman of the Board of Directors since 1994 and
President and Chief Executive Officer of the Company since 1990. He was
President and Chief Operating Officer from 1989 to 1990. He served Pool Company
from 1978 to 1989 as Executive Vice President, Western Hemisphere, President of
Pool -- Intairdril and Group Vice President -- International Operations.
Mr. Myers has been Group Vice President -- U.S. Operations of the Company
since 1988. From 1985 to 1987, he was self employed, and from 1976 to 1985 he
was the President and Chief Executive Officer of Anderson-Myers Drilling Company
in Denver, Colorado.
Mr. Hale has been Group Vice President -- International Operations since
1989. From 1985 to 1989, he served as Vice President, Mid-East and Africa
Region, International Operations. Mr. Hale has served in various management and
executive positions with the Company for more than 15 years.
Mr. Spillard has been Senior Vice President, Finance of the Company since
1987. From 1986 to 1987 he was Senior Vice President, Corporate Services. From
1981 to 1986, he served as Controller for Pool Arabia, Ltd.
Mr. Arms has been Vice President and General Counsel of the Company since
1985 and has been Corporate Secretary since 1990. He has served the Company as
an attorney in various other positions since 1978.
Mr. Dupre has been Vice President, Human Resources of the Company since
1994. From 1986 to 1994, he served as the Company's Controller. He has been an
employee of the Company since 1978.
Dr. Mobley is President and Managing Director of PDI Global Research
Consortia, Ltd., an international management research and consulting firm. He
was a professor in the Graduate School of Business at Texas A&M University from
1980 to 1996. From 1993 to 1994, he was Chancellor of the Texas A& M University
61
<PAGE> 69
System. From 1988 to 1993, he was President of Texas A&M University. He is also
a director of Medici Medical Group, Inc.
Mr. Musolino has been Vice Chairman of NationsBank of Texas, N.A. for more
than the last five years. He also serves as a director of Justin Industries,
Inc.
Mr. Payne has been Chairman of the Board and Chief Executive Officer and a
director of Santa Fe Energy Resources, Inc., an oil and gas exploration and
production company, since 1990 and he was also President from 1990 to 1998. He
was President of Santa Fe Energy Company from 1986 to 1990, and prior to that
time served as its Senior Vice President -- Exploration and Land.
Mr. Sykora is a private investor. He was President and Chief Operating
Officer of Houston Industries from 1993 to 1995 and served as a director of
Houston Industries from 1982 to 1995. From 1982 to 1993, he served as President
and Chief Operating Officer of Houston Lighting and Power Company. He is also a
director of TransTexas Gas Corporation, Powell Industries, Inc., Allstar
Systems, Inc. and ARS Services, Inc.
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning the compensation paid
to the Chief Executive Officer and to each of the other four persons who were
the most highly compensated executive officers of the Company in 1997 for
services rendered in all capacities to the Company for the years ended December
31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
LONGTERM
COMPENSATION
-----------------------
ANNUAL COMPENSATION AWARDS
-------------------------------------------- -----------------------
SHARES
OTHER RESTRICTED UNDERLYING
NAME AND ANNUAL STOCK STOCK ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS(1) COMPENSATION(2) AWARDS OPTIONS COMPENSATION(1)(3)
------------------ ---- -------- -------- --------------- ---------- ---------- ------------------
<S> <C> <C> <C> <C> <C> <C> <C>
J. T. Jongebloed............... 1997 $437,461 $336,000 -- $ -0- 50,000 $12,850
Chairman, President and 1996 404,423 303,615 -- -0- 60,779 250
Chief Executive Officer 1995 376,961 47,250 -- -0- 40,890 250
W. J Myers..................... 1997 248,723 116,640 -- 190,875 19,000 4,624
Group Vice President- 1996 238,846 123,117 -- -0- 24,416 250
U.S. Operations 1995 230,654 12,657 -- -0- 20,000 250
E. J. Spillard................. 1997 207,154 120,000 -- -0- 16,000 4,750
Senior Vice President, 1996 195,068 111,234 -- -0- 19,792 250
Finance 1995 185,937 16,875 -- -0- 20,000 250
R. G. Hale..................... 1997 194,769 114,000 -- -0- 15,000 4,525
Group Vice President- 1996 185,846 105,608 -- -0- 18,909 250
International Operations 1995 177,653 29,563 -- -0- 20,000 250
G. G. Arms..................... 1997 150,291 73,000 -- -0- 9,000 2,988
Vice President and 1996 140,808 66,178 -- -0- 10,597 250
General Counsel; 1995 133,392 12,188 -- -0- 15,000 250
Corporate Secretary
</TABLE>
- ---------------
(1) Seventy-five percent of the bonus for 1997 was paid in cash and the
remainder in restricted shares of Company stock, the number of which was
determined by dividing twenty-five percent of the bonus amount by the share
price at the award date and, in accordance with provisions of the bonus
plan, increasing that result by 15%. The value at the award date of the 15%
increase is included in the amount shown in the "All Other Compensation"
column.
(2) Perquisites and other personal benefits paid in each year to each of the
named executive officers did not exceed the lesser of $50,000 or ten percent
of such individual's total salary and bonus.
(3) Includes the amount contributed by the Company to each individual's 401(k)
Plan account in such year.
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<PAGE> 70
The following table sets forth information with respect to stock option
exercises during 1997, and unexercised stock options held, as of the end of
1997, by the persons named in the Summary Compensation Table:
<TABLE>
<CAPTION>
NUMBER OF VALUE OF UNEXERCISED
SHARES UNDERLYING IN-THE-MONEY
UNEXERCISED OPTIONS OPTIONS
SHARES AT 12-31-97(1) AT 12-31-97(1)
ACQUIRED VALUE --------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ---------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
J. T. Jongebloed......... 69,110 $1,407,818 118,889 121,780 $1,646,391 $1,374,391
W. J Myers............... 23,604 295,742 2,500 49,812 31,563 570,252
E. J. Spillard........... 25,000 415,625 72,676 43,344 977,393 500,219
R. G. Hale............... 14,720 188,110 7 41,682 88 483,111
G. G. Arms............... 25,000 502,500 34,404 26,448 458,567 310,282
</TABLE>
- ---------------
(1) Value realized is the excess of the current market value at the date of
exercise minus the exercise price.
The following table sets forth information with respect to stock options
granted during 1997 to the persons named in the Summary Compensation Table:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED ANNUAL
NUMBER OF % OF TOTAL RATES OF STOCK PRICE
SHARES OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO OPTION TERM(5)
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION ----------------------------
NAME GRANTED(1)(2)(3) 1997 PRICE(4) DATE 5% 10%
---- ---------------- ------------ -------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
J. T. Jongebloed............ 50,000 29.21% $13.50 5/1/07 $ 424,500 $ 1,075,800
W. J Myers.................. 19,000 11.10% 13.50 5/1/07 161,310 408,804
E. J. Spillard.............. 16,000 9.35% 13.50 5/1/07 135,840 344,256
R. G. Hale.................. 15,000 8.76% 13.50 5/1/07 127,350 322,740
G. G. Arms.................. 9,000 5.26% 13.50 5/1/07 76,410 193,644
Total............... 109,000 63.67% $ 925,410 $ 2,345,244
All Shareholders(6)......... N/A N/A N/A N/A $165,121,552 $418,463,522
Named Executives' Gain as %
of all Shareholders'
Gain...................... N/A N/A N/A N/A 0.56% 0.56%
</TABLE>
- ---------------
(1) All options granted in 1997 become exercisable in equal annual increments of
33 1/3% commencing on the first anniversary of the award. Vesting may be
accelerated in the event of a change in control of the Company.
(2) The Compensation Committee and/or the Board of Directors retains discretion,
subject to plan limits, to modify the terms of outstanding options.
(3) The options have a term of ten years, but are subject to earlier expiration
in certain events related to termination of employment.
(4) The exercise price and any related tax withholding obligations arising in
connection with exercise may be satisfied by the optionholder's surrender of
already-owned shares or by offsetting a portion of the shares issuable upon
exercise, subject to certain limitations.
(5) The dollar amounts shown in these columns are the result of computation
required by SEC regulations, and are not intended to forecast potential
future appreciation, if any, of the Company's stock price.
(6) Potential shareholder gain is calculated assuming all outstanding shares
were purchased at a price equal to the market price of the Common Stock
($13.50 per share) on May 1, 1997, the date of the 1997 option grants.
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<PAGE> 71
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information concerning the number of
shares of Common Stock owned beneficially as of December 31, 1997 by each person
known to the Company to own more than five percent of the outstanding shares of
Common Stock, and as of March 31, 1998 by Al A. Gonsoulin and (i) each director
of the Company, (ii) each executive officer listed in the Summary Compensation
Table, and (iii) all directors and executive officers of the Company as a group.
No shares of any other class of equity securities are outstanding.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
-----------------------------
PERCENT
NAME OF BENEFICIAL OWNER SHARES OF TOTAL
------------------------ --------- --------
<S> <C> <C>
Pilgrim Baxter & Associates, Ltd............................ 1,851,300(1)(2) 8.8%
Al A. Gonsoulin............................................. 1,538,462(3) 7.3
J. T. Jongebloed............................................ 175,359(4)(5) *
William H. Mobley........................................... 24,200(4)(6) *
Joseph R. Musolino.......................................... 13,000(4)(7) *
James L. Payne.............................................. 12,000(4)(8) *
Donald D. Sykora............................................ 11,000(4)(8) *
G. G. Arms.................................................. 45,447(4)(9) *
R. G. Hale.................................................. 16,521(4)(10) *
W. J Myers.................................................. 29,815(4)(11) *
E. J. Spillard.............................................. 96,761(4)(12) *
All directors and executive officers as a group (10
persons).................................................. 434,853(4)(13) 2.1%
</TABLE>
- ------------
* Less than 1%
(1) Pilgrim Baxter & Associates, Ltd. is a registered investment adviser
located at 825 Dupertail Road, Wayne, PA 19087. Sole power to
dispose -- 1,851,300 shares; sole power to vote -- 1,651,000; shared power
to vote -- 1,851,300 shares.
(2) Based upon the most recent amended Schedule 13G delivered to the Company by
such person.
(3) Al A. Gonsoulin's address is 2900 Weslayan, Suite 420, Houston, Texas
77027. The shares listed include 461,539 shares owned by Gonsoulin
Enterprises, Inc. of which Mr. Gonsoulin may be deemed to be the beneficial
owner.
(4) Sole voting and dispositive power when acquired.
(5) Includes 160,972 shares which may be acquired through the exercise of stock
options that are currently exercisable or will become exercisable within 60
days after March 3, 1998.
(6) Includes 21,000 shares which may be acquired through the exercise of stock
options that are currently exercisable or will become exercisable within 60
days after March 3, 1998.
(7) Includes 10,000 shares which may be acquired through the exercise of stock
options that are currently exercisable or will become exercisable within 60
days after March 3, 1998.
(8) Includes 8,000 shares which may be acquired through the exercise of stock
options that are currently exercisable or will become exercisable within 60
days after March 3, 1998.
(9) Includes 43,803 shares which may be acquired through the exercise of stock
options that are currently exercisable or will become exercisable within 60
days after March 3, 1998.
(10) Includes 14,734 shares which may be acquired through the exercise of stock
options that are currently exercisable or will become exercisable within 60
days after March 3, 1998.
(11) Includes 19,937 shares which may be acquired through the exercise of stock
options that are currently exercisable or will become exercisable within 60
days after March 3, 1998.
(12) Includes 87,957 shares which may be acquired through the exercise of stock
options that are currently exercisable or will become exercisable within 60
days after March 3, 1998.
(13) Includes 382,570 shares which may be acquired through the exercise of stock
options that are currently exercisable or will become exercisable within 60
days after March 3, 1998.
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<PAGE> 72
DESCRIPTION OF OTHER INDEBTEDNESS
Prior to the Notes Offering, certain of the Company's outstanding
indebtedness was retired with borrowings under the Credit Agreement and with
other available cash. See "-- Debt Retired Prior to and Concurrent with the
Notes Offering". The Company used $54.1 million in proceeds from the Notes
Offering to reduce the outstanding balance under the Credit Agreement. As of the
date hereof, the Company (excluding unconsolidated affiliates) has, in addition
to the Notes, indebtedness outstanding as shown below:
$180 Million Credit Agreement. On September 30, 1997, the Company entered
into a three-year $130 million syndicated bank revolving credit agreement (the
"Credit Agreement") to replace a $40 million revolving bank line of credit and
$15.6 million of long-term debt and to provide financing for future growth
opportunities. The maximum availability under the Credit Agreement was $130
million, including up to $15 million that could be used to support letters of
credit. On March 26, 1998, the Company amended the Credit Agreement to provide,
among other things, for borrowings of up to $180 million in the aggregate
outstanding at any time, including up to $15 million that could be used to
support letters of credit. At March 31, 1998, after the use of $54.1 million in
proceeds from the Notes Offering and $16.7 million of other available cash to
reduce the outstanding balance under the Credit Agreement, the Company had a
balance of $5.0 million in cash drawn under the Credit Agreement, and an
additional $11.6 million was being utilized to support the issuance of letters
of credit, primarily relating to insurance obligations.
Borrowings under the Credit Agreement bear interest, at the Company's
option, at either (i) the Base Rate (defined as the administrative agent bank's
prime lending rate or 1/2 of 1% in excess of the federal funds rate) plus a
margin ranging from zero to .50%, or (ii) the Eurodollar Rate (equivalent to the
London Interbank Offered Rate) plus a margin ranging from 1% to 1.75% with the
Company's choice of a one-, two-, three-, or six-months interest period. The
applicable margin for each interest option depends on the Company's leverage
ratio for the fiscal quarter preceding the interest period; however, through
September 1998, the applicable Eurodollar margin shall not be less than 1.50%.
Based upon the Company's leverage ratio at March 31, 1998, the applicable
Eurodollar margin would have been 1.00%. The Credit Agreement will mature on
October 2, 2000 and is subject to one-year extensions at the discretion of the
Lenders. Notes issued under the Credit Agreement are prepayable at any time and
are due at expiration on October 2, 2000. The Credit Agreement imposes certain
financial covenants, including ones requiring the maintenance of a minimum net
worth, a minimum interest coverage ratio, a minimum fixed charge coverage ratio,
a maximum leverage ratio and a maximum debt-to-equity ratio. The Company is in
compliance with each of these covenants and has not been at risk of not being in
compliance. It also imposes certain other restrictions, including ones relating
to liens, other indebtedness, asset sales, investments, acquisitions or mergers
and the payment of dividends. The Credit Agreement is guaranteed on an unsecured
basis by substantially all of the Company's domestic subsidiaries. Advances
under the Credit Agreement are secured by a pledge of 66% of the capital stock
of certain of the Company's foreign subsidiaries. The Company incurred $0.5
million and $1.6 million of debt financing costs during the first quarter of
1998 and during 1997, respectively, in connection with the Credit Agreement,
which are being amortized over the term of the agreement.
DA&S Acquisition Debt. In June 1997, the Company acquired all of the
outstanding capital stock of DA&S for $10.5 million, consisting of $10.1 million
of 9% long-term notes, the last of which are due in 2003, and $0.4 million in
cash. The total principal balance outstanding under these notes was $10.1
million as of March 31, 1998 and as of December 31, 1997. See Notes 3 and 6 of
Notes to Consolidated Financial Statements for further information.
GPC Acquisition Debt. In June 1995, the Company acquired all of the
outstanding capital stock of GPC for approximately $18.8 million, consisting of
$11.5 million of 10% notes due in 2005, approximately $3.1 million in cash and
493,543 shares of the Company's common stock valued at $4.2 million. The
outstanding principal amount of such notes was reduced $4.0 million as of August
31, 1997 as a result of an August 1997 agreement between the sellers of GPC
("Sellers") and the Company that resolved certain issues that had arisen in
connection with the GPC purchase agreement. There was a corresponding $4.0
million increase in common stock, as the August 1997 agreement effectively
revalued the shares of the Company's common stock received by the Sellers in
connection with the June 1995 acquisition. The August 1997 agreement also
resulted
65
<PAGE> 73
in a further reduction of $0.9 million, as of November 30, 1997, of the Sellers'
notes in satisfaction of a receivable from the Sellers of like amount. Due to
this reduction in principal amount, payment of these notes is now due to be
completed in 2002. The Company made scheduled principal payments of $0.6 million
in 1997 and $1.5 million in 1996 related to these notes. The total principal
balance outstanding under these notes was $4.5 million as of March 31, 1998 and
as of December 31, 1997. See Notes 3 and 6 of Notes to Consolidated Financial
Statements for further information.
DEBT RETIRED PRIOR TO AND CONCURRENT WITH THE NOTES OFFERING
Sea Mar Debt. In March 1998, the Company acquired all the outstanding
capital stock of Sea Mar for approximately $75.9 million in cash (including an
estimated $14.7 million in post closing purchase price adjustments) and
1,538,462 shares of the Company's common stock. The cash portion of this
transaction was financed with borrowings from the Notes Offering. At the time
this transaction was consummated, $15.7 million of Sea Mar debt was immediately
retired with a portion of the proceeds from the Notes Offering. See Notes 4 and
5 of Notes to Interim Condensed Consolidated Financial Statements for further
information.
R&H Debt. In October 1997, the Company acquired all of the outstanding
capital stock of Trey and certain associated operating assets for $31.3 million
in cash. At the time this transaction was consummated, $2.4 million of R&H debt
was retired, and $6.4 million was paid to certain key employees of R&H in
connection with incentive compensation arrangements. These transactions were
financed in part with borrowings under the Credit Agreement. See Note 3 of Notes
to Consolidated Financial Statements for further information.
A.A. Debt. In November 1997, the Company acquired all of the outstanding
capital stock of A.A. for $4.1 million in cash. This transaction was financed
with borrowings under the Credit Agreement. At the time this transaction was
consummated, $0.3 million of A.A. debt was immediately retired. See Note 3 of
Notes to Consolidated Financial Statements for further information.
Antah Drilling Acquisition Debt. In connection with the Antah Drilling
acquisition, the Company agreed to assume liability under Antah Drilling's term
loans, which aggregated $14.6 million at October 1996. In October 1997, the
remaining balance of $9.3 million was paid off with borrowings under the Credit
Agreement. The Company made scheduled principal payments of $3.9 million in 1997
and $1.4 million between October and December of 1996. See Notes 3 and 6 of
Notes to Consolidated Financial Statements for further information.
Australia Rig 453 Debt. In January 1996, the Company received $6.5 million
under a four-year term loan agreement (the "Australia Loan") in order to
refinance the construction costs incurred during 1995 to build Rig 453. The rig
construction costs were initially funded from the Company's cash resources and
borrowings under its then existing Credit Agreement. In October 1997, the
remaining balance of $3.5 million was paid off with borrowings under the Credit
Agreement. The Company made scheduled principal payments on the Australia Loan
of $1.2 million in 1997 and $1.8 million in 1996. See Note 6 of Notes to
Consolidated Financial Statements for further information.
Pool Arctic Alaska Acquisition Debt. The September 1994 Pool Arctic Alaska
acquisition was initially funded from the Company's cash resources and
approximately $6.7 million borrowed under the Company's then existing credit
agreement. In April 1995, the Company obtained a three-year term loan (the
"Alaska Loan") to refinance $10.0 million of the purchase price. In October
1997, the remaining balance of $2.7 million was paid off with borrowings under
the Credit Agreement. During 1997, 1996 and 1995, the Company made scheduled
principal payments of $1.9 million, $2.8 million and $2.6 million, respectively,
on the Alaska Loan. See Note 6 of Notes to Consolidated Financial Statements for
further information.
DA&S Acquisition Debt. As part of the DA&S acquisition, the Company
assumed $0.8 million of DA&S debt, all of which was immediately retired. See
Notes 3 and 6 of Notes to Consolidated Financial Statements for further
information.
66
<PAGE> 74
GPC Acquisition Debt. As part of the GPC acquisition, the Company assumed
GPC's debt of $2.0 million, all of which was immediately retired. Also in
connection with the GPC acquisition, the Company assumed a liability for certain
deferred compensation obligations of GPC. To evidence such obligations, the
Company issued notes aggregating $1.5 million in principal amount to three
employees of GPC and made scheduled principal payments with respect to such
notes during 1997, 1996 and 1995 of $0.9 million, $0.4 million and $0.2 million,
respectively, and such notes were retired in 1997. See Note 6 of Notes to
Consolidated Financial Statements for further information.
67
<PAGE> 75
DESCRIPTION OF NOTES
The Old Notes were, and the New Notes will be issued pursuant to the
Indenture, a copy of which has been filed as an exhibit to this Registration
Statement. The following is a summary of the material terms and provisions of
the Old Notes and the New Notes (the "Notes"). The terms of the Notes include
those set forth in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). The Notes are subject to all such terms, and holders of the Notes are
referred to the Indenture and the Trust Indenture Act for a statement thereof.
The following summary does not purport to be a complete description of the Notes
and is subject to the detailed provisions of, and qualified in its entirety by
reference to, the Indenture. Capitalized terms that are used but not otherwise
defined herein have the meanings assigned to them in the Indenture and such
definitions are incorporated herein by reference.
GENERAL
On March 31, 1998, the Company issued $150 million aggregate principal
amount of Old Notes under the Indenture. The terms of the New Notes are
identical in all material respects to the Old Notes, except for certain transfer
restrictions and registration and other rights relating to the exchange of the
Old Notes for New Notes. Any Old Notes that remain outstanding after the
consummation of the Exchange Offer, together with the New Notes, will be treated
as a single class of securities under the Indenture.
The Notes are senior subordinated unsecured obligations of the Company
limited to an aggregate principal amount of $150 million, subordinated in right
of payment to all existing and future Senior Indebtedness of the Company
(including the Company's obligations under the Credit Agreement) as described
below under "-- Subordination." The Notes are unconditionally guaranteed by each
Guarantor on a senior subordinated basis, with each such guarantee subordinated
to the Guarantor's guarantee of the obligations of the Company under the Credit
Agreement and to all other Senior Indebtedness of such Guarantor.
The Notes bear interest at the rate shown on the cover page of this
Prospectus, payable on April 1 and October 1 of each year, commencing on October
1, 1998, to holders of record at the close of business on March 15 or September
15, as the case may be, immediately preceding the relevant interest payment
date. The Notes will mature on April 1, 2008 and will be issued in registered
form, without coupons, and in denominations of $1,000 and integral multiples
thereof. The Notes are payable as to principal, premium, if any, and interest at
the office or agency of the Company maintained for such purpose within the City
and State of New York or, at the option of the Company, by wire transfer of
immediately available funds or, in the case of certificated securities only, by
mailing a check to the registered address of the holder. See "-- Book-Entry,
Delivery and Form of Securities." Until otherwise designated by the Company, the
Company's office or agency in New York will be the office of the Trustee
maintained for such purpose.
The interest rate on the Notes is subject to increase in certain
circumstances if the Company does not file a registration statement relating to
the registered Exchange Offer on a timely basis, if the registration statement
is not declared effective on a timely basis or if certain other conditions are
not satisfied. See "The Exchange Offer -- Purpose of the Exchange Offer." The
Old Notes and the New Notes will constitute a single series of debt securities
under the Indenture. If the Exchange Offer is consummated, holders of Old Notes
who do not exchange their Old Notes for New Notes will vote together with
holders of New Notes for all relevant purposes under the Indenture. In that
regard, the Indenture will require that certain actions by the holders thereof
(including acceleration following an Event of Default) must be taken, and
certain rights must be exercised, by specified minimum percentages of the
aggregate principal amount of the outstanding securities issued under the
Indenture. In determining whether holders of the requisite percentage in
principal amount have given any notice, consent or waiver or taken any other
action permitted under the Indenture, any Old Notes that remain outstanding
after the Exchange Offer will be aggregated with the New Notes, and the holders
of such Old Notes and the New Notes will vote together as a single series for
all such purposes. Accordingly, all references herein to specified percentages
in aggregate principal amount of the outstanding Notes shall be deemed to mean,
at any time after the Exchange Offer is consummated, such percentages in
aggregate principal amount of the Old Notes and the New Notes then outstanding.
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<PAGE> 76
SUBORDINATION
The payment by the Company of principal of, and premium (if any) and
interest (including Special Interest) on the Notes, and by each Guarantor of
such amounts under its Note Guarantee (collectively, the "Note Indebtedness"),
will be subordinated to the prior payment in full in cash when due of the
principal of, and premium, if any, and accrued and unpaid interest on and all
other amounts owing in respect of, all existing and future Senior Indebtedness
of the Company and of each Guarantor, as the case may be. The Company has agreed
in the Indenture that it will not incur, directly or indirectly, any
Indebtedness that is subordinate or junior in ranking in right of payment to its
Senior Indebtedness unless such Indebtedness is pari passu with or is expressly
subordinated in right of payment to the Notes. In addition, each Guarantor has
agreed that it will not incur, directly or indirectly, any Indebtedness that is
subordinate or junior in ranking in right of payment to its Senior Indebtedness
unless such Indebtedness is pari passu with or is expressly subordinated in
right of payment to its Note Guarantee. As of March 31, 1998, the Company and
the Subsidiary Guarantors had outstanding approximately $19.5 million of
Indebtedness (excluding letters of credit, operating leases and other contingent
liabilities) other than the Notes, all of which constituted Senior Indebtedness.
Subject to certain limitations, the Company and its Subsidiaries (including the
Subsidiary Guarantors) may incur additional Indebtedness in the future. See
"-- Certain Covenants -- Limitations on Additional Indebtedness."
The Indenture provides that, upon any payment or distribution to creditors
of the Company or any Guarantor of the assets of the Company or such Guarantor
of any kind or character in a total or partial liquidation or dissolution of the
Company or such Guarantor or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or any Guarantor,
whether voluntary or involuntary (including any assignment for the benefit of
creditors and proceedings for marshaling of assets and liabilities of the
Company or any Guarantor), the holders of all Senior Indebtedness of the Company
or such Guarantor then outstanding will be entitled to payment in full in cash
(including interest accruing subsequent to the filing of petition of bankruptcy
or insolvency at the rate specified in the document relating to the applicable
Senior Indebtedness, whether or not such interest is an allowed claim
enforceable against the Company or such Guarantor under applicable law) before
the holders of Notes are entitled to receive any payment (other than payments
made from a trust previously established pursuant to provisions described under
"-- Satisfaction and Discharge of Indenture; Defeasance") on or with respect to
the Note Indebtedness and until all such Senior Indebtedness receives payment in
full in cash, any distribution to which the holders of Notes would be entitled
will be made to holders of such Senior Indebtedness.
Upon the occurrence of any default in the payment of any principal of or
interest on or other amounts due on any Designated Senior Indebtedness of the
Company or any Guarantor (a "Payment Default"), no payment of any kind or
character shall be made by the Company or such Guarantor (or by any other Person
on its or their behalf) with respect to the Note Indebtedness unless and until
(i) such Payment Default shall have been cured or waived in accordance with the
instruments governing such Indebtedness or shall have ceased to exist, (ii) such
Designated Senior Indebtedness has been discharged or paid in full in cash in
accordance with the instruments governing such Indebtedness or (iii) the
benefits of this sentence have been waived by the holders of such Designated
Senior Indebtedness or their representative, including, if applicable, the
Agents, immediately after which the Company or any Guarantor, as the case may
be, must resume making any and all required payments, including missed payments,
in respect of its obligations under the Notes.
Upon (1) the occurrence and continuance of an event of default (other than
a Payment Default) relating to Designated Senior Indebtedness, as such event of
default is defined therein or in the instrument or agreement under which it is
outstanding, which event of default, pursuant to the instruments governing such
Designated Senior Indebtedness, entitles the holders (or a specified portion of
the holders) of such Designated Senior Indebtedness or their designated
representative to immediately accelerate without further notice (except such
notice as may be required to effect such acceleration) the maturity of such
Designated Senior Indebtedness (whether or not such acceleration has actually
occurred) (a "Non-payment Default") and (2) the receipt by the Trustee and the
Company or any Guarantor from the trustee or other representative of holders of
such Designated Senior Indebtedness of written notice (a "Payment Blockage
Notice") of such occurrence, no payment is permitted to be made by the Company
or any Guarantor (or by any other Person on
69
<PAGE> 77
its or their behalf) in respect of the Note Indebtedness for a period (a
"Payment Blockage Period") commencing on the date of receipt by the Trustee of
such notice and ending on the earliest to occur of the following events (subject
to any blockage of payments that may then be in effect due to a Payment Default
on Designated Senior Indebtedness): (w) such Non-payment Default has been cured
or waived or has ceased to exist; (x) a 179-consecutive-day period commencing on
the date such written notice is received by the Trustee has elapsed; (y) such
Payment Blockage Period has been terminated by written notice to the Trustee
from the trustee or other representative of holders of such Designated Senior
Indebtedness, whether or not such Non-payment Default has been cured or waived
or has ceased to exist; and (z) such Designated Senior Indebtedness has been
discharged or paid in full in cash, immediately after which, in the case of
clause (w), (x), (y) or (z), the Company or any Guarantor, as the case may be,
must resume making any and all required payments, including missed payments, in
respect of its obligations under the Notes. Notwithstanding the foregoing, (a)
not more than one Payment Blockage Period may be commenced in any period of 360
consecutive days and (b) no default or event of default with respect to the
Designated Senior Indebtedness of the Company or any Guarantor that was the
subject of a Payment Blockage Notice which existed or was continuing on the date
of the giving of any Payment Blockage Notice shall be or serve as the basis for
the giving of a subsequent Payment Blockage Notice whether or not within a
period of 360 consecutive days unless such default or event of default shall
have been cured or waived for a period of at least 90 consecutive days after
such date. Notwithstanding anything in the Indenture to the contrary, there must
be 180 consecutive days in any 360-day period in which no Payment Blockage
Period is in effect.
Notwithstanding the foregoing, Noteholders may receive and retain Permitted
Junior Securities and payment from the money or the proceeds held in any
defeasance trust described under "-- Satisfaction and Discharge of Indenture;
Defeasance" below, and no such receipt or retention will be contractually
subordinated in right of payment to any Senior Indebtedness or subject to the
restrictions described in this "Subordination" section.
In the event that, notwithstanding the foregoing, any payment or
distribution of assets of the Company or any Guarantor, whether in cash,
property or securities, shall be received by the Trustee or the holders of Notes
at a time when such payment or distribution is prohibited by this
"Subordination" section, such payment or distribution shall be segregated from
other funds or assets and held in trust for the benefit of the holders of Senior
Indebtedness of the Company or such Guarantor, as the case may be, and shall be
paid or delivered by the Trustee or such holders, as the case may be, to the
holders of the Senior Indebtedness of the Company or such Guarantor, as the case
may be, remaining unpaid or unprovided for or their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing any of such Senior Indebtedness of the Company
or such Guarantor, as the case may be, may have been issued, ratably according
to the aggregate amounts remaining unpaid on account of the Senior Indebtedness
of the Company or such Guarantor, as the case may be, held or represented by
each, for application to the payment of all Senior Indebtedness of the Company
or such Guarantor, as the case may be, remaining unpaid, to the extent necessary
to pay or to provide for the payment in full in cash of all such Senior
Indebtedness after giving effect to any concurrent payment or distribution to
the holders of such Senior Indebtedness.
If the Company fails to make any payment on the Notes when due or within
any applicable grace period, whether or not such failure is on account of the
subordination provisions referred to above, such failure would constitute an
Event of Default under the Indenture and would enable the holders of Notes to
accelerate the maturity of the Notes. See "-- Events of Default."
By reason of the subordination provisions contained in the Indenture, in
the event of bankruptcy, liquidation, insolvency or other similar proceedings,
creditors of the Company who are holders of Senior Indebtedness may recover
more, ratably, than the holders of the Notes, and creditors of the Company who
are not holders of Senior Indebtedness may recover less, ratably, than holders
of Senior Indebtedness and may recover more, ratably, than the holders of the
Notes.
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GUARANTEES
The Company's payment obligations under the Notes are jointly and severally
guaranteed by each Subsidiary Guarantor. Each Note Guarantee is an unsecured
senior subordinated obligation of the Subsidiary Guarantor providing it, and
such Note Guarantee ranks junior in right of payment to all existing and future
Senior Indebtedness of such Guarantor, including such Guarantor's guarantee of
the Company's obligations under the Credit Agreement. The obligations of each
Subsidiary Guarantor under its Note Guarantee is limited so as not to constitute
a fraudulent conveyance under applicable law.
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 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) assumes all of the obligations of such Subsidiary
Guarantor pursuant to a supplemental indenture, in form and substance
satisfactory to the Trustee, under the Notes and the Indenture; (ii) immediately
after giving effect to such transaction, no Default or Event of Default exists;
and (iii) immediately after giving effect to such transaction, the Coverage
Ratio Incurrence Condition would be met.
The Indenture provides that in the event of a sale or other disposition of
all or substantially all of the assets of a Subsidiary Guarantor to a third
party or an Unrestricted Subsidiary in a transaction that does not violate any
of the covenants in the Indenture, by way of merger, consolidation or otherwise,
or a sale or other disposition of all of the Capital Stock of a Subsidiary
Guarantor, then such Subsidiary Guarantor (in the event of 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
assets of such Subsidiary Guarantor) will be released from and relieved of any
obligations under its Note Guarantee; provided that the Net Available Proceeds
of such sale or other disposition are applied in accordance with the covenant
described under the caption "-- Certain Covenants -- Limitations on Asset
Sales."
Any Subsidiary Guarantor that is designated an Unrestricted Subsidiary in
accordance with the terms of the Indenture shall be released and relieved of its
obligations under its Note Guarantee and any Unrestricted Subsidiary and any
newly formed or newly acquired Subsidiary that becomes a Restricted Subsidiary
will be required to execute a supplement to the Indenture in accordance with the
terms of the Indenture.
OPTIONAL REDEMPTION OF THE NOTES
The Notes may not be redeemed prior to April 1, 2003, but will be
redeemable at the option of the Company, in whole or in part, at any time on or
after April 1, 2003, at the following redemption prices (expressed as
percentages of principal amount), together with accrued and unpaid interest, if
any, thereon to the redemption date, if redeemed during the twelve-month period
beginning on April 1 of the year indicated below:
<TABLE>
<CAPTION>
OPTIONAL
REDEMPTION
YEAR PRICE
---- ----------
<S> <C>
2003.............................................. 104.313%
2004.............................................. 102.875%
2005.............................................. 101.438%
2006 and thereafter............................... 100.000%
</TABLE>
Notwithstanding the foregoing, from time to time prior to April 1, 2001,
the Company may redeem up to 35% of the aggregate principal amount of the Notes
outstanding on the Issue Date with the net cash proceeds of one or more Equity
Offerings at a redemption price equal to 108.625% of the principal amount
thereof, plus accrued and unpaid interest and Special Interest, if any, to the
redemption date; provided that (a) at least $97.5 million of the aggregate
principal amount of the Notes remains outstanding immediately after the
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<PAGE> 79
occurrence of any such redemption and (b) each such redemption occurs within 60
days of the date of the closing of any such Equity Offering.
If less than all of the Notes are to be redeemed at any time, selection of
the Notes to be redeemed will be made by the Trustee from among the outstanding
Notes on a pro rata basis, by lot or by any other method permitted in the
Indenture. Notice of redemption will be mailed at least 30 days but not more
than 60 days before the redemption date to each holder whose Notes are to be
redeemed at the registered address of such holder. On and after the redemption
date, interest will cease to accrue on the Notes or portions thereof called for
redemption.
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each holder of the Notes will
have the right to require that the Company repurchase such holder's Notes for a
cash price (the "Change of Control Purchase Price") equal to 101% of the
principal amount of the Notes, plus accrued and unpaid interest and Special
Interest, if any, to the date of repurchase, all in accordance with the
following paragraph.
Within 30 days following any Change of Control, the Company will mail to
the Trustee (who shall mail to each holder) a notice (i) describing the
transaction or transactions that constitute the Change of Control, (ii) offering
to repurchase, pursuant to the procedures required by the Indenture and
described in such notice (a "Change of Control Offer"), on a date specified in
such notice (which shall be a business day not earlier than 30 days or later
than 60 days from the date such notice is mailed) and for the Change of Control
Purchase Price, all Notes properly tendered by such holder pursuant to such
offer to purchase for the Change of Control Purchase Price and (iii) describing
the procedures that holders must follow to accept the Change of Control Offer.
The Change of Control Offer is required to remain open for at least 20 business
days or for such longer period as is required by law.
The occurrence of the events constituting a Change of Control under the
Indenture may result in an event of default in respect of other Indebtedness
(including the Senior Indebtedness) of the Company and its Subsidiaries and,
consequently, the lenders thereof may have the right to require repayment of
such Indebtedness in full. If a Change of Control Offer is made, there can be no
assurance that the Company will have available funds sufficient to pay for all
or any of the Notes that might be delivered by holders of Notes seeking to
accept the Change of Control Offer. There can be no assurance that in the event
of a Change of Control the Company will be able to obtain the consents necessary
to consummate a Change of Control Offer from the lenders under agreements
governing outstanding Indebtedness which may prohibit such an offer. The
Company's obligation to make a Change of Control Offer will be satisfied if a
third party makes the Change of Control Offer in the manner and at the times and
otherwise in compliance with the requirements applicable to a Change of Control
Offer made by the Company and purchases all Notes properly tendered and not
withdrawn under such Change of Control Offer. The definition of Change of
Control includes the sale of "all or substantially all" of the assets of the
Company and its Subsidiaries, in either case taken as a whole, the determination
of which depends upon the circumstances of any such sale and is subject to
interpretation under applicable legal precedent.
The Change of Control feature of the Notes, by requiring a Change of
Control Offer, may in certain circumstances make more difficult or discourage a
sale or takeover of the Company, and, thus, the removal of incumbent management.
The Change of Control feature, however, is not part of a plan by management to
adopt a series of antitakeover provisions. Instead, the Change of Control
feature is a result of negotiations between the Company and the Initial
Purchasers. Subject to the limitations discussed below, the Company could, in
the future, enter into certain transactions, including acquisitions,
refinancings or other recapitalizations, that would not constitute a Change of
Control under the Indenture, but that could increase the amount of Indebtedness
outstanding at such time or otherwise affect the Company's capital structure or
credit ratings.
The Company will comply with the applicable tender offer rules, including
the requirements of Rule 14e-1 under the Exchange Act and any other applicable
laws and regulations in connection with the purchase of Notes pursuant to a
Change of Control Offer.
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<PAGE> 80
CERTAIN COVENANTS
Limitations on Additional Indebtedness. The Indenture provides that the
Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, incur any Indebtedness (including without limitation
Acquired Indebtedness); provided that the Company and its Restricted
Subsidiaries may incur Permitted Indebtedness and may incur additional
Indebtedness if, after giving effect thereto, the Company's Consolidated
Interest Coverage Ratio on the date thereof would be at least 2.5 to 1,
determined on a pro forma basis as if the incurrence of such additional
Indebtedness, and the application of the net proceeds therefrom, had occurred at
the beginning of the four-quarter period used to calculate the Company's
Consolidated Interest Coverage Ratio.
Limitation on the Issuance of Capital Stock of Restricted
Subsidiaries. The Indenture provides that the Company will not permit any
Restricted Subsidiary, directly or indirectly, to issue or sell any shares of
its Capital Stock (including options, warrants or other rights to purchase
shares of such Capital Stock) except (i) to the Company or a Wholly-Owned
Restricted Subsidiary, (ii) if, immediately after giving effect to such issuance
or sale, such Restricted Subsidiary would no longer constitute a Restricted
Subsidiary or (iii) to the extent such shares represent directors' qualifying
shares or shares required by applicable law to be held by a Person other than
the Company or a Wholly-Owned Restricted Subsidiary. The proceeds of any sale of
Capital Stock permitted hereunder and referred to in clauses (ii) and (iii)
above will be treated as Net Available Proceeds and must be applied in a manner
consistent with the provisions of the covenant described under "-- Limitations
on Asset Sales".
Limitations on Layering Debt. The Indenture provides that the Company will
not, and will not permit any Subsidiary Guarantor to, incur any Indebtedness
that is subordinate or junior in right of payment to any Senior Indebtedness of
the Company or such Subsidiary Guarantor unless such Indebtedness by its terms
is pari passu with, or subordinated to, the Notes or the Note Guarantee of such
Subsidiary Guarantor, as the case may be.
Limitations on Restricted Payments. The Indenture provides that the
Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, make any Restricted Payment (except as permitted below)
if at the time of such Restricted Payment:
(i) a Default or Event of Default shall have occurred and be
continuing or shall occur as a consequence thereof;
(ii) the Company would be unable to meet the Coverage Ratio Incurrence
Condition; or
(iii) the amount of such Restricted Payment, when added to the
aggregate amount of all other Restricted Payments (except as expressly
provided in the second following paragraph) made after the Issue Date,
exceeds the sum of (A) 50% of the Company's Consolidated Net Income (taken
as one accounting period) from the beginning of the first fiscal quarter
commencing after the Issue Date to the end of the Company's most recently
ended fiscal quarter for which financial statements are available at the
time of such Restricted Payment (or, if such aggregate Consolidated Net
Income shall be a deficit, minus 100% of such aggregate deficit) plus (B)
the net cash proceeds from the issuance and sale (other than to a
Subsidiary of the Company) after the Issue Date of (1) the Company's
Capital Stock that is not Disqualified Capital Stock or (2) debt securities
of the Company that have been converted into the Company's Capital Stock
that is not Disqualified Capital Stock (and is not then held by a
Subsidiary of the Company), plus (C) to the extent that any Restricted
Investment that was made after the Issue Date is sold for cash or otherwise
liquidated or repaid for cash, the lesser of (x) the cash return of capital
with respect to such Restricted Investment (less the cost of disposition,
if any) and (y) the initial amount of such Restricted Investment plus (D)
the amount of Restricted Investment outstanding in an Unrestricted
Subsidiary at the time such Unrestricted Subsidiary is designated a
Restricted Subsidiary of the Company in accordance with the definition of
"Unrestricted Subsidiary" plus (E) $5 million.
The foregoing provisions do not prohibit (1) the payment of any dividend by
the Company or any Restricted Subsidiary within 60 days after the date of
declaration thereof, if at said date of declaration such
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payment would have complied with the provisions of the Indenture; (2) the
redemption, repurchase, retirement or other acquisition of any Capital Stock of
the Company in exchange for, or out of the proceeds of, the substantially
concurrent sale (other than to a Subsidiary of the Company) of other Capital
Stock of the Company (other than any Disqualified Capital Stock); (3) the
defeasance, redemption, repurchase or other retirement of Subordinated
Indebtedness in exchange for, or out of the proceeds of, the substantially
concurrent issue and sale of Capital Stock of the Company (other than (x)
Disqualified Capital Stock, (y) Capital Stock sold to a Subsidiary of the
Company and (z) Capital Stock purchased with the proceeds of loans from the
Company or any of its Subsidiaries); (4) the making of a Related Business
Investment in joint ventures or Unrestricted Subsidiaries out of the proceeds of
the substantially concurrent issue and sale of Capital Stock of the Company
(other than (x) Disqualified Capital Stock, (y) Capital Stock sold to a
Subsidiary of the Company and (z) Capital Stock purchased with the proceeds of
loans from the Company or any of its Subsidiaries); (5) the repurchase,
redemption or other acquisition or retirement for value of any Capital Stock
held by any member of the Company's management pursuant to any management equity
subscription agreement, employment agreement, stock option agreement or other
compensation agreement in an amount not to exceed $500,000 in the aggregate in
any fiscal year of the Company; or (6) Restricted Investments the amount of
which, together with the amount of all other Restricted Investments made
pursuant to this clause (6) after the Issue Date, does not exceed $20 million,
provided that, in the case of clause (6), no Default or Event of Default shall
have occurred and be continuing or occur as a consequence of the actions or
payments set forth therein.
The Restricted Payment permitted pursuant to clause (1) of the preceding
paragraph shall be included once in calculating whether the conditions of clause
(iii) of the second preceding paragraph have been met with respect to any
subsequent Restricted Payments. For purposes of determining compliance with this
"Limitation on Restricted Payments" covenant, in the event that a transaction
meets the criteria of more than one of the types of Restricted Payments
described in the clauses of the immediately preceding paragraph or of the
clauses of the definition of "Restricted Payment," the Company, in its sole
discretion, shall classify such transaction and only be required to include the
amount and type of such transaction in one of such clauses. If an issuance of
Capital Stock of the Company is applied to make a Restricted Payment pursuant to
clause (2), (3) or (4) above, then, in calculating whether the conditions of
clause (iii) of the second preceding paragraph have been met with respect to any
subsequent Restricted Payments, the proceeds of any such issuance shall be
included under such clause (iii) only to the extent such proceeds are not
applied as so described in this sentence. In addition, Restricted Investments
made pursuant to clause (6) of the preceding paragraph shall not be treated as a
Restricted Payment or Restricted Investment for purposes of calculating whether
the conditions of clause (iii) of the second preceding paragraph have been met
with respect to any subsequent Restricted Payments.
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 the covenant "Limitations on Restricted Payments" were computed,
which calculations shall be based upon the Company's latest available financial
statements.
Limitations on Restrictions on Distributions from Restricted
Subsidiaries. The Indenture provides that the Company will not, and will not
permit any of its Restricted Subsidiaries to, create or otherwise cause or
suffer to exist or become effective any consensual Payment Restriction with
respect to any of its Restricted Subsidiaries, except for (a) any such Payment
Restriction in effect on the Issue Date under the Credit Agreement or any
similar Payment Restriction under any similar credit facility, or any amendment,
restatement, renewal, replacement or refinancing of any of the foregoing,
provided that such similar Payment Restrictions are not, taken as a whole,
materially more restrictive than the Payment Restrictions in effect on the Issue
Date under the Credit Agreement, (b) any such Payment Restriction in effect on
the Issue Date consisting of customary net worth or leverage tests in effect on
the Issue Date under any credit facility of any Foreign Subsidiary, or any
amendment, restatement, renewal, replacement or refinancing of any of the
foregoing (including for purposes of this clause (b), any increase in the
principal amount available thereunder) (a "Replacement Facility"), provided that
such Payment Restrictions in any such Replacement Facility are not, taken as a
whole, materially more restrictive than the Payment Restrictions in effect on
the
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Issue Date under the facility amended, restated, renewed, replaced or
refinanced, (c) any such Payment Restriction under any agreement evidencing any
Acquired Indebtedness that was permitted to be incurred pursuant to the
Indenture in effect at the time of such incurrence and not created in
contemplation of such event, provided that such Payment Restriction is not
extended to apply to any of the assets of the entities not previously subject
thereto, (d) any such Payment Restriction arising in connection with Refinancing
Indebtedness, provided that any such Payment Restrictions that arise under such
Refinancing Indebtedness are not, taken as a whole, materially more restrictive
than those under the agreement creating or evidencing the Indebtedness being
refunded or refinanced and (e) any such restriction by reason of customary
provisions restricting assignments, subletting or other transfers contained in
leases, licenses and similar agreements entered into in the ordinary course of
business.
Limitations on Transactions with Affiliates. The Indenture provides that
the Company will not, and will not permit any of its Restricted Subsidiaries to,
directly or indirectly, in one transaction or a series of related transactions,
sell, lease, transfer or otherwise dispose of any of its properties or assets
to, or purchase any property or assets from or enter into any contract,
agreement, understanding, loan, advance or guarantee with, or for the benefit
of, any Affiliate (each of the foregoing, an "Affiliate Transaction"), unless
(i) such Affiliate Transaction is on terms that are no less favorable to the
Company or the relevant Restricted Subsidiary than those that would have been
obtained in a comparable transaction by the Company or such Restricted
Subsidiary with an unrelated Person and (ii) the Company delivers to the Trustee
(a) with respect to any Affiliate Transaction (or series of related
transactions) involving aggregate payments in excess of $5 million, an Officers'
Certificate certifying that such Affiliate Transaction complies with clause (i)
above and a Secretary's Certificate which sets forth and authenticates a
resolution that has been adopted by a vote of a majority of the Independent
Directors approving such Affiliate Transaction or, if at the time fewer than
three Independent Directors are then in office, a Secretary's Certificate which
sets forth and authenticates a resolution that has been adopted unanimously by
the Company's Board of Directors and (b) with respect to any Affiliate
Transaction (or series of related transactions) involving aggregate payments of
$15 million or more, the certificates described in the preceding clause (a) and
an opinion as to the fairness to the Company or such Subsidiary from a financial
point of view issued by an Independent Financial Advisor; provided, however,
that the following shall not be deemed to be Affiliate Transactions: (i)
transactions exclusively between or among (1) the Company and one or more
Restricted Subsidiaries or (2) Restricted Subsidiaries, provided, in each case,
that no Affiliate of the Company (other than another Restricted Subsidiary) owns
Capital Stock of any such Restricted Subsidiary; (ii) transactions between the
Company or any Restricted Subsidiary and any qualified employee stock ownership
plan established for the benefit of the Company's employees, or the
establishment or maintenance of any such plan; (iii) reasonable director,
officer and employee compensation and other benefits, and indemnification
arrangements approved by a majority of the Independent Directors on the Board of
Directors; (iv) transactions permitted by the "Limitations on Restricted
Payments" covenant; (v) the pledge of Capital Stock of Unrestricted Subsidiaries
to support the Indebtedness thereof; (vi) transactions between the Company and
any Restricted Subsidiary and Kuukpik/ Pool Arctic Alaska, an Alaskan
partnership ("KPAA"), so long as no direct or indirect holder of an equity
interest in KPAA (other than the Company or a Restricted Subsidiary) is an
Affiliate of the Company or a Restricted Subsidiary and provided that at the
time of such transaction the Company and its Restricted Subsidiaries have no
less economic benefit in KPAA than the Company and its Restricted Subsidiaries
had as of the Issue Date; (vii) transactions between the Company or any
Restricted Subsidiary and any Affiliate of the Company or such Restricted
Subsidiary that is a joint venture, provided that no direct or indirect holder
of an equity interest in such joint venture (other than the Company or a
Restricted Subsidiary) is an Affiliate of the Company or such Restricted
Subsidiary; and (viii) sale of inventory in the ordinary course of business from
the Company or any Restricted Subsidiary to any Affiliate of the Company.
Limitations on Liens. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, incur or permit to exist any
Lien of any nature whatsoever on any property of the Company or any Restricted
Subsidiary (including Capital Stock of a Restricted Subsidiary), whether owned
at the Issue Date or thereafter acquired, which secures Indebtedness that is not
Senior Indebtedness, except Permitted Liens, unless contemporaneously therewith
effective provision is made to secure the Notes or its
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Note Guarantee, as the case may be, equally and ratably with (or if such Lien
secures Subordinated Indebtedness, prior to) such Indebtedness.
Limitations on Asset Sales. (a) The Indenture provides that the Company
will not, and will not permit any of its Restricted Subsidiaries to, consummate
any Asset Sale unless (i) the Company or such Restricted Subsidiary receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value of the assets included in such Asset Sale (evidenced by the delivery by
the Company to the Trustee of an Officers' Certificate certifying that such
Asset Sale complies with this clause (i)), (ii) immediately before and
immediately giving effect to such Asset Sale, no Default or Event of Default
shall have occurred and be continuing, and (iii) at least 75% of the
consideration received by the Company or such Restricted Subsidiary therefor is
in the form of cash paid at the closing thereof. The amount (without
duplication) of any (x) Indebtedness (other than Subordinated Indebtedness) of
the Company or such Restricted Subsidiary that is expressly assumed by the
transferee in such Asset Sale and with respect to which the Company or such
Restricted Subsidiary, as the case may be, is unconditionally released by the
holder of such Indebtedness, and (y) any Cash Equivalents, or other notes,
securities or items of property received from such transferee that are promptly
(but in any event within 30 days) converted by the Company or such Restricted
Subsidiary to cash (to the extent of the cash actually so received), shall be
deemed to be cash for purposes of clause (ii) and, in the case of clause (x)
above, shall also be deemed to constitute a repayment of, and a permanent
reduction in, the amount of such Indebtedness for purposes of the following
paragraph (b). If at any time any non-cash consideration received by the Company
or any Restricted Subsidiary of the Company, as the case may be, in connection
with any Asset Sale is converted into or sold or otherwise disposed of for cash
(other than interest received with respect to any such non-cash consideration),
then the date of such conversion or disposition shall be deemed to constitute
the date of an Asset Sale hereunder and the Net Available Proceeds thereof shall
be applied in accordance with this covenant. A transfer of assets by the Company
to a Restricted Subsidiary or by a Restricted Subsidiary to the Company or to a
Restricted Subsidiary will not be deemed to be an Asset Sale and a transfer of
assets that constitutes a Restricted Investment and that is permitted under
"-- Limitations on Restricted Payments" will not be deemed to be an Asset Sale.
(b) If the Company or any Restricted Subsidiary engages in an Asset Sale,
the Company or any Restricted Subsidiary shall either, no later than 270 days
after such Asset Sale, (i) apply all or any of the Net Available Proceeds
therefrom to repay amounts outstanding under the Credit Agreement or any other
Senior Indebtedness; provided, in each case, that the related loan commitment
(if any) is thereby permanently reduced by the amount of such Indebtedness so
repaid and/or (ii) invest all or any part of the Net Available Proceeds thereof
in the purchase of fixed assets to be used by the Company and its Restricted
Subsidiaries in a Related Business (together with any short-term assets
incidental thereto), or the making of a Related Business Investment. The amount
of such Net Available Proceeds not applied or invested as provided in this
paragraph will constitute "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds equals or exceed $10
million, the Company will be required to make an offer to purchase, from all
holders of the Notes, an aggregate principal amount of Notes equal to the amount
of such Excess Proceeds as follows:
(i) The Company will make an offer to purchase (a "Net Proceeds
Offer") from all holders of the Notes in accordance with the procedures set
forth in the Indenture the maximum principal amount (expressed as a
multiple of $1,000) of Notes that may be purchased out of the amount (the
"Payment Amount") of such Excess Proceeds.
(ii) The offer price for the Notes will be payable in cash in an
amount equal to 100% of the principal amount of the Notes tendered pursuant
to a Net Proceeds Offer, plus accrued and unpaid interest and Special
Interest, if any, to the date such Net Proceeds Offer is consummated (the
"Offered Price"), in accordance with the procedures set forth in the
Indenture. To the extent that the aggregate Offered Price of Notes tendered
pursuant to a Net Proceeds Offer is less than the Payment Amount relating
thereto (such shortfall constituting a "Net Proceeds Deficiency"), the
Company may use such Net Proceeds Deficiency, or a portion thereof, for
general corporate purposes, subject to the limitations of the "Limitations
on Restricted Payments" covenant.
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(iii) If the aggregate Offered Price of Notes validly tendered and not
withdrawn by holders thereof exceeds the Payment Amount, Notes to be
purchased will be selected on a pro rata basis.
(iv) Upon completion of such Net Proceeds Offer in accordance with the
foregoing provisions, the amount of Excess Proceeds with respect to which
such Net Proceeds Offer was made shall be deemed to be zero.
The Company will not permit any 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 a Net Proceeds 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.
Limitations on Mergers and Certain Other Transactions. The Indenture
provides that the Company will not, in a single transaction or a series of
related transactions, (i) consolidate or merge with or into (other than a merger
with a Wholly-Owned Restricted Subsidiary solely for the purpose of changing the
Company's jurisdiction of incorporation to another State of the United States),
or sell, lease, transfer, convey or otherwise dispose of or assign all or
substantially all of the assets of the Company or the Company and its
Subsidiaries (taken as a whole), or assign any of its obligations under the
Notes and the Indenture, to any Person or (ii) adopt a Plan of Liquidation
unless, in either case: (a) the Person formed by or surviving such consolidation
or merger (if other than the Company) or to which such sale, lease, conveyance
or other disposition or assignment shall be made (or, in the case of a Plan of
Liquidation, any Person to which assets are transferred) (collectively, the
"Successor"), is a corporation organized and existing under the laws of any
State of the United States of America or the District of Columbia, and the
Successor assumes by supplemental indenture in a form satisfactory to the
Trustee all of the obligations of the Company under the Notes and the Indenture;
(b) immediately prior to and immediately after giving effect to such transaction
and the assumption of the obligations as set forth in clause (a) above and the
incurrence of any Indebtedness to be incurred in connection therewith, no
Default or Event of Default shall have occurred and be continuing; and (c)
immediately after and giving effect to such transaction and the assumption of
the obligations set forth in clause (a) above and the incurrence of any
Indebtedness to be incurred in connection therewith, and the use of any net
proceeds therefrom on a pro forma basis, (1) the Consolidated Net Worth of the
Company or the Successor, as the case may be, would be at least equal to the
Consolidated Net Worth of the Company immediately prior to such transaction and
(2) the Company or the Successor, as the case may be, could meet the Coverage
Ratio Incurrence Condition; and (d) each Subsidiary Guarantor, unless it is the
other party to the transactions described above, shall have by supplemental
indenture confirmed that its Note Guarantee shall apply to the obligations of
the Company or the Successor under the Notes and the Indenture. For purposes of
this covenant, any Indebtedness of the Successor which was not Indebtedness of
the Company immediately prior to the transaction shall be deemed to have been
incurred in connection with such transaction.
Additional Note Guarantees. The Indenture provides that if the Company or
any of its Subsidiaries shall acquire or create another Subsidiary (other than
(x) any Foreign Subsidiary or (y) a Subsidiary that has been designated as an
Unrestricted Subsidiary), then such newly acquired or created Subsidiary will be
required to execute a Note Guarantee, in accordance with the terms of the
Indenture.
Reports. Whether or not required by the rules and regulations of the
Commission, so long as any Notes are outstanding, the Company and the Subsidiary
Guarantors will file with the Commission, to the extent such filings are
accepted by the Commission, and will furnish to the Trustee and holders of Notes
all quarterly and annual reports and other information, documents and reports
that would be required to be filed with the Commission pursuant to Section 13 of
the Exchange Act if the Company and the Subsidiary Guarantors were required to
file under such section. In addition, the Company and the Subsidiary Guarantors
will make such information available to prospective purchasers of the Notes,
securities analysts and broker-dealers who request it in writing. The Company
and the Subsidiary Guarantors have agreed that, for so long as any Notes remain
outstanding, they will furnish to the holders and beneficial holders of Notes
and to prospective purchasers of Notes designated by the holders to broker
dealers, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act.
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EVENTS OF DEFAULT
An "Event of Default" is defined in the Indenture as (i) failure by the
Company to pay interest on any of the Notes when it becomes due and payable and
the continuance of any such failure for 30 days; (ii) failure by the Company to
pay the principal or premium, if any, on any of the Notes when it becomes due
and payable, whether at stated maturity, upon redemption, upon acceleration or
otherwise; (iii) failure by the Company to comply with any of its agreements or
covenants described above under "Certain Covenants -- Limitations on Mergers and
Certain Other Transactions", or in respect of its obligations to make a Change
of Control Offer or a Net Proceeds Offer described in "Change of Control" and
"Certain Covenants -- Limitations on Asset Sales", respectively; (iv) failure by
the Company to comply with any other covenant in the Indenture and continuance
of such failure for 60 days after notice of such failure has been given to the
Company by the Trustee or by the holders of at least 25% of the aggregate
principal amount of the Notes then outstanding; (v) failure by either the
Company or any of its Restricted Subsidiaries to make any payment when due after
the expiration of any applicable grace period, in respect of any Indebtedness of
the Company or any of such Restricted Subsidiaries, or the acceleration of the
maturity of such Indebtedness by the holders thereof because of a default, with
an aggregate outstanding principal amount for all such Indebtedness under this
clause (v) of $10 million or more; (vi) one or more final, non-appealable
judgments or orders that exceed $10 million in the aggregate for the payment of
money have been entered by a court or courts of competent jurisdiction against
the Company or any Subsidiary of the Company and such judgment or judgments have
not been satisfied, stayed, annulled or rescinded within 60 days of being
entered; (vii) certain events of bankruptcy, insolvency or reorganization
involving the Company or any Significant Subsidiary; and (viii) except as
permitted by the Indenture, any Note Guarantee ceases to be in full force and
effect or any Guarantor repudiates its obligations under any Note Guarantee.
If an Event of Default (other than an Event of Default specified in clause
(vii) above involving the Company), shall have occurred and be continuing under
the Indenture, the Trustee, by written notice to the Company, or the holders of
at least 25% in aggregate principal amount of the Notes then outstanding by
written notice to the Company and the Trustee may declare all amounts owing
under the Notes to be due and payable immediately. Upon such declaration of
acceleration, the aggregate principal of, premium, if any, and interest on the
outstanding Notes shall immediately become due and payable. If an Event of
Default results from bankruptcy, insolvency or reorganization involving the
Company, all outstanding Notes shall become due and payable without any further
action or notice. In certain cases, the holders of a majority in aggregate
principal amount of the Notes then outstanding may waive an existing Default or
Event of Default and its consequences, except a default in the payment of
principal of, premium, if any, and interest on the Notes.
The holders may not enforce the provisions of the Indenture or the Notes
except as provided in the Indenture. Subject to certain limitations, holders of
a majority in principal amount of the Notes then outstanding may direct the
Trustee in its exercise of any trust or power; provided however, that such
direction does not conflict with the terms of the Indenture. The Trustee may
withhold from the holders notice of any continuing Default or Event of Default
(except any Default or Event of Default in payment of principal of, premium, if
any, or interest on the Notes) if the Trustee determines that withholding such
notice is in the holders' interest.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture and, upon any Officer of the Company
becoming aware of any Default or Event of Default, a statement specifying such
Default or Event of Default and what action the Company is taking or proposes to
take with respect thereto.
SATISFACTION AND DISCHARGE OF INDENTURE; DEFEASANCE
The Company may terminate its obligations under the Indenture at any time
by delivering all outstanding Notes to the Trustee for cancellation and paying
all sums payable by it thereunder. The Company, at its option, (i) will be
discharged from any and all obligations with respect to the Notes (except for
certain obligations of the Company to register the transfer or exchange of such
Notes, replace stolen, lost or mutilated Notes, maintain paying agencies and
hold moneys for payment in trust); or (ii) need not comply with certain
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of the restrictive covenants with respect to the Indenture, if the Company
deposits with the Trustee, in trust, U.S. Legal Tender or non-callable
Government Securities or a combination thereof that, through the payment of
interest and premium thereon and principal amount at maturity in respect thereof
in accordance with their terms, will be sufficient to pay all the principal
amount at maturity of and interest and premium on the Notes on the dates such
payments are due in accordance with the terms of such Notes as well as the
Trustee's fees and expenses. To exercise either such option, the Company is
required to deliver to the Trustee (A) an Opinion of Counsel and, in connection
with a discharge pursuant to clause (i) above, confirmation of such counsel that
(I) the Company has received from, or there has been published by, the Internal
Revenue Service a ruling or (II) 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 the holders of the Notes will not recognize income, gain or loss for
federal income tax purposes as a result of the deposit and related defeasance
and will be subject to federal income tax on the same amount and in the same
manner and at the same times as would have been the case if such option had not
been exercised, (B) subject to certain qualifications, an Opinion of Counsel to
the effect that funds so deposited will not violate the Investment Company Act
of 1940 and will not be subject to the effect of Section 547 of the United
States Bankruptcy Code or Section 15 of the New York Debtor and Creditor Law and
(C) an Officers' Certificate and an Opinion of Counsel to the effect that the
Company has complied with all conditions precedent to the defeasance.
TRANSFER AND EXCHANGE
A holder will be able to register the transfer of or exchange Notes only in
accordance with the provisions of the Indenture. The Registrar may require a
holder, among other things, to furnish appropriate endorsements and transfer
documents and to pay any taxes and fees required by law or permitted by the
Indenture. Without the prior consent of the Company, neither the Trustee nor the
Registrar is required (i) to register the transfer of or exchange any Note
selected for redemption, (ii) to register the transfer of or exchange any Note
for a period of 15 days before a selection of Notes to be redeemed or (iii) to
register the transfer or exchange of a Note between a record date and the next
succeeding interest payment date. The registered holder of a Note will be
treated as the owner of such Note for all purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Subject to certain exceptions, the Indenture or the Notes may be amended or
supplemented with the consent (which may include consents obtained in connection
with a tender offer or exchange offer for Notes) of the holders of at least a
majority in principal amount of the Notes then outstanding, and any existing
Default under, or compliance with any provision of, the Indenture may be waived
(other than any continuing Default or Event of Default in the payment of the
principal of, premium, if any, or interest on the Notes) with the consent (which
may include consents obtained in connection with a tender offer or exchange
offer for Notes) of the holders of a majority in principal amount of the Notes
then outstanding; provided that:
(A) no such modification or amendment may, without the consent of the
holders of 75% in aggregate principal amount of such series of Notes then
outstanding, amend or modify the obligations of the Company under the
caption "Change of Control" or the definitions related thereto that could
adversely affect the rights of any holder of the Notes; and
(B) without the consent of each holder affected, the Company, the
Subsidiary Guarantors and the Trustee may not: (i) extend the maturity of
any Note; (ii) affect the terms of any scheduled payment of interest on or
principal of the Notes (including, without limitation any redemption
provisions) (iii) take any action that would subordinate the Notes or the
Note Guarantees to any other Indebtedness of the Company or any of
Guarantors, respectively (except as provided under "Subordination" above),
or otherwise affect the ranking of the Notes or the Note Guarantees; or
(iv) reduce the percentage of holders necessary to consent to an amendment,
supplement or waiver to the Indenture.
Without the consent of any holder, the Company, the Subsidiary
Guarantors 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
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assumption of the Company's obligations to holders in the case of a merger
or acquisition, to make any change that does not adversely affect the
rights of any holder, to secure the Notes pursuant to the requirements of
the covenant described under the caption "-- Certain
Covenants -- Limitations on Liens," to add any additional Guarantor or to
release any Guarantor from its Note Guarantee, in each case as provided in
the Indenture, 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
Marine Midland Bank is the Trustee under the Indenture and has been
appointed by the Company as Registrar and Paying Agent with regard to the Notes.
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 (as defined in
the Indenture), it must eliminate such conflict or resign.
The holders of a majority in 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
occurs and is not cured, the Trustee will be required, in the exercise of its
power, to use the degree of care of a prudent person in similar circumstances 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, unless such holder shall have offered to the
Trustee security and indemnity satisfactory to the Trustee.
GOVERNING LAW
Each of the Indenture, the Notes and the Note Guarantees provides that it
will be governed by, and construed in accordance with, the laws of the State of
New York.
BOOK-ENTRY, DELIVERY AND FORM OF SECURITIES
The Old Notes were offered and sold to Qualified Institutional Buyers (as
defined in Rule 144A under the Securities Act) in reliance on Rule 144A ("Rule
144A Notes"). Old Notes were also offered and sold in offshore transactions in
reliance on Regulation S under the Securities Act ("Regulation S Notes"). The
Rule 144A Notes and the Regulation S Notes were initially issued in the form of
two global Notes (collectively, the "Old Global Note").
The New Notes issued in exchange for the Rule 144A Notes and the Regulation
S Notes initially will be represented by one or more Notes in registered, global
form without interest coupons, (collectively, the "Global Notes"). The Old
Global Note was deposited on the date of the closing of the sale of the Old
Notes, and the Global Note will be deposited on the date of the closing of the
Exchange Offer, with or on behalf of the Depository Trust Company (the
"Depository") and registered in the name of Cede & Co., as the nominee of the
Depository (such nominee being referred to herein as the "Global Note Holder").
The Depositary has advised the Company that the Depositary is a
limited-purpose trust company that was created to hold securities for its
participating organizations (collectively, the "Participants" or the
"Depositary's Participants") and to facilitate the clearance and settlement of
transactions in such securities between Participants through electronic
book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depositary'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 Depositary only through the Depositary's
Participants or the Depositary's Indirect Participants.
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The Depositary has also advised the Company that pursuant to procedures
established by the Depositary (i) upon deposit of the Global Notes, the
Depositary will credit the accounts of Participants designated by the Initial
Purchasers with portions of the principal amount of the Global Notes and (ii)
ownership of the Notes will be shown on, and the transfer of ownership thereof
will be effected only through, records maintained by the Depositary (with
respect to the interests of the Depositary's Participants), the Depositary's
Participants and the Depositary's Indirect Participants.
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 the Notes will be limited to such extent.
So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole holder of outstanding Notes
represented by such Global Notes under the Indenture. Except as provided below,
owners of Notes will not be entitled to have Notes registered in their names and
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. None of the Company, the Guarantors or the
Trustee will have any responsibility or liability for any aspect of the records
relating to or payments made on account of Notes by the Depositary, or for
maintaining, supervising or reviewing any records of the Depositary relating to
such Notes.
Payments in respect of the principal of, premium, if any, and interest on
any Notes registered in the name of a Global Note Holder on the applicable
record date will be payable by the Trustee to or at the direction of such Global
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 any Notes, including the Global Notes, are registered as the owners
thereof for the purpose of receiving such payments and for any and all other
purposes whatsoever. Consequently, none of the Company, the Subsidiary
Guarantors or the Trustee has or will have any responsibility or liability for
the payment of such amounts to beneficial owners of Notes (including principal,
premium, if any, and interest). The Company believes, however, that it is
currently the policy of the Depositary to immediately credit the accounts of the
relevant Participants with such payments, in amounts proportionate to their
respective beneficial interests in the relevant security as shown on the records
of the Depositary. Payments by the Depositary's Participants and the
Depositary's Indirect Participants to the beneficial owners of Notes will be
governed by standing instructions and customary practice and will be the
responsibility of the Depositary's Participants or the Depositary's Indirect
Participants.
Subject to certain conditions, any person having a beneficial interest in
the Global Notes may, upon request to the Trustee, exchange such beneficial
interest for Notes in definitive form. Upon any such issuance, the Trustee is
required to register such Notes in the name of, and cause the same to be
delivered to, such person (or the nominee thereof). Such Notes would be issued
in fully registered form and would be subject to the legal requirements
described herein under the caption "Notice to Investors." In addition, if (i)
the Company notifies the Trustee in writing that the Depositary is no longer
willing or able to act as a depositary 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 Notes in
definitive form under the Indenture, then, upon surrender by the relevant Global
Note Holder of its Global Note, Notes in such form will be issued to each person
that such Global Note Holder or the Depositary identifies as being the
beneficial owner of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
The Indenture requires that payments in respect of the Notes represented by
a Global Note (including principal, premium, if any, interest and Special
Interest) be made in same-day funds to the accounts specified by the Global Note
Holder.
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REGISTRATION RIGHTS
Holders of the New Notes are not entitled to any registration rights with
respect to the New Notes. The Company as agreed for such time period as
broker-dealers must comply with the prospectus delivery requirements of the
Exchange Act in order to resell the New Notes, the Company will make available a
prospectus meeting the requirements of the Securities Act to any broker-dealer
for use in connection with any resale of the New Notes. The Registration
Statement constitutes the registration statement for the Exchange Offer which is
the subject of the Registration Rights Agreement. Upon the closing of the
Exchange Offer, subject to certain limited exceptions, Holders of untendered Old
Notes will not retain any rights under the Registration Rights Agreement.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture or
the Registration Rights Agreement without charge by contacting the Company at
10375 Richmond Avenue, Houston, Texas 77042, (713) 954-3000.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms.
"Acquired Indebtedness" means (a) with respect to any Person that becomes a
Restricted Subsidiary after the date of the Indenture, Indebtedness of such
Person and its Subsidiaries existing at the time such Person becomes a
Restricted Subsidiary that was not incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary and (b) with
respect to the Company or any of its Restricted Subsidiaries, any Indebtedness
of a Person (other than the Company or a Restricted Subsidiary) existing at the
time such Person is merged with or into the Company or a Restricted Subsidiary,
or Indebtedness assumed by the Company or any of its Restricted Subsidiaries in
connection with the acquisition of an asset or assets from another Person, which
Indebtedness was not, in any case, incurred by such other Person in connection
with, or in contemplation of, such merger or acquisition.
"Affiliate" of any Person means any Person (i) which directly or indirectly
controls or is controlled by, or is under direct or indirect common control
with, the referent Person, (ii) which beneficially owns or holds, directly or
indirectly, 10% or more of any class of the Voting Stock, or more than 20% of
all classes of Capital Stock (other than Disqualified Capital Stock) in the
aggregate, of the referent Person, (iii) of which 10% or more of the Voting
Stock, or more than 20% of all classes of Capital Stock (other than Disqualified
Capital Stock) in the aggregate, is beneficially owned or held, directly or
indirectly, by the referent Person or (iv) with respect to an individual, any
immediate family member of such Person. For purposes of this definition, control
of a Person shall mean the power to direct the management and policies of such
Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease,
assignment 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
transaction or a series of related transactions, of (a) any Capital Stock of any
Restricted Subsidiary or (b) any other properties or assets of the Company or
any of its Restricted Subsidiaries other than transfers of cash, Cash
Equivalents, accounts receivable, inventory or other properties or assets in the
ordinary course of business. For the purposes of this definition, the term
"Asset Sale" shall not include any of the following: (i) any transfer of
properties or assets (including Capital Stock) that is governed by, and made in
accordance with, the provisions described under "-- Certain Covenants --
Limitations on Mergers and Certain Other Transactions"; (ii) any transfer of
properties or assets constituting a Restricted Investment, if permitted under
the "Limitations on Restricted Payments" covenant; (iii) sales of damaged,
worn-out or obsolete equipment or assets that, in the Company's reasonable
judgment, are either no longer used or useful in the business of the Company or
its Subsidiaries, provided that the proceeds thereof are used to purchase
replacement or similar assets for use in the business of the Company and its
Subsidiaries;
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(iv) any trade or exchange by the Company or any Restricted Subsidiary of
equipment or assets for other equipment or assets owned or held by another
Person, provided that (A) the Fair Market Value of the equipment or assets
traded or exchanged by the Company or such Restricted Subsidiary (including any
cash or Cash Equivalents, not to exceed 15% of such Fair Market Value, to be
delivered by the Company or such Restricted Subsidiary) is reasonably equivalent
to the Fair Market Value of the equipment or assets (together with any cash or
Cash Equivalents, not to exceed 15% of such Fair Market Value) to be received by
the Company or such Restricted Subsidiary, (B) the Fair Market Value of the
equipment or assets traded or exchanged in such trade or exchange or any such
series of related trades or exchanges does not exceed $2.5 million and (C) such
trade or exchange is approved by a majority of the Independent Directors of the
Company; and (v) any transfers that, but for this clause (v), would be Asset
Sales, if 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 does not exceed $500,000.
"Attributable Indebtedness," when used with respect to any Sale and
Leaseback Transaction, means, as at the time of determination, the present value
(discounted at a rate equivalent to the Company's then-current weighted average
cost of funds for borrowed money as at the time of determination, compounded on
a semi-annual basis) of the total obligations of the lessee for rental payments
during the remaining term of the lease included in any such Sale and Leaseback
Transaction.
"Board Resolution" means a duly adopted resolution of the Board of
Directors of the Company.
"Capital Stock" of any Person means (i) any and all shares or other equity
interests (including without limitation common stock, preferred stock and
partnership interests) in such Person and (ii) all rights to purchase, warrants
or options (whether or not currently exercisable), participations or other
equivalents of or interests in (however designated) such shares or other
interests in such Person.
"Capitalized Lease Obligations" of any Person means the obligations of such
Person to pay rent or other amounts under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP, and the
amount of such obligation shall be the capitalized amount thereof determined in
accordance with GAAP.
"Cash Equivalents" means (i) marketable obligations with a maturity of 180
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) U.S. dollar denominated time deposits and certificates of deposit
of any financial institution (a) that is a member of the Federal Reserve System
having combined capital and surplus and undivided profits of not less than $100
million or (b) whose short-term commercial paper rating or that of its parent
company is at least A-1 or the equivalent thereof from S&P or P-1 or the
equivalent thereof from Moody's (any such bank, an "Approved Bank"), in each
case with a maturity of 180 days or less from the date of acquisition; (iii)
commercial paper issued by any Approved Bank or by the parent company of any
Approved Bank and commercial paper issued by, or guaranteed by, any industrial
or financial company with a short-term commercial paper rating of at least A-1
or the equivalent thereof by S&P or at least P-1 or the equivalent thereof by
Moody's, or guaranteed by any industrial company with a long term unsecured debt
rating of at least A or Baa1, or the equivalent of each thereof, from S&P or
Moody's, as the case may be, and in each case maturing no more than 180 days
from the date of acquisition; (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)(a) above; (v) investments in money market or other mutual funds
substantially all of whose assets comprise securities of the types described in
clauses (i) through (iv) above; and (vi) time deposits and certificates of
deposit of any commercial bank of recognized standing having capital and surplus
in excess of the local currency equivalent of $100 million incorporated in a
country where the Company has one or more locally operating Foreign
Subsidiaries, and that is, as of the Issue Date, providing banking services to
the Company or any of its Foreign Subsidiaries.
"Change of Control" means the occurrence of any of the following events
(whether or not approved by the Board of Directors of the Company): (i) any
other Person or group (as such term is used in Section 13(d)(3) of the Exchange
Act) is or becomes the beneficial owner (as defined in Rule 13d-3 of the
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Exchange Act), directly or indirectly, of more than 50% of the Voting Stock of
the Company, (ii) the Company sells, assigns, conveys, transfers, leases or
otherwise disposes of all or substantially all of the assets of the Company and
its Subsidiaries to any Person, (iii) the Company or any of its Subsidiaries
consolidates with, or merges with or into, any Person, and as a result of such
consolidation or merger the Voting Stock of the Company outstanding prior to
such consolidation or merger does not represent (either by remaining outstanding
or by being converted into Voting Stock of the surviving Person or any parent
thereof) at least a majority of the Voting Stock of the Company or the surviving
Person or any parent thereof outstanding immediately after such consolidation or
merger, or (iv) during any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election by such Board of Directors or
whose nomination for election by the stockholders of the Company was approved by
a vote of a majority of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of the Company then in office.
"Consolidated Amortization Expense" for any period means the amortization
expense of the Company and its Restricted Subsidiaries for such period (to the
extent included in the computation of Consolidated Net Income), determined on a
consolidated basis in accordance with GAAP.
"Consolidated Depreciation Expense" for any period means the depreciation
expense of the Company and its Restricted Subsidiaries for such period (to the
extent included in the computation of Consolidated Net Income), determined on a
consolidated basis in accordance with GAAP.
"Consolidated Income Tax Expense" for any period means the provision for
taxes based on income and profits of the Company and its Restricted Subsidiaries
to the extent such income or profits were included in computing Consolidated Net
Income for such period.
"Consolidated Interest Coverage Ratio" means, with respect to any
determination date, the ratio of (a) EBITDA for the four full fiscal quarters
immediately preceding the determination date (for any determination, the
"Reference Period"), to (b) Consolidated Interest Expense for such Reference
Period. In making such computations, (i) EBITDA and Consolidated Interest
Expense shall be calculated on a pro forma basis assuming that (A) the
Indebtedness to be incurred or the Disqualified Capital Stock to be issued (and
all other Indebtedness incurred or Disqualified Capital Stock issued after the
first day of such Reference Period referred to in the covenant described under
"-- Certain Covenants -- Limitations on Additional Indebtedness" through and
including the date of determination), and (if applicable) the application of the
net proceeds therefrom (and from any other such Indebtedness or Disqualified
Capital Stock), including the refinancing of other Indebtedness, had been
incurred on the first day of such Reference Period and, in the case of Acquired
Indebtedness, on the assumption that the related transaction (whether by means
of purchase, merger or otherwise) also had occurred on such date with the
appropriate adjustments with respect to such acquisition being included in such
pro forma calculation and (B) any acquisition or disposition by the Company or
any Restricted Subsidiary of any properties or assets outside the ordinary
course of business or any repayment of any principal amount of any Indebtedness
of the Company or any Restricted Subsidiary prior to the stated maturity
thereof, in either case since the first day of such Reference Period through and
including the date of determination, had been consummated on such first day of
such Reference Period; (ii) the Consolidated Interest Expense attributable to
interest on any Indebtedness required to be computed on a pro forma basis in
accordance with the covenant described under "-- Certain
Covenants -- Limitations on Additional Indebtedness" and (A) bearing a floating
interest rate shall be computed as if the rate in effect on the date of
computation had been the applicable rate for the entire period and (B) which was
not outstanding during the period for which the computation is being made but
which bears, at the option of the Company, a fixed or floating rate of interest,
shall be computed by applying, at the option of the Company, either the fixed or
floating rate; (iii) the Consolidated Interest Expense attributable to interest
on any Indebtedness under a revolving credit facility required to be computed on
a pro forma basis in accordance with the covenant described under "-- Certain
Covenants -- Limitations on Additional Indebtedness" shall be computed based
upon the average daily balance of such Indebtedness during the applicable
period, provided that such average daily balance shall be reduced by the amount
of any repayment of Indebtedness under a
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revolving credit facility during the applicable period; (iv) notwithstanding the
foregoing clauses (ii) and (iii), interest on Indebtedness determined on a
floating rate basis, to the extent such interest is covered by agreements
relating to Hedging Obligations, shall be deemed to have accrued at the rate per
annum resulting after giving effect to the operation of such agreements; and (v)
if after the first day of the applicable Reference Period and before the date of
determination, the Company has permanently retired any Indebtedness out of the
net proceeds of the issuance and sale of shares of Capital Stock (other than
Disqualified Capital Stock) of the Company within 60 days of such issuance and
sale, Consolidated Interest Expense shall be calculated on a pro forma basis as
if such Indebtedness had been retired on the first day of such period.
"Consolidated Interest Expense" for any period means the sum, without
duplication, of the total interest expense of the Company and its consolidated
Restricted Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP and including, without limitation (i) imputed interest on
Capitalized Lease Obligations and Attributable Indebtedness, (ii) commissions,
discounts and other fees and charges owed with respect to letters of credit
securing financial obligations and bankers' acceptance financing, (iii) the net
costs associated with Hedging Obligations, (iv) amortization of other financing
fees and expenses, (v) the interest portion of any deferred payment obligations,
(vi) amortization of debt discount or premium, if any, (vii) all other non-cash
interest expense, (viii) capitalized interest, (ix) all cash dividend payments
(and non-cash dividend payments in the case of a Restricted Subsidiary) on any
series of preferred stock of the Company or any Restricted Subsidiary, (x) all
interest payable with respect to discontinued operations, and (xi) all interest
on any Indebtedness of any other Person guaranteed by the Company or any
Restricted Subsidiary.
"Consolidated Net Income" for any period means the net income (or loss) of
the Company and its consolidated Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP; provided that there
shall be excluded from such net income (to the extent otherwise included
therein), without duplication (i) the net income (or loss) of any Person (other
than a Restricted Subsidiary) in which any Person other than the Company and its
Restricted Subsidiaries has an ownership interest, except to the extent that any
such income has actually been received by the Company and its Restricted
Subsidiaries in the form of cash dividends during such period; (ii) except to
the extent includible in the consolidated net income of the Company pursuant to
the foregoing clause (i), the net income (or loss) of any Person that accrued
prior to the date that (a) such Person becomes a Restricted Subsidiary or is
merged into or consolidated with the Company or any Restricted Subsidiary or (b)
the assets of such Person are acquired by the Company or any Restricted
Subsidiary; (iii) the net income of any Restricted Subsidiary during such period
to the extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary of that income (a) is not permitted
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to that
Subsidiary during such period or (b) would be subject to any taxes payable on
such dividend or distribution; (iv) any gain (or, only in the case of a
determination of Consolidated Net Income as used in EBITDA, any loss), together
with any related provisions for taxes on any such gain (or, if applicable, the
tax effects of such loss), realized during such period by the Company or any
Restricted Subsidiary upon (a) the acquisition of any securities, or the
extinguishment of any Indebtedness, of the Company or any Restricted Subsidiary
or (b) any Asset Sale by the Company or any of its Restricted Subsidiaries; (v)
any extraordinary gain (or, only in the case of a determination of Consolidated
Net Income as used in EBITDA, any extraordinary loss), together with any related
provision for taxes on any such extraordinary gain (or, if applicable, the tax
effects of such extraordinary loss), realized by the Company or any Restricted
Subsidiary during such period; and (vi) in the case of a successor to the
Company by consolidation, merger or transfer of its assets, any earnings of the
successor prior to such merger, consolidation or transfer of assets; and
provided, further, that any gain referred to in clauses (iv) and (v) above that
relates to a Restricted Investment and which is received in cash by the Company
or a Restricted Subsidiary during such period shall be included in the
consolidated net income of the Company.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the consolidated equity of the common stockholders of such Person and its
consolidated Subsidiaries as of such date, less all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going
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concern business made within twelve months after the acquisition of such
business) subsequent to the date of the Indenture in the book value of any asset
owned by such Person or a Subsidiary of such Person.
"Coverage Ratio Incurrence Condition" would be met at any specified time
only if the Company (or its Successor, as the case may be) would be able to
incur $1.00 of additional Indebtedness at such specified time pursuant to the
Consolidated Interest Coverage Ratio test set forth in the covenant described
under "-- Certain Covenants -- Limitations on Additional Indebtedness".
"Credit Agreement" means the Amended and Restated Credit Agreement dated
March 26, 1998 by and among SBC Warburg Dillon Read Inc., as arranger, Credit
Lyonnais New York Branch, as administrative agent, Swiss Bank Corporation
Stamford Branch, as documentation agent, the banks party thereto, the Company
and the Guarantors, together with any additional guarantees by the Guarantors
and security agreements, as any of the foregoing may be subsequently amended,
restated, refinanced, or replaced from time to time, and shall include
agreements in respect of Hedging Obligations designed to protect against
fluctuations in interest rates and entered into with respect to loans
thereunder.
"Default" means any event, act or condition that is, or after notice or the
passage of time or both would be, an Event of Default.
"Designated Senior Indebtedness" means (i) Indebtedness under the Credit
Agreement (whether incurred pursuant to the definition of Permitted Indebtedness
or pursuant to the covenant described under "Limitations on Additional
Indebtedness" covenant) and (ii) any other Indebtedness constituting Senior
Indebtedness that at the date of determination, has an aggregate principal
amount outstanding of at least $25 million and that is specifically designated
by the Company, in the instrument creating or evidencing such Senior
Indebtedness or in an Officers' Certificate delivered to the Trustee, as
"Designated Senior Indebtedness."
"Disqualified Capital Stock" means any Capital Stock of such Person or any
of its Subsidiaries that, by its terms, by the terms of any agreement related
thereto or by the terms of any security into which it is convertible, puttable
or exchangeable, is, or upon the happening of any event or the passage of time
would be, required to be redeemed or repurchased by such Person or any to its
Subsidiaries, whether or not at the option of the holder thereof, or matures or
is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise,
in whole or in part, on or prior to the final maturity date of the Notes;
provided, however, that any class of Capital Stock of such Person that, by its
terms, authorizes such Person to satisfy in full its obligations with respect to
the payment of dividends or upon maturity, redemption (pursuant to a sinking
fund or otherwise) or repurchase thereof or otherwise by the delivery of Capital
Stock that is not Disqualified Capital Stock, and that is not convertible,
puttable or exchangeable for Disqualified Capital Stock or any other
Indebtedness, shall not be deemed to be Disqualified Capital Stock so long as
such Person satisfies its obligations with respect thereto solely by the
delivery of Capital Stock that is not Disqualified Capital Stock.
"EBITDA" for any period means without duplication, the sum of the amounts
for such period of (i) Consolidated Net Income plus (ii) in each case to the
extent deducted in determining Consolidated Net Income for such period (and
without duplication), (A) Consolidated Income Tax Expense, (B) Consolidated
Amortization Expense (but only to the extent not included in Consolidated
Interest Expense), (C) Consolidated Depreciation Expense, (D) Consolidated
Interest Expense and (E) all other non-cash items reducing the Consolidated Net
Income (excluding any such non-cash charge that results in an accrual of a
reserve for cash charges in any future period) for such period, in each case
determined on a consolidated basis in accordance with GAAP and minus (iii) the
aggregate amount of all non-cash items, determined on a consolidated basis, to
the extent such items increased Consolidated Net Income for such Period.
"Equity Offering" means an underwritten primary offering of Capital Stock
of the Company pursuant to a registration statement filed with the Commission in
accordance with the Securities Act, or pursuant to a private placement pursuant
to an available exemption from registration and, in the case of any such private
placement, a majority of such placement of which is sold to Persons that are not
then and were not at the Issue Date Affiliates of the Company.
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"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Existing Indebtedness" means all of the Indebtedness of the Company and
its Subsidiaries that is outstanding on the Issue Date.
"Fair Market Value" of any asset or items means the fair market value of
such asset or items as determined in good faith by the Board of Directors and
evidenced by a Board Resolution.
"Foreign Subsidiary" means any Subsidiary of the Company that is not
incorporated or organized in the United States or in any State thereof.
"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 may be approved by a significant segment of the accounting
profession of the United States, as in effect on the Issue Date.
"Guarantor" or any "Subsidiary Guarantor" means each Restricted Subsidiary
of the Company other than Foreign Subsidiaries and each other Person who is
required to become (or whom the Company otherwise causes to become) a Subsidiary
Guarantor by the terms of the Indenture.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to (i) any interest rate swap agreement, interest rate collar agreement
or other similar agreement or arrangement designed to protect such Person
against fluctuations in interest rates, (ii) agreements or arrangements designed
to protect such Person against fluctuations in foreign currency exchange rates
in the conduct of its operations, or (iii) any forward contract, commodity swap
agreement, commodity option agreement or other similar agreement or arrangement
designed to protect such Person against fluctuations in commodity prices, in
each case, entered into in the ordinary course of business for bona fide hedging
purposes and not for the purpose of speculation.
The term "incur" means, with respect to any Indebtedness or Obligation,
incur, create, issue, assume, guarantee or otherwise become directly or
indirectly liable, contingently or otherwise, with respect to such Indebtedness
or Obligation; provided that (i) the Indebtedness of a Person existing at the
time such Person became a Restricted Subsidiary shall be deemed to have been
incurred by such Restricted Subsidiary and (ii) neither the accrual of interest
nor the accretion of accreted value shall be deemed to be an incurrence of
Indebtedness.
"Indebtedness" of any Person at any date means, without duplication: (i)
all liabilities, contingent or otherwise, of such Person for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of such
Person or only to a portion thereof); (ii) all obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments; (iii) all
obligations of such Person in respect of letters of credit or other similar
instruments (or reimbursement obligations with respect thereto); (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services, except trade payables and accrued expenses incurred by
such Person in the ordinary course of business in connection with obtaining
goods, materials or services, which payable is not overdue by more than 60 days
according to the original terms of sale unless such payable is being contested
in good faith; (v) the maximum fixed redemption or repurchase price of all
Disqualified Capital Stock of such Person; (vi) all Capitalized Lease
Obligations of such Person; (vii) all Indebtedness of others secured by a Lien
on any asset of such Person, whether or not such Indebtedness is assumed by such
Person; (viii) all Indebtedness of others guaranteed by such Person to the
extent of such guarantee; provided that Indebtedness of the Company or its
Subsidiaries that is guaranteed by the Company or the Company's Subsidiaries
shall only be counted once in the calculation of the amount of Indebtedness of
the Company and its Subsidiaries on a consolidated basis; (ix) all Attributable
Indebtedness of such Person; and (x) to the extent not otherwise included in
this definition, Hedging Obligations of such Person. The amount of Indebtedness
of any Person at any date shall be the outstanding balance at such date of all
unconditional obligations as described above, the maximum liability of such
Person for any such contingent obligations at such date and, in the case of
clause (vii), the lesser of (A) the Fair Market Value of any asset subject to a
Lien securing the Indebtedness of others on the date that the Lien attaches and
(B) the amount
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of the Indebtedness secured. For purposes of the preceding sentence, the
"maximum fixed redemption or repurchase price" of any Disqualified Capital Stock
that does not have a fixed redemption or repurchase price shall be calculated in
accordance with the terms of such Disqualified Capital Stock as if such
Disqualified Capital Stock were purchased or redeemed on any date on which
Indebtedness shall be required to be determined pursuant to the Indenture, and
if such price is based upon, or measured by, the fair market value of such
Disqualified Capital Stock (or any equity security for which it may be exchanged
or converted), such fair market value shall be determined in good faith by the
Board of Directors of such Person, which determination shall be evidenced by a
Board Resolution.
"Independent Director" means a director of the Company who has not and
whose Affiliates have not, at any time during the twelve months prior to the
taking of any action hereunder, directly or indirectly, received, or entered
into any understanding or agreement to receive, any compensation, payment or
other benefit, of any type or form, from the Company or any of its Affiliates,
other than customary directors fees for serving on the Board of Directors of the
Company or any Affiliate and reimbursement of out-of-pocket expenses for
attendance at the Company's or Affiliate's board and board committee meetings.
"Independent Financial Advisor" means an accounting, appraisal or
investment banking firm of nationally recognized standing that is, in the
reasonable judgment of the Company's Board of Directors, qualified to perform
the task for which it has been engaged and disinterested and independent with
respect to the Company and its Affiliates.
"Investments" of any Person means (i) all investments by such Person in any
other Person in the form of loans, advances or capital contributions (excluding
(A) commission, travel and similar advances to officers and employees made in
the ordinary course of business and (B) loans and advances to officers and
employees made in the ordinary course of business not to exceed $1 million at
any time outstanding) or similar credit extensions constituting Indebtedness of
such Person, and any guarantee of Indebtedness of any other Person, (ii) all
purchases (or other acquisitions for consideration) by such Person of
Indebtedness, Capital Stock or other securities of any other Person and (iii)
all other items that would be classified as investments (including without
limitation purchases of assets outside the ordinary course of business) on a
balance sheet of such Person prepared in accordance with GAAP.
"Issue Date" means the date the Old Notes were initially issued.
"Lien" means, with respect to any asset or property, any mortgage, deed of
trust, lien (statutory or other), pledge, lease, easement, restriction,
covenant, charge, security interest or other encumbrance of any kind or nature
in respect of such asset or property, whether or not filed, recorded or
otherwise perfected under applicable law, including without limitation any
conditional sale or other title retention agreement, and any lease in the nature
thereof, any option or other agreement to sell, and any filing of, or agreement
to give, any financing statement under the Uniform Commercial Code (or
equivalent statutes) of any jurisdiction (other than cautionary filings in
respect of operating leases).
"Moody's" means Moody's Investors Service, Inc., and its successors.
"Net Available Proceeds" means, with respect to any Asset Sale, the
proceeds thereof in the form of cash or Cash Equivalents including payments in
respect of deferred payment obligations when received in the form of cash or
Cash Equivalents (except to the extent that such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary), net of (i)
brokerage commissions and other fees and expenses (including fees and expenses
of legal counsel, accountants and investment banks) related to such Asset Sale,
(ii) provisions for all taxes payable as a result of such Asset Sale (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), (iii) amounts required to be paid to any Person (other than the
Company or any Restricted Subsidiary) owning a beneficial interest in the
properties or assets subject to the Asset Sale or having a Lien therein and (iv)
appropriate amounts to be provided by the Company or any Restricted Subsidiary,
as the case may be, as a reserve required in accordance with GAAP against any
liabilities associated with such Asset Sale and retained by the Company or any
Restricted Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, pensions and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any indemnifi
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cation obligations associated with such Asset Sale, all as reflected in an
Officers' Certificate delivered to the Trustee; provided, however, that any
amounts remaining after adjustments, revaluations or liquidations of such
reserves shall constitute Net Available Proceeds.
"Non-Recourse Purchase Money Indebtedness" means Indebtedness of the
Company or any of its Subsidiaries incurred (a) to finance the purchase of any
assets of the Company or any of its Subsidiaries within 90 days of such
purchase, (b) to the extent the amount of Indebtedness thereunder does not
exceed 100% of the purchase cost of such assets, (c) to the extent the purchase
cost of such assets is or should be included in "additions to property, plant
and equipment" in accordance with GAAP, and (d) to the extent that such
Indebtedness is non-recourse to the Company or any of its Subsidiaries or any of
their respective assets other than the assets so purchased.
"Obligation" means any principal, interest (including, in the case of
Senior Indebtedness, interest accruing subsequent to the filing of a petition in
bankruptcy or insolvency at the rate specified in the document relating to such
Indebtedness, whether or not such interest is an allowed claim permitted to be
enforced against the obligor under applicable law), penalties, fees,
indemnification, reimbursements, costs, expenses, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Officer" means any of the following of the Company: the Chairman of the
Board, the Chief Executive Officer, the Chief Financial Officer, the President,
any Vice President, the Treasurer or the Secretary.
"Officers' Certificate" means a certificate signed by any two Officers.
"Payment Restriction" with respect to a Subsidiary of any Person, means any
encumbrance, restriction of limitation, whether by operation of the terms of its
charter or by reason of any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation, on the ability of (i) such Subsidiary
to (a) pay dividends or make other distributions on its Capital Stock or make
payments on any obligation, liability or Indebtedness owed to such Person or any
other Subsidiary of such Person, (b) make loans or advances to such Person or
any other Subsidiary of such Person, (c) guarantee any Indebtedness of the
Company or any Restricted Subsidiary or (d) transfer any of its properties or
assets to such Person or any other Subsidiary of such Person (other than
customary restrictions on transfers of property subject to a Lien permitted
under the Indenture) or (ii) such Person or any other Subsidiary of such Person
to receive or retain any such dividends, distributions or payments, loans or
advances, guarantee, or transfer of properties or assets.
"Permitted Indebtedness" means any of the following:
(i) Indebtedness of the Company and any Subsidiary Guarantor under the
Credit Agreement in an aggregate principal amount at any time outstanding
not to exceed the greater of (a) $180 million, or (b) the sum of 80% of the
consolidated accounts receivable of the Company plus 30% of the
consolidated net property, plant and equipment of the Company, calculated
as of the end of the most recent fiscal quarter for which financial
statements are available, as determined in accordance with GAAP;
(ii) Indebtedness under the Notes, the Note Guarantees and the
Indenture;
(iii) Existing Indebtedness;
(iv) Indebtedness under Hedging Obligations, provided that (1) such
Hedging Obligations are related to payment obligations on Permitted
Indebtedness or Indebtedness otherwise permitted by the "Limitations on
Additional Indebtedness" covenant, and (2) the notional principal amount of
such Hedging Obligations at the time incurred does not exceed the principal
amount of such Indebtedness to which such Hedging Obligations relate;
(v) Indebtedness of the Company to a Subsidiary Guarantor and
Indebtedness of any Subsidiary Guarantor to the Company or any other
Subsidiary Guarantor; provided, however, that upon either (1) the
subsequent issuance (other than directors' qualifying shares), sale,
transfer or other disposition of any Capital Stock or any other event which
results in any such Subsidiary Guarantor ceasing to be a Subsidiary
Guarantor or (2) the transfer or other disposition of any such Indebtedness
(except to the Company or a Subsidiary Guarantor), the provisions of this
clause (v) shall no longer be applicable to
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such Indebtedness and such Indebtedness shall be deemed, in each case, to
be incurred and shall be treated as an incurrence for purposes of the
"Limitations on Additional Indebtedness" covenant at the time the
Subsidiary Guarantor in question ceased to be a Subsidiary Guarantor or the
time such transfer or other disposition occurred;
(vi) Indebtedness in respect of bid, performance or surety bonds
issued for the account of the Company or any Restricted Subsidiary in the
ordinary course of business, including guarantees or obligations of the
Company or any Restricted Subsidiary with respect to letters of credit
supporting such bid, performance or surety obligations (in each case other
than for an obligation for money borrowed);
(vii) Indebtedness in respect of Non-Recourse Purchase Money
Indebtedness incurred by the Company or any Restricted Subsidiary;
(viii) Refinancing Indebtedness;
(ix) Indebtedness, in addition to Indebtedness incurred pursuant to
the other clauses of this definition, with an aggregate principal face or
stated amount (as applicable) at any time outstanding for all such
Indebtedness incurred pursuant to this clause not in excess of $20 million;
provided, however, that the aggregate principal amount at any time
outstanding for all other Indebtedness incurred by all Foreign Subsidiaries
pursuant to this clause may not exceed $10 million in the aggregate; and
(x) Acquired Indebtedness that is repaid by the Company or any
Restricted Subsidiary within 45 days after the time of the merger or
acquisition resulting in such Acquired Indebtedness if, but only if, the
Company could incur such amount of additional Indebtedness under clause (i)
above, at the time of such merger or acquisition and at the time the
Company or any Restricted Subsidiary repays such Indebtedness, after giving
effect to such repayment.
"Permitted Junior Securities" means any securities of the Company provided
for by a plan of reorganization or readjustment that are subordinated in right
of payment to all Senior Indebtedness that may at the time be outstanding to
substantially the same extent as, or to a greater extent than, the Notes are
subordinated to Senior Indebtedness of the Company.
"Permitted Liens" means the following types of Liens:
(i) Liens existing as of the Issue Date;
(ii) Liens securing the Notes;
(iii) Liens in favor of the Company or, with respect to a Restricted
Subsidiary, Liens in favor of another Restricted Subsidiary;
(iv) Liens securing Permitted Indebtedness of the Company and the
Restricted Subsidiaries of the type described in clauses (i) and (x) of the
definition of Permitted Indebtedness;
(v) Liens securing Indebtedness that constitutes Permitted
Indebtedness of the type described in clause (viii) of the definition of
"Permitted Indebtedness" incurred as a refinancing of any Indebtedness
secured by Liens described in clauses (i), (iv), (xi), (xii) and (xiii) of
this definition;
(vi) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or a Restricted Subsidiary, as the
case may be, has set aside on its books such reserves, or has made such
other appropriate provision, if any, as is required by GAAP;
(vii) Liens of landlords, carriers, warehousemen, mechanics,
suppliers, materialmen, repairmen and other similar Liens incurred in the
ordinary course of business for sums not delinquent or being contested in
good faith, and as to which the Company or a Restricted Subsidiary, as the
case may be, has set aside on its books such reserves, or has made such
other appropriate provision, if any, as is required by GAAP;
(viii) 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
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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);
(ix) Liens securing any judgment not giving rise to a Default or Event
of Default and so long as any appropriate legal proceedings that may have
been duly initiated for the review of the judgment has not been finally
terminated or the period within which those proceedings may be initiated
has not expired;
(x) easements, rights-of-way, reservations, zoning and other
restrictions and other similar encumbrances not interfering in any material
respect with the ordinary conduct of business of the Company or any
Restricted Subsidiary;
(xi) any interest or title of a lessor under any Capitalized Lease
Obligation or operating lease; provided that (a) the Attributable
Indebtedness related thereto constitutes Indebtedness permitted to be
incurred under the terms of the Indenture and (b) with respect to any
Capitalized Lease Obligation, such Liens do not extend to any property or
assets that is not leased property subject to such Capitalized Lease
Obligation;
(xii) Liens securing Non-Recourse Purchase Money Indebtedness;
provided, however, that (a) the Non-Recourse 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 (b) the Lien securing such Non-Recourse Purchase
Money Indebtedness shall be created within 90 days of such acquisition;
(xiii) Liens securing Acquired Indebtedness incurred in accordance
with the Consolidated Interest Coverage Ratio test described under
"-- Certain Covenants -- Limitation on Additional Indebtedness" above;
provided that (a) such Liens secured such Acquired Indebtedness at the time
of and prior to the incurrence of such Acquired Indebtedness by the Company
or a Restricted Subsidiary and were not granted in connection with, or in
anticipation of, the incurrence of such Acquired Indebtedness by the
Company or a Restricted Subsidiary and (b) such Liens do not extend to or
cover any property or assets of the Company or of any Restricted Subsidiary
other than the property or assets that secured the Acquired Indebtedness
prior to the time such Indebtedness became Acquired Indebtedness of the
Company or a Restricted Subsidiary and are no more favorable to the
lienholder than those securing the Acquired Indebtedness prior to the
incurrence of such Acquired Indebtedness by the Company or a Restricted
Subsidiary;
(xiv) leases or subleases granted to others that do not interfere with
the ordinary conduct of business of the Company or any Restricted
Subsidiary;
(xv) rights of a common owner of any interest in property held by the
Company or any Restricted Subsidiary and that common owner as tenants in
common or through other common ownership; and
(xvi) Liens or equitable encumbrances deemed to exist by reason of (a)
fraudulent conveyance or transfer laws or (b) negative pledge or other
agreements to refrain from giving Liens.
"Person" means any individual, corporation, partnership, limited liability
company, joint venture, incorporated or unincorporated association, joint-stock
company, trust, unincorporated organization or government or other agency or
political subdivision thereof or other entity of any kind.
"Plan of Liquidation" with respect to any Person, means a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise): (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such Person otherwise than as an entirety or
substantially as an entirety; and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition and all
or substantially all of the remaining assets of such Person to holders of
Capital Stock of such Person.
"Refinancing Indebtedness" means Indebtedness of the Company or a
Restricted Subsidiary issued in exchange for, or the proceeds from the issuance
and sale or disbursement of which are used substantially
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concurrently to repay, redeem, refund, refinance, discharge or otherwise retire
for value, in whole or in part (collectively, "repay"), or constituting an
amendment, modification or supplement to or a deferral or renewal of
(collectively, an "amendment"), any Indebtedness of the Company or any
Restricted Subsidiary (the "Refinanced Indebtedness") in a principal amount not
in excess of the principal amount of the Refinanced Indebtedness (or, if such
Refinancing Indebtedness refinances Indebtedness under a revolving credit
facility or other agreement providing a commitment for subsequent borrowings,
with a maximum commitment not to exceed the maximum commitment under such
revolving credit facility or other agreement), plus the amount of any premium
required to be paid in connection with such refinancing pursuant to the terms of
the Refinanced Indebtedness or the amount of any premium reasonably determined
by the Company or such Restricted Subsidiary as necessary to accomplish such
refinancing, plus the amount of expenses of the Company or such Restricted
Subsidiary incurred in connection with such refinancing; provided that: (i) the
Refinancing Indebtedness is the obligation of the same Person as that of the
Refinanced Indebtedness, (ii) if the Refinanced Indebtedness was subordinated to
or pari passu with the Note Indebtedness, then such Refinancing Indebtedness, by
its terms, is expressly pari passu with (in the case of Refinanced Indebtedness
that was pari passu with) the Note Indebtedness, or subordinate in right of
payment to (in the case of Refinanced Indebtedness that was subordinated to) the
Note Indebtedness at least to the same extent as the Refinanced Indebtedness;
(iii) the portion, if any, of the Refinancing Indebtedness that is scheduled to
mature on or prior to the maturity date of the Notes has a Weighted Average Life
to Maturity at the time such Refinancing Indebtedness is incurred that is equal
to or greater than the Weighted Average Life to Maturity of the portion of the
Refinanced Indebtedness being repaid that is scheduled to mature on or prior to
the maturity date of the Notes; and (iv) the Refinancing Indebtedness is secured
only to the extent, if at all, and by the assets (which may include
after-acquired assets), that the Refinanced Indebtedness is secured.
"Related Business" means any business in which the Company and its
Subsidiaries operate on the Issue Date, or that is closely related to or
complements the business of the Company and its Subsidiaries, as such business
exists on the Issue Date.
"Related Business Investment" means any Investment directly by the Company
or its Subsidiaries in any Related Business.
"Related Party Agreement" means any management or advisory agreement or
other arrangements with any Affiliate of the Company or with any other direct or
indirect holder of more than 10% of any class of the Company's Capital Stock
(except, in any such case, the Company or any Restricted Subsidiary).
"Restricted Debt Payment" means any purchase, redemption, defeasance
(including without limitation in substance or legal defeasance) or other
acquisition or retirement for value, directly or indirectly, by the Company or a
Restricted Subsidiary, prior to the scheduled maturity or prior to any scheduled
repayment of principal or sinking fund payment, as the case may be, in respect
of Subordinated Indebtedness.
"Restricted Investment" means any Investment by the Company or any
Restricted Subsidiary (other than investments in Cash Equivalents) in any Person
that is not the Company or a Restricted Subsidiary, including in any
Unrestricted Subsidiary.
"Restricted Payment" means with respect to any Person: (i) the declaration
or payment of any dividend (other than a dividend declared and paid (x) by a
Wholly-Owned Restricted Subsidiary to holders of its Capital Stock, or (y) by a
Subsidiary (other than a Wholly-Owned Restricted Subsidiary) to its shareholders
on a pro rata basis, but only to the extent of the dividends actually received
by the Company or a Restricted Subsidiary) or the making of any other payment or
distribution of cash, securities or other property or assets in respect of such
Person's Capital Stock (except that a dividend payable solely in Capital Stock
(other than Disqualified Capital Stock) of such Person shall not constitute a
Restricted Payment); (ii) any payment on account of the purchase, redemption,
retirement or other acquisition for value of (A) the Capital Stock of the
Company or (B) the Capital Stock of any Restricted Subsidiary, or any other
payment or distribution made in respect thereof, either directly or indirectly
(other than a payment solely in Capital Stock that is not Disqualified Capital
Stock, and excluding any such payment to the extent actually received by the
Company or a Restricted Subsidiary); (iii) any Restricted Investment; or (iv)
any Restricted Debt Payment.
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"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., and its successors.
"Sale and Leaseback Transactions" means with respect to any Person an
arrangement with any bank, insurance company or other lender or investor or to
which such lender or investor is a party, providing for the leasing by such
Person of any property or asset of such Person which has been or is being sold
or transferred by such Person to such lender or investor or to any Person to
whom funds have been or are to be advanced by such lender or investor on the
security of such property or asset.
"Securities Act" means the U.S. Securities Act of 1933, as amended.
"Senior Indebtedness" means all Indebtedness and other Obligations
specified below payable directly or indirectly by the Company or any Guarantor,
as the case may be, whether outstanding on the Issue Date or thereafter created,
incurred or assumed by the Company or such Guarantor: (i) the principal of and
interest on and all other Indebtedness and Obligations related to the Credit
Agreement (including, without limitation, all loans, letters of credit and
unpaid drawings with respect thereto and other extensions of credit under the
Credit Agreement, and all expenses, fees, reimbursements, indemnities and other
amounts owing pursuant to the Credit Agreement), (ii) amounts payable in respect
of any Hedging Obligations, (iii) in addition to the amounts described in (i)
and (ii), all Indebtedness not prohibited by the "Limitations on Additional
Indebtedness" covenant that is not expressly pari passu with, or subordinated
to, the Notes or the Note Guarantees, as the case may be, (iv) all Capitalized
Lease Obligations, and (v) all Refinancing Indebtedness of Senior Indebtedness
permitted under the Indenture. Notwithstanding anything to the contrary in the
foregoing, Senior Indebtedness will not include (a) any Indebtedness which by
the express terms of the agreement or instrument creating, evidencing or
governing the same is junior or subordinate in right of payment to any item of
Senior Indebtedness, (b) any trade payable arising from the purchase of goods or
materials or for services obtained in the ordinary course of business, (c)
Indebtedness incurred (but only to the extent incurred) in violation of the
Indenture as in effect at the time of the respective incurrence, (d) any
Indebtedness of the Company or any of its Subsidiaries that, when incurred, was
without recourse to the Company or any of its Subsidiaries, (e) any Indebtedness
to any employee of the Company or any of its Subsidiaries or (f) any liability
for taxes owed or owing by the Company or any of its Subsidiaries.
"Senior Subordinated Indebtedness" of the Company means the Notes and any
other Indebtedness of the Company that specifically provides that such
Indebtedness is to rank pari passu with the Notes in right of payment and is not
subordinated by its terms in right of payment to any Indebtedness or other
obligation of the Company which is not Senior Indebtedness. "Senior Subordinated
Indebtedness" of any Guarantor has a correlative meaning.
"Significant Subsidiary" means any Subsidiary of the Company 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 Issue Date, except all references to "10 percent" in such definition shall
be changed to "2 percent".
"Subordinated Indebtedness" means Indebtedness of the Company or any
Restricted Subsidiary that is subordinated in right of payment to the Notes or
the Note Guarantee of such Restricted Subsidiary, respectively.
"Subsidiary" of any Person means (i) any corporation of which at least a
majority of the aggregate voting power of all classes of the Voting Stock is
owned by such Person directly or through one or more other Subsidiaries of such
Person and (ii) any entity other than a corporation in which such Person,
directly or indirectly, owns at least a majority of the Voting Stock of such
entity entitling the holder thereof to vote or otherwise participate in the
selection of the governing body, partners, managers or others that control the
management and policies of such entity; provided, however that Pool Arabia, Ltd.
shall not be deemed a Subsidiary as long as the Company uses the equity method
to account for its interest in Pool Arabia, Ltd. and the consolidated financial
statements of the Company do not include the financial statements of Pool
Arabia, Ltd. in accordance with GAAP. Unless otherwise specified, "Subsidiary"
means a Subsidiary of the Company.
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"Unrestricted Subsidiary" means (i) any Subsidiary that at the time of
determination shall be designated an Unrestricted Subsidiary by the Board of
Directors of the Company in the manner provided below and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors of the Company may designate
any Restricted Subsidiary to be an Unrestricted Subsidiary, and any such
designation shall be deemed to be a Restricted Investment at the time of and
immediately upon such designation by the Company and its Restricted Subsidiaries
in the amount of the Consolidated Net Worth of such designated Subsidiary and
its consolidated Subsidiaries at such time, provided that such designation shall
be permitted only if (A) the Company and its Restricted Subsidiaries would be
able to make the Restricted Investment deemed made pursuant to such designation
at such time, (B) no portion of the Indebtedness or any other obligation
(contingent or otherwise) of such Subsidiary (x) is Guaranteed by the Company or
any Restricted Subsidiary, (y) is recourse to the Company or any Restricted
Subsidiary or (z) subjects any property or asset of the Company or any
Restricted Subsidiary, directly or indirectly, contingently or otherwise, to the
satisfaction thereof and (C) no default or event of default with respect to any
Indebtedness of such Subsidiary would permit any holder of any Indebtedness of
the Company or any Restricted Subsidiary to declare such Indebtedness of the
Company or any Restricted Subsidiary due and payable prior to its maturity. The
Board of Directors of the Company may designate any Unrestricted Subsidiary to
be a Restricted Subsidiary, and any such designation shall be deemed to be an
incurrence by the Company and its Subsidiaries of the Indebtedness (if any) of
such Subsidiary so designated for purposes of the "Limitations on Additional
Indebtedness" covenant as of the date of such designation, provided that such
designation shall be permitted only if immediately after giving effect to such
designation and the incurrence of any such additional Indebtedness deemed to
have been incurred thereby (x) the Company would meet the Coverage Ratio
Incurrence Condition and (y) no Default or Event of Default shall be continuing.
Any such designation by the Board of Directors described in the two preceding
sentences shall be evidenced to the Trustee by the filing with the Trustee of a
certified copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
foregoing conditions and setting forth the underlying calculations of such
certificate.
"Voting Stock" with respect to any Person, means securities of any class of
Capital Stock of such Person entitling the holders thereof (whether at all times
or only so long as no senior class of stock or other relevant equity interest
has voting power by reason of any contingency) to vote in the election of
members of the board of directors of such Person.
"Weighted Average Life to Maturity", when applied to any Indebtedness at
any date, means the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment 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 a Restricted Subsidiary of which
100% of the Capital Stock (except for directors' qualifying shares or certain
minority interests owned by other Persons solely due to local law requirements
that there be more than one stockholder, but which interest is not in excess of
what is required for such purpose) is owned directly by the Company or through
one or more Wholly-Owned Restricted Subsidiaries.
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PLAN OF DISTRIBUTION
There has previously been only a limited secondary market and no public
market for the Old Notes. The Company does not intend to apply for the listing
of the Notes on a national securities exchange or for their quotation through
The Nasdaq Stock Market. The Old Notes are eligible for trading in the PORTAL
market. Therefore, there can be no assurance that an active market for the Old
Notes or the New Notes will develop.
If a trading market develops for the Old Notes or the New Notes, future
trading prices of such securities will depend on many factors, including, among
other things, prevailing interest rates, the Company's results of operations and
the market for similar securities. Depending on such factors, such securities
may trade at a discount from their offering price.
With respect to resale of New Notes, based on an interpretation by the
staff of the SEC set forth in no-action letters issued to third parties, the
Company believes that a holder (other than a person that is an affiliate of the
Company within the meaning of Rule 405 under the Securities Act or "broker" or
"dealer" registered under the Exchange Act) who exchanges Old Notes for New
Notes in the ordinary course of business and who is not participating, does not
intend to participate, and has no arrangement or understanding with any person
to participate, in the distribution of the New Notes, will be allowed to resell
the New Notes to the public without further registration under the Securities
Act and without delivering to the purchasers of the New Notes a prospectus that
satisfies the requirements of Section 10 thereof. However, if any holder
acquires New Notes in the Exchange Offer for the purpose of distributing or
participating in a distribution of the New Notes, such holder cannot rely on the
position of the staff of the SEC enunciated in Exxon Capital Holdings
Corporation (available May 13, 1988) or similar no-action or interpretive
letters and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction, and such secondary resale transaction must be covered by an
effective registration statement containing the security holder information
required by Item 507 or 508, as applicable, of Regulation S-K if the resales are
of New Notes obtained by such holder in exchange for Old Notes acquired by such
holder directly from the Company or an affiliate thereof, unless an exemption
from registration is otherwise available.
As contemplated by the above no-action letters and the Registration Rights
Agreement, each holder accepting the Exchange Offer is required to represent to
the Company in the Letter of Transmittal that (i) the New Notes are to be
acquired by the holder in the ordinary course of business, (ii) the holder is
not engaging and does not intend to engage in the distribution of the, and (iii)
the holder acknowledges that if such holder participates in the Exchange Offer
for the purpose of distributing the New Notes such holder must comply with the
registration and prospectus delivery requirements of the Securities Act and
cannot rely on the above no-action letters.
Any broker or dealer registered under the Exchange Act (each a
"broker-dealer") who holders Old Notes that were acquired for its own account as
a result of market-making activities or other trading activities (other than Old
Notes acquired directly from the Company) may exchange such Old Notes for New
Notes pursuant to the Exchange Offer; however, such broker-dealer may be deemed
an underwriter within the meaning of the Securities Act and, therefore, must
deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of the New Notes received by it in the Exchange
Offer, which prospectus delivery requirement may be satisfied by the delivery by
such broker-dealer of this Prospectus. The Company has agreed to cause the
Registration Statement, of which this Prospectus is a part, to remain
continuously effective, and to make this Prospectus, as amended or supplemented,
available to any such broker-dealer for use in connection with resales. Any
broker-dealer Participating in the Exchange Offer will be required to
acknowledge that it will deliver a prospectus in connection with any resales of
New Notes received by it in the Exchange Offer. The delivery by a broker-dealer
of a prospectus in connection with resales of New Notes shall not be deemed to
be an admission by such broker-dealer that it is an underwriter within the
meaning of the Securities Act.
The Company will not receive any proceeds from any sale of New Notes by
broker dealers. New Notes received 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 New Notes or a combination of such methods of
resale, at market prices prevailing at the
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time of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to a purchaser 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 New
Notes.
The Company has agreed to pay all expenses incident to the Exchange Offer
other than fees and disbursements of counsel to holders of Old Notes,
underwriting commissions and discounts, brokerage commissions, agent fees (other
than the fees of the Exchange Agent) and transfer taxes relating to the
Registration Statement.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
The following is a summary of certain material United States federal income
tax consequences generally applicable to the Notes, including the tax
consequences of the Exchange Offer to Holders of Old Notes who tender their Old
Notes for New Notes. The U.S. federal income tax considerations set forth below
are based upon currently existing provisions of the United States Internal
Revenue Code of 1986, as amended ("the Code"), applicable Treasury Regulations,
judicial authority, and current administrative rulings and pronouncements of the
Internal Revenue Service (the "IRS"). There can be no assurance that the IRS
will not take a contrary view, and no ruling from the IRS has been, or will be,
sought on the issues discussed herein. 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 discussed
below.
As used in this summary, the term "U.S. Holder" means the beneficial owner
of a Note that is for U.S. federal income tax purposes (i) an individual citizen
or resident of the United States, (ii) a corporation or partnership created or
organized in or under the laws of the United States or of any state, (iii) an
estate the income of which is subject to United States federal income tax
regardless of its source, or (iv) a trust whose administration is subject to the
primary supervision of a United States court and which has one or more United
States persons who have the authority to control all substantial decisions of
the trust.
As used in this summary, the term "Non-U.S. Holder" means the beneficial
owner of a Note that is, for U.S. federal income tax purposes, not a U.S.
Holder. As used in this summary the term "Note" means either an "Old Note" or a
"New Note."
The summary is not a complete analysis or description of all potential U.S.
federal income tax considerations that may be relevant to, or of the actual tax
effect that any of the matters described herein will have on, particular U.S.
Holders and Non-U.S. Holders (collectively, "Holders"), and does not address
foreign, state, local or other tax consequences. This summary does not address
the U.S. federal income tax consequences to (a) special classes of taxpayers
(such as S corporations, mutual funds, insurance companies, financial
institutions, small business investment companies, regulated investment
companies, real estate investment trusts, dealers in securities or currencies,
broker-dealers and tax-exempt organizations) who are subject to special
treatment under U.S. federal income tax laws, (b) Holders that hold Notes as
part of a position in a "straddle," or as part of a "hedging," "conversion," or
other integrated investment transaction for U.S. federal income tax purposes,
(c) Holders that do not hold the Notes as capital assets within the meaning of
Section 1221 of the Code or (d) Holders whose functional currency is not the
U.S. dollar. Furthermore, federal estate and gift tax consequences are not
discussed herein.
BECAUSE INDIVIDUAL CIRCUMSTANCES MAY DIFFER, EACH PROSPECTIVE PURCHASER OF
THE NOTES IS STRONGLY URGED TO CONSULT HIS OR HER OWN TAX ADVISOR WITH RESPECT
TO HIS OR HER PARTICULAR TAX SITUATION AND AS TO ANY FEDERAL, FOREIGN, STATE,
LOCAL OR OTHER TAX CONSIDERATIONS (INCLUDING ANY POSSIBLE CHANGES IN TAX LAW)
AFFECTING THE PURCHASE, HOLDING AND DISPOSITION OF THE NOTES.
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U.S. FEDERAL INCOME TAX CONSEQUENCES TO U.S. HOLDERS
Interest
Generally, interest paid on the Notes will be ordinary income to a U.S.
Holder at the time it accrues or is received in accordance with such U.S.
Holder's method of accounting for U.S. federal income tax purposes.
Exchange Offer
The exchange of Old Notes for the New Notes pursuant to the Exchange Offer
should not constitute a taxable event for U.S. federal income tax purposes,
because the terms of the New Notes are not materially different from the terms
of the Old Notes. As a result, U.S. Holders exchanging the Old Notes for the New
Notes pursuant to the Exchange Offer should recognize no gain or loss upon
receipt of the New Notes, and a U.S. Holder should have the same tax basis and
holding period in the New Notes as in the Old Notes immediately prior to such
exchange.
Disposition of the Notes
Upon the sale, exchange or retirement of a Note (other than pursuant to the
Exchange Offer), a U.S. Holder will recognize capital gain or loss equal to the
difference between the amount realized on the sale, exchange or retirement
(except to the extent attributable to accrued interest that has not been
included in income) and such U.S. Holder's adjusted tax basis in the Note at the
time of such disposition. Amounts attributable to accrued interest that have not
been included in income will be taxable as ordinary income. Prospective
investors should consult their tax advisors regarding the treatment of capital
gains and losses.
The Company does not intend to treat the possibility of an optional
redemption or repurchase of the Notes as giving rise to any accrual of original
issue discount or recognition of ordinary income upon redemption, sale or
exchange of a Note. U.S. Holders may wish to consider that Treasury Regulations
regarding the treatment of certain contingencies were recently issued and may
wish to consult their tax advisors in this regard.
Backup Withholding
A non-corporate U.S. Holder of the Notes may be subject to backup
withholding at the rate of 31 percent with respect to "reportable payments,"
which include interest paid on or the proceeds of a sale, exchange or redemption
of, the Notes. The payor will be required to deduct and withhold the prescribed
amounts if (i) the payee fails to furnish a Taxpayer Identification Number
("TIN") to the payor in the manner required, (ii) the IRS notifies the payor
that the TIN furnished by the payee is incorrect, (iii) there has been a
"notified payee underreporting" described in Section 3406(c) of the Code or (iv)
there has been a failure of the payee to certify under penalty of perjury that
the payee is not subject to withholding under Section 3406(a)(1)(C) of the Code.
If any one of the events listed above occurs, the payor will be required to
withhold an amount equal to 31 percent from any interest payment made with
respect to the Notes or any payment of proceeds of a redemption of the Notes to
a non-corporate U.S. Holder. Amounts paid as backup withholding do not
constitute an additional tax and will be credited against the U.S. Holder's
federal income tax liability, so long as the required information is provided to
the IRS. The payor generally will report to the U.S. Holders of the Notes and to
the IRS the amount of any "reportable payments" for each calendar year and the
amount of tax withheld, if any, with respect to payment on those securities.
TAX CONSEQUENCES TO NON-U.S. HOLDERS
Interest
Interest paid by the Company to a Non-U.S. Holder will not be subject to
U.S. federal income or withholding tax if such interest is not effectively
connected with the conduct of a trade or business within the United States (or a
permanent establishment therein, if a tax treaty applies) by such Non-U.S.
Holder and such Non-U.S. Holder (i) does not actually or constructively own 10%
or more of the total combined voting power of all classes of stock of the
Company; (ii) is not a controlled foreign corporation, as defined in Section
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957 of the Code, with respect to which the Company is a "related person"; (iii)
is not a bank receiving the interest on an extension of credit made pursuant to
a loan agreement entered into in the ordinary course of its trade or business;
and (iv) certifies, under penalties of perjury, that such Holder is not a United
States person and provides the Company with such Holder's name and address, or a
securities clearing organization, bank, or other financial institution that
holds customers' securities in the ordinary course of its trade or business
certifies, under penalties of perjury, that such certification and information
has been received by it or a qualifying intermediary from the Non-U.S. Holder
and furnishes the Company with a copy thereof.
If a Non-United States Holder of a Note is engaged in a trade or business
in the United States, and if interest on the Note (or gain realized on its sale,
exchange or other disposition) is effectively connected with the conduct of such
trade or business, the Non-U.S. Holder, although exempt from the withholding tax
discussed in the preceding paragraph, will generally be subject to regular U.S.
federal income tax on such effectively connected income in the same manner as if
it were a U.S. Holder. See "U.S. Holders" above. Such Holder will be required to
provide to the withholding agent a properly executed IRS Form 4224 (or, after
December 31, 1998, a Form W-8) to claim an exemption from withholding tax. In
addition, if such Non-U.S. Holder is a non-U.S. corporation, it may be subject
to a 30% branch profits tax (unless reduced or eliminated by an applicable
treaty) on its effectively connected earnings and profits for the taxable year,
subject to certain adjustments. For purposes of the branch profits tax, interest
on, and any gain recognized on the sale, exchange or other disposition of, a
Note will be included in the effectively connected earnings and profits of such
Non-U.S. Holder if such interest or gain, as the case may be, is effectively
connected with the conduct by the Non-U.S. Holder of a trade or business in the
United States.
Gain on Disposition
A Non-U.S. Holder will generally not be subject to U.S. federal income tax
on gain recognized on a sale, redemption or other disposition of a Note unless
(i) the gain is effectively connected with the conduct of a trade or business
within the United States (or a permanent establishment therein, if a tax treaty
applies) by the Non-U.S. Holder, (ii) in the case of a Non-U.S. Holder who is a
nonresident alien individual and holds the Note as a capital asset, such Holder
is present in the United States for 183 or more days in the taxable year and
certain other requirements are met, or (iii) the Holder is subject to tax
pursuant to the provisions of the Code applicable to certain United States
expatriates.
Information Reporting and Backup Withholding
The Company will, where required, report to the Non-U.S. Holders of Notes
and the IRS the amount of any interest paid on the Notes in each calendar year
and the amounts of tax withheld, if any, with respect to such payments.
In the case of payments of interest to Non-U.S. Holders, Treasury
Regulations provide that the 31% backup withholding tax and certain information
reporting will not apply to payments with respect to which either the requisite
certification, as described above, has been received or an exemption has
otherwise been established; provided that neither the Company nor its payment
agent has actual knowledge that the Non-U.S. Holder is a United States person or
that the conditions of any other exemption are not in fact satisfied. Under
Treasury Regulations, these information reporting and backup withholding
requirements will apply, however, to the gross proceeds paid to a Non-U.S.
Holder on the disposition of the Notes by or through a United States office of a
United States or foreign broker, unless such Holder certifies to the broker
under penalties of perjury as to its name, address and status as a foreign
person or the Holder otherwise establishes an exemption. Information reporting
requirements, but not backup withholding, will also apply to a payment of the
proceeds of a disposition of the Notes by or through a foreign office of a
United States or foreign broker with certain types of relationships to the
United States unless such broker has documentary evidence in its file that the
Non-U.S. Holder of the Notes is not a United States person, and such broker has
no actual knowledge to the contrary, or the Non-U.S. Holder otherwise
establishes an exemption. Neither information reporting nor backup withholding
generally will apply to a payment of the proceeds of a disposition of the Notes
by or through a foreign office of a foreign broker not described in the
preceding sentence.
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Recently adopted Treasury Regulations regarding the withholding and
information reporting rules discussed above do not, in general, alter the
substantive withholding and information reporting requirements but unify current
certification procedures and forms and clarify reliance standards. These
Treasury Regulations will become effective for payments made after December 31,
1998, subject to certain transition rules.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules may be refunded or credited against the Non-U.S.
Holder's U.S. federal income tax liability, provided that the required
information is furnished to the IRS.
LEGAL MATTERS
Certain legal matters with respect to the validity of the issuance of the
Notes offered hereby will be passed upon for the Company and the Subsidiary
Guarantors by Covington & Burling, Washington, D.C.
EXPERTS
The (i) consolidated financial statements of the Company as of December 31,
1997 and 1996 and for each of the three years in the period ended December 31,
1997, included and incorporated herein by reference to the Company's annual
report on Form 10-K (File No 0-18437) ("Annual Report") and (ii) the related
financial statement schedule for each of the three years in the period ended
December 31, 1997, incorporated herein by reference to the Company's Annual
Report, have been so incorporated in reliance on the report of Deloitte & Touche
LLP, independent auditors, given upon authority of said firm as experts in
auditing and accounting.
The consolidated financial statements of Sea Mar as of December 31, 1997
and 1996 and for each of the two years in the period ended December 31, 1997,
included and incorporated herein by reference to the Company's Current Report on
Form 8-K dated March 9, 1998 (File No. 0-18437) have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in this report with
respect thereto and are included and incorporated herein by reference in
reliance upon the authority of said firm as experts in auditing and accounting
in giving said reports.
99
<PAGE> 107
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Pool Energy Services Co.
Annual Consolidated Financial Statements
Independent Auditors' Report........................... F-2
Statements of Consolidated Operations for the Three
Years Ended December 31, 1997......................... F-3
Statements of Consolidated Cash Flows for the Three
Years Ended December 31, 1997......................... F-4
Consolidated Balance Sheets, December 31, 1997 and
1996.................................................. F-5
Notes to Consolidated Financial Statements............. F-6
Interim Condensed Consolidated Financial Statements
(Unaudited):
Condensed Statements of Consolidated Operations for the
Three Months Ended March 31, 1998 and 1997............ F-40
Condensed Statements of Consolidated Cash Flows for the
Three Months Ended March 31, 1998 and 1997............ F-41
Condensed Consolidated Balance Sheet, March 31, 1998... F-42
Notes to Condensed Consolidated Financial Statements... F-43
Sea Mar, Inc. and Subsidiaries
Report of Independent Public Accountants............... F-55
Consolidated Statements of Operations for the Two Years
Ended December 31, 1997............................... F-56
Consolidated Statements of Cash Flows for the Two Years
Ended December 31, 1997............................... F-57
Consolidated Balance Sheets, December 31, 1997 and
1996.................................................. F-58
Consolidated Statements of Shareholder's Investment for
the Two Years Ended December 31, 1997................. F-59
Notes to Consolidated Financial Statements............. F-60
</TABLE>
F-1
<PAGE> 108
INDEPENDENT AUDITORS' REPORT
Pool Energy Services Co.:
We have audited the accompanying consolidated balance sheets of Pool Energy
Services Co. and its subsidiaries (the "Company") as of December 31, 1997 and
1996, and the related statements of consolidated operations and cash flows for
each of the three years in the period ended December 31, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Pool Energy Services Co. and
its subsidiaries at December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1997 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Houston, Texas
February 17, 1998 (May 20, 1998 as to Notes 4 and 6)
F-2
<PAGE> 109
POOL ENERGY SERVICES CO.
STATEMENTS OF CONSOLIDATED OPERATIONS
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues.................................................... $451,922 $348,558 $277,305
Earnings Attributable to Unconsolidated Affiliates.......... 3,080 2,244 2,955
-------- -------- --------
Total............................................. 455,002 350,802 280,260
-------- -------- --------
Costs and Expenses:
Operating expenses........................................ 334,592 267,692 219,074
Selling, general and administrative expenses.............. 53,343 46,773 39,927
Depreciation and amortization............................. 25,022 18,545 15,002
Acquisition related costs................................. 77 33 622
-------- -------- --------
Total............................................. 413,034 333,043 274,625
-------- -------- --------
Other Income (Expense) -- Net............................... 4,617 2,095 1,289
Interest Expense............................................ 4,288 2,793 1,811
-------- -------- --------
Income Before Income Taxes and Minority Interest............ 42,297 17,061 5,113
Income Tax Provision........................................ 15,706 7,524 1,981
Minority Interest in Loss of Consolidated Subsidiary........ (87) (103) --
-------- -------- --------
Net Income.................................................. $ 26,678 $ 9,640 $ 3,132
======== ======== ========
Earnings Per Share of Common Stock.......................... $ 1.39 $ .58 $ .23
======== ======== ========
Earnings Per Share of Common Stock -- assuming dilution..... $ 1.36 $ .58 $ .23
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-3
<PAGE> 110
POOL ENERGY SERVICES CO.
STATEMENTS OF CONSOLIDATED CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Operating Activities:
Net Income............................................... $ 26,678 $ 9,640 $ 3,132
Noncash items included above:
Depreciation and amortization......................... 25,022 18,545 15,002
Deferred income taxes................................. 10,741 4,178 1,261
Undistributed earnings of unconsolidated affiliates... (3,018) (2,221) (2,895)
Other -- net.......................................... (1,064) (753) (218)
Payment of pre-1990 personal injury and property damage
claims................................................ (820) (45) (37)
Payment for lease of manufacturing facility, net of
sublease.............................................. (1,773) (1,610) (2,060)
Cash dividends received from unconsolidated affiliates... 1,607 1,663 2,885
Other -- net............................................. (794) (963) (723)
Net effect of changes in operating working capital....... (14,192) (10,719) 7,248
-------- -------- --------
Net Cash Flows Provided by Operating Activities.......... 42,387 17,715 23,595
-------- -------- --------
Investing Activities:
Property additions....................................... (60,355) (30,662) (23,436)
Expenditures for acquisitions, including acquisition
costs, less
cash acquired............................................ (32,869) (22,366) (3,431)
Proceeds from disposition of property, plant and
equipment............................................. 6,829 2,335 2,400
Decrease in restricted cash.............................. 974 152 154
Other -- net............................................. 519 (15) 204
-------- -------- --------
Net Cash Flows Used for Investing Activities............. (84,902) (50,556) (24,109)
-------- -------- --------
Financing Activities:
Proceeds from issuance of common stock, net.............. -- 47,455 --
Proceeds from exercise of stock options.................. 3,300 3,376 61
Proceeds and repayments of short-term
borrowings -- net..................................... -- -- (1,600)
Retirement of debt assumed in acquisitions............... (3,522) -- (1,962)
Payments for debt financing costs........................ (1,587) (199) (102)
Proceeds from long-term debt............................. 70,800 6,500 10,000
Principal payments on long-term debt..................... (28,395) (7,546) (2,751)
Principal payments on notes payable to related parties... (925) (400) (200)
-------- -------- --------
Net Cash Flows Provided by Financing Activities.......... 39,671 49,186 3,446
-------- -------- --------
Net Increase (Decrease) in Cash and Cash Equivalents....... (2,844) 16,345 2,932
Cash and Cash Equivalents at January 1,.................... 21,837 5,492 2,560
-------- -------- --------
Cash and Cash Equivalents at December 31,.................. $ 18,993 $ 21,837 $ 5,492
======== ======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-4
<PAGE> 111
POOL ENERGY SERVICES CO.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1997 1996
-------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 18,993 $ 21,837
Restricted cash........................................... 10 183
Accounts and notes receivable (net of allowance for
doubtful
accounts of $1,272 and $1,235)......................... 89,943 63,067
Other receivables......................................... 5,705 5,483
Accounts receivable from affiliates....................... 1,635 1,064
Inventories............................................... 19,500 14,726
Deferred income tax asset................................. 8,594 3,807
Other current assets...................................... 8,295 4,213
-------- --------
Total current assets.............................. 152,675 114,380
Property, Plant and Equipment -- Net........................ 259,793 189,125
Investment in and Noncurrent Receivables from Unconsolidated
Affiliates................................................ 20,515 19,104
Goodwill, net............................................... 42,395 12,880
Noncurrent Deferred Income Tax Asset........................ -- 1,506
Noncurrent Receivables (net of allowance for doubtful
accounts
of $1,113 and $1,219) and Other Assets.................... 3,817 3,421
Noncurrent Restricted Cash.................................. -- 801
-------- --------
Total............................................. $479,195 $341,217
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt......................... $ 1,025 $ 9,702
Current portion of notes payable to related parties....... -- 925
Trade accounts payable.................................... 38,217 20,771
Accounts payable to affiliate............................. 3,088 1,251
Accrued liabilities....................................... 44,644 29,505
Accrued taxes............................................. 6,631 4,590
-------- --------
Total current liabilities......................... 93,605 66,744
Long-Term Debt.............................................. 79,322 23,068
Deferred Income Taxes....................................... 21,575 4,199
Other Liabilities........................................... 46,995 46,036
Minority Interest........................................... 3,960 4,047
Shareholders' Equity:
Common stock, no par value:
40,000,000 shares authorized; 19,448,946 and 19,094,824
shares
issued and outstanding............................... 196,532 186,785
Retained earnings......................................... 38,229 11,551
Unearned compensation -- restricted stock................. (701) (891)
Cumulative foreign currency translation adjustments....... (322) (322)
-------- --------
Total shareholders' equity........................ 233,738 197,123
-------- --------
Total............................................. $479,195 $341,217
======== ========
</TABLE>
See Notes to Consolidated Financial Statements.
F-5
<PAGE> 112
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
All dollar amounts in the tabulations in the notes to the consolidated
financial statements are stated in thousands unless otherwise indicated. All
dollar amounts included in the text are in whole dollars, unless otherwise
indicated. Certain reclassifications have been made in the 1995 and 1996
consolidated financial statements to conform with the 1997 presentation.
THE COMPANY
Pool Energy Services Co. (the "Company") was formed in November 1988 to
acquire all of the oilfield services business of ENSERCH Corporation
("ENSERCH"), and such acquisition was consummated in April 1990. As used herein,
except where the context otherwise requires, the term "Company" refers to Pool
Energy Services Co., its subsidiary corporations and its unconsolidated
affiliates. The Company operates in only one business segment - the oilfield
services industry. Within the oilfield services industry, the Company provides
services and products to oil and natural gas well operators for the workover,
maintenance and plugging of existing oil and natural gas wells and for the
drilling and completion of new oil and natural gas wells. The Company operates
in the United States, South America, the Middle East, Asia and Australia.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
the Company and all subsidiaries in which a controlling interest is held. All
significant intercompany accounts and transactions have been eliminated in
consolidation. The Company uses the equity method to account for affiliates in
which it does not have control. The Company acquired a 51% controlling interest
in a newly formed Argentina corporation, Pool International Argentina S.A.
("PIASA"), in August 1996 (see Note 3). For financial reporting purposes, 100%
of the assets, liabilities, results of operations and cash flows of PIASA are
consolidated with those of the Company. The minority shareholder's interest in
PIASA and the earnings or losses therefrom have been reflected as "minority
interest" in the Company's consolidated financial statements.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company generally recognizes revenue when services are rendered or
products are shipped.
FOREIGN CURRENCY GAINS AND LOSSES
The U.S. dollar is the functional currency for all of the Company's foreign
operations, and for those operations, foreign currency gains and losses are
included in the statement of consolidated operations as incurred. The cumulative
translation gains and losses reflected as a separate component of shareholders'
equity arose prior to April 1996, when the functional currency of the Company's
then unconsolidated affiliate in Trinidad was the Trinidad and Tobago dollar.
PROPERTY, PLANT AND EQUIPMENT
Depreciation of plant and equipment is provided on a straight-line basis
over the estimated useful lives of the assets. The components of a rig that
generally require replacement during the rig's life have useful lives that range
from three to 12 years. The basic rigs, excluding such components, have
estimated useful lives from
F-6
<PAGE> 113
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
date of original manufacture ranging from 22 to 35 years. Other property and
equipment have useful lives that range from three to seven years. Estimated
salvage values are assigned to the rigs based on an individual assessment of
each rig and generally approximate 15% of cost.
Effective January 1, 1996 the Company adopted Financial Accounting
Standards Board Statement No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." This statement requires
that long-lived assets including certain identifiable intangibles held and used
by the Company be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Since adoption of this statement no impairment losses have been
recognized.
GOODWILL
Goodwill, totaling $42.4 million and $12.9 million at December 31, 1997 and
1996, respectively, represents the cost in excess of fair value of the net
assets of companies acquired (see Note 3). Goodwill is amortized using the
straightline method over 25 to 30 years and is recorded net of accumulated
amortization of $1.3 million and $0.6 million at December 31, 1997 and 1996,
respectively. Amortization of goodwill for the years ended December 31, 1997,
1996 and 1995 amounted to $0.7 million, $0.4 million and $0.2 million,
respectively. The carrying amount of unamortized goodwill is reviewed for
potential impairment loss when events or changes in circumstances indicate that
the carrying amount of goodwill may not be recoverable.
ENVIRONMENTAL REMEDIATION AND COMPLIANCE
Costs incurred to investigate and remediate contaminated sites are expensed
unless the remediation extends the useful lives of the assets employed at the
site. Remediation costs that extend the useful lives of the assets are
capitalized and amortized over the remaining economic lives of such assets.
Liabilities are recorded when the need for environmental assessments and/or
remedial efforts become known or probable and the cost can be reasonably
estimated.
INCOME TAXES
The Company is subject to both U.S. and foreign income taxes. The Company
accounts for income taxes based upon Statement of Financial Accounting Standards
No. 109, "Accounting for Income Taxes" which requires recognition of deferred
income tax liabilities and assets for the expected future tax consequences of
events that have been recognized in the Company's financial statements or tax
returns. Under this method, deferred income tax liabilities and assets are
determined based on the temporary differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities and
available tax credit carryforwards.
INVENTORIES
Inventories of spare parts, materials and supplies held for consumption are
stated principally at average cost.
CONCENTRATION OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist primarily of temporary cash investments
and trade receivables. The Company restricts temporary cash investments to
financial institutions with high credit standing and by policy limits the amount
of credit exposure to any one financial institution. The Company's customer base
consists primarily of multi-national, foreign national and independent oil and
natural gas producers. During 1997, no single customer accounted for more than
10% of the Company's consolidated revenues. One customer accounted for
approximately 11% of the Company's consolidated revenues in both 1996 and 1995.
The Company performs ongoing credit
F-7
<PAGE> 114
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
evaluations of its customers and generally does not require collateral on its
trade receivables. Such credit risk is considered by management to be limited
due to the large number of customers comprising the Company's customer base. The
Company maintains reserves for potential credit losses, and such losses have
been within management's expectations.
FAIR VALUES OF FINANCIAL INSTRUMENTS
Except for investments in its unconsolidated affiliates, which are
accounted for under the equity method, the Company's financial instruments
consist primarily of variable rate items for which management believes fair
value approximates carrying value.
FOREIGN EXCHANGE RISK MANAGEMENT
The Company operates internationally, giving rise to exposure to market
risks from changes in foreign exchange rates to the extent that transactions are
not denominated in the U.S. dollar. The Company uses forward exchange contracts
as economic hedges of exposed net investments in foreign entities in which that
exposure exceeds $0.2 million and for which contracts in the appropriate
currency are available. The Company's foreign exchange contracts do not subject
the Company to the risk of exchange rate movements because gains and losses on
these contracts offset gains and losses on the exposed investments being hedged.
Realized and unrealized gains and losses on these contracts are recognized
currently in the statement of consolidated operations. The forward exchange
contracts generally have maturities which do not exceed 31 days. The Company had
forward exchange contracts to purchase $2.3 million in Australian dollars, $1.8
million in Argentine pesos and $1.7 million in Malaysian ringgits at December
31, 1997 and $2.5 million in Malaysian ringgits and $2.0 million in Australian
dollars at December 31, 1996. The Company does not hold or issue financial
instruments for trading purposes.
STOCK INCENTIVE PLANS
The Company accounts for stock option grants to employees using the
intrinsic value method of accounting prescribed by APB Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB 25"). Under the Company's stock
incentive plans, the price of the stock on the grant date is the same as the
amount an employee must pay to exercise the option to acquire the stock;
accordingly, the options have no intrinsic value at grant date, and in
accordance with the provisions of APB 25 no compensation cost is recognized.
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"), which sets forth alternative accounting and
disclosure requirements for stock-based compensation arrangements. SFAS 123 does
not rescind the existing accounting for employee stock-based compensation under
APB 25. Companies may continue to follow the current accounting to measure and
recognize employee stock-based compensation; however, SFAS 123 requires
disclosure of pro forma net income and earnings per share that would have been
reported under the "fair value" based recognition provisions of SFAS 123. The
Company has disclosed in Note 2 the pro forma information required under SFAS
123.
CASH EQUIVALENTS
The Company considers all unrestricted highly liquid investments with less
than a three-month maturity when purchased as cash equivalents.
EARNINGS PER SHARE OF COMMON STOCK
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share," which
establishes new standards for computing, presenting and
F-8
<PAGE> 115
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
disclosing earnings per share ("EPS"). This statement requires restatement of
all prior-period EPS data presented herein.
The following tables set forth the amounts used in computing EPS and the
weighted average number of shares of dilutive potential common stock for the
three years ended December 31, 1997.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1997
-----------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
(IN THOUSANDS EXCEPT NUMBER OF SHARES
AND PER SHARE AMOUNTS)
<S> <C> <C> <C>
Earnings per Share of Common Stock:
Net Income........................................... $26,678 19,257,185 $1.39
=====
Dilutive Effect of Potential Common Stock:
Stock Options........................................ -- 319,798
------- ----------
Earnings per Share of Common Stock -- Assuming
Dilution:
Net Income........................................... $26,678 19,576,983 $1.36
======= ========== =====
</TABLE>
Options to purchase approximately 52,000 shares of common stock at $31.81
per share were outstanding during the fourth quarter of 1997 but were not
included in the computation of diluted EPS because the options were
antidilutive.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1996
-----------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
(IN THOUSANDS EXCEPT NUMBER OF SHARES
AND PER SHARE AMOUNTS)
<S> <C> <C> <C>
Earnings per Share of Common Stock:
Net Income........................................... $ 9,640 16,504,853 $ .58
=====
Dilutive Effect of Potential Common Stock:
Stock Options........................................ -- 172,074
------- ----------
Earnings per Share of Common Stock -- Assuming
Dilution:
Net Income........................................... $ 9,640 16,676,927 $ .58
======= ========== =====
</TABLE>
Options to purchase approximately 593,000 shares of common stock at a
weighted average exercise price of $10.26 per share were outstanding during the
first quarter of 1996 but were not included in the computation of diluted EPS
because the options were antidilutive.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31, 1995
-----------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
(IN THOUSANDS EXCEPT NUMBER OF SHARES
AND PER SHARE AMOUNTS)
<S> <C> <C> <C>
Earnings per Share of Common Stock:
Net Income........................................... $ 3,132 13,840,122 $ .23
=====
Dilutive Effect of Potential Common Stock:
Stock Options........................................ -- 40,662
------- ----------
Earnings per Share of Common Stock -- Assuming
Dilution:
Net Income........................................... $ 3,132 13,880,784 $ .23
======= ========== =====
</TABLE>
Options to purchase approximately 740,000 shares of common stock at a
weighted average exercise price of $10.14 per share were outstanding during 1995
but were not included in the computation of diluted EPS because the options were
antidilutive.
F-9
<PAGE> 116
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. SHAREHOLDERS' EQUITY
The following is a summary of transactions affecting shareholders' equity
for the last three fiscal years:
<TABLE>
<CAPTION>
CUMULATIVE
UNEARNED FOREIGN
RETAINED COMPENSATION CURRENCY
COMMON EARNINGS -RESTRICTED TRANSLATION
STOCK (DEFICIT) STOCK ADJUSTMENTS
-------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Balance, January 1, 1995.......................... $130,177 $(1,221) $ -- $(317)
Net income...................................... -- 3,132 -- --
Issuance of common stock for:
Stock options exercised...................... 61 -- -- --
Business acquisition......................... 4,200 -- -- --
Translation adjustment.......................... -- -- -- (5)
-------- ------- ----- -----
Balance, December 31, 1995........................ 134,438 1,911 -- (322)
Net income...................................... -- 9,640 -- --
Issuance of common stock for:
Stock options exercised...................... 3,376 -- -- --
Public offering, net......................... 47,455 -- -- --
Issuance of restricted common stock............. 949 -- (949) --
Tax benefit from stock options exercised........ 567 -- -- --
Compensation expense............................ -- -- 58 --
-------- ------- ----- -----
Balance, December 31, 1996........................ 186,785 11,551 (891) (322)
Net income...................................... -- 26,678 -- --
Issuance of common stock for:
Stock options exercised...................... 3,300 -- -- --
Business acquisition adjustment (see Note
3)......................................... 3,978 -- -- --
Issuance of restricted common stock............. 272 -- (272) --
Forfeiture of restricted common stock........... (46) -- 46 --
Tax benefit from stock options exercised........ 2,136 -- -- --
Compensation expense............................ 107 -- 416 --
-------- ------- ----- -----
Balance, December 31, 1997........................ $196,532 $38,229 $(701) $(322)
======== ======= ===== =====
</TABLE>
COMMON STOCK
In July 1996, the Company completed the sale to the public of 4,600,000
shares of its common stock, no par value, from which it received cash proceeds
of approximately $47.5 million, net of expenses. The Company used the net
proceeds principally as follows: (i) $10.9 million in connection with the August
1996 acquisition of a 51% controlling interest in PIASA, a newly formed
Argentina corporation which provides well-servicing, workover and drilling
services in Argentina, (ii) approximately $9 million in connection with the
October 1996 acquisition of the 51% interest not already owned by the Company in
Antah Drilling Sdn. Bhd. ("Antah Drilling"), (iii) $4.5 million in connection
with the June 1996 Western Oil Well Service Co. ("Western Oil") asset
acquisition, (iv) $8.4 million in connection with the refurbishment of Rig 18, a
previously idle platform drilling rig in the Gulf of Mexico, and (v) for
repayment of debt under the Company's syndicated bank revolving line of credit
and general corporate purposes. The amounts described above include both
acquisition expenditures and related working capital advances. See Note 3 for
additional descriptions of these acquisitions.
F-10
<PAGE> 117
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PREFERRED STOCK
The 1,000 shares of the Company's authorized and issued preferred stock is
currently held in treasury.
SHAREHOLDER RIGHTS PLAN
The Company maintains a Shareholder Rights Plan (the "Rights Plan") that is
designed to deter coercive or unfair takeover tactics, to prevent a person or
group from gaining control of the Company without offering fair value to all
shareholders and to deter other abusive takeover tactics which are not in the
best interests of shareholders. The Company's Board of Directors adopted the
Rights Plan in June 1994 and declared a dividend to the shareholders of one
right ("Right") for each outstanding share of the Company's common stock. The
Rights only become exercisable, and transferable apart from the Company's common
stock, ten business days following a public announcement that a person or group
("Acquirer") has acquired beneficial ownership of, or has commenced a tender or
exchange offer for, 15% or more of the Company's common stock (each a
"Triggering Event").
Each Right initially entitles the holder to purchase one-third of one share
of the Company's common stock at a price of $9.00, subject to adjustment. Upon
the occurrence of a Triggering Event, each Right, in the absence of timely
redemption of the Rights by the Company, will entitle the holder thereof (other
than the Acquirer), instead, to receive upon exercise of the Right a number of
the Company's common shares (or, in certain circumstances, cash, property or
other securities of the Company) having a current market value equal to twice
the exercise price for a full share of common stock. Following the occurrence of
a Triggering Event, if the Company is acquired in a merger or other business
combination, or 50% or more of the Company's assets or earning power are sold or
transferred, each Right, in the absence of timely redemption of the Rights by
the Company, will entitle the holder thereof (other than the Acquirer) to
receive a number of shares of common stock of the acquiring company having a
current market value equal to twice the exercise price for a full share of
common stock.
The Rights may be redeemed by the Company in whole, but not in part, at a
redemption price of $.01 per Right at any time prior to the Rights becoming
exercisable. The Rights will expire in June 2004. Until the Rights become
exercisable, they have no dilutive effect on earnings per share. As of December
31, 1997, a total of 5,994,337 shares of the Company's common stock were
reserved for issuance upon exercise of Rights.
The description and terms of the Rights are set forth in a Rights Agreement
between the Company and the First National Bank of Boston, as Rights Agent.
STOCK INCENTIVE PLANS
The Company's 1993 Employee Stock Incentive Plan is for officers and key
employees, which plan reserved for issuance up to 600,000 shares of the
Company's common stock. In 1997, the plan was amended to increase the number of
shares of the Company's common stock reserved for issuance thereunder by 850,000
shares (thereby resulting in 1,450,000 shares reserved). The shares may be
issued upon the exercise of non-qualified stock options granted under the plan
or may be granted as restricted stock awards or bonus stock awards. Subject to
earlier termination under certain circumstances, stock options are exercisable
over a ten-year term and, unless specified otherwise at the time of the grant,
vest at the rate of 25 percent per year of continuous employment following the
grant of the options. As of December 31, 1997 the Company had issued 86,407
shares as a result of the exercise of options pursuant to such plan. Shares of
common stock awarded as restricted stock are subject to restrictions on transfer
and subject to risk of forfeiture until earned by continued employment or the
achievement of specific goals. During the restriction period, holders of
restricted stock have the right to vote; cash dividends, if any, are accrued but
not paid until satisfaction of the applicable restrictions. As of December 31,
1997, the Company had awarded 65,649 shares of restricted stock, net of
forfeitures, pursuant to such plan.
F-11
<PAGE> 118
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company also has a 1990 Employee Stock Option Plan for officers and key
employees, which plan reserved for issuance up to 1,000,000 shares of the
Company's common stock, of which 627,737 shares had been issued as of December
31, 1997 through the exercise of options. Subject to earlier termination under
certain circumstances, options are exercisable over a ten-year term and, unless
specified otherwise at the time of the grant, vest at the rate of 25 percent per
year of continuous employment following the grant of the options. Since the
adoption of the 1993 Employee Stock Incentive Plan, no additional options may be
granted under the 1990 Employee Stock Option Plan.
Effective February 1996, the Company adopted the 1996 Directors' Stock
Incentive Plan for members of its Board of Directors who are not full-time
employees of the Company. The plan reserved for issuance up to 200,000 shares of
the Company's common stock which may be issued upon the exercise of stock
options or may be awarded as restricted stock. The plan provides for each person
who is elected or appointed a director for the first time after the effective
date to receive automatically an initial stock option of 8,000 shares and to
receive automatically a stock option for 4,000 shares on the date of each Annual
Meeting of Shareholders after the initial grant at which such director is
reelected. Options expire ten years after the date of grant. Each option becomes
exercisable at the end of one year from the date of grant. Also, each director
receives an award of 1,000 shares of restricted stock, with a one-year
restriction period, on the date of each Annual Meeting of Shareholders. As of
December 31, 1997, the Company had issued 8,000 shares as the result of the
exercise of options and had awarded 11,000 shares of restricted stock, net of
forfeitures, pursuant to such plan.
The Company also has a 1991 Directors' Stock Option Plan for members of its
Board of Directors who are not full-time employees of the Company. Such plan
reserved for issuance up to 150,000 shares of the Company's common stock, of
which 56,000 shares had been issued as of December 31, 1997 through the exercise
of options. Subject to earlier termination under certain circumstances, options
expire ten years after the date of the grant. Each option becomes exercisable as
to 50% of the shares covered thereby at the end of one year from the date of
grant and as to the remaining 50% at the end of two years from the date of
grant. Since the adoption of the 1996 Directors' Stock Incentive Plan no
additional options may be granted under the 1991 Directors' Stock Option Plan.
The fair market value at the date the restricted stock was issued has been
recorded as unearned compensation -- restricted stock and is shown as a separate
component of shareholders' equity. The unearned restricted stock compensation is
amortized to operations over the related restriction period. The following table
summarizes the restricted stock activity related to the Company's plans:
<TABLE>
<CAPTION>
1997 1996
------- -------
(IN THOUSANDS
EXCEPT NUMBER OF
SHARES AND PER
SHARE AMOUNTS)
<S> <C> <C>
Number of restricted shares awarded......................... 12,000 70,000
Weighted average fair market value on date of issue......... $ 22.66 $ 13.56
Restricted stock outstanding at December 31................. 76,649 70,000
Pre-tax compensation expense................................ $ 416 $ 58
</TABLE>
The exercise price of options under all plans is the fair market value per
share on the date the options are granted. The exercise of stock options results
in a U.S. tax deduction to the Company equal to the income tax effect of the
difference between the exercise price and the market price at the exercise date.
For financial reporting purposes, this tax benefit is accounted for as a credit
to common stock. During 1997 and 1996, $2.1 million and $0.6 million,
respectively, were credited to common stock as a result of the tax benefit
F-12
<PAGE> 119
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
associated with stock option exercises. The following table summarizes the stock
option activity related to the Company's plans (shares in thousands):
<TABLE>
<CAPTION>
1997 1996 1995
------------------------- ------------------------- -------------------------
WEIGHTED-AVERAGE WEIGHTED-AVERAGE WEIGHTED-AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ ---------------- ------ ---------------- ------ ----------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, January 1........ 1,043 $ 9.42 1,142 $ 9.07 1,000 $ 9.27
Granted..................... 195 $18.68 274 $10.81 205 $ 8.20
Exercised................... (348) $ 9.49 (361) $ 9.36 (9) $ 6.80
Forfeited................... (15) $16.01 (12) $ 9.17 (54) $10.00
----- ----- -----
Outstanding, December 31...... 875 $11.34 1,043 $ 9.42 1,142 $ 9.07
===== ===== =====
Exercisable, December 31...... 394 $ 9.05 569 $ 9.04 799 $ 9.36
</TABLE>
The following table summarizes information about the stock options
outstanding at December 31, 1997 (shares in thousands):
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------- ------------------------------------
NUMBER OF SHARES WEIGHTED-AVERAGE NUMBER OF SHARES
RANGE OF OUTSTANDING AT REMAINING WEIGHTED-AVERAGE EXERCISABLE AT WEIGHTED-AVERAGE
EXERCISE PRICES DECEMBER 31, 1997 CONTRACTUAL LIFE EXERCISE PRICE DECEMBER 31, 1997 EXERCISE PRICE
- --------------- ----------------- ---------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
$6.125 - $8.75 242 6 years $ 7.41 157 $ 7.04
$9.25 - $13.50 581 7.2 years $11.16 237 $10.38
$31.8125 52 9.7 years $31.81 -- $ --
--- ---
875 394
=== ===
</TABLE>
The Company applies the intrinsic value based method of APB 25 in
accounting for its employee stock incentive plans. Accordingly, no compensation
expense has been recognized for any stock options issued under the employee
plans. Had compensation expense for stock options granted to employees been
recognized based on the fair value at the grant dates, using the methodology
prescribed by SFAS 123, the Company's net income and earnings per share would
have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ ------
(IN THOUSANDS
EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net Income:
As reported........................................... $26,678 $9,640 $3,132
Pro forma............................................. 26,038 9,240 3,019
Earnings Per Share of Common Stock:
As reported........................................... $ 1.39 $ .58 $ .23
Pro forma............................................. 1.35 .56 .22
Earnings Per Share of Common Stock -- assuming dilution:
As reported........................................... $ 1.36 $ .58 $ .23
Pro forma............................................. 1.33 .56 .22
</TABLE>
SFAS 123 does not apply to options granted prior to January 1, 1995;
therefore, the pro forma effect disclosed above may not be representative of pro
forma amounts in future years.
F-13
<PAGE> 120
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The per share weighted-average fair value of stock options granted during
1997, 1996 and 1995 was $12.55, $6.42 and $4.97, respectively. The fair value of
each stock option grant was estimated on the date of grant using the
Black-Scholes option-pricing model based on the following weighted-average
assumptions:
<TABLE>
<CAPTION>
YEAR OF GRANT
-----------------------------
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Risk-free interest rate................................. 6.68% 6.36% 6.78%
Expected life of options................................ 8 years 8 years 8 years
Expected volatility of the Company's stock price........ 51% 43% 44%
Expected dividends...................................... none none none
</TABLE>
3. ACQUISITIONS
1997 ACQUISITIONS
A.A. Oilfield Service, Inc. In November 1997, the Company acquired all of
the outstanding capital stock of privately owned A.A. Oilfield Service, Inc.
("A.A.") for $4.1 million in cash. This acquisition included 18 oilfield trucks,
one salt water disposal well and related equipment based in Hobbs, New Mexico.
This acquisition was financed through borrowings under the Company's syndicated
bank revolving line of credit.
Trey Services, Inc. In October 1997, the Company acquired all of the
outstanding capital stock of Trey Services, Inc. ("Trey") and certain associated
operating assets for cash of $31.3 million. Prior to the acquisition, Trey,
through its wholly-owned subsidiary R & H Well Service, Inc. ("R&H"), operated a
fleet of approximately 67 land well-servicing rigs, 104 oilfield trucks, 430
fluid storage tanks and five brine and disposal wells in the Permian Basin of
West Texas. This acquisition was financed through borrowings under the Company's
syndicated bank revolving line of credit.
D A & S Oil Well Servicing, Incorporated. In June 1997, the Company
acquired all of the outstanding capital stock of D A & S Oil Well Servicing,
Incorporated ("DA&S"), a privately owned well-servicing company with a fleet of
37 land well-servicing rigs, for $10.5 million, consisting of long-term notes in
the amount of $10.1 million and $0.4 million in cash.
Each of the 1997 acquisitions discussed above was recorded under the
purchase method of accounting, and accordingly, the results of operations of
each acquired entity have been included in the accompanying consolidated
financial statements from the date such entity was acquired. The purchase price
of each acquisition was allocated based on preliminary estimates of the fair
market value of the assets acquired and liabilities assumed at the date of
acquisition and is subject to adjustment as additional information becomes
available and is evaluated. The primary areas subject to further purchase price
adjustment are reserves associated with insurance related matters and taxes.
Such allocations resulted in goodwill of approximately $30.4 million, which is
being amortized on a straight-line basis over 25 years.
1996 ACQUISITIONS
Antah Drilling Sdn. Bhd. In October 1996, the Company acquired the 51%
interest that it did not already own in Antah Drilling and, in March 1997, such
entity's name was changed to Pool International (Malaysia) Sdn. Bhd. ("Pool
Malaysia"). The purchase price and the repayment of certain indebtedness that
Antah Drilling owed to the Company's former partner in that venture totaled $9.0
million. Pool Malaysia's assets include Rig 489, a 2,000 horsepower offshore
platform drilling rig, which commenced a three-year contract in Australia in
August 1996, and an offshore platform workover rig currently operating under a
term contract in Malaysia. In connection with the Antah Drilling acquisition,
the Company agreed to assume liability under Antah Drilling's term loans, which
aggregated $14.6 million (see Note 6). Prior to the date of acquisition, Antah
Drilling was accounted for under the equity method based upon the Company's 49%
ownership interest.
F-14
<PAGE> 121
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Pool International Argentina S. A. In August 1996, the Company acquired
for approximately $8.7 million in cash a 51% controlling interest in PIASA.
PIASA owns nine land drilling rigs and 11 land workover rigs, all of which are
located in Argentina.
Each of the 1996 acquisitions discussed above was recorded under the
purchase method of accounting and, accordingly, the results of operations of
each acquired entity have been included in the accompanying consolidated
financial statements from the date such entity was acquired. The purchase price
of each acquisition was allocated based on the estimated fair market value of
the assets acquired and liabilities assumed at the date of acquisition. Such
allocations resulted in goodwill of approximately $1.6 million, which is being
amortized on a straight-line basis over 30 years.
Western Oil. In June 1996, the Company purchased the operating assets,
including approximately 23 land well-servicing rigs, of Western Oil for
approximately $4.0 million in cash.
1995 ACQUISITION
Golden Pacific Corp. In June 1995, the company acquired all of the
outstanding capital stock of GPC, a privately owned California well servicing
company with a fleet of approximately 155 rigs and related equipment, for $18.8
million, consisting of long-term notes in the amount of $11.5 million, $3.1
million in cash and 493,543 shares of the Company's common stock valued at $4.2
million. The cash paid in the transaction was provided by the Company's existing
syndicated bank revolving line of credit.
In August 1997, the Company entered into an agreement with the sellers of
GPC that resolved certain issues that had arisen in connection with the GPC
purchase agreement (see Note 6).
The acquisition was accounted for under the purchase method, and
accordingly the results of GPC have been included in the accompanying
consolidated financial statements since the date of acquisition. The purchase
price was allocated on the basis of the estimated fair market value of the
assets acquired and the liabilities assumed as of the date of acquisition. This
allocation resulted in goodwill of approximately $11.7 million, which is being
amortized on a straight-line basis over 30 years. In connection with the
purchase of GPC, the Company recorded acquisition related costs totaling $0.6
million, primarily for yard closings.
4. SUBSEQUENT EVENT
On March 31, 1998, the Company acquired all the outstanding capital stock
of Sea Mar, Inc. ("Sea Mar"), a privately owned Louisiana-based offshore support
vessel company with operations primarily in the Gulf of Mexico, for
approximately $75.9 million in cash (including an estimated $14.7 million in
post-closing purchase price adjustments) and 1,538,462 shares of the Company's
common stock. In addition, the Company agreed to pay additional cash
consideration contingent upon Sea Mar exceeding certain financial targets for
the fiscal years ending December 31, 1998 and 1999, up to a maximum of $10
million in each year. Sea Mar has a diversified fleet of 23 support vessels,
including one anchor handling/tug supply vessel, 13 supply vessels, seven
mini-supply vessels and two research vessels. Furthermore, during 1997 Sea Mar
contracted with a marine vessel builder to construct ten additional vessels at
an estimated aggregate cost of $77.6 million, net of deposits. These new vessels
are scheduled to be delivered between late 1998 and early 2000. Sea Mar's
services include the marine transportation of drilling materials, supplies and
crews for offshore rig operations and support for other offshore facilities. It
also provides offshore logistical support to drilling and workover operations,
pipelaying and other construction, production platforms and geophysical
operations. For the year ended December 31, 1997, Sea Mar reported revenues of
approximately $46 million and net income of approximately $14 million. The chief
executive officer of Sea Mar will continue to manage the operations of Sea Mar
following the acquisition, under a three-year employment contract. This
transaction, completed on March 31, 1998, was accounted for under the purchase
method.
F-15
<PAGE> 122
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The cash portion of the purchase price, the repayment of the existing Sea
Mar debt of $15.7 million by the Company and the reduction of the outstanding
balance under the Company's syndicated revolving bank line of credit was
financed through a private placement of $150 million in senior subordinated
notes (the "Notes") issued by Pool Energy Services Co. ("PESCO") on March 31,
1998 (see Note 6). PESCO itself is a non-operating holding company that conducts
substantially all its business through its subsidiaries. The Notes will be
unconditionally guaranteed, jointly and severally, by all of PESCO's
wholly-owned subsidiaries that are incorporated or organized in the United
States (the "Subsidiary Guarantors"). PESCO's wholly-owned subsidiaries that are
not incorporated or organized in the United States (the "Non-Guarantor
Subsidiaries") will not guarantee the Notes. The Non-Guarantor Subsidiaries are
(i) Pool International, Ltd. (Cayman Islands); (ii) Pool International Malaysia
Sdn. Bhd. (Malaysia); (iii) Pool International Argentina S.A. (Argentina); (iv)
International Sea Drilling Ltd. (Cayman Islands); (v) Pool International
(Trinidad) Ltd. (Trinidad and Tobago) and (vi) ENS Equipment Leasing B.V.
(Netherlands). Although there are no significant legal restrictions under
applicable laws on the ability of PESCO to receive dividends or distributions
from these Non-Guarantor Subsidiaries, the claims of creditors of these
Non-Guarantor Subsidiaries would have priority over the rights of PESCO to
receive such dividends or distributions.
Presented below is condensed consolidating financial information for PESCO,
the Subsidiary Guarantors (on a combined basis), and the Non-Guarantor
Subsidiaries (on a combined basis) as of December 31, 1997 and 1996 and for each
of the three years ended December 31, 1997. Separate financial information of
each Subsidiary Guarantor is not presented because the Company's management has
concluded that such financial information is not material to investors.
F-16
<PAGE> 123
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
POOL ENERGY SERVICES CO.
CONDENSED STATEMENT OF CONSOLIDATING OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR PESCO
PESCO GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ---------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Revenues............................ $ -- $377,518 $ 74,404 $ -- $451,922
Earnings (Loss) Attributable to
Unconsolidated Affiliates......... -- 3,140 (60) -- 3,080
--------- -------- -------- -------- --------
Total..................... -- 380,658 74,344 -- 455,002
--------- -------- -------- -------- --------
Costs and Expenses:
Operating expenses................ -- 283,943 50,649 -- 334,592
Selling, general and
administrative expenses........ 638 44,442 8,263 -- 53,343
Depreciation and amortization..... -- 18,727 6,323 (28) 25,022
Acquisition related costs......... -- 77 -- -- 77
--------- -------- -------- -------- --------
Total..................... 638 347,189 65,235 (28) 413,034
--------- -------- -------- -------- --------
Other Income (Expense) -- Net....... -- 4,148 469 -- 4,617
Interest Expense.................... -- 2,728 1,560 -- 4,288
--------- -------- -------- -------- --------
Income (Loss) Before Income Taxes,
Equity in Earnings of Consolidated
Subsidiaries and Minority
Interest.......................... (638) 34,889 8,018 28 42,297
Income Tax Provision (Credit)....... (223) 13,265 2,654 10 15,706
Equity in Earnings of Consolidated
Subsidiaries...................... 27,093 5,451 -- (32,544) --
Minority Interest in Loss of
Consolidated Subsidiary........... -- -- -- (87) (87)
--------- -------- -------- -------- --------
Net Income.......................... $ 26,678 $ 27,075 $ 5,364 $(32,439) $ 26,678
========= ======== ======== ======== ========
</TABLE>
F-17
<PAGE> 124
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
POOL ENERGY SERVICES CO.
CONDENSED STATEMENT OF CONSOLIDATING CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
----------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR PESCO
PESCO GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ---------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
Net Cash Flows Provided by (Used
for) Operating Activities......... $ (81) $ 36,517 $ 5,951 $ -- $ 42,387
Investing Activities:
Property additions.................. -- (50,664) (14,601) 4,910 (60,355)
Expenditures for acquisitions,
including acquisition costs, less
cash acquired..................... -- (32,856) (13) -- (32,869)
Proceeds from disposition of
property, plant and equipment..... -- 10,250 1,489 (4,910) 6,829
Decrease in restricted cash......... -- 974 974
Other -- net........................ (1) 160 360 -- 519
--------- -------- -------- -------- --------
Net Cash Flows Used for Investing
Activities........................ (1) (72,136) (12,765) -- (84,902)
--------- -------- -------- -------- --------
Financing Activities:
Proceeds from exercise of stock
options........................... 3,300 -- -- -- 3,300
Retirement of debt assumed in
acquisitions...................... -- (3,522) -- -- (3,522)
Payments for debt financing costs... -- (1,587) -- -- (1,587)
Proceeds from long-term debt........ -- 70,800 -- -- 70,800
Principal payments on long-term
debt.............................. -- (10,484) (17,911) -- (28,395)
Principal payments on notes payable
to related parties................ -- (925) -- -- (925)
Payments from (advances to)
consolidated subsidiaries, net.... (3,995) (18,636) 22,631 -- --
--------- -------- -------- -------- --------
Net Cash Flows Provided by (Used
for) Financing Activities......... (695) 35,646 4,720 -- 39,671
--------- -------- -------- -------- --------
Net Increase (Decrease) in Cash and
Cash Equivalents.................. (777) 27 (2,094) -- (2,844)
Cash and Cash Equivalents at January
1,................................ 987 16,368 4,482 -- 21,837
--------- -------- -------- -------- --------
Cash and Cash Equivalents at
December 31,...................... $ 210 $ 16,395 $ 2,388 $ -- $ 18,993
========= ======== ======== ======== ========
</TABLE>
F-18
<PAGE> 125
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
POOL ENERGY SERVICES CO.
CONDENSED CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR PESCO
PESCO GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ---------- -------------- ------------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................... $ 210 $ 16,395 $ 2,388 $ -- $ 18,993
Restricted cash............................. -- 10 -- -- 10
Accounts and notes receivable............... -- 73,307 16,636 -- 89,943
Other receivables........................... -- 3,134 2,571 -- 5,705
Accounts receivable from affiliates......... -- 1,635 -- -- 1,635
Inventories................................. -- 7,168 12,332 -- 19,500
Deferred income tax asset................... 20 8,450 -- 124 8,594
Other current assets........................ 49 6,601 1,645 -- 8,295
--------- -------- -------- -------- --------
Total current assets.................. 279 116,700 35,572 124 152,675
Property, Plant and Equipment -- Net.......... -- 181,641 78,508 (356) 259,793
Investment in Consolidated Subsidiaries....... 53,074 40,313 -- (93,387)
Investment in and Noncurrent Receivable from
Unconsolidated Affiliates................... -- 20,515 -- -- 20,515
Goodwill, net................................. -- 40,853 1,542 -- 42,395
Noncurrent Receivables and Other Assets....... -- 3,789 28 -- 3,817
--------- -------- -------- -------- --------
Total................................. $ 53,353 $403,811 $115,650 $(93,619) $479,195
========= ======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt........... $ -- $ 1,025 $ -- $ -- $ 1,025
Trade accounts payable...................... -- 35,610 2,607 -- 38,217
Accounts payable to affiliate............... -- -- 3,088 -- 3,088
Payable (receivable) to (from) consolidated
subsidiaries.............................. (67,981) 40,714 27,257 10 --
Accrued liabilities......................... 177 30,558 13,909 -- 44,644
Accrued taxes............................... (1,308) 4,893 3,046 -- 6,631
--------- -------- -------- -------- --------
Total current liabilities............. (69,112) 112,800 49,907 10 93,605
Long-Term Debt................................ 79,322 79,322
Long-Term Payable (Receivable) to (from)
Consolidated Subsidiaries................... (111,595) 97,131 14,464 --
Deferred Income Taxes......................... -- 18,877 2,698 -- 21,575
Other Liabilities............................. -- 42,687 4,308 -- 46,995
Minority Interest............................. -- -- -- 3,960 3,960
Shareholders' Equity:
Common stock................................ 196,532 1 8,970 (8,971) 196,532
Paid-in capital............................. -- 12,400 23,109 (35,509) --
Retained earnings........................... 38,229 40,915 12,194 (53,109) 38,229
Unearned compensation -- restricted stock... (701) -- -- -- (701)
Cumulative foreign currency translation
adjustments............................... -- (322) -- -- (322)
--------- -------- -------- -------- --------
Total shareholders' equity............ 234,060 52,994 44,273 (97,589) 233,738
--------- -------- -------- -------- --------
Total................................. $ 53,353 $403,811 $115,650 $(93,619) $479,195
========= ======== ======== ======== ========
</TABLE>
F-19
<PAGE> 126
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
POOL ENERGY SERVICES CO
CONDENSED STATEMENT OF CONSOLIDATING OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR PESCO
PESCO GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues............................. $ -- $304,406 $ 44,152 $ -- $348,558
Earnings Attributable to
Unconsolidated Affiliates.......... -- 1,781 463 -- 2,244
--------- -------- -------- -------- --------
Total...................... -- 306,187 44,615 -- 350,802
--------- -------- -------- -------- --------
Costs and expenses:
Operating expenses................. -- 237,293 30,399 -- 267,692
Selling, general and administrative
expenses........................ 513 40,772 5,488 -- 46,773
Depreciation and amortization...... -- 14,856 3,717 (28) 18,545
Acquisition related costs.......... -- 32 1 -- 33
--------- -------- -------- -------- --------
Total...................... 513 292,953 39,605 (28) 333,043
--------- -------- -------- -------- --------
Other Income (Expense) -- Net........ -- 1,849 246 -- 2,095
Interest Expense..................... -- 2,066 727 -- 2,793
--------- -------- -------- -------- --------
Income (Loss) Before Income Taxes,
Equity in Earnings of Consolidated
Subsidiaries and Minority
Interest........................... (513) 13,017 4,529 28 17,061
Income Tax Provision (Credit)........ (178) 5,330 2,362 10 7,524
Equity in Earnings of Consolidated
Subsidiaries....................... 9,975 2,270 -- (12,245) --
Minority Interest in Loss of
Consolidated Subsidiary............ -- -- -- (103) (103)
--------- -------- -------- -------- --------
Net Income........................... $ 9,640 $ 9,957 $ 2,167 $(12,124) $ 9,640
========= ======== ======== ======== ========
</TABLE>
F-20
<PAGE> 127
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
POOL ENERGY SERVICES CO.
CONDENSED STATEMENT OF CONSOLIDATING CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
---------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR PESCO
PESCO GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Cash Flows Provided by (Used
for) Operating Activities...... $ (466) $ 12,350 $ 5,831 $ -- $ 17,715
Investing Activities:
Property additions............... -- (28,950) (2,660) 948 (30,662)
Expenditures for acquisitions,
including acquisition costs,
less cash acquired............. -- (14,068) (8,298) -- (22,366)
Proceeds from disposition of
property, plant and
equipment...................... -- 2,061 1,222 (948) 2,335
Decrease in restricted cash...... -- 152 -- 152
Other -- net..................... -- (52) 37 -- (15)
--------- -------- -------- -------- --------
Net Cash Flows Used for Investing
Activities..................... -- (40,857) (9,699) -- (50,556)
--------- -------- -------- -------- --------
Financing Activities:
Proceeds from issuance of common
stock, net..................... 47,455 -- -- -- 47,455
Proceeds from exercise of stock
options........................ 3,376 -- -- -- 3,376
Payments for debt financing
costs.......................... -- -- (199) -- (199)
Proceeds from long-term debt..... -- -- 6,500 -- 6,500
Principal payments on long-term
debt........................... -- (4,385) (3,161) -- (7,546)
Principal payments on notes
payable to related parties..... -- (400) -- -- (400)
Payments from (advances to)
consolidated subsidiaries,
net............................ (49,439) 45,139 4,300 --
--------- -------- -------- -------- --------
Net Cash Flows Provided by
Financing Activities........... 1,392 40,354 7,440 -- 49,186
--------- -------- -------- -------- --------
Net Increase in Cash and Cash
Equivalents.................... 926 11,847 3,572 -- 16,345
Cash and Cash Equivalents at
January 1,..................... 61 4,521 910 -- 5,492
--------- -------- -------- -------- --------
Cash and Cash Equivalents at
December 31,................... $ 987 $ 16,368 $ 4,482 $ -- $ 21,837
========= ======== ======== ======== ========
</TABLE>
F-21
<PAGE> 128
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
POOL ENERGY SERVICES CO.
CONDENSED CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR PESCO
PESCO GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................ $ 987 $ 16,368 $ 4,482 $ -- $ 21,837
Restricted cash.......................... -- 183 -- -- 183
Accounts and notes receivable............ -- 51,655 11,412 -- 63,067
Other receivables........................ -- 3,146 2,337 -- 5,483
Accounts receivable from affiliates...... -- 1,064 -- 1,064
Inventories.............................. -- 2,511 12,215 14,726
Deferred income tax asset................ -- 3,673 -- 134 3,807
Other current assets..................... 47 3,339 827 -- 4,213
--------- -------- -------- -------- --------
Total current assets.............. 1,034 81,939 31,273 134 114,380
Property, Plant and Equipment -- Net....... -- 121,489 68,019 (383) 189,125
Investment in Consolidated Subsidiaries.... 25,981 34,764 -- (60,745) --
Investment in and Noncurrent Receivables
from Unconsolidated Affiliates........... -- 19,104 -- -- 19,104
Goodwill, net.............................. -- 11,129 1,751 -- 12,880
Noncurrent Deferred Income Tax Asset....... 1,104 402 -- -- 1,506
Noncurrent Receivables and Other Assets.... -- 3,247 174 -- 3,421
Noncurrent Restricted Cash................. -- 801 -- -- 801
--------- -------- -------- -------- --------
Total............................. $ 28,119 $272,875 $101,217 $(60,994) $341,217
========= ======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt........ $ -- $ 3,270 $ 6,432 $ -- $ 9,702
Current portion of notes payable to
related parties........................ -- 925 -- -- 925
Trade accounts payable................... -- 18,392 2,379 -- 20,771
Accounts payable to affiliate............ -- -- 1,251 -- 1,251
Payable (receivable) to (from)
consolidated subsidiaries.............. (57,871) 45,065 12,796 10 --
Accrued liabilities...................... 140 19,825 9,540 -- 29,505
Accrued taxes............................ 2,612 1,978 -- 4,590
--------- -------- -------- -------- --------
Total current liabilities......... (57,731) 90,089 34,376 10 66,744
Long-Term Debt............................. -- 11,589 11,479 -- 23,068
Long-Term Payable (Receivable) to (from)
Consolidated Subsidiaries................ (111,595) 105,300 6,295 -- --
Deferred Income Taxes...................... -- 1,045 3,154 -- 4,199
Other Liabilities.......................... -- 38,934 7,102 -- 46,036
Minority Interest.......................... -- -- -- 4,047 4,047
Shareholders' Equity:
Common stock............................. 186,785 1 8,970 (8,971) 186,785
Paid-in capital.......................... 12,399 23,011 (35,410) --
Retained earnings........................ 11,551 13,840 6,830 (20,670) 11,551
Unearned compensation -- restricted
stock.................................. (891) -- -- -- (891)
Cumulative foreign currency translation
adjustments............................ -- (322) -- -- (322)
--------- -------- -------- -------- --------
Total shareholders' equity........ 197,445 25,918 38,811 (65,051) 197,123
--------- -------- -------- -------- --------
Total............................. $ 28,119 $272,875 $101,217 $(60,994) $341,217
========= ======== ======== ======== ========
</TABLE>
F-22
<PAGE> 129
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
POOL ENERGY SERVICES CO.
CONDENSED STATEMENT OF CONSOLIDATING OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
---------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR PESCO
PESCO GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues............................. $ -- $252,056 $ 25,249 $ -- $277,305
Earnings Attributable to
Unconsolidated Affiliates.......... -- 2,744 211 -- 2,955
--------- -------- -------- -------- --------
Total...................... -- 254,800 25,460 -- 280,260
--------- -------- -------- -------- --------
Costs and Expenses:
Operating expenses................. -- 200,180 18,894 -- 219,074
Selling, general and administrative
expenses........................ 417 35,965 3,545 -- 39,927
Depreciation and amortization...... -- 12,689 2,318 (5) 15,002
Acquisition related costs.......... -- 622 -- -- 622
--------- -------- -------- -------- --------
Total...................... 417 249,456 24,757 (5) 274,625
--------- -------- -------- -------- --------
Other Income (Expense) -- Net........ -- 1,462 243 (416) 1,289
Interest Expense..................... -- 1,808 3 -- 1,811
--------- -------- -------- -------- --------
Income (Loss) Before Income Taxes and
Equity in Earnings of Consolidated
Subsidiaries....................... (417) 4,998 943 (411) 5,113
Income Tax Provision (Credit)........ (175) 2,168 132 (144) 1,981
Equity in Earnings of Consolidated
Subsidiaries....................... 3,374 811 -- (4,185) --
--------- -------- -------- -------- --------
Net Income........................... $ 3,132 $ 3,641 $ 811 $ (4,452) $ 3,132
========= ======== ======== ======== ========
</TABLE>
F-23
<PAGE> 130
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
POOL ENERGY SERVICES CO.
CONDENSED STATEMENT OF CONSOLIDATING CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
----------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR PESCO
PESCO GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Cash Flows Provided by (Used
for)
Operating Activities.............. $ (406) $ 20,238 $ 4,179 $ (416) $ 23,595
Investing Activities:
Property additions.................. -- (15,787) (8,065) 416 (23,436)
Expenditures for acquisitions,
including acquisition costs, less
cash acquired..................... -- (3,431) -- -- (3,431)
Proceeds from disposition of
property, plant and equipment..... -- 2,028 372 -- 2,400
Decrease in restricted cash......... -- 154 -- -- 154
Other -- net........................ -- (92) 296 -- 204
--------- -------- -------- -------- --------
Net Cash Flows Used for Investing
Activities........................ -- (17,128) (7,397) 416 (24,109)
--------- -------- -------- -------- --------
Financing Activities:
Proceeds from exercise of stock
options........................... 61 -- -- -- 61
Proceeds and repayments of
short-term borrowings -- net...... -- (1,600) -- -- (1,600)
Retirement of debt assumed in
acquisitions...................... -- (1,962) -- -- (1,962)
Payments for debt financing costs... -- (102) -- -- (102)
Proceeds from long-term debt........ -- 10,000 -- -- 10,000
Principal payments on long-term
debt.............................. -- (2,751) -- -- (2,751)
Principal payments on notes payable
to related parties................ -- (200) -- -- (200)
Payments from (advances to)
consolidated subsidiaries, net.... 310 (3,465) 3,155 -- --
--------- -------- -------- -------- --------
Net Cash Flows Provided by (Used
for) Financing Activities......... 371 (80) 3,155 -- 3,446
--------- -------- -------- -------- --------
Net Increase (Decrease) in Cash and
Cash Equivalents.................. (35) 3,030 (63) -- 2,932
Cash and Cash Equivalents at January
1,................................ 96 1,491 973 -- 2,560
--------- -------- -------- -------- --------
Cash and Cash Equivalents at
December 31,...................... $ 61 $ 4,521 $ 910 $ -- $ 5,492
========= ======== ======== ======== ========
</TABLE>
F-24
<PAGE> 131
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES
Provision for income taxes is summarized below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
------------------------------
1997 1996 1995
-------- ------- -------
<S> <C> <C> <C>
Current:
Federal............................................... $ 2,998 $ 166 $ --
State................................................. 539 316 270
Foreign............................................... 1,428 2,864 450
------- ------ ------
Total current................................. 4,965 3,346 720
------- ------ ------
Deferred:
Federal............................................... 9,503 4,680 1,564
Foreign............................................... 1,238 (502) (303)
------- ------ ------
Total deferred................................ 10,741 4,178 1,261
------- ------ ------
Provision for income taxes............................ $15,706 $7,524 $1,981
======= ====== ======
</TABLE>
The 1997 and 1996 deferred income tax provisions resulted primarily from a
decrease in deferred tax assets due to utilization of U.S. federal net operating
loss ("NOL") carryforwards. The 1997 current federal provision includes
approximately $3.0 million for alternative minimum tax ("AMT") liability. As AMT
is effectively a prepayment of regular income taxes, a corresponding deferred
tax benefit was also recorded. The 1995 deferred income tax provision resulted
primarily from the effect of certain amendments to prior period U.S. federal tax
returns, partly offset by the reversal of no longer needed deferred foreign
taxes for 1990 income tax indemnities and the elimination of the Company's
valuation allowance related to the NOL carryforwards.
Temporary differences and carryforwards which gave rise to deferred tax
assets and liabilities as of December 31, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------- ---------------------------
DEFERRED TAX DEFERRED TAX DEFERRED TAX DEFERRED TAX
ASSETS LIABILITIES ASSETS LIABILITIES
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Investment in subsidiaries and
affiliates......................... $ 2,131 $ 1,811 $ 2,130 $ 1,780
Property............................. 244 43,603 931 32,922
Personal injury and property damage
claims............................. 4,779 -- 3,624 --
Leases............................... 7,814 -- 8,680 --
Accrued liabilities.................. 7,453 -- 4,819 --
Inventory valuation.................. 405 26 461 27
Accounts receivable valuation........ 861 -- 472 --
Net operating loss carryforward...... 8,826 -- 20,383 --
AMT credit carryforward.............. 2,998 -- -- --
Other................................ 1,219 799 592 872
------- ------- ------- -------
Subtotal................... 36,730 46,239 42,092 35,601
Valuation allowance.................. (3,472) -- (5,377) --
------- ------- ------- -------
Total...................... $33,258 $46,239 $36,715 $35,601
======= ======= ======= =======
</TABLE>
The total valuation allowance decreased a net $1.9 million in 1997 and $1.3
million in 1996.
F-25
<PAGE> 132
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In 1995, the Company eliminated the valuation allowance related to its U.S.
federal NOL carryforwards. Management believes that it is now more likely than
not that the Company will generate taxable income sufficient to realize the tax
benefit of the NOL and AMT carryforwards prior to their expiration.
At December 31, 1997, the Company had $3.6 million of NOL and approximately
$3 million of AMT available for carryforward to reduce U.S. federal regular
income taxes payable in future years. The U.S. NOL carryforward is from 1995 and
is available for utilization through the year 2010. The AMT credit carryforward
is primarily from 1997 and can be carried forward indefinitely. State NOL
carryforwards have been substantially reserved for in the Company's consolidated
balance sheet.
The Company had $13.4 million of foreign NOL carryforwards at December 31,
1997, with $1.3 million fully reserved. Management believes the Company will
generate future foreign taxable income sufficient to utilize the remaining $12.1
million of foreign NOL carryforwards with $0.9 million expiring after 2000, $1.6
million expiring after 2001, $1.8 million expiring after 2002 and $7.8 million
being carried forward indefinitely.
A reconciliation between income taxes computed at the U.S. federal
statutory rate and the Company's income taxes for financial reporting purposes
is shown below:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Income before income taxes and minority interest........ $42,297 $17,061 $5,113
U.S. federal statutory tax rate......................... 35% 35% 35%
Provision for income taxes computed at U.S. federal
statutory tax rate.................................... $14,804 $ 5,971 $1,790
Effect of:
Foreign tax rates different than U.S. federal
statutory tax rate............................... (640) 738 (132)
State income taxes................................. 350 205 175
Other -- net....................................... 1,192 610 148
------- ------- ------
Provision for income taxes.............................. $15,706 $ 7,524 $1,981
======= ======= ======
Effective income tax rate............................... 37.1% 44.1% 38.7%
======= ======= ======
</TABLE>
Foreign income before income taxes is defined as income generated from
operations in a foreign country, regardless of whether it is currently
reportable for U.S. tax purposes. Components of income before income taxes and
minority interest are as follows:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
-------- -------- -------
<S> <C> <C> <C>
Domestic................................................ $28,250 $ 9,423 $ 513
Foreign................................................. 14,047 7,638 4,600
------- ------- ------
Total......................................... $42,297 $17,061 $5,113
======= ======= ======
</TABLE>
The earnings of the Company's foreign subsidiaries and affiliates are
indefinitely invested outside the United States, and the Company estimates that
no U.S. income taxes would be payable upon distribution of those unremitted
earnings.
The Company is subject to taxation in many jurisdictions, and the final
determination of its tax liabilities involves the interpretation of the statutes
and requirements of various domestic and foreign taxing authorities. At December
31, 1997, foreign income tax returns for prior years of certain foreign
subsidiaries, unconsoli-
F-26
<PAGE> 133
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
dated affiliates and related entities were under examination and/or tax
deficiencies had been assessed. In the opinion of management, any additional
provisions for taxes which may ultimately be determined to be required as a
result of such examinations or assessments will not be material to the Company's
financial statements.
6. LONG-TERM DEBT AND LINES OF CREDIT
LONG-TERM DEBT
Long-term debt consisted of the following at December 31:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Revolving Credit Facility Notes............................. $65,800 $ --
$23.5 Million Term Loan (Antah Drilling -- Australia Rig
489)...................................................... -- 12,066
9% Notes (DA&S)............................................. 10,050 --
10% Notes (GPC)............................................. 4,497 10,000
$6.5 Million Term Loan (Australia Rig 453).................. -- 4,695
$10 Million Term Loan (Alaska).............................. -- 4,625
$4 Million Term Loan (Antah Drilling -- Malaysia Rig 488)... -- 1,150
Other....................................................... -- 234
------- -------
80,347 32,770
Less current maturities of long-term debt................... 1,025 9,702
------- -------
$79,322 $23,068
======= =======
</TABLE>
On September 30, 1997, the Company entered into a three-year $130 million
syndicated bank revolving line of credit agreement (the "Line of Credit") to
replace its existing $40 million revolving bank line of credit and $15.6 million
of long-term debt and to provide financing for future growth opportunities. The
maximum availability under the Line of Credit is $130 million, including up to
$15 million that may be used to support letters of credit. At December 31, 1997,
the Company had drawn $65.8 million in cash and $11.8 million was being utilized
to support the issuance of letters of credit, leaving $52.4 million unused and
available. During February 1998, the Company received a commitment for an
increase in the amount available under the Line of Credit from $130 million to
$180 million, which became effective on March 31, 1998. Initially, this
additional financing was considered for use in the financing of the acquisition
of Sea Mar (see Note 4), but instead on March 31, 1998 the Company completed a
private placement of 8 5/8% senior subordinated notes due 2008 in the aggregate
principal amount of $150 million. The net proceeds from the sale of the 8 5/8%
senior subordinated notes were used to fund the cash portion of the purchase
price, to repay the existing debt of Sea Mar and to reduce the outstanding
balance under the Line of Credit. The notes issued under the Line of Credit are
prepayable at any time and are due at expiration on October 2, 2000. The notes
bear interest, at the Company's option, at either (i) a base rate, defined as
the higher of the agent bank's prime lending rate or 1/2 of 1% in excess of the
federal funds rate, plus a margin ranging from zero to .50% (the amount of which
depends on the Company's leverage ratio), or (ii) a Eurodollar rate plus a
margin ranging from 1% to 1.75% (the amount of which depends on the Company's
leverage ratio) with the Company's choice of a one-, two-, three- or six-month
interest period; however, through September 1998, the applicable Eurodollar rate
margin shall not be less than 1.50%. The applicable interest rate was 7.47% at
December 31, 1997. A commitment fee of 1/2 of 1% per annum is payable on the
average daily unused portion of the $130 million commitment. There are also
letter of credit fees that range from 1.25% to 2% per annum (depending on the
Company's leverage ratio) for letters of credit outstanding; however, through
September 1998, such fees shall not be less than 1.75%. Advances under the Line
of Credit are secured by a pledge of 66% of the capital stock of certain of the
Company's foreign subsidiaries. The Company incurred $1.6 million of debt
financing costs during 1997 in connection with the Line of Credit, which is
being amortized over the term of the agreement.
F-27
<PAGE> 134
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Line of Credit agreement imposes certain financial covenants, including
ones requiring the maintenance of a minimum net worth, a minimum interest
coverage ratio, a minimum fixed charge coverage ratio, a maximum leverage ratio
and a maximum debt-to-equity ratio. It also imposes certain other restrictions,
including ones relating to liens, other indebtedness, asset sales, investments,
acquisitions or mergers and payment of dividends. In addition to customary
default provisions, an event of default will occur under the Line of Credit upon
a change of control of the Company, as defined in the agreement.
In June 1997, as partial consideration for the acquisition of DA&S, the
Company issued 9% notes aggregating $10.1 million, the last of which are due in
2003. These notes are collateralized by security interests in (i) the
well-servicing rigs and related equipment of the acquired business, which had an
aggregate net book value of $4.2 million at December 31, 1997 and (ii) certain
real property of the acquired business which had a carrying value of $0.7
million at December 31, 1997.
In connection with the October 1996 acquisition of Antah Drilling (now Pool
Malaysia), the Company agreed to assume liability under Antah Drilling's term
loans, which loans aggregated $14.6 million as of October 1, 1996. In October
1997 the remaining term loan balance was paid off with borrowings under the Line
of Credit. Such loans bore interest at the Singapore Interbank Offered Rate plus
1%, with the Company's choice of a one-, three-, or six-month interest period;
the applicable interest rates approximated 6.65% at December 31, 1996.
In January 1996, the Company received $6.5 million under a term loan
agreement in order to refinance the construction costs incurred during 1995 to
build a new offshore platform workover rig, Rig 453, under contract in
Australia. The rig construction costs were initially funded from the Company's
cash resources and borrowings under its then existing line of credit. This term
loan was paid off in October 1997 with borrowings under the Line of Credit. At
the Company's option, interest accrued at a floating rate based upon (i) the
lenders' prime rate plus 0.5% or (ii) the London Interbank Offered Rate (LIBOR)
plus 2.75%, with the Company's choice of a one-, two-, three- or six-month
interest period. The applicable interest rate on amounts outstanding was 8.13%
at December 31, 1996.
In June 1995, as partial consideration for the acquisition of GPC, the
Company issued 10% notes aggregating $11.5 million due in 2005. The outstanding
principal amount of such notes was reduced $4.0 million as of August 31, 1997 as
a result of an August 1997 agreement between the sellers of GPC ("Sellers") and
the Company that resolved certain issues that had arisen in connection with the
GPC purchase agreement. There was a corresponding $4.0 million increase to
common stock, as the August 1997 agreement effectively revalued the shares of
the Company's common stock received by the Sellers in connection with the June
1995 acquisition. The August 1997 agreement also resulted in a further reduction
of $0.9 million, as of November 30, 1997, of the Sellers' notes in satisfaction
of a receivable from the Sellers of like amount. Due to the principal reductions
described above, payment of these notes is now due to be completed in 2002.
These notes are collateralized by (i) the well-servicing rigs and related
equipment of the acquired business which had an aggregate net book value of $6.8
million at December 31, 1997, (ii) certain real property of the acquired
business which had a carrying value of $1.4 million at December 31, 1997, and
(iii) a $4.5 million letter of credit. The agreement pertaining to the notes
contains various restrictive covenants, including covenants pertaining to the
creation of certain encumbrances, the transaction of certain mergers or sales of
assets, the creation of certain additional debt and other matters.
In April 1995, the Company obtained a three-year term loan (the "Alaska
Loan") to refinance $10 million of the purchase price for the 60.7% partnership
interest in Pool Arctic Alaska which was acquired in September 1994. This term
loan was paid off in October 1997 with borrowings under the Line of Credit. At
the Company's option, interest accrued at a floating rate based upon (i) the
lenders' prime rate plus 0.5%, or (ii) LIBOR plus 2.75%, with the Company's
choice of a one-, two-, three-, or six-month interest period. The applicable
interest rate on amounts outstanding at December 31, 1996 was 8.13%.
F-28
<PAGE> 135
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The annual maturities of long-term debt outstanding as of December 31, 1997
(including current portion) are as follows:
<TABLE>
<S> <C>
1998............................................... $ 1,025
1999............................................... 625
2000............................................... 68,425
2001............................................... 5,104
2002............................................... 3,632
Thereafter......................................... 1,536
-------
$80,347
=======
</TABLE>
Based on rates currently available to the Company for debt with similar
terms and remaining maturities, the Company believes that the recorded value of
long-term debt approximates fair market value at December 31, 1997.
NOTES PAYABLE TO RELATED PARTIES
In connection with the GPC acquisition in June 1995 the Company issued 10%
two-year promissory notes, aggregating $1.5 million in principal amount, to
three employees related to certain deferred compensation obligations of GPC, and
such notes were retired in 1997.
SHORT-TERM LINES OF CREDIT
At December 31, 1997, the Company's unconsolidated affiliates had $2.4
million of unused short-term lines of credit and overdraft facilities.
7. COMMITMENTS AND CONTINGENT LIABILITIES
LEGAL PROCEEDINGS
The Company is routinely involved in litigation incidental to its business,
which often involves claims for significant monetary amounts, some, but not all,
of which would be covered by insurance. In the opinion of management, none of
the existing litigation will have any material adverse effect on the Company.
PERSONAL INJURY AND PROPERTY DAMAGE LIABILITY CLAIMS
Some of the operations of the Company are hazardous, and the Company has
experienced personal injury and property damage incidents. For claims prior to
1990, the Company maintains a reserve for the self-insured portion of its
personal injury and property damage coverage. Periodically, the Company
evaluates the adequacy of this reserve as compared with estimated settlements
for filed and anticipated claims. Estimated settlements for claims are based on
the Company's historical experience, type of claim, knowledge of the specific
circumstances of the claim and judgment of the possible effect that future
economic and legal factors might have on the ultimate settlement of the claim.
The Company believes that for claims prior to 1990, the accrued liability for
personal injury and property damage claims aggregating $2.4 million at December
31, 1997 is adequate.
Beginning in 1990, the Company obtained workers' compensation and
third-party liability insurance under which its exposure to the risks covered by
those policies is significantly lower than under the pre-1990 coverage. The
Company provided $4.0 million, $3.5 million and $4.0 million in 1997, 1996 and
1995, respectively, as estimates of the aggregate uninsured portion of claims
for those years. The accrued liability for the uninsured portion of workers'
compensation and third-party claims incurred after 1989 was $10.2 million at
December 31, 1997, of which $0.5 million was held in a deposit account
accessible by the insurance
F-29
<PAGE> 136
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
underwriters. In addition, at December 31, 1997 the Company had a $0.1 million
receivable related to claims payments made by the Company that are reimbursable
by insurance underwriters.
In connection with the business acquisitions in 1995 and 1997 (see Note 3),
the Company assumed liabilities for the uninsured portions of workers'
compensation and third-party liability claims incurred prior to the date the
businesses were acquired. The accrued liability for such was $2.9 million at
December 31, 1997. Similar liabilities were not assumed for the 1996
acquisitions.
LEASE COMMITMENTS
At December 31, 1997, the Company had a number of noncancelable long-term
operating leases, principally for yards and office space, rigs, computer
equipment, and a manufacturing and storage facility, with various expiration
dates. Future minimum net rentals under such leases aggregate $7.3 million for
1998; $6.6 million for 1999; $6.4 million for 2000; $6.0 million for 2001; $6.0
million for 2002; and $1.9 million thereafter. Rental expense incurred under
operating leases aggregated $13.0 million in 1997, $13.5 million in 1996, and
$13.3 million in 1995.
The Company has an operating lease, effective through March 2003, for a
65-acre facility at San Angelo, Texas which it previously used for rig and
equipment manufacturing and storage. The annual lease payments, which are
included in future minimum net rentals above, are $2.2 million through March
1998 and $4.4 million thereafter for the remaining five years of the lease.
Effective October 1, 1994, the Company vacated this facility and subleased it in
its entirety under an operating sublease which expired in September 1997. The
sublease provided for minimum sublease payments of $0.5 million per year for
three years. In September 1988, the Company, anticipating that it would not be
able to fully utilize the facility for a period of years, accrued a $15.9
million liability for the expected underutilization. After September 1988, the
cost associated with the unutilized portion of the facility was charged against
this accrued liability, which as of the fourth quarter of 1994, had
substantially been used. For the remainder of the lease term, the Company did
not anticipate utilizing any of this facility in its future operations nor did
it expect to be able to sublease this facility to third parties for an amount
equivalent to the annual lease payments; therefore, in the fourth quarter of
1994 the Company recorded a provision for leasehold impairment of $23.6 million
(see Note 11). The provision recognized all future lease expense, net of
anticipated sublease income.
In December 1993 the Company entered into sale/leaseback agreements with a
leasing company with respect to three offshore jackup rigs located in the Gulf
of Mexico, of which two rigs remain under lease. The leases, classified as
operating leases, have an aggregate annual lease rate of approximately $0.8
million per year. The Company has given notice to the leasing company of its
plans to purchase the two rigs for $2.3 million in December 1998. The sale and
leaseback agreements required the Company to place cash in a restricted
investment account which served as collateral for the leases; however, during
1997 the leasing company no longer required this collateral and the restricted
cash was returned to the Company.
8. PENSION, POSTRETIREMENT AND POSTEMPLOYMENT BENEFITS
PENSION PLANS
The Pool Company Retirement Income Plan, a defined benefit plan, covers
substantially all of the Company's domestic employees. The Company's policy is
to fund the minimum amount required by the Employee Retirement Income Security
Act of 1974. The benefits are based on years of service and the average of the
highest five consecutive years of compensation during the final ten years of
employment.
Supplementary executive retirement plans provide certain management
employees with defined benefits in excess of those provided by the Retirement
Income Plan. The Company's policy is to fund annually, within 60 days following
the end of the plan year, the amount necessary to make plan assets sufficient to
pay each participant or beneficiary the benefits payable as of the close of that
plan year. The benefits are based on years
F-30
<PAGE> 137
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of service and the average of the five highest years of compensation, including
any bonus earned, during the final ten years of employment.
The following is a summary of the components of net pension cost:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
--------- -------- --------
<S> <C> <C> <C>
Service cost -- benefits earned during the period......... $ 2,488 $2,000 $1,580
Interest cost on projected benefit obligation............. 1,031 781 525
Actual return on plan assets.............................. (1,613) (841) (869)
Net amortization and deferral............................. 1,106 667 509
------- ------ ------
Net pension cost................................ $ 3,012 $2,607 $1,745
======= ====== ======
</TABLE>
The following table sets forth the funded status of the plans and amounts
recognized in the Company's consolidated balance sheets at December 31:
<TABLE>
<CAPTION>
POOL COMPANY SUPPLEMENTARY
RETIREMENT INCOME EXECUTIVE
PLAN RETIREMENT PLANS
------------------ -----------------
1997 1996 1997 1996
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligation:
Vested benefit obligation....................... $ (9,147) $(5,475) $(4,908) $(2,440)
======== ======= ======= =======
Accumulated benefit obligation.................. $(10,276) $(6,370) $(4,908) $(2,440)
======== ======= ======= =======
Projected benefit obligation.................... $(13,346) $(8,227) $(7,008) $(3,433)
Plan assets at fair value......................... 8,376 6,460 5,296 1,665
-------- ------- ------- -------
Projected benefit obligation in excess of plan
assets.......................................... (4,970) (1,767) (1,712) (1,768)
Unrecognized net (gain) loss...................... 2,233 (219) 2,414 (53)
Unrecognized prior service cost................... -- -- 1,386 1,751
Adjustment to recognize minimum liability......... -- -- -- (706)
-------- ------- ------- -------
Prepaid (accrued) pension cost.................... $ (2,737) $(1,986) $ 2,088 $ (776)
======== ======= ======= =======
</TABLE>
Assumptions used in the accounting at December 31 were:
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Pool Company Retirement Income Plan:
Weighted average discount rate............................ 6.75% 7.75%
Annual rate of increase in future compensation levels..... 4.50% 4.50%
Expected long-term rate of return on plan assets.......... 9.00% 9.00%
Supplementary executive retirement plans:
Weighted average discount rate............................ 6.75% 7.75%
Annual rate of increase in future compensation levels..... 6.00% 6.00%
Expected long-term rate of return on plan assets.......... 9.00% 9.00%
</TABLE>
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides certain health care and life insurance benefits to
eligible employees who attain specific age and years of service requirements.
The benefits are paid from the general funds of the Company and, in the case of
the health care benefits, are partially funded by contributions from the
retirees.
F-31
<PAGE> 138
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company accounts for postretirement benefits other than pensions based
upon Statement of Financial Accounting Standards No. 106, "Employers' Accounting
for Postretirement Benefits Other Than Pensions" ("SFAS 106") which requires the
Company to accrue the estimated cost of its retiree health care and life
insurance benefits during the years the employees provide services entitling
them to the benefits. In accordance with the provisions of SFAS 106, the Company
had elected to recognize the liability of approximately $2.9 million at the
January 1, 1993 implementation date over a period of twenty years. During 1997,
the Company amended its postretirement benefit plan by terminating
postretirement health care coverage for hourly employees who were not eligible
by December 31, 1997 and modifying the cost-sharing for eligible dependents. The
effect of this amendment was to reduce the Company's postretirement benefit
obligation by approximately $2.5 million.
The following table sets forth certain information with respect to the
Company's postretirement benefits obligation at December 31:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.................................................. $(1,281) $(1,630)
Other fully eligible plan participants.................... (1,607) (2,096)
Other active plan participants............................ (2,086) (4,720)
------- -------
Total accumulated postretirement benefit obligation......... (4,974) (8,446)
Unrecognized transition obligation.......................... -- 2,236
Unrecognized prior service cost (credit).................... (80) 203
Unamortized net loss........................................ 461 1,646
------- -------
Accrued postretirement benefit liability.................... $(4,593) $(4,361)
======= =======
</TABLE>
Net periodic postretirement benefit cost consisted of the following
components:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
----- ------- -------
<S> <C> <C> <C>
Service cost -- benefits earned during the year........ $373 $1,023 $ 750
Interest cost on accumulated postretirement benefit
obligation........................................... 315 546 461
Net amortization and deferral.......................... (13) 167 93
Amortization of transition obligation.................. -- 140 140
---- ------ ------
Net periodic postretirement benefit cost............... $675 $1,876 $1,444
==== ====== ======
</TABLE>
The assumed health care cost trend rate used to measure the expected cost
of the benefits was 6.0% for 1997 and thereafter. If the assumed health care
cost trend rate were increased by one percent, the accumulated postretirement
benefit obligation as of December 31, 1997 would have increased by 11%, and the
aggregate of service and interest cost components for 1997 would have increased
17%. The assumed discount rate used in determining the accumulated
postretirement benefit obligation was 6.75% in 1997, 7.75% in 1996 and 7.25% in
1995.
POSTEMPLOYMENT BENEFITS
The Company accounts for postemployment benefits based on Statement of
Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits," which requires the accrual of benefits provided after
employment but before retirement to former or inactive employees, their
beneficiaries, and covered dependents.
F-32
<PAGE> 139
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. TRANSACTIONS WITH ENSERCH
ENSERCH (see Note 1) leases office space to the Company at negotiated rates
under an agreement that expires in December 2002. The total costs charged by
ENSERCH for such office space was $0.8 million in each of the three years ended
December 31, 1997.
In connection with the Company becoming an independent public company,
ENSERCH and the Company entered into a contingent support agreement which
relates to ENSERCH's guarantee of the Company's lease obligations with respect
to the facility in San Angelo, Texas, through March 2003 ($22.3 million
outstanding at December 31, 1997). The Company is obligated to reimburse ENSERCH
for any amounts paid out under this guarantee.
Certain oilfield services are performed for various affiliates and entities
managed by affiliates of ENSERCH at prices comparable to those received from
nonaffiliated customers. Revenues from the performance of those services,
amounted to $1.2 million in 1997, $2.3 million in 1996 and $1.8 million in 1995.
10. UNCONSOLIDATED AFFILIATES
Some of the Company's operations are conducted through unconsolidated
affiliates, in which the Company held the following indicated ownership interest
at December 31, 1997: Pool Arabia, Ltd. -- 51% and Intairdril Oman
L.L.C. -- 49%. The Company charges its unconsolidated affiliates for the
provision of management services and, in some cases, financing and equipment
rental.
The following table sets forth certain summarized financial information of
the Company's unconsolidated affiliates as shown by the financial statements of
the affiliates. Pool Arabia's 1996 net loss included a $2.3 million pretax loss
on disposal of two offshore jackup rigs sold to a third party. The loss on
disposal had no effect on the Company's equity in income from Pool Arabia
because the Company's basis in the rigs was lower than Pool Arabia's basis in
the rigs.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues:
Pool Arabia, Ltd.......................................... $36,964 $29,238 $28,150
Antah Drilling Sdn. Bhd.(b)............................... -- 4,363 4,218
Pool Santana, Limited(c).................................. -- 960 5,785
Intairdril Oman L.L.C..................................... 206 334 434
------- ------- -------
Total............................................. $37,170 $34,895 $38,587
======= ======= =======
Gross profit(a):
Pool Arabia, Ltd.......................................... $12,640 $ 9,192 $10,106
Antah Drilling Sdn. Bhd.(b)............................... -- 2,442 2,357
Pool Santana, Limited(c).................................. -- 333 2,522
Intairdril Oman L.L.C..................................... 169 153 223
------- ------- -------
Total............................................. $12,809 $12,120 $15,208
======= ======= =======
Net income (loss):
Pool Arabia, Ltd.......................................... $ 1,066 $(3,586) $ (536)
Antah Drilling Sdn. Bhd.(b)............................... -- (50) (210)
Pool Santana, Limited(c).................................. -- 89 927
Intairdril Oman L.L.C..................................... 134 (30) (392)
------- ------- -------
Total............................................. $ 1,200 $(3,577) $ (211)
======= ======= =======
</TABLE>
F-33
<PAGE> 140
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
- ---------------
(a) Gross profit is computed as revenues less operating expenses (which excludes
depreciation and amortization and selling, general and administrative
expenses).
(b) In October 1996, the Company acquired the 51% interest not already owned by
the Company in Antah Drilling. Antah Drilling's results have been included
in the accompanying financial statements since the date of such acquisition
(see Note 3).
(c) In April 1996, the Company acquired the 51% interest not already owned by
the Company in Pool Santana, Limited, a Trinidad corporation, the assets of
which consisted primarily of a platform workover rig and its related
equipment which were subsequently transferred to the Company's Gulf of
Mexico operation.
The Company's investment in its unconsolidated affiliates differs from its
ownership percentage of the affiliates' equity based on the financial statements
of the affiliates chiefly because of the allocation of the purchase price for
the 1990 purchase of ENSERCH's oilfield services business, unrecognized gains on
asset sales and other transactions as set forth below.
<TABLE>
<CAPTION>
AS OF DECEMBER 31
------------------
1997 1996
------- -------
<S> <C> <C>
Combined Balance Sheet Data of Unconsolidated Affiliates:
Current assets............................................ $17,527 $29,277
Noncurrent assets......................................... 59,197 39,342
------- -------
Total assets...................................... 76,724 68,619
------- -------
Current liabilities....................................... 15,163 4,752
Noncurrent liabilities.................................... 41,654 42,562
------- -------
Total liabilities................................. 56,817 47,314
------- -------
Net assets of unconsolidated affiliates..................... $19,907 $21,305
======= =======
Investment in and Noncurrent Receivables from Unconsolidated
Affiliates:
The Company's portion of net assets....................... $10,136 $10,852
Long-term advances........................................ 19,312 19,334
Differences between affiliates' bases and Company's
carrying value......................................... (10,259) (12,408)
------- -------
Equity in net assets...................................... 19,189 17,778
Noncurrent receivables.................................... 1,326 1,326
------- -------
Total............................................. $20,515 $19,104
======= =======
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
-------------------------------
1997 1996 1995
------- --------- -------
<S> <C> <C> <C>
Earnings Attributable to Unconsolidated Affiliates:
The Company's portion of net income (loss)................ $ 610 $ (1,825) $ (114)
Adjustment to reconcile differences between affiliates'
bases and Company's carrying value..................... 2,408 4,046 3,009
------ -------- ------
Equity in income.......................................... 3,018 2,221 2,895
Other income (expense).................................... 62 23 60
------ -------- ------
Total............................................. $3,080 $ 2,244 $2,955
====== ======== ======
</TABLE>
At December 31, 1997, the Company's investment in unconsolidated affiliates
included $6.5 million of net undistributed earnings of the affiliates. Pool
Arabia, Ltd. is party to an agreement which contains a
F-34
<PAGE> 141
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
covenant restricting the ability to distribute, by dividend or otherwise, its
earnings to the Company. The Company received dividends from unconsolidated
affiliates of $1.6 million in 1997, $1.7 million in 1996 and $2.9 million in
1995.
In management's opinion, the Company has no significant exposure from
currency restrictions on its foreign subsidiaries and affiliates (see Note 1).
11. SUPPLEMENTAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
AS OF DECEMBER 31
--------------------
1997 1996
-------- --------
<S> <C> <C>
BALANCE SHEET ITEMS:
Property, plant and equipment comprised the following:
Rigs and related equipment................................ $343,998 $257,789
Transportation equipment.................................. 6,000 5,302
Other machinery and equipment............................. 4,811 4,584
Land and buildings........................................ 9,523 7,765
Leasehold improvements.................................... 2,799 2,463
Furniture and office equipment............................ 3,976 2,699
-------- --------
Total............................................. 371,107 280,602
Less -- Accumulated depreciation............................ 111,314 91,477
-------- --------
Property, plant and equipment -- net.............. $259,793 $189,125
======== ========
Accrued liabilities are summarized below:
Accrued compensation and benefits......................... $ 21,459 $ 18,934
Deferred rig mobilization................................. 2,887 3,155
Personal injury and property damage claims................ 4,439 925
Accrued capital expenditures.............................. 4,097 246
Accrued maintenance costs................................. 2,033 938
Other accruals............................................ 9,729 5,307
-------- --------
Total............................................. $ 44,644 $ 29,505
======== ========
Other liabilities (noncurrent) are summarized below:
Accrued rental cost of underutilized facilities........... $ 22,327 $ 24,476
Personal injury and property damage
claims -- noncurrent................................... 11,241 9,436
Accrued benefits -- noncurrent............................ 4,788 3,279
Deferred rig mobilization................................. 2,051 5,055
Other..................................................... 6,588 3,790
-------- --------
Total............................................. $ 46,995 $ 46,036
======== ========
</TABLE>
F-35
<PAGE> 142
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
INCOME STATEMENT ITEMS:
Revenues:
Domestic onshore
Central division well-servicing........................ $114,596 $ 91,304 $ 86,880
California division well-servicing..................... 82,417 71,519 52,511
Production services.................................... 54,357 44,459 43,221
Gulf of Mexico offshore workover and drilling............. 80,957 58,545 37,415
International workover and drilling....................... 71,117 42,191 23,579
Alaska workover and drilling.............................. 26,797 24,633 20,427
Other services............................................ 21,681 15,907 13,272
-------- -------- --------
Total............................................. $451,922 $348,558 $277,305
======== ======== ========
Costs and expenses included:
Provision (credit) for uncollectible accounts............. $ 501 $ (551) $ 765
======== ======== ========
Other income (expense) -- net:
Interest income........................................... $ 999 $ 1,302 $ 435
Gain (loss) on disposal of assets......................... 3,718 1,015 1,164
Foreign currency gain (loss).............................. (82) (191) (285)
Other..................................................... (18) (31) (25)
-------- -------- --------
Total............................................. $ 4,617 $ 2,095 $ 1,289
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Federal, state and foreign income tax payments (refunds),
net....................................................... $ 4,035 $ 2,499 $ 138
Interest payments, net of amounts capitalized, to third
parties................................................... 3,669 2,744 1,458
Net changes in the components of operating working capital
were as follows:
Receivables............................................... $(17,345) $(12,472) $ 5,653
Accounts receivable from affiliates....................... (571) (604) (1,587)
Inventories............................................... (4,811) 72 (38)
Other current assets...................................... (2,734) (127) 123
Trade accounts payable and accrued liabilities............ 10,220 1,288 5,295
Accrued taxes............................................. 1,049 1,124 (2,198)
-------- -------- --------
Total............................................. $(14,192) $(10,719) $ 7,248
======== ======== ========
</TABLE>
Expenditures for acquisitions, including acquisition costs, less cash acquired:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Fair value of assets acquired (including goodwill)........ $ 72,818 $ 56,881 $ 37,808
Long-term notes issued.................................... (10,050) -- (11,500)
Company's common stock issued............................. -- -- (4,200)
Liabilities assumed....................................... (26,528) (33,756) (18,023)
-------- -------- --------
Cash paid, including acquisition related expenditures..... 36,240 23,125 4,085
Less: cash acquired....................................... 3,371 759 654
-------- -------- --------
Net cash used for acquisitions............................ $ 32,869 $ 22,366 $ 3,431
======== ======== ========
</TABLE>
F-36
<PAGE> 143
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
See Note 6 for a discussion of the August 1997 agreement between the
sellers of GPC and the Company that resolved certain issues that had arisen in
connection with the GPC purchase.
The Company also reclassified its investments in Antah Drilling and Pool
Santana in 1996 of $1.6 million and $1.5 million, respectively, to their related
assets and liabilities at the time of each acquisition (see Note 3).
BUSINESS BY GEOGRAPHIC AREA:
The following table sets forth certain financial data of the Company by
geographic area:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues:
United States............................................ $377,518 $304,406 $252,056
Middle East.............................................. 11,404 9,074 7,873
Australia................................................ 21,453 10,529 2,248
South America............................................ 37,149 22,592 13,263
Asia..................................................... 4,398 1,158 --
Europe and Africa........................................ -- 799 1,865
-------- -------- --------
Total............................................ $451,922 $348,558 $277,305
======== ======== ========
Earnings Attributable to Unconsolidated Affiliates:
Middle East.............................................. $ 3,080 $ 1,669 $ 2,163
South America............................................ -- 52 521
Asia..................................................... -- 523 271
-------- -------- --------
Total............................................ $ 3,080 $ 2,244 $ 2,955
======== ======== ========
Operating Income (Loss)(a):
United States............................................ $ 28,359 $ 9,563 $ 1,105
Middle East.............................................. 2,185 1,522 928
Australia................................................ 6,418 2,937 902
South America............................................ 682 1,569 177
Asia..................................................... 1,733 326 (2)
Europe and Africa........................................ (489) (402) (430)
-------- -------- --------
Total............................................ $ 38,888 $ 15,515 $ 2,680
======== ======== ========
Income (Loss) Before Income Taxes and Minority Interest:
United States............................................ $ 28,250 $ 9,423 $ 513
Middle East.............................................. 5,546 3,230 3,279
Australia................................................ 5,566 2,234 891
South America............................................ 991 1,709 602
Asia..................................................... 2,346 853 269
Europe and Africa........................................ (402) (388) (441)
-------- -------- --------
Total............................................ $ 42,297 $ 17,061 $ 5,113
======== ======== ========
</TABLE>
- ---------------
(a) Operating income (loss) is revenues less related costs and expenses; it
excludes earnings attributable to unconsolidated affiliates.
F-37
<PAGE> 144
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
AS OF DECEMBER 31
--------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Identifiable Assets:
United States.................................... $343,246 $222,656 $183,850
Middle East...................................... 29,398 28,065 26,655
Australia........................................ 45,447 46,769 8,334
South America.................................... 45,424 35,974 19,566
Asia............................................. 6,139 6,062 8,035
Europe and Africa................................ 9,541 1,691 2,003
-------- -------- --------
Total.................................... $479,195 $341,217 $248,443
======== ======== ========
</TABLE>
12. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited quarterly financial data for 1997
and 1996.
<TABLE>
<CAPTION>
4TH 3RD 2ND 1ST
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- -------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1997:
Revenues............................................. $125,147 $118,636 $109,755 $98,384
Earnings Attributable to Unconsolidated Affiliates... 813 629 634 1,004
Gross Profit(a)...................................... 35,166 31,982 28,590 24,672
Income Before Income Taxes and Minority Interest..... 12,507 13,872 9,937 5,981
Net Income........................................... 8,552 8,369 5,952 3,805
Earnings Per Share of Common Stock .................. $ .44 $ .43 $ .31 $ .20
Earnings Per Share of Common Stock -- assuming
dilution.......................................... $ .43 $ .43 $ .31 $ .20
1996:
Revenues............................................. $ 99,910 $ 83,978 $ 82,988 $81,682
Earnings Attributable to Unconsolidated Affiliates... 334 728 524 658
Gross Profit(a)...................................... 25,450 19,910 18,991 18,759
Income Before Income Taxes and Minority Interest..... 6,965 3,992 3,377 2,727
Net Income........................................... 3,798 2,586 1,833 1,423
Earnings Per Share of Common Stock................... $ .20 $ .14 $ .13 $ .10
Earnings Per Share of Common Stock -- assuming
dilution.......................................... $ .20 $ .14 $ .13 $ .10
</TABLE>
- ---------------
(a) Gross profit is computed as consolidated revenues plus earnings attributable
to unconsolidated affiliates, less operating expenses (which excludes
selling, general and administrative expenses, depreciation and amortization
and acquisition related costs).
F-38
<PAGE> 145
POOL ENERGY SERVICES CO.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income." This statement establishes standards for reporting and
display of comprehensive income and its components. The Company plans to adopt
this statement in the first quarter of 1998. Its adoption is not expected to
have a material effect on the Company's financial statements.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information." This statement establishes
standards for the way that public business enterprises report information about
operating segments in interim and annual financial statements. The Company plans
to adopt this statement in the fourth quarter of 1998. Its adoption is not
expected to have a material effect on the Company's financial statements, and
any effect will be limited to the form and content of the disclosure it
requires.
F-39
<PAGE> 146
POOL ENERGY SERVICES CO.
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
(UNAUDITED)
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
--------------------
1998 1997
-------- -------
<S> <C> <C>
Revenues.................................................... $117,712 $98,384
Earnings (Loss) Attributable to Unconsolidated Affiliates... (71) 1,004
-------- -------
Total............................................. 117,641 99,388
-------- -------
Costs and Expenses:
Operating expenses........................................ 83,363 74,716
Selling, general and administrative expenses.............. 13,175 12,761
Depreciation and amortization............................. 7,510 5,703
-------- -------
Total............................................. 104,048 93,180
-------- -------
Other Income (Expense) -- Net............................... 403 558
Interest Expense............................................ 1,763 785
-------- -------
Income Before Income Taxes and Minority Interest............ 12,233 5,981
Income Tax Provision........................................ 4,780 2,272
Minority Interest in Loss of Consolidated Subsidiary........ -- (96)
-------- -------
Net Income.................................................. $ 7,453 $ 3,805
======== =======
Earnings Per Share of Common Stock.......................... $ .38 $ .20
======== =======
Earnings Per Share of Common Stock -- assuming dilution..... $ .38 $ .20
======== =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-40
<PAGE> 147
POOL ENERGY SERVICES CO.
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
-------------------
1998 1997
-------- -------
<S> <C> <C>
Operating Activities:
Net income................................................ $ 7,453 $ 3,805
Noncash items included above:
Depreciation and amortization.......................... 7,510 5,703
Deferred income taxes.................................. 2,299 2,023
Undistributed (earnings) loss of unconsolidated
affiliates............................................ 147 (963)
Other -- net........................................... 379 (564)
Payment for lease of manufacturing facility............... (537) (537)
Proceeds from rig mobilization............................ 8,611 --
Other -- net.............................................. (2,060) (318)
Net effect of changes in operating working capital........ (6,720) (8,305)
-------- -------
Net Cash Flows Provided by Operating Activities... 17,082 844
-------- -------
Investing Activities:
Property additions........................................ (25,918) (6,999)
Expenditures for acquisition, including acquisition costs,
less cash acquired..................................... (50,374) --
Proceeds from disposition of property, plant and
equipment.............................................. 438 947
Other -- net.............................................. 36 617
-------- -------
Net Cash Flows Used for Investing Activities...... (75,818) (5,435)
-------- -------
Financing Activities:
Proceeds from long-term debt.............................. 170,000 --
Principal payments on long-term debt...................... (80,800) (2,525)
Repayment of debt assumed in acquisition.................. (15,672) --
Payment of debt financing costs........................... (4,691) (14)
Proceeds from exercise of stock options................... 257 532
-------- -------
Net Cash Flows Provided by (Used for) Financing
Activities....................................... 69,094 (2,007)
-------- -------
Net Increase (Decrease) in Cash and Cash Equivalents........ 10,358 (6,598)
Cash and Cash Equivalents at January 1,..................... 18,993 21,837
-------- -------
Cash and Cash Equivalents at March 31,...................... $ 29,351 $15,239
======== =======
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-41
<PAGE> 148
POOL ENERGY SERVICES CO.
CONDENSED CONSOLIDATED BALANCE SHEET
MARCH 31, 1998
(UNAUDITED)
(IN THOUSANDS EXCEPT NUMBER OF SHARES)
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 29,351
Restricted cash........................................... 10
Accounts and notes receivable (net of allowance for
doubtful accounts of $1,269)........................... 104,667
Inventories............................................... 17,703
Deferred income tax asset................................. 8,068
Other current assets...................................... 12,641
--------
Total current assets.............................. 172,440
Property, Plant and Equipment -- Net........................ 381,364
Vessel Construction Deposits................................ 18,275
Investment in and Noncurrent Receivables from Unconsolidated
Affiliates................................................ 28,527
Goodwill, net............................................... 61,947
Deferred Costs.............................................. 10,275
Noncurrent Receivables (net of allowance for doubtful
accounts of $1,092) and Other Assets...................... 2,769
--------
Total............................................. $675,597
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt......................... $ 1,025
Accounts payable.......................................... 49,473
Accrued Sea Mar purchase price adjustment................. 14,700
Other current liabilities................................. 53,114
--------
Total current liabilities......................... 118,312
Long-Term Debt.............................................. 168,522
Deferred Income Taxes....................................... 62,905
Other Liabilities........................................... 49,544
Shareholders' Equity:
Common stock, no par value:
40,000,000 shares authorized; 21,030,293 shares issued
and outstanding....................................... 231,561
Retained earnings......................................... 45,682
Unearned compensation -- restricted stock................. (607)
Cumulative foreign currency translation adjustments....... (322)
--------
Total shareholders' equity........................ 276,314
--------
Total............................................. $675,597
========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
F-42
<PAGE> 149
POOL ENERGY SERVICES CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements included in this report are
unaudited but in the opinion of management include all adjustments, consisting
only of normal recurring adjustments, necessary for a fair presentation of the
financial information for the periods indicated. All dollar amounts in the
tabulations in the notes to the financial statements are stated in thousands
unless otherwise indicated. Certain reclassifications have been made in the 1997
financial statements to conform with the 1998 presentation. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the financial
statements of Pool Energy Services Co. (the "Company") and all subsidiaries in
which a controlling interest is held. The Company uses the equity method to
account for affiliates in which it does not have control. In 1997, the Emerging
Issues Task Force of the Financial Accounting Standards Board (the "FASB")
reached a consensus on Issue 96-16, "Investor's Accounting for an Investee When
the Investor has a Majority of the Voting Interest but the Minority Shareholder
or Shareholders Have Certain Approval or Veto Rights" ("EITF 96-16"). EITF
96-16, which is effective for fiscal years ended after December 15, 1998, sets
forth new criteria for evaluating whether or not the rights of the minority
shareholder are sufficient to overcome the presumption that all majority-owned
investees should be consolidated. After reviewing the guidance provided by EITF
96-16 with respect to what constitutes "control," together with the specific
rights of the minority shareholder of Pool International Argentina S.A.
("PIASA") in the shareholders' agreement, the Company concluded that it could
not clearly overcome the presumption that certain of the rights of the minority
shareholder were substantive participating rights. Specific reasons for such are
as follows: (i) the shareholders' agreement between the Company and the minority
shareholder of PIASA requires the unanimous consent of PIASA's Board of
Directors for the approval of the annual capital and operating budgets of PIASA
and the making of any significant revisions to such budgets (two of the five
Board of Directors of PIASA are appointed by the minority shareholder) and (ii)
the shareholders' agreement requires the unanimous consent of PIASA's Board of
Directors for the approval of the purchase, leasing, chartering or other
acquisition of property or assets, not already approved in the annual capital
budget, which exceed $50,000. The minority rights identified above as
participating rights are significant in the ordinary course of PIASA's business;
accordingly, the Company concluded that it should change from consolidation
accounting to the equity method for its 51% investment in PIASA, which it did
effective January 1, 1998. Prior to January 1, 1998, 100% of PIASA's assets,
liabilities, results of operations and cash flows were included in the Company's
respective consolidated totals. The change in method of accounting had no effect
on the Company's consolidated net income for the three months ended March 31,
F-43
<PAGE> 150
POOL ENERGY SERVICES CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1998. The following table summarizes the effect of adopting EITF 96-16 on the
Company's balance sheet at January 1, 1998:
<TABLE>
<CAPTION>
INCREASE
(DECREASE)
----------
<S> <C>
Total Current Assets........................................ $ (4,465)
Property, Plant and Equipment -- Net........................ (11,583)
Investment in and Noncurrent Receivables from Unconsolidated
Affiliates................................................ 8,161
Goodwill, net............................................... (1,542)
--------
Total............................................. $ (9,429)
========
Total Current Liabilities................................... $ (6,455)
Deferred Income Taxes....................................... 986
Minority Interest........................................... (3,960)
--------
Total............................................. $ (9,429)
========
</TABLE>
DEFERRED COSTS
Deferred costs consist primarily of drydocking expenses incurred in
conjunction with marine inspections of offshore support vessels and debt
financing costs. Drydocking expenses are capitalized and amortized on a
straight-line basis over a period normally not to exceed 30 months. Debt
financing costs are amortized over the terms of the related borrowings. The
major components of deferred costs are unamortized deferred drydocking expenses
of $5.3 million at March 31, 1998 and unamortized debt financing costs of $4.9
million at March 31, 1998.
DEFERRED RIG MOBILIZATION
In connection with its rig contracts, the Company may receive lump sum fees
for the mobilization of equipment. The net amount of the lump sum fees received
and the mobilization expenses incurred are deferred and amortized over the term
of the contract.
3. EARNINGS PER SHARE
The following tables set forth the amounts used in computing earnings per
share ("EPS") and the weighted average number of shares of dilutive potential
common stock for the quarters ended March 31, 1998 and 1997.
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED MARCH 31, 1998
------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------ -------------- ----------
(IN THOUSANDS EXCEPT NUMBER OF SHARES AND
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Earnings per Share of Common Stock:
Net Income..................................... $7,453 19,483,801 $.38
====
Dilutive Effect of Potential Common Stock:
Stock Options.................................. -- 285,301
------ ----------
Earnings per Share of Common Stock -- Assuming
Dilution:
Net Income..................................... $7,453 19,769,102 $.38
====== ========== ====
</TABLE>
F-44
<PAGE> 151
POOL ENERGY SERVICES CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Options to purchase approximately 52,000 shares of common stock at an
exercise price of $31.8125 per share that were outstanding during the first
quarter of 1998 were not included in the computation of diluted EPS because such
options were antidilutive.
<TABLE>
<CAPTION>
FOR THE QUARTER ENDED MARCH 31, 1997
------------------------------------------
INCOME SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------ -------------- ----------
(IN THOUSANDS EXCEPT NUMBER OF SHARES AND
PER SHARE AMOUNTS)
<S> <C> <C> <C>
Earnings per Share of Common Stock:
Net Income..................................... $3,805 19,140,119 $.20
====
Dilutive Effect of Potential Common Stock:
Stock Options.................................. -- 263,880
------ ----------
Earnings per Share of Common Stock -- Assuming
Dilution:
Net Income..................................... $3,805 19,403,999 $.20
====== ========== ====
</TABLE>
4. LONG-TERM DEBT AND LINE OF CREDIT
SENIOR SUBORDINATED NOTES
On March 31, 1998, the Company completed a private placement of 8 5/8%
senior subordinated notes due 2008 in the aggregate principal amount of $150
million (the "Notes"). The net proceeds from the sale of the Notes were used to
fund the cash portion of the purchase price for Sea Mar, Inc. ("Sea Mar") (see
Note 5), to repay the existing debt of Sea Mar and to reduce the outstanding
balance under the Company's three-year $180 million syndicated bank credit
agreement (the "Credit Agreement"). The Notes are redeemable at the option of
the Company, in whole or in part, at any time on or after April 1, 2003 at a
redemption price equal to 104.313% of the principal amount thereof, plus accrued
interest, declining ratably to par on April 1, 2006. The Company may also redeem
up to 35% of the aggregate principal amount of the Notes at its option, from
time to time on or prior to April 1, 2001, at a redemption price equal to
108.625% of the principal amount thereof, plus accrued interest, with the net
proceeds of one or more equity offerings of the Company's common stock.
The Notes are general unsecured obligations of the Company subordinated in
right of payment to all existing and future senior indebtedness of the Company
and are unconditionally guaranteed, jointly and severally, by all of the
Company's wholly-owned subsidiaries that are incorporated or organized in the
United States (the "Subsidiary Guarantors"). The Notes contain certain covenants
that, among other things, limit the ability of the Company and the Subsidiary
Guarantors to incur additional indebtedness, issue capital stock of Subsidiary
Guarantors, pay dividends or make other restricted payments, incur liens, enter
into certain transactions with affiliates, enter into certain mergers or
consolidations or sell all or substantially all of the assets of the Company and
its subsidiaries. See Note 8 for the unaudited condensed consolidating financial
information for Pool Energy Services Co., the Subsidiary Guarantors and the
Non-Guarantor Subsidiaries as of and for the quarters ended March 31, 1998 and
1997.
CREDIT AGREEMENT
In March 1998, simultaneously with the issuance of the Notes and the
closing of the Sea Mar Acquisition, the Company executed an amendment to the
Credit Agreement to increase maximum availability thereunder from $130 million
to $180 million, including up to $15 million that may be used to support letters
of credit. At March 31, 1998 the Company had drawn $5.0 million in cash under
the Credit Agreement, and
F-45
<PAGE> 152
POOL ENERGY SERVICES CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
an additional $11.6 million was being utilized to support the issuance of
letters of credit, primarily related to insurance obligations.
Borrowings under the Credit Agreement bear interest, at the Company's
option, at either (i) the Base Rate (defined as the higher of the administrative
agent bank's prime lending rate or 1/2 of 1% in excess of the federal funds
rate) plus a margin ranging from zero to .50%, or (ii) the Eurodollar Rate
(equivalent to the London Interbank Offered Rate plus a margin ranging from 1%
to 1.75% with the Company's option of a one-, two-, three- or six-month interest
period). The applicable margin for each interest option depends on the Company's
leverage ratio for the fiscal quarter preceding the interest period; however,
through September 1998, the applicable Eurodollar margin shall not be less than
1.50%. Based upon the Company's leverage ratio at March 31, 1998, the applicable
Eurodollar margin would have been 1.00%. The Credit Agreement will mature on
October 2, 2000 and is subject to one-year extensions at the discretion of the
lenders. Revolving loans issued under the Credit Agreement are prepayable at any
time and are due at expiration on October 2, 2000. The Credit Agreement imposes
certain financial covenants, including ones requiring the maintenance of a
minimum net worth, a minimum interest coverage ratio, a minimum fixed charge
coverage ratio, a maximum leverage ratio and a maximum debt-to-equity ratio. It
also imposes certain other restrictions, including ones related to liens, other
indebtedness, asset sales, investments, acquisitions or mergers and the payment
of dividends. Advances under the Credit Agreement are secured by a pledge of 66%
of the capital stock of certain of the Company's foreign subsidiaries.
The Company incurred $4.2 million and $0.5 million of debt financing costs
during the first three months of 1998 in connection with the Notes offering and
the Credit Agreement, respectively.
5. ACQUISITION OF SEA MAR, INC.
On March 31, 1998, the Company acquired all of the outstanding capital
stock of Sea Mar, a privately owned Louisiana-based offshore support vessel
company with operations primarily in the Gulf of Mexico, for approximately $75.9
million in cash (including an estimated $14.7 million in post-closing purchase
price adjustments) and 1,538,462 shares of the Company's common stock (the "Sea
Mar Acquisition"). In addition, the Company agreed to pay additional cash
consideration contingent upon Sea Mar exceeding certain financial targets for
the fiscal years ending December 31, 1998 and 1999, up to a maximum of $10
million in each year.
The acquisition was accounted for under the purchase method, and Sea Mar's
results of operations will be included in the Company's consolidated financial
statements from the date of the acquisition. The purchase price was allocated
based on preliminary estimates of the fair market value of the assets acquired
and the liabilities assumed at the date of acquisition. The purchase price
allocation is subject to adjustment as additional information becomes available
and is evaluated. The primary items that may be subject to further adjustment
are fair value assessments of property, plant and equipment and reserves for
income taxes. This preliminary purchase price allocation resulted in goodwill of
approximately $21.5 million, which is being amortized on a straight-line basis
over 25 years. The purchase price paid at closing is subject to adjustment to
the extent that the shareholder's equity of Sea Mar at March 31, 1998 exceeded
the amount at August 31, 1997. This purchase price adjustment, which is expected
to be paid by mid-1998, is estimated to be $14.7 million and has been accrued.
F-46
<PAGE> 153
POOL ENERGY SERVICES CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Expenditures for the acquisition, including acquisition costs, less cash
acquired were as follows:
<TABLE>
<S> <C>
Fair value of assets acquired (including goodwill).......... $176,987
Company's common stock issued............................... (34,327)
Liability for post-closing purchase price adjustment........ (14,700)
Liabilities assumed......................................... (66,755)
--------
Cash paid, including acquisition related expenditures....... 61,205
Less: cash acquired......................................... 10,831
--------
Net cash used for the acquisition........................... $ 50,374
========
</TABLE>
Sea Mar has a contract with a marine shipbuilder for the construction of
ten offshore support vessels at an estimated aggregate cost of $77.6 million,
net of deposits. These new vessels are scheduled to be delivered between late
1998 and early 2000.
The following unaudited pro forma summary of financial information presents
the Company's consolidated results of operations as if the Sea Mar Acquisition
had occurred at the beginning of the periods indicated, after including the
impact of certain adjustments, such as: additional depreciation expense,
amortization of goodwill, amortization of the portion of the purchase price
allocated to a noncompete agreement, reduction of gains on sales due to the
purchase price allocation, increased interest expense and amortization of the
related debt financing costs associated with the $150 million Notes, reduction
of interest expense for the repayment of existing Sea Mar debt and repayments on
the Credit Agreement and related income tax effects thereon.
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
-------------------------------------------------
1998 1997
----------------------- -----------------------
AS REPORTED PRO FORMA AS REPORTED PRO FORMA
----------- --------- ----------- ---------
(IN THOUSANDS EXCEPT EARNINGS PER SHARE)
<S> <C> <C> <C> <C>
Revenues......................................... $117,712 $131,245 $98,384 $108,883
======== ======== ======= ========
Net Income....................................... $ 7,453 $ 9,750 $ 3,805 $ 4,313
======== ======== ======= ========
Earnings Per Share of Common Stock............... $ .38 $ .46 $ .20 $ .21
======== ======== ======= ========
Weighted Average Shares Outstanding.............. 19,484 21,005 19,140 20,678
======== ======== ======= ========
Earnings Per Share of Common Stock -- assuming
dilution....................................... $ .38 $ .46 $ .20 $ .21
======== ======== ======= ========
Weighted Average Shares Outstanding.............. 19,769 21,290 19,404 20,942
======== ======== ======= ========
</TABLE>
The above pro forma financial information is presented for informational
purposes only and is not necessarily indicative of the operating results that
would have occurred if the Sea Mar Acquisition had taken place at the beginning
of the periods presented, nor is it necessarily indicative of future operating
results.
F-47
<PAGE> 154
POOL ENERGY SERVICES CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. UNCONSOLIDATED AFFILIATES
The following table sets forth certain summarized financial information of
the Company's unconsolidated affiliates as derived from the unaudited condensed
financial statements of the affiliates.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
---------------------
1998 1997
------- ------
<S> <C> <C>
Revenues:
Pool Arabia, Ltd.......................................... $11,457 $8,584
Pool International Argentina S.A. ........................ 3,179(b) --
Intairdril Oman L.L.C. ................................... 10 65
------- ------
Total............................................. $14,646 $8,649
======= ======
Gross Profit (Loss)(a):
Pool Arabia, Ltd. ........................................ $ 3,890 $3,465
Pool International Argentina S.A. ........................ (1,336)(b) --
Intairdril Oman L.L.C. ................................... 4 56
------- ------
Total............................................. $ 2,558 $3,521
======= ======
Net Income (Loss):
Pool Arabia, Ltd.......................................... $ 373 $ 448
Pool International Argentina S.A. ........................ (1,570)(b) --
Intairdril Oman L.L.C. ................................... (9) (23)
------- ------
Total............................................. $(1,206) $ 425
======= ======
</TABLE>
- ---------------
(a) Gross profit is computed as revenues less operating expenses (which excludes
depreciation and amortization and selling, general and administrative
expenses).
(b) Effective January 1, 1998, the Company began accounting for its 51% interest
in PIASA under the equity method. See Note 2.
Earnings (loss) attributable to unconsolidated affiliates is summarized
below:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
------------------
1998 1997
------ -------
<S> <C> <C>
The Company's portion of net income (loss).................. $(615) $ 217
Adjustment to reconcile differences between affiliates'
bases and Company's carrying value........................ 468 746
----- ------
Equity in income (loss)..................................... (147) 963
Other income (expense)...................................... 76 41
----- ------
Total............................................. $ (71) $1,004
===== ======
</TABLE>
7. NEW ACCOUNTING PRONOUNCEMENTS
In February 1998, the FASB issued Statement of Financial Accounting
Standards ("SFAS") No. 132 "Employers' Disclosures about Pensions and Other
Postretirement Benefits." This statement standardizes the disclosure
requirements for pensions and other postretirement benefits to the extent
practicable, requires additional information on changes in the benefit
obligations and fair values of plan assets and eliminates certain disclosures no
longer considered useful. The Company plans to adopt this statement in the
fourth
F-48
<PAGE> 155
POOL ENERGY SERVICES CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
quarter of 1998. Its adoption is not expected to have a material effect on the
Company's financial position or results of operations, and any effect will be
limited to the form and content of the disclosure it requires.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." This statement establishes standards for reporting and display of
comprehensive income and its components. The Company adopted this statement in
the first quarter of 1998, and there was no effect on the Company's financial
statements.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information." This statement establishes standards
for the way that public business enterprises report information about operating
segments in interim and annual financial statements. The Company plans to adopt
this statement in the fourth quarter of 1998. Its adoption is not expected to
have a material effect on the Company's financial statements, and any effect
will be limited to the form and content of the disclosure it requires.
F-49
<PAGE> 156
POOL ENERGY SERVICES CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. CONSOLIDATING FINANCIAL STATEMENTS
Presented below is unaudited consolidating financial information for Pool
Energy Services Co. ("PESCO"), the Subsidiary Guarantors (on a combined basis),
and the Non-Guarantor Subsidiaries (on a combined basis) as of and for the
quarters ended March 31, 1998 and 1997. Separate financial information of each
Subsidiary Guarantor is not presented because the Company's management has
concluded that such financial information is not material to the investors.
POOL ENERGY SERVICES CO.
UNAUDITED CONDENSED STATEMENT OF CONSOLIDATING OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
-----------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR PESCO
PESCO GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues............................... $ -- $103,637 $14,075 $ -- $117,712
Earnings (Loss) Attributable to
Unconsolidated Affiliates............ -- (106) 35 -- (71)
------ -------- ------- ------- --------
Total........................ -- 103,531 14,110 -- 117,641
------ -------- ------- ------- --------
Costs and Expenses:
Operating expenses................... -- 75,419 7,944 -- 83,363
Selling, general and administrative
expenses.......................... 147 12,043 985 -- 13,175
Depreciation and amortization........ -- 6,193 1,324 (7) 7,510
------ -------- ------- ------- --------
Total........................ 147 93,655 10,253 (7) 104,048
------ -------- ------- ------- --------
Other Income (Expense) -- Net.......... -- 316 87 -- 403
Interest Expense....................... -- 1,355 408 -- 1,763
------ -------- ------- ------- --------
Income (Loss) Before Income Taxes...... (147) 8,837 3,536 7 12,233
Income Tax Provision (Credit).......... (52) 3,741 1,088 3 4,780
Equity in Earnings of Consolidated
Subsidiaries......................... 7,548 2,448 -- (9,996) --
------ -------- ------- ------- --------
Net Income............................. $7,453 $ 7,544 $ 2,448 $(9,992) $ 7,453
====== ======== ======= ======= ========
</TABLE>
F-50
<PAGE> 157
POOL ENERGY SERVICES CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
POOL ENERGY SERVICES CO.
UNAUDITED CONDENSED STATEMENT OF CONSOLIDATING CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1998
---------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR PESCO
PESCO GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
---------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Cash Flows Provided by Operating
activities............................... $ 10 $ 9,028 $ 8,045 $ (1) $ 17,082
Investing Activities:
Property additions......................... -- (18,898) (7,467) 447 (25,918)
Expenditures for acquisition, including
acquisition costs, less cash acquired.... -- (50,374) -- -- (50,374)
Proceeds from disposition of property,
plant and equipment...................... -- 791 94 (447) 438
Other -- net............................... 1 30 4 1 36
---------- -------- ------- ----- --------
Net Cash Flows Provided by (Used for)
Investing Activities..................... 1 (68,451) (7,369) 1 (75,818)
---------- -------- ------- ----- --------
Financing Activities:
Proceeds from exercise of stock options.... 257 -- -- -- 257
Payment of debt financing costs............ (4,186) (505) -- -- (4,691)
Proceeds from long-term debt............... 150,000 20,000 -- -- 170,000
Principal payments on long-term debt....... -- (80,800) -- -- (80,800)
Repayment of debt assumed in acquisition... -- (15,672) -- -- (15,672)
Payments from (advances to) consolidated
subsidiaries, net........................ (146,029) 147,835 (1,806) -- --
---------- -------- ------- ----- --------
Net Cash Flows Provided by (Used for)
Financing Activities..................... 42 70,858 (1,806) -- 69,094
---------- -------- ------- ----- --------
Net Increase (Decrease) in Cash and Cash
Equivalents.............................. 53 11,435 (1,130) -- 10,358
Cash and Cash Equivalents at January 1,.... 210 16,395 2,388 -- 18,993
---------- -------- ------- ----- --------
Cash and Cash Equivalents at March 31,..... $ 263 $ 27,830 $ 1,258 $ -- $ 29,351
========== ======== ======= ===== ========
</TABLE>
F-51
<PAGE> 158
POOL ENERGY SERVICES CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
POOL ENERGY SERVICES CO.
UNAUDITED CONDENSED CONSOLIDATING BALANCE SHEET
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR PESCO
PESCO GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents................. $ 263 $ 27,830 $ 1,258 $ -- $ 29,351
Restricted cash........................... -- 10 -- -- 10
Accounts and notes receivable............. -- 89,470 15,197 -- 104,667
Inventories............................... -- 7,334 10,369 -- 17,703
Deferred income tax asset................. 20 7,926 -- 122 8,068
Other current assets...................... 471 10,322 1,848 -- 12,641
--------- -------- ------- -------- --------
Total current assets............... 754 142,892 28,672 122 172,440
Property, Plant and Equipment -- Net........ -- 310,903 70,810 (349) 381,364
Vessel Construction Deposits................ -- 18,275 -- -- 18,275
Investment in Consolidated Subsidiaries..... 60,622 34,600 -- (95,222) --
Investment in and Noncurrent Receivables
from Unconsolidated Affiliates............ -- 28,527 -- -- 28,527
Goodwill, net............................... -- 61,947 -- -- 61,947
Deferred Costs.............................. 3,767 6,508 -- -- 10,275
Noncurrent Receivables and Other Assets..... -- 2,743 26 -- 2,769
--------- -------- ------- -------- --------
Total.............................. $ 65,143 $606,395 $99,508 $(95,449) $675,597
========= ======== ======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt......... $ -- $ 1,025 $ -- $ -- $ 1,025
Accounts payable.......................... -- 48,398 1,075 -- 49,473
Payable (receivable) to (from)
consolidated subsidiaries............... (248,572) 223,584 24,978 10 --
Accrued Sea Mar purchase price
adjustment.............................. -- 14,700 -- -- 14,700
Other current liabilities................. (1,154) 38,638 15,629 1 53,114
--------- -------- ------- -------- --------
Total current liabilities.......... (249,726) 326,345 41,682 11 118,312
Long-Term Debt.............................. 150,000 18,522 -- -- 168,522
Long-Term Payable (Receivable) to (from)
Consolidated Subsidiaries................. (111,595) 99,872 11,723 -- --
Deferred Income Taxes....................... (172) 58,795 4,280 2 62,905
Other Liabilities........................... -- 42,322 7,222 -- 49,544
Shareholders' Equity:
Common stock.............................. 231,561 1 500 (501) 231,561
Paid-in capital........................... -- 12,401 18,619 (31,020) --
Retained earnings......................... 45,682 48,459 15,482 (63,941) 45,682
Unearned compensation -- restricted
stock................................... (607) -- -- -- (607)
Cumulative foreign currency translation
adjustments............................. -- (322) -- -- (322)
--------- -------- ------- -------- --------
Total shareholders' equity......... 276,636 60,539 34,601 (95,462) 276,314
--------- -------- ------- -------- --------
Total.............................. $ 65,143 $606,395 $99,508 $(95,449) $675,597
========= ======== ======= ======== ========
</TABLE>
F-52
<PAGE> 159
POOL ENERGY SERVICES CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
POOL ENERGY SERVICES CO.
UNAUDITED CONDENSED STATEMENT OF CONSOLIDATING OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
-----------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR PESCO
PESCO GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues............................... $ -- $82,520 $15,864 $ -- $98,384
Earnings (Loss) Attributable to
Unconsolidated Affiliates............ -- 1,019 (15) -- 1,004
------ ------- ------- ------- -------
Total........................ -- 83,539 15,849 -- 99,388
------ ------- ------- ------- -------
Costs and Expenses:
Operating expenses................... -- 64,333 10,383 -- 74,716
Selling, general and administrative
expenses.......................... 154 10,579 2,028 -- 12,761
Depreciation and amortization........ 4,167 1,543 (7) 5,703
------ ------- ------- ------- -------
Total........................ 154 79,079 13,954 (7) 93,180
------ ------- ------- ------- -------
Other Income (Expense) -- Net.......... -- 478 80 -- 558
Interest Expense....................... -- 467 318 -- 785
------ ------- ------- ------- -------
Income (Loss) Before Income Taxes and
Minority Interest.................... (154) 4,471 1,657 7 5,981
Income Tax Provision (Credit).......... (54) 1,683 640 3 2,272
Equity in Earnings of Consolidated
Subsidiaries......................... 3,905 1,112 -- (5,017) --
Minority Interest in Loss of
Consolidated Subsidiary.............. -- -- -- (96) (96)
------ ------- ------- ------- -------
Net Income............................. $3,805 $ 3,900 $ 1,017 $(4,917) $ 3,805
====== ======= ======= ======= =======
</TABLE>
F-53
<PAGE> 160
POOL ENERGY SERVICES CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
POOL ENERGY SERVICES CO.
UNAUDITED CONDENSED STATEMENT OF CONSOLIDATING CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31, 1997
------------------------------------------------------------------
SUBSIDIARY NON-GUARANTOR PESCO
PESCO GUARANTORS SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net Cash Flows Provided by (Used for)
Operating Activities........................ $ (6) $ (277) $ 1,127 $ -- $ 844
Investing Activities:
Property additions............................ -- (5,607) (1,392) -- (6,999)
Proceeds from disposition of property, plant
and equipment............................... -- 498 449 -- 947
Other -- net.................................. -- 603 14 -- 617
------- ------- ------- ------- -------
Net Cash Flows Used for Investing
Activities.................................. -- (4,506) (929) -- (5,435)
------- ------- ------- ------- -------
Financing Activities:
Proceeds from exercise of stock options....... 532 -- -- -- 532
Payment of debt financing costs............... -- (14) -- -- (14)
Principal payments on long-term debt.......... -- (761) (1,764) -- (2,525)
Payments from (advances to) consolidated
subsidiaries, net........................... (1,409) 2,412 (1,003) -- --
------- ------- ------- ------- -------
Net Cash Flows Provided by (Used for)
Financing Activities........................ (877) 1,637 (2,767) -- (2,007)
------- ------- ------- ------- -------
Net Decrease in Cash and Cash Equivalents..... (883) (3,146) (2,569) -- (6,598)
Cash and Cash Equivalents at January 1,....... 987 16,368 4,482 -- 21,837
------- ------- ------- ------- -------
Cash and Cash Equivalents at March 31,........ $ 104 $13,222 $ 1,913 $ -- $15,239
======= ======= ======= ======= =======
</TABLE>
F-54
<PAGE> 161
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholder
of Sea Mar, Inc.:
We have audited the accompanying consolidated balance sheets of Sea Mar, Inc. (a
Louisiana corporation) and subsidiaries (the "Company") as of December 31, 1997
and 1996, and the related statements of operations, shareholder's investment and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated balance sheets referred to above present
fairly, in all material respects, the financial position of Sea Mar, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
February 13, 1998
F-55
<PAGE> 162
SEA MAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Operating Revenues:
Vessel operations......................................... $45,814,000 $27,600,585
Gain on sale of equipment................................. -- 24,768
----------- -----------
45,814,000 27,625,353
----------- -----------
Costs and Expenses:
Vessel operating costs.................................... 15,111,594 11,865,751
Depreciation.............................................. 1,931,685 1,484,784
General and administrative................................ 6,836,540 2,691,467
----------- -----------
23,879,819 16,042,002
----------- -----------
Operating Income............................................ 21,934,181 11,583,351
Other Income (Expense):
Interest expense.......................................... (1,436,601) (1,380,643)
Interest income........................................... 265,512 70,478
Other..................................................... 126,228 31,608
----------- -----------
(1,044,861) (1,278,557)
----------- -----------
Income Before Provision For Income Taxes.................... 20,889,320 10,304,794
Provision For Income Taxes.................................. 7,165,963 3,606,678
----------- -----------
Net Income.................................................. $13,723,357 $ 6,698,116
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-56
<PAGE> 163
SEA MAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income................................................ $ 13,723,357 $ 6,698,116
Adjustments to reconcile net income to net cash provided
by operating activities --
Depreciation........................................... 1,931,685 1,484,784
Amortization of deferred drydock costs................. 2,080,437 1,725,675
Provision for deferred income taxes.................... 1,842,500 3,046,678
Gain on sale of assets................................. -- (24,768)
Decrease (increase) in current assets --
Accounts receivable.................................... (2,889,332) (1,980,374)
Prepaid insurance and insurance claims receivable...... (185,600) (83,626)
Due from related parties............................... 56,862 69,592
Increase (decrease) in current liabilities --
Accounts payable....................................... 4,782,583 (187,061)
Accrued liabilities and bonuses........................ 523,885 (332,964)
Due to related parties................................. 26,681 --
------------ ------------
Net cash provided by operating activities......... 21,893,058 10,416,052
------------ ------------
Cash Flows From Investing Activities:
Capital expenditures...................................... (9,326,603) (11,436,225)
Vessel deposits........................................... (8,275,000) --
Expenditures for drydock costs............................ (3,147,135) (2,691,920)
Proceeds from sale of assets to related party............. -- 175,000
------------ ------------
Net cash used in investing activities............. (20,748,738) (13,953,145)
------------ ------------
Cash Flows From Financing Activities:
Proceeds from borrowing................................... -- 39,400,000
Retirements of debt....................................... -- (28,740,476)
Payments on long-term debt................................ (2,857,143) (1,992,857)
Retirement of preferred stock............................. -- (1,484,000)
------------ ------------
Net cash provided by (used in) financing
activities...................................... (2,857,143) 7,182,667
------------ ------------
Net Increase (Decrease) In Cash............................. (1,712,823) 3,645,574
Cash -- Beginning Of Period................................. 4,553,321 907,747
------------ ------------
Cash -- End Of Period....................................... $ 2,840,498 $ 4,553,321
============ ============
Supplemental Disclosures:
Interest paid............................................. $ 1,467,091 $ 1,698,070
============ ============
Income taxes paid......................................... $ 5,341,620 $ 560,000
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-57
<PAGE> 164
SEA MAR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Current Assets:
Cash...................................................... $ 2,840,498 $ 4,553,321
Accounts receivable....................................... 8,153,713 5,264,381
Prepaid insurance and other receivables................... 415,701 230,101
Due from related parties.................................. -- 56,862
----------- -----------
Total current assets.............................. 11,409,912 10,104,665
----------- -----------
Property And Equipment, at cost:
Vessels................................................... 39,327,624 30,063,697
Building, land and leasehold improvements................. 67,677 67,677
Furniture and fixtures.................................... 220,518 184,696
Vehicles.................................................. 344,256 317,402
----------- -----------
39,960,075 30,633,472
Accumulated depreciation.................................. 8,471,925 6,540,240
----------- -----------
Net property and equipment........................ 31,488,150 24,093,232
----------- -----------
Vessel Deposits............................................. 8,275,000 --
Deferred Drydock Costs, net of accumulated amortization of
$4,601,967 and $2,521,530 in 1997 and 1996,
respectively.............................................. 3,806,083 2,739,385
Deferred Tax Asset.......................................... -- 309,138
----------- -----------
Total assets...................................... $54,979,145 $37,246,420
=========== ===========
LIABILITIES AND SHAREHOLDER'S INVESTMENT
Current Liabilities:
Current portion of long-term debt......................... $ 2,857,143 $ 2,857,143
Accounts payable.......................................... 5,999,217 1,216,634
Accrued bonuses........................................... 1,088,813 534,988
Accrued liabilities....................................... 423,259 453,199
Due to related parties.................................... 26,681 --
----------- -----------
Total current liabilities......................... 10,395,113 5,061,964
----------- -----------
Long-term Debt, net of current portion...................... 14,285,714 17,142,857
Deferred Tax Liability...................................... 7,293,859 5,760,497
Commitments................................................. -- --
Shareholder's Investment:
Class A common stock, no par value, 100 shares authorized,
issued and outstanding................................. 38,000 38,000
Class B common stock, no par value, 60 shares authorized,
no shares issued or outstanding........................ -- --
Retained earnings......................................... 22,966,459 9,243,102
----------- -----------
Total shareholder's investment.................... 23,004,459 9,281,102
----------- -----------
Total liabilities and shareholder's investment.... $54,979,145 $37,246,420
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-58
<PAGE> 165
SEA MAR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
CLASS A CLASS C
COMMON STOCK PREFERRED STOCK
---------------- -------------------- RETAINED
SHARES AMOUNT SHARES AMOUNT EARNINGS TOTAL
------ ------- ------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance -- December 31, 1995...... 100 $38,000 100 $ 1,484,000 $ 2,544,986 $ 4,066,986
Preferred Stock repurchase........ -- -- (100) (1,484,000) -- (1,484,000)
Net income........................ -- -- -- -- 6,698,116 6,698,116
--- ------- ----- ----------- ----------- -----------
Balance -- December 31, 1996...... 100 38,000 -- -- 9,243,102 9,281,102
Net income........................ -- -- -- -- 13,723,357 13,723,357
--- ------- ----- ----------- ----------- -----------
Balance -- December 31, 1997...... 100 $38,000 -- $ -- $22,966,459 $23,004,459
=== ======= ===== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-59
<PAGE> 166
SEA MAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND ACCOUNTING POLICIES
Sea Mar, Inc. ("Sea Mar") was formed in 1990 as a Louisiana corporation and
began operations by issuing 40 shares of Class A common stock in exchange for
the stock of the previous Sea Mar, Inc., a company with related ownership.
Effective January 1, 1997, Sea Mar Personnel, Inc. and Sea Mar Operators, Inc.,
previously wholly owned subsidiaries of Sea Mar, were merged into Sea Mar, Inc.
The merger was accounted for as a reorganization similar to a pooling of
interests. The accompanying consolidated financial statements include the
accounts of Sea Mar and its wholly owned subsidiary, Sea Mar Management, Inc.
(collectively the "Company"). All significant intercompany balances and
transactions have been eliminated in consolidation.
The Company provides vessel support services to major and independent oil
and gas exploration and development companies, drilling contractors, geophysical
companies, construction companies and well stimulation and cementing companies
operating offshore. Such services are provided on a time charter basis utilizing
a fleet of vessels owned and/or managed by the Company. Typically, revenues are
earned based on a charge per day of service provided and are recorded for each
day worked. At December 31, 1997, the Company was providing these services only
in the Gulf of Mexico. However, in the past the Company has provided these
services on a worldwide basis and expects to operate in foreign waters in the
future.
Accounts Receivable
Customers are primarily major and large independent oil and gas exploration
and production companies. The Company's customers are granted credit on a
short-term basis and related credit risks are considered minimal. No allowance
has been provided by doubtful accounts at December 31, 1997 or 1996.
Revenue Recognition
The Company earns revenue from time charters of vessels to customers based
upon daily rates of hire. Rates of hire earned under time charters vary in
proportion to the operating expenses incurred in conjunction with each type of
charter. Typically, under time charter arrangements, the vessels' operating
expenses are the responsibility of the Company.
Property and Equipment
Property and equipment is recorded at cost. Maintenance and minor
replacements are charged to operations as incurred; major replacements and
betterment's are capitalized. The costs of assets sold, retired or otherwise
disposed of are removed from the accounts at the time of disposition, and any
associated gain or loss is reflected in operations for the period.
For financial reporting purposes, depreciation is provided on a
straight-line basis (with salvage values of 10% for vessels) over the estimated
useful lives of the assets as follows:
<TABLE>
<CAPTION>
ESTIMATED
CLASSIFICATION USEFUL LIVES
-------------- -------------
<S> <C>
15 to 25
Vessels (from date of construction).................. years
Buildings and leasehold improvements................. 31 years
Vehicles............................................. 3 to 7 years
Furniture and fixtures............................... 7 years
</TABLE>
Reclassifications
Certain reclassifications of prior year amounts have been made to conform
with the current year presentation.
F-60
<PAGE> 167
SEA MAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
The Company accounts for income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). SFAS
109 is an asset and liability approach that requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences of events
that have been recognized in the Company's financial statements or tax returns.
In estimating future tax consequences, SFAS 109 generally considers all expected
future events other than enactments of changes in the tax law or rates.
Estimates and Assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Deferred Drydock Costs
The Company periodically incurs drydock costs in conjunction with marine
inspections. These drydock costs are capitalized and amortized on a
straight-line basis over a period not to exceed 30 months.
2. LONG-TERM DEBT
In January 1996, the Company refinanced its outstanding long-term debt of
$11,166,667, with a $15,000,000 secured term loan ("Secured Term Loan I"). The
proceeds were used to retire the previous credit facility, provide additional
working capital and $2,600,000 was used toward the purchase of an additional
vessel. Between January, 1996 and August, 1996, the Secured Term Loan I was
increased from $15,000,000 to $19,400,000 and additional draws of up to maximum
available were made with the proceeds used to purchase vessels.
In December 1996, the Company renegotiated and refinanced its Secured Term
Loan I with a new credit facility ("Credit Facility") in the amount of
$40,000,000. Of the $40,000,000 Credit Facility, $20,000,000 is characterized as
a secured term loan ("Secured Term Loan II") and $20,000,000 is characterized as
a capital expenditure loan ("Capital Expenditure Loan"). All of the $20,000,000
available under the Secured Term Loan II was drawn in December 1996 with the
proceeds used to repay the borrowings under Secured Term Loan I and for
additional working capital. The Secured Term Loan II bears interest, at the
Company's option, of either 1.85% over LIBOR or the annual rate of a seven-year
United States Treasury Note plus 1.85%. It is due in monthly installments of
$238,095 plus interest for fifty-nine consecutive months with a final balloon
payment in December 2001.
At December 31, 1997 and 1996, the Company had no debt outstanding under
its Capital Expenditure Loan. The Capital Expenditure Loan may be used for
vessel acquisition or construction and general working capital. The terms of the
Capital Expenditure Loan provide for interest, at the Company's option, of
either 2.00% over LIBOR or the annual rate of a seven-year United States
Treasury Note plus 2.00%. Payment terms under the Capital Expenditure Loan
provide that only interest is payable through June 30, 1998, with monthly
installments of principal beginning July 31, 1998 and a final balloon payment
due on June 30, 2003.
The Credit Facility imposes restrictions on the payment of dividends.
F-61
<PAGE> 168
SEA MAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Long-term debt at December 31, 1997 and 1996 consisted of the following:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Notes payable under Secured Term Loan II; due in monthly
installments of $238,095 into 2001; interest at LIBOR
plus 1.85% (7.66% and 7.64% at December 31, 1997 and
1996, respectively): secured by vessels and corporate
guarantees (22 vessels with an approximate book value of
$26,800,000 and $23,700,000 at December 31, 1997 and
1996, respectively)...................................... $17,142,857 $20,000,000
Less current portion....................................... (2,857,143) (2,857,143)
----------- -----------
$14,285,714 $17,142,857
=========== ===========
</TABLE>
Following is a summary of scheduled debt payments under the Secured Term
Loan II.
<TABLE>
<S> <C>
1998................................... $ 2,857,143
1999................................... 2,857,143
2000................................... 2,857,143
2001................................... 8,571,428
2002................................... --
-----------
$17,142,857
===========
</TABLE>
The Company believes that the recorded value of long-term debt approximates
fair market value at December 31, 1997.
3. INCOME TAXES
The provision for income taxes for the years ended December 31, 1997 and
1996 consists of the following:
<TABLE>
<CAPTION>
1997 1996
---------- -----------
<S> <C> <C>
Current............................................. $5,323,463 $ 560,000
Deferred............................................ 1,842,500 3,046,678
Net Operating Loss Utilization...................... -- (2,011,643)
---------- -----------
$7,165,963 $ 1,595,035
========== ===========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of the assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. The components
of the net deferred tax liability at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Deferred tax asset:
AMT credit carryforward........................... $ -- $ 309,138
---------- ----------
Total deferred tax asset.......................... -- 309,138
---------- ----------
Deferred tax liabilities:
Tax over book depreciation........................ $5,940,434 $4,780,416
Drydock expenses over book amortization........... 1,322,466 949,122
Other............................................. 30,959 30,959
---------- ----------
Total deferred tax liability...................... 7,293,859 5,760,497
---------- ----------
Net deferred tax liability........................ $7,293,859 $5,451,359
========== ==========
</TABLE>
F-62
<PAGE> 169
SEA MAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A reconciliation of differences between the statutory U.S. federal income
tax rate and the Company's effective tax rate is as follows:
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
U.S. federal statutory income tax rate.................... 34.52% 34.00%
Other..................................................... (0.22) 1.00
------ ------
34.30% 35.00%
====== ======
</TABLE>
4. RELATED-PARTY TRANSACTIONS
As of December 31, 1997 and 1996, the Company had receivables of $0 and
$53,708, respectively, from its shareholder. Additionally, as of December 31,
1997 and 1996, the Company had receivables (payables) of ($26,681) and $3,154,
respectively, from (to) affiliated companies owned by its shareholder. The
Company also paid $2,400,000 to an affiliated company for guaranty fees during
the year ended December 31, 1997, which is reflected in general and
administrative expenses in the Company's statements of operations.
Beginning January, 1997, the Company is leasing a new office warehouse
complex from an affiliate. The lease is classified as an operating lease and
provides for minimum annual rentals of $156,000 through 2001.
During January 1996, the Company purchased a 175-foot vessel from an
affiliated company in exchange for two 102-foot vessels, $500,000 cash and
$47,508 of costs which were receivable from the affiliate. Also, in 1997 the
Company acquired two vessels from an affiliated company for $3,000,000.
On August 29, 1996, the Board of Directors authorized the Company to redeem
the outstanding 100 shares of preferred stock from its primary stockholder.
In December 1996, the Company sold to an affiliate, a warehouse building
and land for the appraised value of $175,000.
5. LEASES
The Company leases various office equipment, auto and real property under
operating leases expiring in various years through 2001.
Minimum future rental payments, including related party leases discussed in
Footnote 5, under non-cancelable operating leases having terms in excess of one
year as of December 31, 1997, for each of the next five years and in aggregate
are:
<TABLE>
<S> <C>
1998...................................... $229,013
1999...................................... 219,954
2000...................................... 180,345
2001...................................... 159,667
2002...................................... --
--------
$788,979
========
</TABLE>
6. PROFIT SHARING
For the year beginning January 1, 1996, the Company began a Profit Sharing
401(k) Plan. The Plan is intended to be a retirement plan qualified under
Internal Revenue Code 401(d). Employer contributions are discretionary with
$316,545 being contributed for 1997 and $0 for 1996.
F-63
<PAGE> 170
SEA MAR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. CONCENTRATION OF CREDIT RISK
During 1997, the Company provided services to two customers, which
accounted for approximately 22%, or $10,100,000, of 1997 revenues. Under current
market conditions, the Company does not believe that the loss of one or more of
these customers would have a material adverse effect on operating results since
the Company's vessel are capable of providing a wide variety of services to
other customers. The Company grants its customers credit only on a short-term
basis after investigation of credit worthiness. Therefore, even though virtually
all the Company's accounts receivable are from companies in the oil and gas
industry, exposure from the related credit risks are considered insignificant.
During 1996, the Company provided services to three customers, which accounted
for approximately 42%, or $11,600,000, of 1996 revenues.
8. PREFERRED STOCK
In July 1994, the Company issued 100 shares, no par value, Class C
Preferred Stock in connection with the reorganization of the Company and the
refinancing of the Company's credit facility. Dividends on the preferred stock
were restricted as provided by the terms of the Company's credit facility. The
preferred stock was redeemable at the option of the shareholder contingent upon
the Company satisfying certain financial requirements as also provided by the
Company's credit facility. The preferred shares were redeemed by the Company
during 1996 for $1,484,000.
9. SUBSEQUENT EVENT
On February 10, 1998, the Company signed a Stock Purchase Agreement (the
"Agreement") to sell its outstanding stock to Pool Energy Services Co. (the
"Buyer"). The Agreement provides for the exchange of cash and common stock in
the Buyer for all of the Company's outstanding Class A common stock.
On February 10, 1998, the Company signed an Assignment of Rights Under
Vessel Construction Contract with Sea Mar Equipment, Inc. ("Equipment"), owned
100% by the current shareholder of the Company, to assign all rights and
obligations under a vessel construction contract dated August 1, 1997 between
Equipment and a shipyard in exchange for $10,000,000 to be paid in cash or a one
year promissory note. During 1997, the Company advanced $8,275,000 to Equipment
related to Equipment's vessel construction contract. This advance has been
classified as Vessel Deposits in the accompanying balance sheet. The vessel
construction contract provides for the construction and delivery of ten supply
and anchor-handling/tug supply vessels. Pursuant to the Agreement discussed
above, the Buyer shall fund the Company with either the required $10,000,000 or
a promissory note payable in one year, bearing interest at 7.5%. The proceeds
will be used to repay the advance made during 1997 to Equipment. Total estimated
costs remaining under the vessel construction contract is approximately
$87,000,000.
F-64
<PAGE> 171
================================================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PRO-SPECTUS. 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 A
SOLICITATION OF ANY OFFER TO BUY, ANY OF THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. THE DELIVERY OF THIS PROSPECTUS AND ANY SALE MADE HEREUNDER
SHALL NOT, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS NOT
BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Available Information................ i
Incorporation of Certain Documents by
Reference.......................... i
Disclosure Regarding Forward-Looking
Information........................ ii
Prospectus Summary................... 1
Risk Factors......................... 10
The Exchange Offer................... 18
Use of Proceeds...................... 29
Capitalization....................... 30
Selected Historical and Pro Forma
Condensed Consolidated Financial
Data............................... 31
Unaudited Pro Forma Condensed
Consolidated Financial Data........ 33
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 38
Business............................. 48
Management........................... 61
Description of Other Indebtedness.... 65
Description of Notes................. 68
Plan of Distribution................. 95
Certain U.S. Federal Income Tax
Considerations..................... 96
Legal Matters........................ 99
Experts.............................. 99
Index to Financial Statements........ F-1
</TABLE>
================================================================================
================================================================================
POOL ENERGY SERVICES CO.
OFFER TO EXCHANGE ITS
8 5/8% SENIOR SUBORDINATED NOTES
DUE 2008, SERIES B
FOR ANY AND ALL OF ITS OUTSTANDING
8 5/8% SENIOR SUBORDINATED NOTES,
SERIES A
--------------------
PROSPECTUS
--------------------
, 1998
================================================================================
<PAGE> 172
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Pursuant to Article 2.02-1 of the Texas Business Corporation Act, Article
XIII of the bylaws of the Company authorizes the Company to indemnify any person
who (1) is or was a director, officer, employee or agent of the Company or (2)
while a director, officer, employee or agent of the Company, or was serving at
the request of the Company as a director, officer, partner, venturer,
proprietor, trustee, employee, agent or similar functionary of another foreign
or domestic corporation, partnership, joint venture, sole proprietorship, trust,
employee benefit plan or other enterprise, to the fullest extent that a
corporation may or is required to grant indemnification to a director under the
Texas Business Corporation Act. The Company may indemnify any person to such
further extent as permitted by law.
The Company's Articles of Incorporation limit the personal liability of
directors to the fullest extent permitted by Texas law. Specifically, a director
of the Company will not be personally liable to the Company or its shareholders
for monetary damages for an act or omission in the director's capacity as a
director, except for liability: (i) for a breach of the director's duty of
loyalty to the Company or its shareholders, (ii) for an act or omission not in
good faith or that involves intentional misconduct or a knowing violation of the
law, (iii) for a transaction from which the director derived an improper
personal benefit, whether or not the benefit resulted from an action taken
within the scope of the director's office, or (iv) an act or omission for which
the liability of the director is expressly provided by an applicable statute,
such as a corporation's unlawful stock repurchase or payment of a dividend. This
provision is intended to afford directors additional protection from, and limit
their potential liability for, suits alleging a breach of the duty of care by a
director. The Company believes that this provision will assist in its securing
and retaining the services of directors who are not employees of the Company. As
a result of the inclusion of this provision, shareholders may be unable to
recover monetary damages against directors for actions taken by them that
constitute negligence or gross negligence or that are in violation of their
fiduciary duties, although it may be possible to obtain injunctive or other
equitable relief with respect to such actions. If equitable remedies are found
not to be available to shareholders for any particular case, shareholders may
not have an effective remedy against the challenged conduct.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS AND SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3.1(*) -- Articles of Incorporation of Pool Energy Services Co., as
amended
3.2(*) -- Bylaws of Pool Energy Services Co.
3.3(*) -- Articles of Incorporation of Associated Petroleum
Services, Inc.
3.4(*) -- Bylaws of Associated Petroleum Services, Inc.
3.5(*) -- Articles of Incorporation of Big 10 Fishing Tool Company,
Inc.
3.6(*) -- Bylaws of Big 10 Fishing Tool Company, Inc.
3.7(*) -- Articles of Incorporation of The International Air
Drilling Company, as amended
3.8(*) -- Bylaws of The International Air Drilling Company
3.9(*) -- Joint Venture Agreement of Kuukpik/Pool Arctic Alaska
3.10(*) -- Articles of Incorporation of PCNV, Inc.
3.11(*) -- Bylaws of PCNV, Inc.
3.12(*) -- Articles of Incorporation of Pool Alaska, Inc.
3.13(*) -- Bylaws of Pool Alaska, Inc.
3.14(*) -- Articles of Incorporation of Pool Americas, Inc., as
amended
3.15(*) -- Bylaws of Pool Americas, Inc.
</TABLE>
II-1
<PAGE> 173
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3.16(*) -- Articles of Incorporation of Pool-Australia, Inc.
3.17(*) -- Bylaws of Pool-Australia, Inc.
3.18(*) -- Articles of Incorporation of Pool California Energy
Services, Inc., as amended
3.19(*) -- Bylaws of Pool California Energy Services, Inc.
3.20(*) -- Certificate of Incorporation of Pool Company, as amended
3.21(*) -- Bylaws of Pool Company
3.22(*) -- Certificate of Limited Partnership of Pool Company
Houston Ltd.
3.23(*) -- Limited Partnership Agreement of Pool Company Houston
Ltd., as amended
3.24(*) -- Certificate of Limited Partnership of Pool Company Texas
Ltd.
3.25(*) -- Limited Partnership Agreement of Pool Company Texas Ltd.,
as amended
3.26(*) -- Articles of Incorporation of Pool International, Inc.
3.27(*) -- Bylaws of Pool International, Inc.
3.28(*) -- Certificate of Incorporation of Pool Production Services,
Inc., as amended
3.29(*) -- Bylaws of Pool Production Services, Inc.
3.30(*) -- Articles of Incorporation of PTX, Inc., as amended
3.31(*) -- Bylaws of PTX, Inc.
3.32(*) -- Articles of Incorporation of Sea Mar, Inc., as amended
3.33(*) -- Bylaws of Sea Mar, Inc.
3.34(*) -- Articles of Incorporation of Sea Mar Management, Inc.
3.35(*) -- Bylaws of Sea Mar Management, Inc.
4.1 -- Indenture dated as of March 31, 1998 by and among Pool
Energy Services Co., the Subsidiary Guarantors named
therein and Marine Midland Bank, as Trustee, including
the forms of the Old Notes and the New Notes issued
pursuant to such Indenture (incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K
dated April 6, 1998)
4.2 -- Registration Rights Agreement dated as of March 31, 1998
by and among Pool Energy Services Co. and SBC Warburg
Dillon Read Inc., Morgan Stanley & Co. Incorporated and
Johnson Rice & Company L.L.C., and the Subsidiary
Guarantors named therein (incorporated by reference to
Exhibit 4.2 to the Company's Current Report on Form 8-K
dated April 6, 1998).
4.3 -- Purchase Agreement dated March 26, 1998 by and among Pool
Energy Services Co. and SBC Warburg Dillon Read Inc.,
Morgan Stanley & Co. Incorporated and Johnson Rice &
Company, L.L.C., and the Subsidiary Guarantors named
therein (incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K dated April 6,
1998).
4.4(*) -- Supplemental Indenture dated as of March 31, 1998 among
The Company, the Guarantors named therein and the
Trustee.
5.1(*) -- Opinion of Covington & Burling
10.1 -- U.S. $180,000,000 Amended and Restated Credit Agreement,
dated as of March 26, 1998, among Pool Energy Services
Co., Pool Energy Holding, Inc., Pool Company, various
banks, SBC Warburg Dillon Read Inc., as Arranger, Credit
Lyonnais New York Branch, as Administrative Agent, and
Swiss Bank Corporation, Stamford Branch, as Documentation
Agent (incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K dated April 6,
1998).
12.1(**) -- Statement of Computation of Ratios of Earnings to Fixed
Charges
21.1(*) -- List of Subsidiaries
23.1(**) -- Consent of Deloitte & Touche LLP
23.2(**) -- Consent of Arthur Andersen LLP
</TABLE>
II-2
<PAGE> 174
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
23.3 -- Consent of Covington & Burling (contained in their
opinion filed as Exhibit 5.1)
24.1(*) -- Powers of Attorney
25.1(*) -- Form T-1 Statement of Eligibility of Marine Midland Bank
to act as trustee under the Indenture.
99.1(*) -- Form Letter of Transmittal
99.2(*) -- Form Notice of Guaranteed Delivery
</TABLE>
- ---------------
(*) Previously filed
(**) Filed herewith
(b) Financial Statement Schedules
All schedules for which provision has been made in the applicable
accounting regulations of the Commission are either not required under the
related instructions, are not applicable (and therefore have been omitted), or
the required disclosures are contained in the financial statements included
herein.
ITEM 22. UNDERTAKINGS
(a) Each of the undersigned registrants hereby undertakes:
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) Each of the undersigned registrants hereby undertakes:
(1) To respond to requests for information that is incorporated by
reference into the Prospectus pursuant to Item 4, 10(b), 11 or 13 of Form
S-4, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of responding
to the request.
(2) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
II-3
<PAGE> 175
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing Form S-4 and has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Houston, State of Texas, on June 3, 1998.
POOL ENERGY SERVICES CO.
By: /s/ J. T. JONGEBLOED
----------------------------------
J. T. Jongebloed
Chairman, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 3rd day of June 1998 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ J. T. JONGEBLOED Chairman, President and Chief Executive Officer
- -----------------------------------------------------
J. T. Jongebloed
/s/ E. J. SPILLARD Senior Vice President, Finance (principal financial
- ----------------------------------------------------- officer)
E. J. Spillard
/s/ B. G. GORDON Controller (principal accounting officer)
- -----------------------------------------------------
B. G. Gordon
/s/ WILLIAM H. MOBLEY* Director
- -----------------------------------------------------
William H. Mobley
/s/ JOSEPH R. MUSOLINO* Director
- -----------------------------------------------------
Joseph R. Musolino
/s/ JAMES L. PAYNE* Director
- -----------------------------------------------------
James L. Payne
/s/ DONALD D. SYKORA* Director
- -----------------------------------------------------
Donald D. Sykora
*By /s/ J. T. JONGEBLOED
-------------------------------------------------
J. T. Jongebloed
Attorney-in-Fact
</TABLE>
II-4
<PAGE> 176
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Associated
Petroleum Services, Inc. certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing Form S-4 and has duly caused
this Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Houston, State of Texas, on June 3,
1998.
ASSOCIATED PETROLEUM SERVICES, INC.
By: /s/ J. T. JONGEBLOED
------------------------------------
J. T. Jongebloed
Chairman and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 3rd day of June 1998 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ J. T. JONGEBLOED Chairman and President; Director
- -----------------------------------------------------
J. T. Jongebloed
/s/ E. J. SPILLARD Senior Vice President, Finance (principal financial
- ----------------------------------------------------- officer); Director
E. J. Spillard
/s/ B. G. GORDON Controller (principal accounting officer)
- -----------------------------------------------------
B. G. Gordon
</TABLE>
II-5
<PAGE> 177
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Big 10 Fishing
Tool Company, Inc. certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing Form S-4 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Houston, State of Texas, on June 3, 1998.
BIG 10 FISHING TOOL COMPANY, INC.
By: /s/ J. T. JONGEBLOED
----------------------------------
J. T. Jongebloed
Chairman and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 3rd day of June 1998 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ J. T. JONGEBLOED Chairman and President; Director
- -----------------------------------------------------
J. T. Jongebloed
/s/ E. J. SPILLARD Senior Vice President, Finance (principal financial
- ----------------------------------------------------- officer); Director
E. J. Spillard
/s/ B. G. GORDON Controller (principal accounting officer)
- -----------------------------------------------------
B. G. Gordon
</TABLE>
II-6
<PAGE> 178
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, The
International Air Drilling Company certifies that it has reasonable grounds to
believe that it meets all of the requirements for filing Form S-4 and has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Houston, State of Texas,
on June 3, 1998.
THE INTERNATIONAL AIR DRILLING
COMPANY
By: /s/ J. T. JONGEBLOED
----------------------------------
J. T. Jongebloed
Chairman and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 3rd day of June 1998 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ J. T. JONGEBLOED Chairman and President; Director
- -----------------------------------------------------
J. T. Jongebloed
/s/ E. J. SPILLARD Senior Vice President, Finance (principal financial
- ----------------------------------------------------- officer); Director
E. J. Spillard
/s/ B. G. GORDON Controller (principal accounting officer)
- -----------------------------------------------------
B. G. Gordon
</TABLE>
II-7
<PAGE> 179
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Kuukpik/Pool
Arctic Alaska certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing Form S-4 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Houston, State of Texas, on June 3, 1998.
KUUKPIK/POOL ARCTIC ALASKA
By: Pool Alaska, Inc. d/b/a Pool
Arctic Alaska
By: /s/ J. T. JONGEBLOED
--------------------------------
J. T. Jongebloed
Chairman and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 3rd day of June 1998 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ J. T. JONGEBLOED Chairman and President; Director of Pool Alaska, Inc.
- -----------------------------------------------------
J. T. Jongebloed
/s/ E. J. SPILLARD Senior Vice President, Finance (principal financial
- ----------------------------------------------------- officer); Director of Pool Alaska, Inc.
E. J. Spillard
/s/ B. G. GORDON Controller (principal accounting officer) of Pool
- ----------------------------------------------------- Alaska, Inc.
B. G. Gordon
</TABLE>
II-8
<PAGE> 180
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, PCNV, Inc.
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing Form S-4 and has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Houston, State of Texas, on June 3, 1998.
PCNV, INC.
By: /s/ J. T. JONGEBLOED
----------------------------------
J. T. Jongebloed
Chairman and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 3rd day of June 1998 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ J. T. JONGEBLOED Chairman and President; Director
- -----------------------------------------------------
J. T. Jongebloed
/s/ E. J. SPILLARD Senior Vice President, Finance (principal financial
- ----------------------------------------------------- officer); Director
E. J. Spillard
/s/ B. G. GORDON Controller (principal accounting officer)
- -----------------------------------------------------
B. G. Gordon
</TABLE>
II-9
<PAGE> 181
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Pool Alaska,
Inc. certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, on June 3, 1998.
POOL ALASKA, INC.
By: /s/ J. T. JONGEBLOED
----------------------------------
J. T. Jongebloed
Chairman and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 3rd day of June 1998 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ J. T. JONGEBLOED Chairman and President; Director
- -----------------------------------------------------
J. T. Jongebloed
/s/ E. J. SPILLARD Senior Vice President, Finance (principal financial
- ----------------------------------------------------- officer); Director
E. J. Spillard
/s/ B. G. GORDON Controller (principal accounting officer)
- -----------------------------------------------------
B. G. Gordon
</TABLE>
II-10
<PAGE> 182
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Pool Americas,
Inc. certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, on June 3, 1998.
POOL AMERICAS, INC.
By: /s/ J. T. JONGEBLOED
----------------------------------
J. T. Jongebloed
Chairman and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 3rd day of June 1998 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ J. T. JONGEBLOED Chairman and President; Director
- -----------------------------------------------------
J. T. Jongebloed
/s/ E. J. SPILLARD Senior Vice President, Finance (principal financial
- ----------------------------------------------------- officer); Director
E. J. Spillard
/s/ B. G. GORDON Controller (principal accounting officer)
- -----------------------------------------------------
B. G. Gordon
</TABLE>
II-11
<PAGE> 183
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Pool-Australia,
Inc. certifies that it has reasonable grounds to believe that it meets all of
the requirements for filing Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, on June 3, 1998.
POOL-AUSTRALIA, INC.
By: /s/ J. T. JONGEBLOED
----------------------------------
J. T. Jongebloed
Chairman and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 3rd day of June 1998 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ J. T. JONGEBLOED Chairman and President; Director
- -----------------------------------------------------
J. T. Jongebloed
/s/ E. J. SPILLARD Senior Vice President, Finance (principal financial
- ----------------------------------------------------- officer); Director
E. J. Spillard
/s/ B. G. GORDON Controller (principal accounting officer)
- -----------------------------------------------------
B. G. Gordon
</TABLE>
II-12
<PAGE> 184
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Pool California
Energy Services, Inc. certifies that it has reasonable grounds to believe that
it meets all of the requirements for filing Form S-4 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Houston, State of Texas, on June 3, 1998.
POOL CALIFORNIA ENERGY SERVICES, INC.
By: /s/ J. T. JONGEBLOED
------------------------------------
J. T. Jongebloed
Chairman and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 3rd day of June 1998 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ J. T. JONGEBLOED Chairman and President; Director
- -----------------------------------------------------
J. T. Jongebloed
/s/ E. J. SPILLARD Senior Vice President, Finance (principal financial
- ----------------------------------------------------- officer); Director
E. J. Spillard
/s/ B. G. GORDON Controller (principal accounting officer)
- -----------------------------------------------------
B. G. Gordon
</TABLE>
II-13
<PAGE> 185
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Pool Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing Form S-4 and has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Houston, State of Texas, on June 3, 1998.
POOL COMPANY
By: /s/ J. T. JONGEBLOED
----------------------------------
J. T. Jongebloed
Chairman and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 3rd day of June 1998 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ J. T. JONGEBLOED Chairman and President; Director
- -----------------------------------------------------
J. T. Jongebloed
/s/ E. J. SPILLARD Senior Vice President, Finance (principal financial
- ----------------------------------------------------- officer); Director
E. J. Spillard
/s/ B. G. GORDON Controller (principal accounting officer)
- -----------------------------------------------------
B. G. Gordon
/s/ R. G. HALE Director
- -----------------------------------------------------
R. G. Hale
/s/ W. J MYERS Director
- -----------------------------------------------------
W. J Myers
</TABLE>
II-14
<PAGE> 186
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Pool Company
Houston Ltd. certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing Form S-4 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Houston, State of Texas, on June 3, 1998.
POOL COMPANY HOUSTON LTD.
By: Pool Company, General Partner
By: /s/ J. T. JONGEBLOED
--------------------------------
J. T. Jongebloed
Chairman and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 3rd day of June 1998 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ J. T. JONGEBLOED Chairman and President; Director of Pool Company
- -----------------------------------------------------
J. T. Jongebloed
/s/ E. J. SPILLARD Senior Vice President, Finance (principal financial
- ----------------------------------------------------- officer); Director of Pool Company
E. J. Spillard
/s/ B. G. GORDON Controller (principal accounting officer)
- ----------------------------------------------------- of Pool Company
B. G. Gordon
/s/ R. G. HALE Director of Pool Company
- -----------------------------------------------------
R. G. Hale
/s/ W. J MYERS Director of Pool Company
- -----------------------------------------------------
W. J Myers
</TABLE>
II-15
<PAGE> 187
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Pool Company
Texas Ltd. certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing Form S-4 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Houston, State of Texas, on June 3, 1998.
POOL COMPANY TEXAS LTD.
By: Pool Company, General Partner
By: /s/ J. T. JONGEBLOED
--------------------------------
J. T. Jongebloed
Chairman and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 3rd day of June 1998 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ J. T. JONGEBLOED Chairman and President; Director of Pool Company
- -----------------------------------------------------
J. T. Jongebloed
/s/ E. J. SPILLARD Senior Vice President, Finance (principal financial
- ----------------------------------------------------- officer); Director of Pool Company
E. J. Spillard
/s/ B. G. GORDON Controller (principal accounting officer) of Pool
- ----------------------------------------------------- Company
B. G. Gordon
/s/ R.G. HALE Director of Pool Company
- -----------------------------------------------------
R.G. Hale
/s/ W. J MYERS Director of Pool Company
- -----------------------------------------------------
W. J Myers
</TABLE>
II-16
<PAGE> 188
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Pool
International, Inc. certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing Form S-4 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Houston, State of Texas, on June 3, 1998.
POOL INTERNATIONAL, INC.
By: /s/ J. T. JONGEBLOED
----------------------------------
J. T. Jongebloed
Chairman and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 3rd day of June 1998 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ J. T. JONGEBLOED Chairman and President; Director
- -----------------------------------------------------
J. T. Jongebloed
/s/ E. J. SPILLARD Senior Vice President, Finance (principal financial
- ----------------------------------------------------- officer); Director
E. J. Spillard
/s/ B. G. GORDON Controller (principal accounting officer)
- -----------------------------------------------------
B. G. Gordon
</TABLE>
II-17
<PAGE> 189
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Pool Production
Services, Inc. certifies that it has reasonable grounds to believe that it meets
all of the requirements for filing Form S-4 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Houston, State of Texas, on June 3, 1998.
POOL PRODUCTION SERVICES, INC.
By: /s/ J. T. JONGEBLOED
----------------------------------
J. T. Jongebloed
Chairman and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 3rd day of June 1998 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ J. T. JONGEBLOED Chairman and President; Director
- -----------------------------------------------------
J. T. Jongebloed
/s/ E. J. SPILLARD Senior Vice President, Finance (principal financial
- ----------------------------------------------------- officer); Director
E. J. Spillard
/s/ B. G. GORDON Controller (principal accounting officer)
- -----------------------------------------------------
B. G. Gordon
</TABLE>
II-18
<PAGE> 190
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, PTX, Inc.
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing Form S-4 and has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Houston, State of Texas, on June 3, 1998.
PTX, INC.
By: /s/ J. T. JONGEBLOED
----------------------------------
J. T. Jongebloed
Chairman and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 3rd day of June 1998 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ J. T. JONGEBLOED Chairman and President; Director
- -----------------------------------------------------
J. T. Jongebloed
/s/ E. J. SPILLARD Senior Vice President, Finance (principal financial
- ----------------------------------------------------- officer); Director
E. J. Spillard
/s/ B. G. GORDON Controller (principal accounting officer)
- -----------------------------------------------------
B. G. Gordon
</TABLE>
II-19
<PAGE> 191
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Sea Mar, Inc.
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing Form S-4 and has duly caused this Registration Statement
to be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Houston, State of Texas, on June 3, 1998.
SEA MAR, INC.
By: /s/ J. T. JONGEBLOED
----------------------------------
J. T. Jongebloed
Chairman and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 3rd day of June 1998 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ J. T. JONGEBLOED Chairman and President; Director
- -----------------------------------------------------
J. T. Jongebloed
/s/ E. J. SPILLARD Senior Vice President, Finance (principal financial
- ----------------------------------------------------- officer); Director
E. J. Spillard
/s/ B. G. GORDON Controller (principal accounting officer)
- -----------------------------------------------------
B. G. Gordon
/s/ W. J MYERS Director
- -----------------------------------------------------
W. J Myers
</TABLE>
II-20
<PAGE> 192
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Sea Mar
Management, Inc. certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing Form S-4 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Houston, State of Texas, on June 3, 1998.
SEA MAR MANAGEMENT, INC.
By: /s/ J. T. JONGEBLOED
----------------------------------
J. T. Jongebloed
Chairman and President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on the 3rd day of June 1998 by the
following persons in the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<C> <S>
/s/ J. T. JONGEBLOED Chairman and President; Director
- -----------------------------------------------------
J. T. Jongebloed
/s/ E. J. SPILLARD Senior Vice President, Finance (principal financial
- ----------------------------------------------------- officer); Director
E. J. Spillard
/s/ B. G. GORDON Controller (principal accounting officer)
- -----------------------------------------------------
B. G. Gordon
/s/ W. J MYERS Director
- -----------------------------------------------------
W. J Myers
</TABLE>
II-21
<PAGE> 193
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
3.1(*) -- Articles of Incorporation of Pool Energy Services Co., as
amended
3.2(*) -- Bylaws of Pool Energy Services Co.
3.3(*) -- Articles of Incorporation of Associated Petroleum
Services, Inc.
3.4(*) -- Bylaws of Associated Petroleum Services, Inc.
3.5(*) -- Articles of Incorporation of Big 10 Fishing Tool Company,
Inc.
3.6(*) -- Bylaws of Big 10 Fishing Tool Company, Inc.
3.7(*) -- Articles of Incorporation of The International Air
Drilling Company, as amended
3.8(*) -- Bylaws of The International Air Drilling Company
3.9(*) -- Joint Venture Agreement of Kuukpik/Pool Arctic Alaska
3.10(*) -- Articles of Incorporation of PCNV, Inc.
3.11(*) -- Bylaws of PCNV, Inc.
3.12(*) -- Articles of Incorporation of Pool Alaska, Inc.
3.13(*) -- Bylaws of Pool Alaska, Inc.
3.14(*) -- Articles of Incorporation of Pool Americas, Inc., as
amended
3.15(*) -- Bylaws of Pool Americas, Inc.
3.16(*) -- Articles of Incorporation of Pool-Australia, Inc.
3.17(*) -- By-laws of Pool-Australia, Inc.
3.18(*) -- Articles of Incorporation of Pool California Energy
Services, Inc., as amended
3.19(*) -- Bylaws of Pool California Energy Services, Inc.
3.20(*) -- Certificate of Incorporation of Pool Company.
3.21(*) -- Bylaws of Pool Company, as amended
3.22(*) -- Certificate of Limited Partnership of Pool Company
Houston Ltd.
3.23(*) -- Limited Partnership Agreement of Pool Company Houston
Ltd., as amended
3.24(*) -- Certificate of Limited Partnership of Pool Company Texas
Ltd.
3.25(*) -- Limited Partnership Agreement of Pool Company Texas Ltd.,
as amended
3.26(*) -- Articles of Incorporation of Pool International, Inc.
3.27(*) -- Bylaws of Pool International, Inc.
3.28(*) -- Certificate of Incorporation of Pool Production Services,
Inc., as amended
3.29(*) -- Bylaws of Pool Production Services, Inc.
3.30(*) -- Articles of Incorporation of PTX, Inc., as amended
3.31(*) -- Bylaws of PTX, Inc.
3.32(*) -- Articles of Incorporation of Sea Mar, Inc., as amended
3.33(*) -- Bylaws of Sea Mar, Inc.
3.34(*) -- Articles of Incorporation of Sea Mar Management, Inc.
3.35(*) -- Bylaws of Sea Mar Management, Inc.
4.1 -- Indenture dated as of March 31, 1998 by and among Pool
Energy Services Co., the Subsidiary Guarantors named
therein and Marine Midland Bank, as Trustee, including
the forms of the Old Notes and the New Notes issued
pursuant to such indenture (incorporated by reference to
Exhibit 4.1 to the Company's Current Report on Form 8-K
dated April 6, 1998)
4.2 -- Registration Rights Agreement dated as of March 31, 1998
by and among Pool Energy Services Co. and SBC Warburg
Dillon Read Inc., Morgan Stanley & Co. Incorporated and
Johnson Rice & Company, L.L.C., and the Subsidiary
Guarantors named therein (incorporated by reference to
Exhibit 4.2 to the Company's Current Report on Form 8-K
dated April 6, 1998).
</TABLE>
<PAGE> 194
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
----------- -----------
<C> <S>
4.3 -- Purchase Agreement dated March 26, 1998 by and among Pool
Energy Services Co. and SBC Warburg Dillon Read Inc.,
Morgan Stanley & Co. Incorporated and Johnson Rice &
Company L.L.C., and the Subsidiary Guarantors named
therein (incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K dated April 6,
1998).
4.4(*) -- Supplemental Indenture dated as of March 31, 1998 among
The Company, the Guarantors named therein and the
Trustee.
5.1(*) -- Opinion of Covington & Burling
10.1 -- U.S. $180,000,000 Amended and Restated Credit Agreement,
dated as of March 26, 1998, among Pool Energy Services
Co., Pool Energy Holding, Inc., Pool Company, various
banks, SBC Warburg Dillon Read Inc., as Arranger, Credit
Lyonnais New York Branch, as Administrative Agent, and
Swiss Bank Corporation, Stamford Branch, as Documentation
Agent (incorporated by reference to Exhibit 10.1 to the
Company's Current Report on Form 8-K dated April 6,
1998).
12.1(**) -- Statement of Computation of Ratios of Earnings to Fixed
Charges
21.1(*) -- List of Subsidiaries of the Company
23.1(**) -- Consent of Deloitte & Touche LLP
23.2(**) -- Consent of Arthur Andersen LLP
23.3 -- Consent of Covington & Burling (contained in their
opinion filed as Exhibit 5.1)
24.1(*) -- Powers of Attorney
25.1(*) -- Form T-1 Statement of Eligibility of Marine Midland Bank
to act as trustee under the Indenture.
99.1(*) -- Form Letter of Transmittal
99.2(*) -- Form Notice of Guaranteed Delivery
</TABLE>
- ---------------
(*) Previously filed
(**) Filed herewith
<PAGE> 1
EXHIBIT 12.1
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(DOLLAR AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31 YEAR ENDED DECEMBER 31
----------------------- ----------------------------------------------------
PRO PRO
FORMA HISTORICAL FORMA HISTORICAL
------ -------------- ------ --------------------------------------------
1998 1998 1997 1997 1997 1996 1995 1994 1993
------ ------ ----- ------ ------ ------ ------ ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income before provision for income taxes
and minority interest per statement of
consolidated operations.................. 15,867 12,233 5,981 49,099 42,297 17,061 5,113 (21,110) 7,599
Adjusted for:
Unconsolidated Subsidiaries.............. 147 147 (963) (1,411) (1,411) (636) (65) (3,409) (6,000)
Lease payment for San Angelo
manufacturing and storage facility not
included in income..................... (537) (537) (537) (2,148) (2,148) (2,148) (2,148) (2,148) (2,148)
Provision for leasehold impairment of the
lease for San Angelo manufacturing and
storage facility....................... 0 0 0 0 0 0 0 23,551 0
Add
Portion of rents representative of the
interest factor (including San Angelo
manufacturing and storage facility).... 690 671 555 2,805 2,738 2,354 2,343 2,240 1,846
Interest on indebtedness................. 3,511 1,614 743 15,399 3,848 2,691 1,748 263 508
Amortization of debt expense and
premium................................ 416 149 42 1,035 440 102 63 11 0
------ ------ ----- ------ ------ ------ ------ ------- ------
Income as adjusted................... 20,094 14,277 5,821 64,779 45,764 19,424 7,054 (602) 1,805
------ ------ ----- ------ ------ ------ ------ ------- ------
Fixed Charges
Interest on indebtedness
PESCO (including consolidated
subsidiaries)...................... 3,511 1,614 743 15,399 3,848 2,691 1,748 242 508
Unconsolidated Subsidiaries.......... 0 0 0 0 0 0 0 21 0
------ ------ ----- ------ ------ ------ ------ ------- ------
(A) 3,511 1,614 743 15,399 3,848 2,691 1,748 263 508
------ ------ ----- ------ ------ ------ ------ ------- ------
Amortization of debt expense and
premium................................ (B) 416 149 42 1,035 440 102 63 11 0
Capitalized interest (including
unconsolidated subsidiary)............. (C) 61 61 0 44 44 0 114 163 0
Rents
PESCO (including consolidated
subsidiaries and San Angelo
manufacturing facility)............ 2,071 2,014 1,666 8,415 8,215 7,063 7,030 6,720 5,537
------ ------ ----- ------ ------ ------ ------ ------- ------
Portion of rents representative of
interest factor.................... (D) 690 671 555 2,805 2,738 2,354 2,343 2,240 1,846
------ ------ ----- ------ ------ ------ ------ ------- ------
Fixed Charges (A+B+C+D).................. 4,678 2,495 1,340 19,283 7,070 5,147 4,268 2,677 2,354
------ ------ ----- ------ ------ ------ ------ ------- ------
Ratio of Earnings to Fixed Charges....... 4.30 5.72 4.34 3.36 6.47 3.77 1.65 -- (1) 0.77
====== ====== ===== ====== ====== ====== ====== ======= ======
</TABLE>
(1) In the year ended December 31, 1994, earnings (following a significant
one-time non-cash charge for leasehold impairment) were inadequate to cover
fixed charges by $3.3 million.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 1 to
Registration Statement No. 333-53897 of Pool Energy Services Co. on Form S-4 of
our report dated February 17, 1998 (May 20, 1998 as to Notes 4 and 6), appearing
in the Prospectus, which is a part of this Registration Statement, and of our
report dated February 17, 1998 appearing in the Annual Report on Form 10-K of
Pool Energy Services Co. for the year ended December 31, 1997, and to the
reference to us under the heading "Experts" in such Prospectus.
DELOITTE & TOUCHE LLP
Houston, Texas
June 3, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion and
incorporation by reference in this registration statement of our report on Sea
Mar, Inc. dated February 13, 1998, included in Form S-4 of Pool Energy Services
Co. and to all references to our Firm included in this registration statement.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
June 3, 1998
