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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended SEPTEMBER 30, 1997 Commission File No.: 1-9245
NABORS INDUSTRIES, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 93-0711613
(Jurisdiction of Incorporation) (I.R.S. Employer
Identification No.)
515 WEST GREENS ROAD, SUITE 1200
HOUSTON, TEXAS 77067
(Address of principal executive offices) (Zip Code)
(281) 874-0035
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Name of each
Title of each class exchange on which registered
COMMON STOCK, $.10 PAR VALUE PER SHARE AMERICAN STOCK EXCHANGE, INC.
Indicate by check mark whether Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
The aggregate market value on December 1, 1997 of voting stock held by
non-affiliates of the Registrant was approximately $2,827 million.
The number of shares of Common Stock outstanding as of December 1,
1997 was 100,835,531.
DOCUMENTS INCORPORATED BY REFERENCE
(TO THE EXTENT INDICATED HEREIN)
Specified Portions of the 1997 Annual Report to Stockholders (Parts I, II
and IV)
Specified Portions of the Notice of Annual Meeting of Stockholders and Proxy
Statement (Part III)
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes certain statements that may be deemed
to be "forward-looking statements" within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended. All statements, other than statements of historical
facts, included in this Annual Report on Form 10- K that address activities,
events or developments that Nabors Industries, Inc. (collectively with its
subsidiaries, "Nabors" or the "Company") "expects", "projects", "believes" or
"anticipates" will or may occur in the future, including such matters as future
capital expenditures and investments in the acquisition and refurbishment of
rigs (including the amount and nature thereof), repayment of debt, expansion
and other development trends of the contract drilling industry, business
strategies, expansion and growth of operations and other such matters are
forward-looking statements. These statements are based on certain assumptions
and analyses made by management of the Company in light of its experience and
its perception of historical trends, current conditions, expected future
developments and other factors it believes are appropriate in the
circumstances. Such statements are subject to a number of risks and
uncertainties, including those discussed herein, general economic and business
conditions, prices of crude oil and natural gas, foreign exchange and currency
fluctuations, the business opportunities (or lack thereof) that may be
presented to and pursued by the Company, changes in laws or regulations and
other factors, many of which are beyond the control of the Company. Any such
statements are not guarantees of future performance and actual results or
developments may differ materially from those projected in the forward-looking
statements.
PART I
ITEM 1. BUSINESS
Nabors is the largest land drilling contractor in the world, with 386 actively
marketed land rigs. The Company is principally engaged in oil and gas land
drilling operations in North America (in the US Lower 48 states, Alaska and
Canada), and internationally (in South and Central America, the Middle East and
other regions). Nabors also markets 37 offshore drilling, well servicing and
workover rigs in the Gulf of Mexico, Alaska's Cook Inlet and several
international markets. To supplement its primary businesses, the Company offers
a number of ancillary well-site services, including oilfield management,
engineering, transportation, construction, maintenance, well logging and other
support services, in selected domestic and international markets. In addition,
the Company manufacturers and leases or sells top drives for a broad range of
drilling rig applications and manufactures and leases or sells rig
instrumentation equipment to monitor rig performance.
BUSINESS STRATEGY
The Company's business philosophy is to grow and remain profitable in any
market environment, to build a diverse portfolio of market positions to
mitigate risk and create potential for growth, to establish and maintain a
conservative and flexible financial posture and to forge long-term relationships
with customers. Nabors has implemented this philosophy by:
o maintaining a technologically and geographically diverse rig
fleet, enabling Nabors to optimize returns through increased
utilization and increased dayrates;
o reactivating stacked rigs as market conditions warrant, both
domestically and internationally;
o increasing value-added revenues from ancillary well-site products
and services that complement the Company's businesses in its
existing field locations, including top drives, mudlogging,
instrumentation systems, pipe rental and construction and
transportation services;
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o upgrading and enhancing the capabilities of the Company's existing
fleet and building certain specialized rig equipment such as the
MASE(TM), arctic and other special purpose rigs;
o entering into partnering relationships or alliances with operators
as a preferred contractor in certain domestic and international
locations; and
o making strategic acquisitions to augment the existing rig fleet or
grow in other related areas, and making divestitures to take
advantage of market conditions in non-strategic businesses or
geographic markets.
BUSINESS
CONTRACT DRILLING OVERVIEW
Drilling Rigs. Drilling rigs owned and operated by the Company include
land-based rigs and offshore platform, jackup and barge rigs. Drilling rigs
come in a wide variety of sizes and capabilities, and may include specialized
equipment, such as top drives, or have design features or modifications for
specialized drilling conditions, such as arctic drilling. The rigs, which may
be classified as mechanical or electric, generally are powered by two to four
large diesel engines. An electric rig differs from a mechanical rig in that it
converts the diesel power to electricity to power the rig. This gives the rig
operator the ability to deliver the same amount of torque at high and low
speeds, permitting greater control of the rig, which hoists and rotates heavy
drill pipe in and out of the well. This enhances operating efficiency and
safety, reducing drilling time and saving the customer money. Because of these
advantages, diesel electric rigs, better known as silicon-controlled rectifier
or SCR rigs, generally are preferred by customers, and enjoy higher utilization
and dayrates.
Rigs owned by the Company may perform drilling, well servicing (routine repair
and maintenance of mechanical problems) or workover services (major overhaul or
remediation of an existing wellbore and/or plugging and redrilling the well),
depending on the configuration of the individual rig. Each rig is rated for
drilling up to a specific depth. The basic types of rigs operated by the Company
are described below.
o Land Rigs. A land-based drilling rig generally consists of engines,
drawworks, a mast, pumps to circulate the drilling fluid, blowout
preventers, drill string and related equipment. The engines power a rotary
table that turns the drill string, causing the drill bit to bore through
the subsurface rock layers. Rock cuttings are carried to the surface by
the circulating drilling fluid. The intended well depth and the drilling
site conditions are the principal factors that determine the size and type
of rig most suitable for a particular drilling job. A land-based well
servicing rig consists of a mobile carrier, engine, drawworks and a mast.
The primary function of a well servicing rig is to act as a hoist so that
pipe, rods and down-hole equipment can be run into and out of a well. All
of the Company's well servicing rigs can be readily moved between well
sites and between geographic areas of operations.
o Platform Rigs. The Company's platform rigs consist of drilling and/or well
servicing or workover equipment and machinery arranged in modular packages
that 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,
or platform, above the water level, providing the foundation upon which the
platform rig is placed. The Sundowner series of platform rigs all are
self-erecting (that is, they can be off-loaded with their own crane,
rather than requiring a separate barge and crane to assemble), and generally
are designed to fit the geometry of nearly any producing platform without
major modifications to either the rig or the platform. A Super Sundowner is
an enhanced version of the Sundowner rig, with more powerful mud pump
systems and greater hook load capacity. This enables the rigs to be used in
more rigorous applications, including re-entry and side-tracking workovers.
Minimum Area, Self-Erecting, or MASE(TM), drilling rigs are the latest
generation of Sundowner modular platform rigs and represent a larger, more
powerful version of the Super Sundowner. API (American Petroleum Institute)
drilling rigs have similar capabilities to the MASE(TM) rigs, but generally
come in larger modules. Unlike the Sundowner series of rigs, API rigs are
not self-erecting, and require a separate barge crane to off-load. The
Company
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also operates two modified land rigs for offshore work (the Tortuga L2S(TM)
or "land-to-sea" rigs) for drilling on mudslide and selected conventional
offshore platforms. These rigs are self-erecting, modular and require less
time to place in service than newly built platform rigs of similar size and
capability. In addition to providing workover services offshore, the Company
is using its platform rigs to provide an increasing amount of drilling and
horizontal re-entry services using portable top drives, enhanced pumps and
solids control equipment for drilling fluids.
o Jackup Rigs. The jackup rigs operated by the Company are mobile,
self-elevating drilling or workover platforms equipped with legs that can be
lowered to the ocean or lake 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. Independent leg rigs are better suited for
harsher or uneven seabed conditions. 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. Jackup rigs owned by the Company are
generally subject to a maximum water depth of approximately 125 feet, while
some jackup rigs may drill in water depths as shallow as 13 feet. The water
depth limit of a particular rig is determined by the length of the rig's
legs and the operating environment. Moving a rig from one drill site to
another involves lowering the hull down into the water until it is afloat
and then jacking up its legs with the hull floating on the surface of the
water. The hull is then towed to the new drilling site.
o Barge Rigs. The Company's barge rigs generally are comprised of a
self-propelled barge having a covered structure or substructure and well
service or workover equipment. The barges are designed to perform plugging
and abandonment, well service or workover services in shallow inland,
coastal or offshore waters. Barge rigs operated by the Company can drill at
depths from as shallow as three feet.
Drilling Contracts. The Company's drilling rigs are employed under individual
contracts which extend either over a stated period of time or the time required
to drill a well or a number of wells to a specified depth. On land in the US
Lower 48 states and Canada, the Company typically contracts on a single well
basis, with extensions subject to mutual agreement on pricing and other
significant terms. Offshore and on land in Alaska and international markets,
contracts generally provide for longer terms than contracts in domestic markets
(typically from one to three years). Drilling contracts are generally obtained
through competitive bidding though some may be obtained by negotiation.
Contracts are generally subject to termination by the customer on short notice,
but can be firm for a number of wells or a period of time, and may provide for
early termination compensation in certain circumstances. The contract terms and
rates may differ depending on a variety of factors, including competitive
conditions, the geographical area, the geological formation to be drilled, the
equipment and services to be supplied, the on-site drilling conditions and the
anticipated duration of the work to be performed.
Drilling contracts may provide for compensation on a daywork, turnkey or
footage basis. During fiscal 1997, substantially all of the land and all of
the offshore and international contracts were on a daywork basis. While the
Company's current strategy is to operate primarily under daywork contracts,
management continually analyzes market conditions, customer requirements, rig
demand and the experience of its personnel to determine how to most
profitability contract its fleet. If the Company were to encounter less
favorable conditions within its industry, competitive pressures and customer
demands might require it to consider entering into a larger number of turnkey
or footage drilling contracts. Accordingly, there can be no assurance that the
Company will not suffer a loss that is not insured as a result of entering into
such contracts, and any such uninsured loss could have a material adverse
effect on the Company's financial position and results of operations.
o Daywork Contracts. A daywork contract generally provides for a basic rate
per day when drilling (the "dayrate") and for lower rates when the rig is
moving, or when drilling operations are interrupted or restricted by
equipment breakdowns, actions of the customer or adverse weather conditions
or other conditions beyond the control of the Company. In addition,
daywork contracts may provide for a lump sum fee for the mobilization
and demobilization of the drilling rig, which in most cases approximates
the costs incurred by the Company. The dayrate depends on market and
competitive
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conditions, the nature of the operations to be performed, the duration of
the work, the equipment and services to be provided, the geographic area
involved and other variables.
o Turnkey and Footage Contracts. In turnkey and footage contracts, the
Company undertakes to drill a well to a specified depth for a fixed price
(for the hole, in the case of turnkey drilling, or by the foot, in the case
of footage work), regardless of the time required or the problems
encountered in drilling the well. On a turnkey well, the Company also
provides technical expertise and engineering services, as well as most of
the equipment required for the well, and is compensated only when the
contract terms have been satisfied. On a turnkey well, the Company often
subcontracts for related services and manages the drilling process. On a
footage well, the Company is simply responsible for drilling the well. In
both turnkey and footage contracts, the Company must bear the cost of
performing the drilling services until the well has been drilled, and
accordingly, such contracts require significant cash commitments by the
Company. In both the turnkey and footage contracts, the Company generally
agrees to furnish services such as testing, coring and casing the hole and
other services which are not normally provided by a drilling contractor
working under a daywork contract. If the well is not completed to the
specified depth, the Company may not receive the fixed turnkey or footage
price. Footage and turnkey contracts generally involve a higher degree of
risk to the Company than daywork contracts because the Company assumes
greater risks (including risk of blowout, loss of hole, stuck drill pipe,
machinery breakdowns, abnormal drilling conditions and risks associated
with subcontractors' services, supplies, cost escalation and personnel) and
bears the cost of unanticipated downhole problems and price escalation.
Service Contracts. Onshore transportation and support services are provided
through long-term contracts or on a short- term demand basis. Long-term
contracts may either be negotiated or awarded by competitive bidding. Whether
provided on a long-term or short-term basis, equipment and labor are usually
billed separately at specified hourly rates. These hourly rates vary depending
upon numerous factors, including types of equipment and labor, and duration of
the work.
From time to time, the Company has provided drilling engineering and integrated
project management services, ranging from well design and engineering expertise
to site preparation and road construction in an effort to help customers
eliminate or reduce management overhead which would otherwise be necessary to
supervise such services. While such services have not been significant in the
past, the Company is seeking to expand in this area, both internationally and
domestically.
INDUSTRY CONDITIONS
The domestic land drilling industry recently is experiencing generally higher
utilization and increasing dayrates as a result of a long-term decline in the
supply of rigs and increased demand for rigs attributable to improved oil and
gas industry fundamentals. Industry sources estimate that from its peak in
1982, the supply of domestic land rigs has fallen by almost 75% as a result of
normal attrition, cannibalization of components to refurbish rigs, the inability
of smaller competitors to raise capital needed to upgrade and modernize rigs
and the export of rigs to international markets. Greater recent demand in the
industry is evidenced by the increase in the average domestic land rig count to
764 during fiscal 1997 from 633 during fiscal 1996, according to data published
by Baker Hughes Incorporated. The domestic land drilling industry currently is
experiencing utilization rates of approximately 86% for actively market rigs,
based on industry sources. While these market conditions have led to increasing
day rates in the Company's core areas, the Company does not believe that such
rates have reached levels that would justify the construction of new rigs.
Beyond the diminished size of the rig fleet, the domestic land drilling
industry also is benefiting from improved fundamentals among domestic oil and
gas exploration and production companies. In particular, new technologies and
improved operating efficiencies have increased drilling success rates, lowered
finding costs and enhanced the industry's profitability as compared to the late
1980s and early 1990s. In addition, the financial positions of many domestic
oil and gas companies, and their access to additional capital, have improved in
recent years, affording these companies the ability to fund aggressive drilling
programs. From 1992 to 1996, the total equity market capitalization of 35 of
the largest domestic exploration and production companies grew from
approximately $255 billion to approximately $465 billion and their aggregate
annual capital expenditures increased from $10.5 billion to $16.5 billion. The
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Company believes that these improved industry fundamentals have allowed oil and
gas companies to maintain more consistently active drilling programs, even in
periods of lower commodity prices.
Much of the new technology being employed in the oil and gas industry has
increased demand for rigs capable of drilling deeper wells efficiently and
accurately. For example, more sophisticated and longer life drilling motors,
top drives and measurement-while-drilling devices have made deep horizontal
drilling less expensive and more precise. Three-dimensional seismic techniques
have also increased the demand for deep rigs. This technology permits
geoscientists to develop a more complete understanding of deep, complex geology
prior to drilling a well. As shallower fields continue to deplete, oil and gas
companies may well choose to pursue deep drilling prospects to maintain or
increase their production levels. While demand for land rigs capable of
drilling greater than 15,000 feet has grown significantly, the supply of such
rigs is limited, contributing to increases in day rates for rigs with these
capabilities.
International markets are experiencing many of the same trends as are present
in the domestic land market, and demand for the Company's deeper drilling rigs
is improving. Within the last two years, the offshore market also has shown a
substantial increase in dayrates, particularly for more sophisticated
semi-submersible and jackup rigs. The high demand and tight supply of these
types of sophisticated rigs is also resulting in increased dayrates for the
type of platform and workover jackup rigs operated by the Company.
The Company's revenues, cash flows and earnings are substantially dependent
upon, and affected by, the level of domestic and international oil and gas
exploration and development activity. Such activity and the resulting level of
demand for contract land drilling and related services are directly influenced
by many factors over which the Company has no control, including among others,
the market prices of oil and gas, market expectations about future prices, the
volatility of such prices, levels of production, and other activities, of the
Organization of Petroleum Exporting Countries and other oil and gas producers,
government regulations and trade restrictions, local and international political
and economic conditions, the level of worldwide economic activity, the
development of alternate energy sources, and the short and long-term effect of
worldwide energy conservation measures. Although the Company believes that
improved technologies and the level of oil and gas prices have contributed to
increased activity in the exploration and production sector, there can be no
assurance that such factors will continue. In addition, ongoing movement or
reactivation of land drilling rigs (including the movement of rigs from outside
the United States into domestic markets) or new construction of drilling rigs
could increase rig supply and adversely affect contract drilling rates and
utilization levels. The Company cannot predict the future level of demand for
its contract drilling services, future conditions in the contract drilling
industry or future contract drilling rates.
MARKETS
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: contract drilling and related services on
land and offshore in North America (the US Lower 48 states, Canada and Alaska)
and in international markets. Additional information regarding markets in which
the Company operates can be found beginning on page 6 of the Nabors Industries,
Inc. 1997 Annual Report to Stockholders ("1997 Annual Report") and is
incorporated herein by reference.
During fiscal 1997, increased market demand coupled with short supply, resulted
in higher dayrates and increased utilization of Nabors' fleet in most of its
markets. Utilization rates of Nabors' North America rigs (land and offshore)
increased to 66% in fiscal 1997, up from 58% in fiscal 1996, and revenues were
$852.4 million, compared to $532.6 million in the prior year period. Rig years
in North America increased to 227.4 as compared to 152.6 in fiscal 1996. During
fiscal 1997, Nabors' international rigs experienced a utilization rate of 60% as
compared to 61% for fiscal 1996. International revenues were $176.9 million in
fiscal 1997, compared to $187.1 million for fiscal 1996. Internationally, rig
years increased to 31.0 in fiscal 1997 from 28.5 in fiscal 1996. The
international figures reflect the divestiture of the Company's North Sea
operation early in fiscal 1997.
Utilization rates and equivalent rig years are measures of demand for rigs
commonly used in the drilling industry. Utilization rates from period to period
may not be comparable, because the calculation of utilization does not reflect
the impact of changes in the number of rigs operated during the periods.
Equivalent rig years (calculated as the number of days rigs are in operation
over the number of days in the period) measure the operating volume of the
Company's rigs. Additional information regarding revenues by geographic and
market sector can be
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found on pages 30 through 35 of the 1997 Annual Report, under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations". For accounting purposes, operations are grouped together as "North
America" or "International", regardless of legal entity or type of oilfield
services offered (e.g., onshore, offshore or ancillary wellsite services and
equipment). Additional information regarding the rig fleet can be found on
pages 14 and 15 of the 1997 Annual Report, under the
caption "Rig Fleet".
NORTH AMERICA
US Lower 48 States. The Company currently markets 300 land rigs in the US Lower
48 market: 123 of the Company's land drilling rigs in the US Lower 48 States
are diesel electric rigs controlled by a computerized SCR unit; 17 are equipped
with top drives; and 174 are capable of drilling to 15,000 feet or deeper.
Nabors has agreed to sell its domestic workover and well servicing subsidiary
for approximately $20 million plus the subsidiary's working capital in cash,
plus 100,000 shares of common stock of Key Energy Group, Inc. and warrants to
purchase 265,000 shares of such common stock at $18 per share. The sale is
expected to close in January 1998. See "Business -- Acquisitions and
Divestitures -- Divestitures."
Canada. The Company also has a fleet of 28 rigs in Canada. Fourteen rigs in the
fleet are diesel electric SCR rigs, seven are equipped with top drives, 13 are
capable of drilling to 15,000 feet or deeper and all of the rigs in Nabors'
Canadian fleet are capable of performing exploratory and development drilling
under arctic and sub-arctic conditions.
Alaska. Nabors is the leading drilling contractor in Alaska, where it owns
nine arctic land drilling and well service rigs on the North Slope and three
land and one platform drilling rig in the Cook Inlet area of South Central
Alaska. Nine of these rigs are SCR rigs, and three are equipped with top drive
units. Nine are capable of drilling to depths of 18,000 feet or more.
All of the North Slope rigs have been specifically designed to operate in
severe arctic conditions and employ wheel mounted systems designed by Nabors to
permit efficient movement of the rigs from well to well and over ice or gravel
roads. Three of these rigs are also self-propelled to further facilitate
movement and maneuverability. The well service rigs have been designed with
spacing capability that allows them to move between reduced well spacing on
drilling pads without disrupting production. In addition, Nabors' arctic rigs
incorporate environmental protection features such as dry mud and fluid
containment systems.
As a result of a restructuring in the relationship of the operators of the
Prudhoe Bay Unit, the largest North Slope oilfield, the operators began to
develop stronger, long-term relationships with fewer service companies. In 1992,
Nabors was selected as the first service company to work in alliance with these
operators. This alliance has resulted in significant cost reductions for the
customers and has increased Nabors' market share in this major market. The
scope of the alliance was expanded to include the Milne Point Unit in fiscal
1994 and the Badami Unit in fiscal 1997.
INTERNATIONAL DRILLING
The Company conducts international operations primarily through its Nabors
Drilling International Limited group. The International group actively markets
46 land rigs and one jackup rig. Of these, 32 are SCR rigs, 15 are equipped
with top drives, two (located in Venezuela) are slim hole rigs and 24 are
capable of drilling to depths of 15,000 feet or more.
South and Central America. The Company currently markets 16 land drilling rigs
in Venezuela. The Company also operates one rig in Colombia under a contract
with Ecopetrol, the national oil company of Colombia, and is in the process of
moving one rig from Venezuela to Colombia to begin a one-year contract for a
major oil and gas company.
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The Middle East. In the Middle East, Nabors markets 19 land rigs and one jackup
rig. Of the land rigs, seven are in Yemen, nine are in Saudi Arabia and three
are in other countries. The jackup rig has worked steadily in the waters off
Qatar since February 1997, but currently is not subject to any long-term
contract. The Company also provides a crew for one rig under a labor contract
with an oil and gas company.
Other. In the CIS, the Company operates five rigs, four of which are located in
Kazakhstan and a fifth which is located in the Republic of Georgia. Two of the
Kazakhstan rigs are being moved to Turkmenistan, and one of these is under a
three-year contract to commence drilling in 1998. The Company is a participant
in a joint venture that operates the remaining two rigs in Kazakhstan. In the
Far East, the Company owns three deep-rated, diesel electric SCR land rigs
stacked in Japan, one of which is to be moved in early 1998 to a more active
market. The International group also has two rigs in Africa, one in Gabon and
one in Ethiopia.
OFFSHORE DRILLING, WORKOVER AND WELL SERVICING
With the acquisition of Sundowner Offshore Services, Inc. in October of 1994,
the Company expanded its existing offshore drilling business in the Gulf of
Mexico by entering into the offshore workover and well servicing business in
the US Gulf of Mexico, the CIS, Europe and West Africa. Sundowner operates a
fleet of 33 rigs including eight Sundowner and seven Super Sundowner workover
platform rigs, three MASE(TM) platform drilling rigs, five API platform
drilling rigs (one of which is under construction and is expected to be
deployed in early 1998), two land rigs converted to offshore platform drilling
rigs, five jackup workover rigs and three inland barge rigs that offer plugging
and abandonment services. In addition, other subsidiaries own four offshore
rigs, of which one is a platform drilling rig located in Alaska, one is a
jackup rig located in the Middle East and two are barges chartered to a third
party. Six of the Super Sundowner rigs, two of the Sundowner rigs and all of
the platform drilling rigs (including the MASE(TM) rigs) are equipped with
portable top drive units to enhance drilling efficiency in sidetrack and
horizontal drilling operations. Ten of the Company's platform rigs are capable
of operating at well depths of up to 20,000 or 25,000 feet. Fourteen of the
Company's platform rigs are specifically designed for workover drilling.
The Company also provides plug and abandonment services on the Gulf Coast. The
Company has developed a new generation of innovative MASE(TM) platform drilling
rigs, certain elements of which are patented, that results in reduced drilling
and workover costs. (See "Business -- Engineering Developments".) One of these
MASE(TM) rigs has been operating in Trinidad and two are operating in the Gulf
of Mexico.
ADDITIONAL WELL-SITE SERVICES
Through various subsidiaries and joint ventures, Nabors provides additional
well-site services that can be packaged with its contract drilling services or
provided on a stand alone basis to operators or other contractors. These
services include top drive rentals and sales, mudlogging services, rig
instrumentation equipment rentals and sales, construction and maintenance
services and rig transportation services.
Top Drives. Canrig manufactures top drives, which are installed on both onshore
and offshore drilling rigs to improve drilling efficiency. Top drives provide
better torque and directional orientation and enable drill pipe to be tripped in
and out of the well faster and more safely by handling preassembled "doubles"
and "triples" of pipe. Top drives also allow the drill pipe to be
simultaneously hoisted and rotated, which provides better well control and
reduces the incidence of stuck pipe, yielding time and cost savings. In fiscal
1997, Canrig sold approximately 70% of its top drives to Nabors, and the
remainder to outside parties.
Mudlogging and Rig Instrumentation. Nabors acquired EPOCH Well Logging, its
mud logging and rig instrumentation subsidiary, in November 1996. Mud logging
involves the analysis of exhausted drilling cuttings to discern certain
information about the presence of hydrocarbons, rates of penetration and the
nature of the formation. Rig instrumentation equipment offered by EPOCH
includes sensors, RIGWATCH(TM) software and computerized equipment that
monitors the real-time performance of a rig.
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Construction, Transportation and Related Services. The Company has a 50%
interest in Peak Oilfield Services ("Peak"), a general partnership with Cook
Inlet Region, Inc., a leading Alaskan native corporation. Peak provides heavy
equipment to move drilling rigs, water, other fluids and construction
materials. The partnership also provides construction and maintenance for
roads, pads, facilities, equipment, drill sites and pipelines. Peak is a
partner to a multi-year alliance contract to provide maintenance services for
the Prudhoe Bay Unit and has been chosen to coordinate and supply drilling
support transportation services to the unit. Through other joint ventures,
Alaska Interstate Construction, an Alaska-based company with significant
experience in Arctic road and site construction, and Peak USA Energy Services
Ltd., that provides trucking and oilfield services in ten states in the Lower
48 States, the Company has expanded the scope of its business to other sectors
in the oil and gas services industries.
ENGINEERING DEVELOPMENTS
In recent years, Nabors has been increasingly involved in engineering research
and development with respect to the commercialization of new drilling
technology. Through its Sundowner subsidiary, the Company owns the rights to
proprietary designs and innovations which, when applied to the Company's rigs,
can substantially reduce the costs of drilling and working on offshore wells.
These proprietary designs are being applied to a new generation of modular
MASE(TM) rigs specifically for drilling. Three MASE(TM) rigs are presently
operational.
The Company's Canrig subsidiary manufactures and markets electric top drives
that are designed with enhanced safety and drilling efficiency features. This
top drive design includes fixed and portable units that are being utilized in a
broad range of land and offshore applications. The Company also developed an
automated slant rig, capable of drilling shallow or slim hole wells.
The Company, in a joint project with a major oil company, designed and
constructed a slim hole drilling rig, utilizing an advanced drilling process
known as a Stratigraphic High Speed Advanced Drilling System. This small
footprint rig, as compared to a 2000 horsepower conventional rig, uses a
drillsite that is 25% to 30% smaller, and requires less personnel, smaller
camps and fewer rig consumables and services (such as drill bits, casing, fuel
and water, and mud removal, cementing, logging and logistics services),
enabling operators to significantly cut the cost of exploration projects in
remote and difficult drilling regions. The slim-hole design has the added
benefit of a reduced environmental impact. The Company built a second
slim-hole rig using the same technology. Both slim hole rigs are now
operational in Venezuela.
Company engineers have obtained new patents during the past year and have
patent applications pending for new technology associated with drilling
activities. The costs associated with Nabors' research and
development are not significant.
CUSTOMERS
The Company's customers include major oil and gas companies, foreign national
oil and gas companies and independent oil and gas companies. No single customer
provides as much as 10% of consolidated revenues.
COMPETITIVE CONDITIONS
Although the number of available rigs has materially decreased over the past 15
years, the well-servicing, workover and drilling industry remains very
competitive. The number of rigs continues to exceed demand in certain of the
Company's markets, resulting in price competition. Many of the total available
contracts are currently awarded on a bid basis, which further increases
competition based on price. The land drilling market is generally more
competitive than the offshore market due to the larger number of rigs and
companies.
In all of the Company's market areas, price and availability and condition of
equipment to meet both special and general customer needs, are significant
factors in determining which drilling contractor is awarded a job. Other
competitive factors that may be considered include the availability of trained
personnel possessing the required specialized skills; the overall quality of
service and safety record; and
9
<PAGE> 10
domestically, the ability to offer ancillary services. In international
markets, experience in operating in certain environments and customer alliances
have also been factors in the selection of the Company in certain cases.
Certain competitors are present in more than one of the Company's markets,
although no one competitor operates in all of these areas. With 300 and 12
actively marketed land rigs in the US Lower 48 and Alaska, respectively, the
Company has the most land drilling rigs of any company in the land drilling
market. In the US Lower 48, the next largest competitors have fewer than 100
rigs, based on industry reports, and several hundred competitors have smaller
national, regional or local rig operations. In the Alaska market, the Company
has six major competitors, the largest of which are Doyon Drilling, Inc. and
Pool Energy Services, Inc. In the Gulf of Mexico, the Company is among five
principal competitors providing workover/maintenance services, the largest of
which are Pride Petroleum Services, Inc., Parker Drilling Company and Pool
Energy Services, Inc. In Canada and other offshore areas, the Company competes
with several firms of varying size many of which have more significant
operations in those areas than the Company. Internationally, the Company
competes directly with various competitors at each location where it operates,
including Helmerich & Payne and Cliffs Drilling in South America, and Santa Fe
International, Deutag, Arabia Drilling and Sedco-Forex in the Middle East. The
Company believes that the market for land drilling contracts will continue to
be competitive for the foreseeable future. Although the Company believes it has
a strong competitive position in the domestic land market, certain of the
Company's competitors internationally and offshore may be better positioned in
the markets and have newer and more desirable equipment, allowing them to
compete more effectively on the basis of price.
Seasonality is not a significant factor with respect to the operations of the
Company. However, the contract drilling industry has been cyclical
historically, with significant volatility in profitability and rig values. This
industry cyclicality has been due to changes in the level of domestic oil and
gas exploration and development activity and the available supply of drilling
rigs. From 1982 until 1996, the contract drilling business was severely
impacted by the decline and continued instability in the prices of oil and
natural gas following a period of significant increase in new drilling rig
capacity. Although the market has improved dramatically in the last year, there
can be no assurance that the current market conditions will continue. See
"Business--Industry Conditions."
ACQUISITIONS AND DIVESTITURES
ACQUISITIONS.
The Company has grown from a land drilling business centered in Canada and
Alaska to an international business with operations on land and offshore in
many of the major oil, gas and geothermal markets in the world. At the
beginning of 1990, the Nabors' fleet consisted of 44 land drilling rigs in
Canada, Alaska and in various international markets. Today, Nabors' active
drill fleet consists of 386 land rigs and 37 offshore rigs. Much of this
growth was fueled by strategic acquisitions, as summarized in the following
chart:
<TABLE>
<CAPTION>
==============================================================================================================
DATE ACQUIREE/SELLER ASSETS ACQUIRED LOCATION
==============================================================================================================
<S> <C> <C> <C>
3/1990 Loffland Brothers Company 63 rigs; yards; miscellaneous North Sea, Middle East,
equipment and inventory Canada, US Lower 48, Gulf of
Mexico, Venezuela
- --------------------------------------------------------------------------------------------------------------
11/1990 Henley Drilling Co. 11 rigs US Lower 48,
Yemen
- --------------------------------------------------------------------------------------------------------------
6/1990 Grace Drilling Co. 110 rigs; yards; miscellaneous US Lower 48
equipment and inventory
- --------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
======================================================================================================
DATE ACQUIREE/SELLER ASSETS ACQUIRED LOCATION
======================================================================================================
<S> <C> <C> <C>
10/1994 Sundowner Offshore Services, 15 platform rigs, 1 platform Gulf of Mexico,
Inc. rig under construction, 5 International
jackup workover rigs, 3
workover and plug and
abandonment barges
- ------------------------------------------------------------------------------------------------------
4/1994 MND Drilling 16 land rigs US Lower 48
- ------------------------------------------------------------------------------------------------------
1994 Various 8 mobile, medium-depth rigs US Lower 48
- ------------------------------------------------------------------------------------------------------
1/1995 Delta Drilling Company 30 rigs (15 SCR, 15,000+ Texas, Louisiana
capable depth), yards and
office facilities
- ------------------------------------------------------------------------------------------------------
4/1996 Exeter Drilling Company 49 shallow and medium depth United States (47),
rigs International (2)
- ------------------------------------------------------------------------------------------------------
4/1996 J.W. Gibson Well Servicing 78 workover and well Rocky Mountains, Mid-
Company1 servicing rigs (10 leased continent Region
from third parties)
- ------------------------------------------------------------------------------------------------------
11/1996 EPOCH Well Logging Mud logging units NA
- ------------------------------------------------------------------------------------------------------
12/1996 Noble Drilling 47 land rigs (19 operating United States (38),
Company and 28 stacked) Canada (9)
- ------------------------------------------------------------------------------------------------------
1/1997 Adcor-Nicklos Drilling 36 (30 active, 6 stacked, US Lower 48
Company including 14 SCR), equipment,
drill pipe, yards, vehicles
and support equipment
- ------------------------------------------------------------------------------------------------------
4/1997 Chesley Pruet Drilling Company 12 rigs (10 active, 2 Alabama, Louisiana,
stacked, including 9 SCR) Mississippi
- ------------------------------------------------------------------------------------------------------
4/1997 Samson Rig Company 25 stacked SCR rigs (most Oklahoma
15,000+ capable), and large
component of equipment
- ------------------------------------------------------------------------------------------------------
8/1997 Cleveland Drilling Company, Inc. 7 rigs (6 active, 1 stacked, California, Nevada
including 6 SCR rigs)
- ------------------------------------------------------------------------------------------------------
11/1997 VECO Drilling, Inc.; 6 rigs (5 active, 1 stacked, California, Texas
Diamond L including 3 SCR) and two
offshore labor
contracts; 3 active
mechanical rigs
- ------------------------------------------------------------------------------------------------------
</TABLE>
(1) Contract for sale pending.
During the same period, a number of the Company's competitors also have made
acquisitions to expand their fleets with the result that most of the large,
privately-owned fleets of deep drilling, electric rigs already have been
purchased. Rig values per acquisition also has risen substantially, which may
slow the pace of acquisitions. While the Company continues to examine
opportunities, there can be no assurance that attractive rigs will continue to
be available, that the pricing will be economical or that the Company will be
successful in making such acquisitions in the future.
DIVESTITURES
From time to time, the Company may sell a subsidiary or group of assets outside
of its core markets or business, if it is economically advantageous for it to do
so. In July 1997, the Company agreed to sell its J.W. Gibson Well Service
Company ("Gibson") subsidiary to Key Energy Group, Inc. ("Key"). Gibson was
included as part of the Exeter acquisition in 1996, and represented Nabors'
entry into the domestic well servicing business. However, management did not
believe it could establish a dominant position in that business, and determined
to sell the subsidiary. Gibson's assets currently consist of 74 active well
servicing and workover rigs, associated auxiliary equipment, trucks, inventory
and several yards and related facilities. The sale transaction, which already
has
11
<PAGE> 12
received regulatory approval, is expected to close during January 1998. At the
closing, the Company will receive $20 million plus the value of Gibson's working
capital in cash, 100,000 shares of Key common stock and warrants to acquire
265,000 shares of Key common stock at $18 per share.
In November 1996, the Company sold substantially all of its North Sea labor
contract operation, which was viewed as having slower growth potential and
weaker margins than the Company's other operations, to a subsidiary of Abbot
Group plc, a diversified holding company listed on the London Stock Exchange.
The Company received approximately $36 million plus the value of working
capital in cash, and warrants to acquire 10.8 million ordinary shares of Abbot
Group plc, and recorded a gain of $29.8 million during 1997. The Company
exercised the warrants at various times during 1997 and sold the underlying
shares for net proceeds of $9.4 million.
RISKS ASSOCIATED WITH NABORS' BUSINESS
OPERATING RISKS AND INSURANCE
The Company's operations are subject to many hazards inherent in the drilling,
workover and well servicing industries including, for example, blowouts,
cratering, explosions, fires, loss of well control, loss of hole, damaged or
lost drill strings and damage or loss from inclement weather, any of which
could result in personal injury or death, damage to or destruction of equipment
and facilities, suspension of operations, environmental damage to producing
formations and surrounding areas and damage to the property of others. The
Company's offshore operations are also subject to the hazards of marine
operations including capsizing, grounding, collision, damage from heavy weather
or sea conditions and unsound bottom conditions. In addition, the Company's
international operations are subject to risks of war, civil disturbances or
other political events. (See also "International Operations".) Generally,
drilling contracts provide for the division of responsibilities between a
drilling company and its customer, and the Company seeks to obtain
indemnification from its customers by contract for certain of these risks. To
the extent that such risks are not transferred to customers by contract or
indemnification agreements, the Company seeks protection through insurance
which the Company's management considers to be adequate. However, there is no
assurance that such insurance or indemnification agreements will be adequate to
protect the Company against liability from all of the consequences of the
hazards described above. The occurrence of an event not fully insured or
indemnified against, or the failure of a customer to meet its indemnification
obligations could result in substantial losses to the Company. In addition,
there can be no assurance that insurance will be available to cover any or all
of these risks, or, even if available, that it will be adequate or that
insurance premiums or other costs will not rise significantly in the future, so
as to make such insurance prohibitive.
ENVIRONMENTAL, HEALTH AND SAFETY CONSIDERATIONS
The drilling of oil and gas wells is subject to various federal, state, local
and foreign laws, rules and regulations. The Company, as an owner or operator
of both onshore and offshore rigs operating in or near waters of the United
States, may be liable for the costs of removal and damages arising out of a
pollution incident to the extent set forth in the Federal Water Pollution
Control Act, as amended by the Oil Pollution Act of 1990 ("OPA") and the Outer
Continental Shelf Lands Act. In addition, the Company may also be subject to
applicable state law and other civil claims arising out of any such incident.
Certain of the Company's facilities are also subject to regulations of the
Environmental Protection Agency ("EPA") that require the preparation and
implementation of spill prevention, control and countermeasure plans relating
to possible discharge of oil into navigable waters. Other regulations of the
EPA may require certain precautions in storing, handling and transporting
hazardous wastes. State statutory provisions relating to oil and natural gas
generally include requirements as to well spacing, waste prevention, production
limitations, pollution prevention and cleanup, obtaining drilling and dredging
permits and similar matters. The Company believes that it is in substantial
compliance with such laws, rules and regulations.
The OPA and regulations promulgated pursuant thereto impose a variety of
regulations on "responsible parties" related to the prevention of oil spills
and liability for damages resulting from such spills. A "responsible party"
includes the owner or operator of a facility or vessel, or the lessee or
permittee of the area in which an offshore facility or vessel, or the lessee or
permittee of the area in which an offshore
12
<PAGE> 13
facility is located. The OPA assigns liability to each responsible party of
oil removal costs and a variety of public and private damages. While liability
limits apply in some circumstances, a responsible party for an Outer
Continental Shelf facility must pay all spill removal costs incurred by a
federal, state or local government. The OPA establishes liability limits
(subject to indexing) for offshore drilling rigs. If functioning as an
offshore facility, the offshore drilling rigs are considered "tank vessels" for
spills of oil on or above the water surface, with liability limits of $1,200
per gross ton or $10 million. To the extent damages and removal costs exceed
this amount, the offshore drilling rigs will be treated as an offshore facility
and the offshore lessee will be responsible up to higher liability limits for
all removal costs plus $75 million. A party cannot take advantage of liability
limits if the spill was caused by gross negligence or willful misconduct or
resulted from violation of a federal safety, construction or operating
regulation. If the party fails to report a spill or to cooperate fully in the
cleanup, liability limits likewise do not apply. Few defenses exist to the
liability imposed by the OPA. The OPA also imposes ongoing requirements on a
responsible party, including proof of financial responsibility (to cover at
least some costs in a potential spill) and preparation of an oil spill
contingency plan. Amendments to the OPA adopted earlier in 1997 reduced the
amount of financial responsibility required for "offshore facilities" from $150
million to $35 million, but such amendments did not reduce the amount of
financial responsibility required for "tank vessels". Since the Company's
offshore drilling rigs are typically classified as tank vessels, the recent
amendments to the OPA are not expected to have a significant effect on the
Company's operations. A failure to comply with ongoing requirements or
inadequate cooperation in a spill may even subject a responsible party to civil
or criminal enforcement actions.
In addition, the Outer Continental Shelf Lands Act authorized regulations
relating to safety and environmental protection applicable to lessees and
permittees operating on the Outer Continental Shelf. Specific design and
operational standards may apply to Outer Continental Shelf vessels, rigs,
platforms, vehicles and structures. Violations of environmental-related lease
conditions or regulations issues pursuant to the Outer Continental Shelf Lands
Act can result in substantial civil and criminal penalties as well as potential
court injunctions curtailing operations and the cancellation of leases. Such
enforcement liabilities can result from either governmental or citizen
prosecution.
All of the Company's operating domestic barge drilling rigs have zero discharge
capabilities as required by law. In addition, in recognition of environmental
concerns regarding dredging of inland waters and permitting requirements, the
Company conducts negligible dredging operations and approximately two-thirds of
the Company's offshore drilling contracts involve directional drilling, which
minimizes the need for dredging. However, the existence of such laws and
regulations has had and will continue to have a restrictive effect on the
Company and its customers.
Except for the handling of solid wastes directly generated from the operation
and maintenance of the Company's drilling rigs, such as waste oils and wash
water, it is generally the Company's practice to require its customers to
contractually assume responsibility for compliance with environmental
regulations. However, the Company is not always successful in shifting all of
these risks, and the Company's operations are vulnerable to certain risks
arising from the numerous environmental health and safety laws and regulations.
These laws and regulations may restrict the types, quantities and concentration
of various substances that can be released into the environment in connection
with drilling activities, require reporting of the storage, use or release of
certain chemicals and hazardous substances, require removal or cleanup of
contamination under certain circumstances, and impose strict liability,
rendering a person liable for environmental damage without regard to negligence
or fault, and could expose the Company to liability for the conduct of, or
conditions caused by, others, or acts of the Company that were in compliance
with all applicable laws at the time such acts were performed. Moreover, there
has been a trend in recent years toward stricter standards in environmental,
health and safety legislation and regulation which is likely to continue.
The Company has made and will continue to make expenditures to comply with
governmental regulations, including environmental, health and safety
requirements. The Company cannot predict how existing laws and regulations may
be interpreted by enforcement agencies or court rulings, whether additional
laws or regulations curtailing exploratory or development drilling for oil and
gas for economic, political, environmental or other reason could have a
material adverse effect on the Company by limiting drilling opportunities.
13
<PAGE> 14
The drilling industry is dependent on the demand for services from the oil an
gas exploration and development industry and, accordingly, is affected by
changes in laws relating to the energy business. The Company's business is
affected generally by political developments and by federal, state, local and
foreign laws and regulations that may relate directly to the oil and gas
industry. The adoption of laws and regulations, both domestic and foreign,
that curtail exploration and development drilling for oil and gas for economic,
environmental and other policy reasons may adversely affect the Company's
operations by limiting available drilling opportunities.
SHORTAGE OF QUALIFIED AND EXPERIENCED LABOR.
Increases in both onshore and offshore oil and gas exploration and production
since 1995 and resultant increases in contract drilling activity have created a
shortage of qualified drilling rig personnel in the industry. The Company is
attempting to address this shortage through acquisitions of operating rigs
having existing crews, and initiating a training school for new rig hands. If
the Company is unable to attract and retain sufficient qualified operating
personnel, its ability to market and operate its drilling rigs will be
restricted. In addition, labor shortages could result in wage rate increases,
which could reduce the Company's operating margins and have a material adverse
effect on the Company's financial condition and results of operations.
SHORTAGE OF DRILLING EQUIPMENT AND SUPPLIES.
During fiscal 1997, there has been continued price escalation and longer
delivery lead times for certain drilling equipment and supplies used in the
Company's business and the Company believes these shortages may intensify. One
example is drill pipe, which has increased in market price by more than 54% over
the past 24 months and now has an average delivery time of from six months to
one year. Because, until recent years, the land drilling industry was
characterized by an oversupply of land rigs, rig manufacturers have generally
focused on the production of more expensive offshore rigs and rig equipment. As
a result, most rig manufacturers are not currently building new land rigs and
those manufacturers that are building new land rigs and components charge
premium prices (approximately $13 million for a new 2,000 horsepower rig) and
require that orders be placed at least 120 days in advance of requested
delivery. The limited availability of new rigs and equipment has caused land
rig owners and operators, including the Company, to maintain and enhance their
fleets primarily through acquisitions and refurbishments using previously
manufactured rig components and equipment. The Company currently has 45 stacked
rigs, of which 40 have SCR units. The Company also owns a substantial quantity
of component parts to refurbish existing rigs. As the land drilling industry
continues to refurbish rigs using existing components and equipment, the
available supply of such components and equipment continues to deplete.
INTERNATIONAL OPERATIONS
A significant portion of the Company's business is derived from international
markets, including major operations in Canada, the Middle East and South and
Central America. Such operations may be subject to various risks, including
risk of war and civil disturbances and governmental activities that may limit
or disrupt markets, restrict the movement of funds or result in the deprivation
of contract rights or the taking of property without fair compensation. In
certain countries, such operations may be subject to the additional risk of
fluctuating currency values and exchange controls. (See also "Operating Risks
and Insurance".)
14
<PAGE> 15
In the international markets in which the Company operates, it is subject to
various laws and regulations with respect to the operation and taxation of its
business and the import and export of its equipment from country to country,
the imposition, application and interpretation of which can be uncertain.
When contracting abroad, the Company is faced with the risks of currency
fluctuation and, in certain cases, exchange rate controls. Normally, the
Company limits these risks by obtaining contracts providing for payment in
freely convertible foreign currency or U.S. dollars. To the extent possible,
the Company seeks to limit its exposure to potentially devaluating currencies by
matching its acceptance thereof to its expense requirements in such local
currencies or by utilizing forward exchange contracts. Additional information on
the Company's foreign currency transactions can be found in Note 1 of the Notes
to Consolidated Financial Statements under the caption "Foreign Currency
Translation" on page 42 of the 1997 Annual Report which is incorporated herein
by reference. There can be no assurance that the Company will be able to
continue to take such actions in the future, thereby exposing the Company to
foreign currency fluctuations which could have a material adverse effect upon
its results of operations and financial condition.
Governments at various levels in the countries in which the Company operates
have enacted legislation or adopted regulations affecting the drilling and
servicing of oil and gas wells, controlling the discharge and disposal of
wastes from drilling and other operations and providing for the protection of
the environment in general. In recent years, laws and regulations protecting
the environment have generally become more stringent and have sought to impose
greater liability on a larger number of potentially responsible parties. While
the Company believes it is generally in compliance with applicable laws and
regulations related to environmental controls, the Company could nonetheless be
subject to cleanup costs or costs associated with environmental laws and
regulations which could be substantial and have a material adverse effect on
the Company.
EMPLOYEES
At September 30, 1997, the Company employed 10,632 persons, of which 609 were
salaried and 10,023 were hourly employees. In addition, Peak employed 1,619
persons, of which 138 were salaried and 1,481 were hourly employees. In
Venezuela, most of the Company's oilfield workers under the supervisor level
are covered by a collective bargaining agreement that was renewed for a
two-year period in November 1997. Management believes its relationship with
its employees generally is good.
GEOGRAPHIC DISTRIBUTION OF EARNINGS AND ASSETS
The revenues, operating income (loss) and identifiable assets of each geographic
area for the three years ended September 30, 1997, can be found in Note 13 of
the Notes to Consolidated Financial Statements under the caption "Distribution
of Earnings and Assets" on page 52 of the 1997 Annual Report, which is
incorporated herein by reference.
ITEM 2. PROPERTIES
A table of information regarding the Company's rig fleet can be found under the
caption "Rig Fleet" on pages 14 and 15 of the 1997 Annual Report and is
incorporated herein by reference.
Many of the international drilling rigs and certain of the Alaska rigs in the
Company's fleet are supported by mobile camps which house the drilling crews
and a significant inventory of spare parts and supplies. In addition, the
Company owns various trucks, forklifts, cranes, earth moving and other
construction and transportation equipment which are used to support the
drilling and logistics operations.
The Company and its subsidiaries lease or own executive and administrative
office space in Houston, Texas (headquarters); Denver, Colorado; Anchorage,
Alaska; Houma, Arcadia and Lafayette, Louisiana; Bakersfield, California;
Englewood, Colorado; Magnolia, Texas; Calgary and Nisku, Alberta, Canada;
Sana'a, Yemen; Dubai, U.A.E.; Dhahran, Saudi Arabia and Maracaibo, Anaco and
Barinas, Venezuela. The Company owns or leases a number of facilities and
storage yards used in support of operations in each of its geographic markets.
Additional information about Properties can be found in Notes 1, 4 and 10 of the
Notes to Consolidated Financial Statements beginning on pages 41, 45 and 50,
respectively, of the 1997 Annual Report and is incorporated herein by reference.
15
<PAGE> 16
The Company's management believes that its equipment and facilities are
adequate to support its current level of operations as well as an expansion of
drilling operations in those geographical areas where the Company may choose to
expand.
ITEM 3. LEGAL PROCEEDINGS
Information with respect to legal proceedings can be found in Note 10 of the
Notes to Consolidated Financial Statements under the caption "Commitments and
Contingencies -- Contingencies" on page 50 of the 1997 Annual Report and is
incorporated herein by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders of the Company
during the quarter ended September 30, 1997.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
MARKET
The information called for by this item can be found under the caption "Price
of Common Stock" on the inside back cover of the 1997 Annual Report and is
incorporated herein by reference.
The Company has neither declared nor paid any cash dividends on its common
stock since 1982. Certain debt instruments restrict the Company's ability to
pay dividends. Under the terms of these instruments, Nabors may pay dividends
to the extent that cumulative dividends plus certain other payments since March
31, 1989 do not exceed 50% of Nabors' cumulative net income since March 31,
1989 plus the proceeds of any offering of equity securities of Nabors that are
not redeemable at the option of the holder of the securities. As of September
30, 1997 retained earnings available for dividends totaled approximately $237.0
million. The Company does not intend to pay any cash dividends on its common
stock in the foreseeable future.
ITEM 6. SELECTED FINANCIAL DATA
The information called for by this item can be found under the caption
"Selected Financial Data" on page 29 of the 1997 Annual Report and is
incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The information called for by this item can be found under the caption
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 30 through 35 of the 1997 Annual Report and is
incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable for fiscal 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements, together with the report thereon of
Coopers & Lybrand L.L.P. dated November 12, 1997, appear on pages 36 through 52
of the 1997 Annual Report and are incorporated herein by reference. With the
exception of the aforementioned information and the information expressly
16
<PAGE> 17
incorporated into Items 1, 2, 3, 6, 7 and 8 hereof, the 1997 Annual Report is
not deemed to be filed as part of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information called for by this item will be contained in the Nabors
Industries, Inc. definitive Proxy Statement to be distributed in connection
with its Annual Meeting (the "Proxy Statement") under the captions "Election of
Directors" and "Executive Officers" and is incorporated herein by reference.
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of
a registered class of the Company's equity securities, to file with the
Securities and Exchange Commission (the "SEC") and the American Stock Exchange
initial reports of ownership and reports of changes in ownership of Common
Stock and other equity securities of the Company. Officers, directors and
greater than ten-percent shareholders are required by SEC regulation to furnish
the Company with all Section 16(a) forms which they file.
To the Company's knowledge, based solely on review of the copies of such
reports furnished to the Company and written representations that no other
reports were required during the two fiscal years ended September 30, 1996 and
1997, all Section 16(a) filing requirements applicable to its officers,
directors and greater than ten percent beneficial owners were complied with.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this item will be contained in the Proxy
Statement to be distributed in connection with its Annual Meeting under the
caption "Remuneration of Management" and is incorporated herein by reference;
except for information not deemed to be "soliciting material" or "filed" with
the SEC including the Report of the Compensation Committee on Executive
Compensation and the Five Year Stock Performance Graph which is not deemed to
be incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item will be contained in the Proxy
Statement to be distributed in connection with its Annual Meeting under the
caption "Share Ownership of Management and Principal Shareholders" and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item will be contained in the Proxy
Statement to be distributed in connection with its Annual Meeting, under the
caption "Business Relationships" and "Compensation Committee Interlocks and
Insider Participation" and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements of Nabors Industries, Inc. and
Subsidiaries which are listed in Part II, Item 8 and are
incorporated herein by reference from the Company's 1997
Annual Report to Stockholders from the respective page numbers
indicated:
17
<PAGE> 18
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Report of Independent Accountants 36
Consolidated Balance Sheets 37
Consolidated Statements of Income 38
Consolidated Statements of Changes in Stockholders'
Equity 39
Consolidated Statements of Cash Flows 40
Notes to Consolidated Financial Statements 41
</TABLE>
(2) Financial Statement Schedules
Supplemental schedules are omitted because of the absence of
the conditions under which they are required or because the
required information is included in the financial statements
or notes thereto.
(3) Exhibits
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1(1) Restated Certificate of Incorporation of the
Registrant dated March 4, 1997
3.2 Restated By-Laws of the Registrant adopted
December 4, 1997
4.1(2) Indenture for Subordinated Debt Securities
dated May 15, 1996 between Marine Midland
Bank, Trustee and Nabors Industries, Inc. in
connection with $172,500,000 aggregate
principal amount of 5% Convertible
Subordinated Notes due 2006 (the "Notes")
4.2(2) Supplemental Indenture dated May 28, 1996
between Marine Midland Bank, Trustee and
Nabors Industries, Inc. in connection with
the Notes
4.3(3) Registration Rights Agreement dated as of
April 30, 1996 between Nabors Industries,
Inc. and Occidental Oil and Gas Corporation
10.1(4) 1993 Stock Option Plan for Non-Employee
Directors
10.2(5) 1994 Executive Officers Stock Plan
10.3(5) 1996 Employee Stock Plan
10.4(3) 1994 Executive Stock Option Agreement
effective December 28, 1994 between Nabors
Industries, Inc. and Eugene M. Isenberg
10.5(3) 1994 Executive Stock Option Agreement
effective December 28, 1994 between Nabors
Industries, Inc. and Anthony G. Petrello
10.6(3) 1994 Executive Stock Option Agreement
effective December 28, 1994 between Nabors
Industries, Inc. and Richard A. Stratton
</TABLE>
18
<PAGE> 19
<TABLE>
<S> <C>
10.7(1) Employment Agreement effective October 1,
1996 between Nabors Industries, Inc. and
Eugene M. Isenberg
10.8(1) Employment Agreement effective October 1,
1996 between Nabors Industries, Inc. and
Anthony G. Petrello
10.9 Employment Agreement effective October 1,
1996 between Nabors Industries, Inc. and
Richard A. Stratton
10.10(6) Note Purchase Agreement between Nabors
Industries, Inc. and John Hancock Mutual Life
Insurance Company dated October 1, 1992
10.11(3) Stock Purchase Agreement dated as of March 8,
1996 between Nabors Industries, Inc. and
Occidental Oil and Gas Corporation as amended
by Amendment No. 1 to Stock Purchase
Agreement dated as of April 23, 1996
10.12(3) Share Purchase Agreement dates as of October
18, 1996 by and among Abbot Group plc, Nabors
Industries, Inc., and KCA Drilling Group
Limited
10.13(3) Asset Purchase Agreement between Noble
Drilling Corporation, Noble Properties,
Inc., Noble Drilling (Canada) Ltd. and
Nabors Industries, Inc. dated November 15,
1996
10.14(2) Underwriting Agreement dated May 21, 1996 by
and among Nabors Industries, Inc. and Salomon
Brothers, Inc., Goldman, Sachs & Co.,
Merrill, Lynch, Pierce, Fenner & Smith,
Incorporated and Simmons and Company,
International as representatives of the
underwriters named therein in connection with
the offering of the Notes
10.15 Consent and Voting Agreement and Plan of
Merger dated December 20, 1996, by and among
Nabors Industries, Inc., Nabors Acquisition
Corp. 96, Adcor-Nicklos Drilling Company, and
all of the option holders and stockholders of
Adcor-Nicklos Drilling Company
10.16 Stock Purchase Agreement dated as of March
20, 1997 between Nabors Drilling USA, Inc.,
Samson Investment Company, Eason Drilling and
Services Company, Samson Rig Company and Rig
Properties, Inc.
10.17 Nabors Industries, Inc. 1996 Chairman's
Executive Stock Plan
10.18 Nabors Industries, Inc. 1996 Executive
Officers Stock Plan
10.19 Nabors Industries, Inc. 1996 Executive
Officers Incentive Stock Plan
10.20 Nabors Industries, Inc. 1997 Executive
Officers Incentive Stock Plan
10.21 Form of Indemnification Agreement entered
into between Nabors Industries, Inc. and
the directors and executive officers
identified in the schedule thereto
11 Computation of Per Share Earnings
12 Computation of Ratios of Earnings to Fixed
Charges
13 1997 Annual Report to Stockholders
21 Significant Subsidiaries of Nabors
Industries, Inc.
23 Consent of Independent Accountants
</TABLE>
19
<PAGE> 20
<TABLE>
<S> <C>
27 Financial Data Schedule
99.1 Credit Agreement among Nabors Industries,
Inc., the subsidiary borrowers thereto, Bank
of America National Trust and Savings
Association, Wells Fargo Bank (Texas)
National Association and the other financial
institutions party thereto dated September 5,
1997
</TABLE>
- -------------------------
(1) Incorporated by Reference to the Exhibits to Form 10-Q, File No. 1-9245,
filed with the Commission on May 16, 1997.
(2) Incorporated by Reference to Form 8-K, File No. 1-9245, filed with the
Commission on May 28, 1996.
(3) Incorporated by Reference to the Exhibits to Form 10-K, File No. 1-9245,
filed with the Commission on December 29, 1996.
(4) Incorporated by Reference to Form S-8, Registration No. 33-87322, filed
with the Commission on December 29, 1994.
(5) Incorporated by Reference to Form S-8, Registration No. 333-11313, filed
with the Commission on September 3, 1996.
(6) Incorporated by Reference to the Exhibits to Form 10-K, File No. 1-9245,
filed with the Commission on December 29, 1992.
(b) Reports on Form 8-K:
Report on Form 8-K filed with the Commission on December 18, 1997 with
regard to the change in the Registrant's fiscal year end from
September 30 to December 31.
20
<PAGE> 21
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on December 29, 1997.
NABORS INDUSTRIES, INC.
By: /s/Anthony G. Petrello
---------------------------------------
Anthony G. Petrello
President and Chief Operating Officer
By: /s/Bruce P. Koch
---------------------------------------
Bruce P. Koch
Vice President - Finance
(Principal Financial and Accounting
Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Eugene M. Isenberg Chairman and December 29, 1997
- ---------------------------------- Chief Executive Officer
Eugene M. Isenberg
/s/ Anthony G. Petrello President and December 29, 1997
- ---------------------------------- Chief Operating Officer
Anthony G. Petrello
/s/ Richard A. Stratton Vice Chairman December 29, 1997
- ----------------------------------
Richard A. Stratton
/s/ Gary T. Hurford Director December 29, 1997
- ----------------------------------
Gary T. Hurford
/s/ Hans Schmidt Director December 29, 1997
- ----------------------------------
Hans Schmidt
/s/ Myron M. Sheinfeld Director December 29, 1997
- ----------------------------------
Myron M. Sheinfeld
/s/ Jack Wexler Director December 29, 1997
- ----------------------------------
Jack Wexler
/s/ Martin J. Whitman Director December 29, 1997
- ----------------------------------
Martin J. Whitman
</TABLE>
21
<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1(1) Restated Certificate of Incorporation of the
Registrant dated March 4, 1997
3.2 Restated By-Laws of the Registrant adopted
December 4, 1997
4.1(2) Indenture for Subordinated Debt Securities
dated May 15, 1996 between Marine Midland
Bank, Trustee and Nabors Industries, Inc. in
connection with $172,500,000 aggregate
principal amount of 5% Convertible
Subordinated Notes due 2006 (the "Notes")
4.2(2) Supplemental Indenture dated May 28, 1996
between Marine Midland Bank, Trustee and
Nabors Industries, Inc. in connection with
the Notes
4.3(3) Registration Rights Agreement dated as of
April 30, 1996 between Nabors Industries,
Inc. and Occidental Oil and Gas Corporation
10.1(4) 1993 Stock Option Plan for Non-Employee
Directors
10.2(5) 1994 Executive Officers Stock Plan
10.3(5) 1996 Employee Stock Plan
10.4(3) 1994 Executive Stock Option Agreement
effective December 28, 1994 between Nabors
Industries, Inc. and Eugene M. Isenberg
10.5(3) 1994 Executive Stock Option Agreement
effective December 28, 1994 between Nabors
Industries, Inc. and Anthony G. Petrello
10.6(3) 1994 Executive Stock Option Agreement
effective December 28, 1994 between Nabors
Industries, Inc. and Richard A. Stratton
10.7(1) Employment Agreement effective October 1,
1996 between Nabors Industries, Inc. and
Eugene M. Isenberg
10.8(1) Employment Agreement effective October 1,
1996 between Nabors Industries, Inc. and
Anthony G. Petrello
10.9 Employment Agreement effective October 1,
1996 between Nabors Industries, Inc. and
Richard A. Stratton
10.10(6) Note Purchase Agreement between Nabors
Industries, Inc. and John Hancock Mutual Life
Insurance Company dated October 1, 1992
10.11(3) Stock Purchase Agreement dated as of March 8,
1996 between Nabors Industries, Inc. and
Occidental Oil and Gas Corporation as amended
by Amendment No. 1 to Stock Purchase
Agreement dated as of April 23, 1996
10.12(3) Share Purchase Agreement dates as of October
18, 1996 by and among Abbot Group plc, Nabors
Industries, Inc., and KCA Drilling Group
Limited
10.13(3) Asset Purchase Agreement between Noble
Drilling Corporation, Noble Properties,
Inc., Noble Drilling (Canada) Ltd. and
Nabors Industries, Inc. dated November 15,
1996
10.14(2) Underwriting Agreement dated May 21, 1996 by
and among Nabors Industries, Inc. and Salomon
Brothers, Inc., Goldman, Sachs & Co.,
Merrill, Lynch, Pierce, Fenner & Smith,
Incorporated and Simmons and Company,
International as representatives of the
underwriters named therein in connection with
the offering of the Notes
10.15 Consent and Voting Agreement and Plan of
Merger dated December 20, 1996, by and among
Nabors Industries, Inc., Nabors Acquisition
Corp. 96, Adcor-Nicklos Drilling Company, and
all of the option holders and stockholders of
Adcor-Nicklos Drilling Company
10.16 Stock Purchase Agreement dated as of March
20, 1997 between Nabors Drilling USA, Inc.,
Samson Investment Company, Eason Drilling and
Services Company, Samson Rig Company and Rig
Properties, Inc.
10.17 Nabors Industries, Inc. 1996 Chairman's
Executive Stock Plan
10.18 Nabors Industries, Inc. 1996 Executive
Officers Stock Plan
10.19 Nabors Industries, Inc. 1996 Executive
Officers Incentive Stock Plan
10.20 Nabors Industries, Inc. 1997 Executive
Officers Incentive Stock Plan
10.21 Form of Indemnification Agreement entered
into between Nabors Industries, Inc. and
the directors and executive officers
identified in the schedule thereto
11 Computation of Per Share Earnings
12 Computation of Ratios of Earnings to Fixed
Charges
13 1997 Annual Report to Stockholders
21 Significant Subsidiaries of Nabors
Industries, Inc.
23 Consent of Independent Accountants
27 Financial Data Schedule
99.1 Credit Agreement among Nabors Industries,
Inc., the subsidiary borrowers thereto, Bank
of America National Trust and Savings
Association, Wells Fargo Bank (Texas)
National Association and the other financial
institutions party thereto dated September 5,
1997
</TABLE>
- -------------------------
(1) Incorporated by Reference to the Exhibits to Form 10-Q, File No. 1-9245,
filed with the Commission on May 16, 1997.
(2) Incorporated by Reference to Form 8-K, File No. 1-9245, filed with the
Commission on May 28, 1996.
(3) Incorporated by Reference to the Exhibits to Form 10-K, File No. 1-9245,
filed with the Commission on December 29, 1996.
(4) Incorporated by Reference to Form S-8, Registration No. 33-87322, filed
with the Commission on December 29, 1994.
(5) Incorporated by Reference to Form S-8, Registration No. 333-11313, filed
with the Commission on September 3, 1996.
(6) Incorporated by Reference to the Exhibits to Form 10-K, File No. 1-9245,
filed with the Commission on December 29, 1992.
<PAGE> 1
EXHIBIT 3.2
[Adopted December 4, 1997]
RESTATED
BY-LAWS
OF
NABORS INDUSTRIES, INC.
(the "Corporation")
______________________________________________
ARTICLE I
OFFICES
SECTION 1. Principal Office.
The principal office of the Corporation shall be at such place as the Board of
Directors may from time to time determine, but until a change is effected, such
principal office shall be at 515 West Greens Road, Suite 1200, Houston, Texas
77067.
SECTION 2. Other Offices.
The Corporation may also have other offices at such places, within or without
the State of Delaware, as the Board of Directors may from time to time
determine or as the business of the Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. Time and Place of Meetings.
A meeting of stockholders for any purpose may be held at such time and place,
within or without the State of Delaware, as shall be stated on the notice
thereof or in a duly executed waiver of notice thereof.
SECTION 2. Annual Meeting.
For the fiscal year ended September 30, 1997, the annual meeting of the
stockholders of the Corporation shall be held on the first Tuesday of March. For
all subsequent years, the annual meeting of the stockholders of the Corporation
shall be held on the first Tuesday of June in each year if not a legal holiday,
and if a legal holiday, then on the next succeeding day which is not a legal
holiday at such place, either within or without the State of Delaware, and at
such time and as set forth in the notice of the meeting or in a duly executed
waiver of notice thereof, for the election of the Board of Directors and for the
transaction of such other business as may properly be brought before the
meeting. In the event the annual meeting is not held on the date above
provided, the Board of Directors shall cause the meeting to be held as soon
thereafter as may be convenient. Such subsequent meeting shall be called in the
same manner as hereinafter provided for special meetings of stockholders.
<PAGE> 2
SECTION 3. Special Meetings.
Special meetings of the stockholders, unless otherwise prescribed by statute,
may be called at any time for any purpose or purposes by the Board and shall be
held at such place, either within or without the State of Delaware, and at such
hour as may be designated by the Board in the notice of the meeting; provided,
however, that the time so fixed shall permit the giving of notice as provided
in Section 4 of this Article II, unless such notice is waived as provided by
law or by these Restated By-Laws. At a special meeting only such matters as
may be specified in the notice thereof shall be considered. Special meetings
shall also be called and held in such cases and in such manner as may be
specifically required by law or by the Restated Certificate of Incorporation.
SECTION 4. Notice of Meetings.
Written notice of each meeting of the stockholders, which shall state the
place, date and hour of the meeting and, in the case of a special meeting or
where otherwise required by law, the purpose or purposes for which it is
called, shall be given, unless a different period is required by law, not less
than 10 nor more than 60 days before the date of such meeting, by or at the
direction of the person calling the meeting, to each stockholder entitled to
vote at such meeting. If mailed, the notice of a meeting of stockholders shall
be deemed to be given when deposited in the United States mail, postage
prepaid, directed to the stockholder at his address as it appears on the
records of the Corporation. No business other than that stated in the notice
shall be transacted at any meeting without the unanimous consent of all the
stockholders entitled to vote thereat. Any such notice for any meeting other
than the annual meeting shall, if issued at the direction of the Board, so
indicate. When a meeting is adjourned to another time or place, notice need
not be given if the time and place thereof are announced at the meeting at
which the adjournment is taken. If the adjournment is for more than 30 days
after the date of the original meeting, or if after the adjournment a new
record date is fixed for the adjourned meeting, a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting.
SECTION 5. Quorum.
Except as otherwise required by law, the Restated Certificate of Incorporation
or these By-Laws, at all meetings of the stockholders, the holders of a
majority of the shares issued and outstanding and entitled to vote shall be
present in person or represented by proxy in order to constitute a quorum for
the transaction of any business. The holders of a plurality of the shares
present in person or represented by proxy and entitled to vote thereat, whether
or not a quorum shall be present, may adjourn the meeting from time to time, to
a specified date or place. At any such adjourned meeting at which a quorum may
be present, the Corporation may transact any business which might have been
transacted at the original meeting.
As to any matter with respect to which a separate class vote is required by the
Restated Certificate of Incorporation, the holders of one-third of the shares
of such class which are then outstanding and entitled to vote shall be present
in person or represented by proxy in order to constitute a quorum for the
purpose of any separate vote required by such class.
The absence from any meeting of the number of shares required by law, the
Restated Certificate of Incorporation or these Restated By-Laws for action upon
one matter shall not prevent action at such meeting upon any other matter or
matters which may properly come before the meeting, if the number of shares
required in respect of such other matters shall be present.
2
<PAGE> 3
SECTION 6. Organization.
At each meeting of the stockholders, the Chairman of the Board or, in his
absence or inability to act, the most senior present Vice Chairman or, in the
absence or inability to act of any Vice Chairman, the President or, in his
absence or inability to act, a Vice President or, in his absence or inability
to act, any person as may be designated by the Board of Directors or, in the
absence of such designation, a chairman to be chosen at the meeting by the
majority of those stockholders present in person or represented by proxy shall
act as chairman of the meeting. The Secretary or, in his absence or inability
to act, an Assistant Secretary, or in his absence or inability to act, any
person as may be designated from time to time by the Board of Directors shall
act as secretary of each meeting of stockholders and keep the minutes thereof;
if no such person is present or has been chosen, the holders of record of a
majority of shares of stock present in person or represented by proxy and
entitled to vote at the meeting shall choose any person present to act as
secretary of the meeting.
SECTION 7. Order of Business.
The order of business at all meetings of the stockholders shall be as
determined by the chairman of the meeting.
SECTION 8. Voting and Required Vote.
At each meeting of stockholders, each stockholder shall be entitled to one vote
for each share of capital stock held by such stockholder except as otherwise
provided in the Restated Certificate of Incorporation. Except as otherwise
provided in the Restated Certificate of Incorporation, and subject to statute,
at each meeting of stockholders if there shall be a quorum, the affirmative
vote of the holders of a majority of shares present in person or represented by
proxy and entitled to vote thereat, shall decide all matters brought before
such meeting.
SECTION 9. Proxies.
Each stockholder entitled to vote at any meeting of stockholders or to express
consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by proxy. Any such proxy
shall be delivered to the secretary of such meeting at or prior to the time
designated in the order of business for so delivering such proxies. Each such
proxy shall be in writing and executed by the stockholder or his duly
authorized attorney-in-fact, but no such proxy shall be voted after three
years from its date unless such proxy provides for a longer period. A duly
executed proxy shall be irrevocable if it states that it is irrevocable and if,
and only as long as, it is coupled with an interest sufficient in law to
support an irrevocable power. A proxy may be made irrevocable regardless of
whether the interest with which it is coupled is an interest in the stock
itself or an interest in the Corporation generally.
SECTION 10. List of Stockholders.
A complete list of the stockholders entitled to vote at any meeting, arranged
in alphabetical order, with the address of each, and the number of shares held
by each, shall be prepared, or shall be caused to be prepared, by the Secretary
and shall be open to examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least ten days
prior to the meeting, either at a place within the city in which the meeting is
to be held, which place shall be specified in the notice of the meeting, or, if
not so specified, at the place where the meeting is to be held. The list shall
also be produced and kept at the place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present. The stock
ledger shall be the only evidence as to the stockholders entitled to examine
the stock ledger, the list required by these Restated By-Laws or the books of
the Corporation, or to vote in person or by proxy at any meeting of the
stockholders.
3
<PAGE> 4
SECTION 11. Voting by Fiduciaries, Pledgors and Joint Owners.
Persons holding stock in a fiduciary capacity shall be entitled to vote the
shares so held. Persons whose stock is pledged shall be entitled to vote,
unless in the transfer by the pledgor on the books of the Corporation he has
expressly empowered the pledgee to vote thereon, in which case only the
pledgee, or his proxy, may represent such stock and vote thereon.
If shares or other securities having voting power stand of record in the names
of two or more persons, whether fiduciaries, members of a partnership, joint
tenants, tenants-in-common, tenants by the entirety or otherwise, or if two or
more persons have the same fiduciary relationship respecting the same shares,
unless the Secretary is given written notice to the contrary and is furnished
with a copy of the instrument or order appointing them or creating the
relationship wherein it is so provided, their acts with respect to voting shall
have the following effect:
(a) if only one votes, his act binds all;
(b) if more than one votes, the act of the majority so voting
binds all;
(c) if more than one votes, but the vote is evenly split on any
particular matter, each faction may vote the securities in
question proportionally, or any person voting the shares, or a
beneficiary, if any, may apply to the Court of Chancery or
such other court as may have jurisdiction to appoint an
additional person to act with the persons so voting the
shares, which shall then be voted as determined by a majority
of such persons and the person appointed by the Court. If the
instrument so filed shows that any such tenancy is held in
unequal interest, a majority or even-split for the purpose of
this paragraph shall be a majority or even-split in interest.
SECTION 12. Consent of Stockholders in Lieu of Meeting.
Unless otherwise provided by the Restated Certificate of Incorporation, any
action required or permitted to be taken at any annual or special meeting of
stockholders of the Corporation may be taken without a meeting, without prior
notice and without a vote, if a consent in writing, setting forth the action so
taken, shall be signed by all of the holders of outstanding stock.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. General Powers.
The business and affairs of the Corporation shall be managed by or under the
direction of a Board of Directors, which may exercise all such authority and
powers of the Corporation and do all such lawful acts and things as are not by
statute, by the Restated Certificate of Incorporation or by these Restated
By-Laws directed or required to be exercised or done by the stockholders or
such other persons as provided therein.
SECTION 2. Number of Directors.
The number of Directors shall be determined from time to time by resolution of
the Board of Directors in accordance with the terms of the Restated Certificate
of Incorporation.
4
<PAGE> 5
SECTION 3. Resignations.
Any Director may resign at any time upon written notice to the Board of
Directors, the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt thereof
by the Board of Directors or by any such officer.
SECTION 4. Annual Meetings.
The annual meeting of the Board of Directors for the purpose of organizing the
Board, appointing officers and members of committees and transacting other
business, shall be held immediately following the annual meeting of the
stockholders at the same place where such meeting of stockholders shall be
held. No notice shall be required for any such meeting if held immediately
after the adjournment, and at the site, of the meeting of the stockholders. If
not so held, notice shall be given in the same manner as required for special
meetings of the Board of Directors.
SECTION 5. Regular Meetings.
Additional regular meetings of the Board may be held without notice at such
time and place (within or without the State of Delaware) as shall from time to
time be determined by the Board of Directors.
SECTION 6. Special Meetings.
Special meetings of the Board may be called at any time by the Chairman of the
Board, the Vice Chairman, the President or any Vice President or by two or more
Directors and shall be held at such time and place (within or without the State
of Delaware) as may be fixed by the person or persons calling the meeting;
provided, however, that the time so fixed shall permit the giving of notice as
provided in Section 7 of this Article III.
SECTION 7. Notice of Special Meetings.
Notice of the time and place of each special meeting of the Board of Directors
shall be mailed, postage prepaid to each director, addressed to him at his
address as it appears on the records of the Corporation, by first-class mail,
at least three days before the day on which such meeting is to be held, or
shall be sent addressed to him at such place by telegraph, telex, cable or
wireless, or be delivered to him personally or by telephone, no later than the
day before the day on which the meeting is to be held, and the method used for
notice of such special meeting need not be the same for each Director being
notified. Except as otherwise required by law, the Restated Certificate of
Incorporation or these Restated By-Laws, such notice need not state the purpose
or purposes of such meeting thereof.
SECTION 8. Organization.
The Chairman of the Board shall preside over all meetings of the Board of
Directors at which he is present. In his absence or inability to act, the most
senior Vice Chairman present at the meeting shall preside. In the absence or
inability to act of the Chairman or any Vice Chairmen, the Board of Directors
shall select a chairman of the meeting from among the Directors present. The
Secretary or, in his absence or inability to act, an Assistant Secretary, or in
his absence or inability to act, another Director selected by the Board shall
act as secretary of the meeting and keep the minutes thereof; if no such person
is present or has been chosen, the holders of record of a majority of shares of
stock present in person or represented by proxy and entitled to vote at the
meeting shall choose any person present to act as secretary of the meeting.
5
<PAGE> 6
SECTION 9. Quorum.
At all meetings of the Board of Directors the presence in person of one-third
of the total number of Directors constituting the entire Board of Directors,
whether then in office or not, shall be necessary and sufficient to constitute
a quorum for the transaction of any business by the Board of Directors at such
meeting, except as otherwise provided by law, the Restated Certificate of
Incorporation or these Restated By-Laws. At any meeting of the Board of
Directors, no action shall be taken (except adjournment, in the manner provided
below) until after a quorum has been established, except as otherwise provided
by law, the Restated Certificate of Incorporation or these Restated By-Laws.
Except as otherwise provided by law, the Restated Certificate of Incorporation
or these Restated By-Laws, the act of a majority of Directors who are present
at a meeting at which a quorum previously has been established (or at any
adjournment of such meeting, provided that a quorum shall have previously been
established at such adjourned meeting) shall be the act of the Board of
Directors, regardless of whether or not a quorum is present at the time such
action is taken. In determining the number of directors who are present at the
time any such action is taken, any Director who is in attendance at such
meeting but who, for just cause, is disqualified to vote on such matter, shall
not be considered as being present at the time of such action for the purpose
of establishing the number of votes required to take action on any matter
submitted to the Board of Directors, but shall be considered as being present
for purposes of determining the existence of a quorum.
In the event a quorum cannot be established at the beginning of a meeting, a
majority of the Directors present at the meeting, or the Secretary of the
Corporation, if there be no Director present, may adjourn the meeting from time
to time until a quorum be present. Only such notice of such adjournment need
be given as the Board of Directors may from time to time prescribe.
SECTION 10. Regulations.
The Board of Directors may adopt such rules and regulations for the conduct of
its meetings and for the management of the business and affairs of the
Corporation as it may deem proper and not inconsistent with law, the Restated
Certificate of Incorporation and these Restated By-Laws.
SECTION 11. Written Consent in Lieu of Meeting.
Any action required or permitted to be taken at any meeting of the Board of
Directors may be taken without a meeting if all members of the Board then in
office consent thereto in writing, provided that the number of such members is
sufficient to constitute a quorum for such action, and the writing or writings
are filed with the minutes of proceedings of the Board of Directors.
SECTION 12. Telephonic Participation.
Any and all members of the Board of Directors may participate in a meeting of
the Board by means of a conference telephone or similar communications
equipment by means of which all persons participating in such meeting shall
hear each other; participation in a meeting pursuant to this Section shall
constitute presence in person at such meeting.
SECTION 13. Compensation.
Directors shall be entitled to such compensation for their services as
Directors and to such reimbursement for any reasonable expense incurred in
attending meetings of the Board of Directors as may from time to time be fixed
by the Board of Directors. The compensation of Directors may be on such basis
as is determined by the Board of Directors. Any Director may waive
compensation for any meeting. Any Director receiving compensation under these
provisions
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shall not be barred from serving the Corporation in any other capacity and
receiving compensation and reimbursement for reasonable expenses for such other
services.
ARTICLE IV
COMMITTEES
SECTION 1. Executive Committee.
The Board of Directors may appoint an Executive Committee consisting of one or
more Directors, one of whom shall be designated as Chairman of the Executive
Committee. Each member of the Executive Committee shall continue as a member
thereof until the expiration of his term as a Director or his earlier
resignation or removal as a member of the Executive Committee or as a Director
or until his death.
SECTION 2. Powers.
The Executive Committee shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, and may authorize the seal of the Corporation to be
affixed to all papers which may require it; but shall not have power or
authority in reference to the following matters: (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by
the Delaware General Corporation Law to be submitted to stockholders for
approval or (ii) adopting, amending or repealing any by-law of the Corporation.
SECTION 3. Procedure and Meetings.
The Executive Committee shall fix its own rules of procedure and shall meet at
such times and at such place or places as may be provided by such rules or as
the members of the Executive Committee shall fix. The Executive Committee
shall keep minutes of its meetings, which it shall deliver to the Board of
Directors from time to time. The Chairman of the Executive Committee or, in
his absence, a member of the Executive Committee chosen by a majority of the
members present shall preside at meetings of the Executive Committee, and the
Secretary, or in his absence, an Assistant Secretary, or in his absence another
member of the Executive Committee chosen by the Executive Committee, shall act
as secretary of the Executive Committee.
SECTION 4. Quorum.
A majority of the Executive Committee shall constitute a quorum for the
transaction of business, and the affirmative vote of a majority of the members
present at any meeting at which there is a quorum shall be required for any
action of the Executive Committee; provided, however, that when an Executive
Committee of one member is authorized under the provisions of Section 1 of this
Article, that one member shall constitute a quorum.
SECTION 5. Other Committees.
The Board of Directors may appoint such other committee or committees as it
shall deem advisable and with such rights, powers, and authority as it shall
prescribe. Each such committee shall consist of one or more Directors. Unless
otherwise provided by the Board of Directors, a majority of the members of each
such other committee shall constitute a quorum, and the acts of a majority of
the members present at a meeting at which a quorum is present shall be the act
of such committee.
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SECTION 6. Vacancies; Committee Changes.
In the absence or disqualification of a member of any committee, the member or
members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
member of the Board of Directors to act at the meeting in the place of any such
absent or disqualified member.
The Board of Directors shall have the power at any time to fill vacancies in,
to change the membership of, and to discharge, any committee or any member of
any committee.
SECTION 7. Compensation.
Members of any committee shall be entitled to such compensation for their
services as members of the committee and to such reimbursement for any
reasonable expenses incurred in attending committee meetings as may from time
to time be fixed by the Board of Directors. Any committee member may waive
compensation for any meeting. Any committee member receiving compensation
under these provisions shall not be barred from serving the Corporation in any
other capacity and from receiving compensation and reimbursement of reasonable
expenses for such other services.
SECTION 8. Telephonic Participation.
Any and all members of any committee designated by the Board of Directors may
participate in a meeting of such committee by means of conference telephone or
similar communications equipment by means of which all persons participating in
such meeting can hear each other, and participation in such a meeting pursuant
to this Section shall constitute presence in person at such meeting.
SECTION 9. Action by Consent.
Any action required or permitted to be taken at any meeting of any committee of
the Board of Directors may be taken without a meeting if a written consent
thereto shall be signed by all members of the committee then in office,
provided that the number of such members is sufficient to constitute a quorum
for such action, if any, and such written consent is filed with the minutes of
its proceedings.
ARTICLE V
NOTICES
SECTION 1. Waiver of Notice.
Whenever any notice is required to be given by law, the Restated Certificate of
Incorporation or these Restated By-Laws, a written waiver thereof; signed by
the person or persons entitled to such notice, whether before or after the time
stated therein, shall be deemed equivalent to such notice. Neither the
business to be transacted at, nor the purpose of any regular or special
meeting of stockholders, any meeting of other securityholders, the Board of
Directors, or any committee of the Board of Directors need be specified in any
written waiver of notice unless so required by law, the Certificate of
Incorporation or these Restated By-Laws.
SECTION 2. Attendance at Meeting.
Attendance of a person at any meeting, whether of stockholders or other
securityholders (in person or by proxy), or the Board of Directors or any
committee of the Board of Directors, shall constitute a waiver of notice of
such meeting, except when such person attends such meeting for
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the express purpose of objecting, and objects, at the beginning of the meeting,
to the transaction of any business on the ground that the meeting is not
legally called or convened.
ARTICLE VI
OFFICERS
SECTION 1. Number and Qualifications.
The officers of the Corporation shall include the Chairman, one or more Vice
Chairmen, the President, one or more Vice Presidents, a Treasurer, and a
Secretary and such other officers as may be elected or appointed in accordance
with the provisions of Section 2 of this Article VI. Any number of offices,
except the offices of President and Secretary, may be held by the same person.
SECTION 2. Selection, Term of Office and Qualification.
The officers shall be elected from time to time by the Board of Directors at
its first regular meeting after each annual meeting of stockholders. Each
officer shall hold his office until his successor is elected and qualified or
until he shall resign in the manner provided in Section 3 of this Article VI,
or until he shall have been removed in the manner provided in Section 4 of this
Article VI, or until his death. Other officers, including without limitation
one or more Assistant Treasurers and one or more Assistant Secretaries shall be
chosen in such manner, hold office for such period, have such authority,
perform such duties and be subject to removal as may be prescribed by the Board
of Directors.
SECTION 3. Resignations.
Any officer may resign at any time upon written notice to the Board of
Directors, the President or the Secretary. Any such resignation shall take
effect at the time specified therein or, if the time when it shall become
effective shall not be specified therein, immediately upon its receipt thereof
by the Board of Directors or any such officer.
SECTION 4. Removal.
Any officer may be removed at any time, either with or without cause, by the
Board of Directors; and any officer not elected by the Board of Directors may
be removed in such manner as may be determined by the Board of Directors.
Removal from office however, shall not prejudice the contract rights, if any,
of the person removed except as provided in such contract.
SECTION 5. Vacancies.
Any vacancy occurring in any office of the Corporation which is required by
Section 2 of this Article VI to be elected by the Board of Directors, whether
by death, resignation, removal or otherwise, shall be filled for the unexpired
portion of the term by the Board of Directors. A vacancy in any other office
shall be filled in such manner as may be determined by the Board of Directors.
SECTION 6. Chairman.
The Chairman shall be the chief executive officer of the Corporation and,
subject to the direction of the Board of Directors, shall have general charge
of the business, affairs and property of the Corporation and general
supervision over its other officers and agents and shall see that all orders
and resolutions of the Board of Directors are carried into effect.
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SECTION 7. Vice Chairman.
The Vice Chairman or, in the event there be more than one, the Vice Chairmen in
the order designated, or in the absence of any designation, in the order of
their seniority, shall have such powers and perform such duties as may from
time to time be assigned to him by the Board of Directors and shall report to
the Chairman, subject to the control of the Board of Directors.
SECTION 8. The President.
The President shall be chief operating officer of the Corporation and shall
have, subject to the control of the Chairman and the Board of Directors,
general and active management of the business of the Corporation and the
general and active supervision and direction over the business operations and
affairs of the Corporation and over its several officers, agents and employees.
He shall, unless also a Director, be an ex officio member of all committees of
the Board. In general, he shall have such other powers and shall perform such
other duties as usually pertain to the office of President or as from time to
time may be assigned to him by the Board or these By-Laws.
SECTION 9. Vice President.
The Vice President or, in the event there be more than one, the Vice Presidents
in the order designated, or in the absence of any designation, in the order of
their seniority, shall have such powers and perform such duties as from time to
time may be assigned to him by the Board.
SECTION 10. The Treasurer and Assistant Treasurers.
The Treasurer shall:
(a) have charge and custody of, and be responsible for, all the
funds and securities of the Corporation;
(b) keep full and accurate accounts of receipts and disbursements
in books belonging to the Corporation;
(c) cause all moneys and other valuables to be deposited to the
credit of the Corporation in such depositories as may be
designated by the Board of Directors;
(d) receive, and give receipts for moneys due and payable to the
Corporation from any source whatsoever;
(e) disburse the funds of the Corporation and supervise the
investment of its funds as ordered or authorized by the Board
of Directors, taking proper vouchers therefor;
(f) render to the President and the Board of Directors at the
regular meetings of the Board, or whenever they may request
it, an account of all his transactions as Treasurer and of the
financial condition of the Corporation; and
(g) in general, have all the powers and perform all the duties
incident to the office of Treasurer and such other duties as
from time to time may be assigned to him by the Board of
Directors or the President.
The Assistant Treasurer or Assistant Treasurers, if any, shall in the absence
or disability of the Treasurer or at his request, perform his duties and
exercise his powers and authority as may be assigned to him by the Board of
Directors or the President.
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SECTION 11. The Secretary and Assistant Secretaries.
The Secretary shall:
(a) attend all meetings of the Board of Directors, any committee
of the Board of Directors, stockholders and other
securityholders and record all votes and the proceedings of
such meetings in minute books to be kept by him for that
purpose;
(b) see that all notices are duly given in accordance with the
provisions of these By-Laws and as required by law;
(c) be custodian of the records and the seal of the Corporation
and affix and attest the seal to all stock certificates of the
Corporation (unless the seal of the Corporation on such
certificates shall be a facsimile, as hereinafter provided)
and affix and attest the seal to all other documents to be
executed on behalf of the Corporation under its seal;
(d) see that the books, reports, statements, certificates and
other documents and records required by law to be kept and
filed are properly kept and filed; and
(e) in general, have all the powers and perform all the duties
incident to the office of Secretary and such other duties as
from time to time may be assigned to him by the Board of
Directors or the President.
The Assistant Secretary or Assistant Secretaries, if any, shall, in the absence
or disability of the Secretary or at his request, perform his duties and
exercise his powers and authority as may be assigned to him by the Board of
Directors or the President.
SECTION 12. Compensation.
The compensation of all officers of the Corporation shall be fixed from time to
time by the Board of Directors; no officer of the Corporation shall be
prevented from receiving compensation because he is also a Director of the
Corporation.
ARTICLE VII
CAPITAL STOCK AND DIVIDENDS
SECTION 1. Stock Certificates for Shares.
Certificates for shares of the capital stock of the Corporation shall be in
such form, not inconsistent with the Restated Certificate of Incorporation, as
shall be approved by the Board of Directors and shall be signed by or in the
name of the corporation by the Chairman or by the President or a Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary, provided that the signatures of any such officers
thereon may be facsimiles. The seal of the Corporation shall be impressed, by
original or by facsimile, printed or engraved, on all such certificates. A
certificate may also be signed by the transfer agent and a registrar as the
Board of Directors may determine, and in such case the signature of the
transfer agent or the registrar may also be facsimile, engraved or printed. In
case any officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon such certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
nevertheless be issued by the Corporation with the same effect as if he were
such officer, transfer agent or registrar at the date of issue.
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SECTION 2. Stock Records.
The Corporation shall keep at such place or places, within or without the State
of Delaware, as the Board of Directors may from time to time determine, the
stock record books in which shall be recorded the number of shares issued, the
names of the owners of the shares, the number owned by them respectively, and
the transfer of such shares with the date of transfer. Blank stock certificate
books shall be kept by the Secretary or by any officer or agent designated by
the Board.
SECTION 3. Registration of Transfers.
Registration of transfer of certificates representing shares of stock of the
Corporation shall he effected only on the books of the Corporation only upon
authorization by the registered holder thereof, or by his attorney authorized
by power of attorney duly executed and filed with the Secretary or with a
designated transfer agent or transfer clerk, and upon surrender to the
Corporation or any transfer agent of the Corporation of the certificate or
certificates being transferred, which certificate shall be properly endorsed or
accompanied by a duly executed stock transfer power and the payment of all
taxes thereon. Whenever a certificate is endorsed by or accompanied by a stock
power executed by someone other than the person or persons named in the
certificate, evidence of authority to transfer shall also be submitted with the
certificate. Whenever any transfers of shares shall be made for collateral
security and not absolutely, and both the transferor and transferee request the
Corporation to do so, such fact shall be stated in the entry of the transfer.
SECTION 4. Determination of Stockholders.
Except as otherwise provided by law, the Corporation shall be entitled to
recognize the exclusive right of a person in whose name any share or shares
stand on the record of stockholders as the owner of such share or shares for
all purposes, including, without limitation, the rights to receive dividends or
other distributions, and to vote as such owner, the Corporation may hold any
such stockholder of record liable for calls and assessments and the Corporation
shall not be bound to recognize any equitable or legal claim to or interest in
any such share or shares on the part of any other person whether or not it
shall have express or other notice thereof.
SECTION 5. Regulations Governing Issuance and Transfers of Shares.
The Board of Directors shall have the power and authority to make all such
rules and regulations, not inconsistent with these Restated By-Laws, as it may
deem expedient concerning the issue, transfer and registration of certificates
for shares of stock of the Corporation. It may appoint, or authorize any
officer or officers to appoint, one or more transfer agents or one or more
transfer clerks and one or more registrars and may require all certificates for
shares of stock to bear the signature or signatures of any of them.
SECTION 6. Fixing of Record Date.
In order that the Corporation may determine the stockholders of record entitled
to notice of, or to vote at, any meeting of stockholders or any adjournment
thereof, or entitled to express consent to corporate action in writing without
a meeting, or entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of
any change, conversion or exchange of stock or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
shall not be more than sixty nor less than ten days before the date of such
meeting, nor more than sixty days prior to any other action. Except as
otherwise provided by law, the Restated Certificate of Incorporation, these
Restated By-Laws or by resolution of the Board of Directors:
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(1) The record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at
the close of business on the day next preceding the day on
which notice is given, or, if notice is waived, at the close
of business on the day next preceding the day on which the
meeting is held;
(2) The record date for determining stockholders entitled to
express consent to corporate action in writing without a
meeting, when no prior action by the Board of Directors is
necessary, shall be the day on which the first written consent
is expressed; and
(3) The record date for determining stockholders for any other
purpose shall be at the close of business on the day on which
the Board adopts the resolution relating thereto.
A determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board may fix a new record date for the adjourned
meeting.
SECTION 7. Lost, Stolen or Destroyed Stock Certificates.
The holder of any certificates representing shares of stock of the Corporation
shall immediately notify the Corporation of any loss, theft, destruction or
mutilation of such certificate, and the Board of Directors may authorize the
issuance of a new certificate of stock in lieu thereof upon satisfactory proof
of such loss, theft or destruction upon the giving of an open penalty bond with
surety satisfactory to the Treasurer and the Corporation's counsel, to protect
the Corporation or any person injured on account of the alleged loss, theft or
destruction of any such certificate or the issuance of a new certificate from
any liability or expense which it or they may incur by reason of the original
certificates remaining outstanding and upon payment of the Corporation's
reasonable costs incident thereto.
SECTION 8. Dividends and Reserves.
Subject to the provisions of law or of the Restated Certificate of
Incorporation, the Board of Directors may, out of funds available therefor at
any regular or special meeting, declare dividends upon the capital stock of the
Corporation as and when they deem expedient. Before declaring any dividend
there may be set apart out of any funds of the Corporation available for
dividends, such sum or sums as the Board may from time to time in their
discretion deem proper as a reserve fund for working capital, to meet
contingencies, or for equalizing dividends, or for the purpose of repairing,
maintaining or increasing the property or business of the Corporation, or for
such other purposes as the Board shall deem to be in the best interests of the
Corporation. The Board may, in its discretion, modify or abolish any such
reserve at any time.
ARTICLE VLII
GENERAL PROVISIONS
SECTION 1. Execution of Contracts, Papers and Documents.
Except as otherwise required by law, the Restated Certificate of Incorporation
or these Restated By-Laws, any contract or other instrument may be executed and
delivered in the name and on behalf of the Corporation by such officers or
employees of the Corporation as the Board may from time to time determine, or
in the absence of such determination, by the Chairman or the President. Such
authority may be general or confined to specific instances as the Board may
determine. Unless authorized by the Board or expressly permitted by these
Restated By-Laws, no officer or
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agent or employee shall have any power or authority to bind the Corporation by
any contract or engagement or to pledge its credit or to incur a pecuniary
liability for any purpose.
SECTION 2. Voting Shares in Other Corporations.
The Corporation may vote any and all shares of stock and other securities
having voting rights which may at any time and from time to time be held by it
in any other corporation or corporations and such vote may be cast either in
person or by proxy by such officer of the Corporation as the Board of Directors
may appoint or, in the absence of such appointment, by the Chairman or
President.
SECTION 3. Checks, Drafts, etc.
All checks, drafts, bills of exchange or other orders for the payment of money
out of the funds of the Corporation, and all notes or other evidences of
indebtedness of the Corporation, shall be signed in the name and on behalf of
the Corporation by such persons and in such manner as shall from time to time
be authorized by the Board.
SECTION 4. Books, Accounts and Other Records.
Except as otherwise provided by law, the books, accounts and other records of
the Corporation shall be kept at such place or places, within or without the
State of Delaware, as the Board of Directors may from time to time designate.
SECTION 5. Corporate Seal.
The Board of Directors shall provide a suitable seal which shall bear the name
of the Corporation, the year of incorporation and shall include the words
"Corporate Seal, Delaware." Said seal shall be in the custody of the Secretary
of the Corporation, and may provide for one or more duplicates thereof to be
kept in the custody of such other officer or officers of the Corporation as the
Board may prescribe.
SECTION 6. Fiscal Year.
Following the fiscal year ended September 30, 1997, the fiscal year of the
Corporation shall be a period of twelve (12) calendar months beginning January 1
and ending on December 31 in the next succeeding year.
ARTICLE IX
TRANSACTIONS WITH DIRECTORS AND OFFICERS
SECTION 1. Affiliated Transactions.
No contract or transaction between the Corporation and one or more of its
directors or officers. or between the Corporation and any other corporation,
partnership, association, or other organization in which one or more of its
Directors of officers are directors or officers or have a financial interest,
shall be void or voidable solely for this reason, or solely because the
Director or officer is present at or participates in the meeting of the Board
of Directors or committee thereof that authorizes the contract or transaction
or solely because his or their votes are counted for such purpose, if:
(a) The material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to
the Board of Directors or the committee, and the Board of
Directors or committee in good faith authorizes the
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contract or transaction by the affirmative vote of a majority
of the disinterested Directors, even though the disinterested
Directors be less than a quorum; or
(b) The material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to
the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in good faith by the vote
of the stockholders; or
(c) The contract or transaction is fair to the Corporation as of
the time it is authorized, approved, or ratified by the Board
of Directors, a committee thereof, or the stockholders.
SECTION 2. Determining Quorum.
Common or interested Directors may be counted in determining the presence of a
quorum at a meeting of the Board of Directors or of a committee thereof which
authorized the contract or transaction.
ARTICLE X
ANTITAKEOVER STATUTE
The Corporation hereby expressly elects not to be governed by Subchapter VI,
Chapter 1, Title 8, Section 203 of the Delaware Code relating to the General
Corporation Law of the State of Delaware, entitled "Business Combinations with
Interested Stockholders".
ARTICLE XI
AMENDMENT
The power to adopt, amend or repeal these Restated By-Laws shall be in the
stockholders entitled to vote and may be exercised by the affirmative vote of a
majority of the stock issued and outstanding and entitled to vote thereat at
any annual meeting of the stockholders or at any special meeting thereof if
notice of the proposed amendment or repeal be contained in the notice of such
special meeting. Such power shall also be conferred upon the directors and may
be exercised by the affirmative vote of a majority of the Board at any regular
meeting of the Board or at any special meeting of the Board if notice of the
proposed amendment or repeal be contained in the notice of such special
meeting, but the fact that such power has been so conferred upon the directors
shall not divest the stockholders of the power, nor limit their power to adopt,
amend or repeal these By-Laws.
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EXHIBIT 10.9
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, effective October 1, 1996 by and between Richard
A. Stratton (the "Employee") and Nabors Industries, Inc. (the "Corporation"), a
Delaware corporation.
WHEREAS, the Corporation currently employs the Employee in the capacity
of Vice Chairman and as President of its subsidiary, Nabors Drilling U.S.A.;
and
WHEREAS, the Compensation Committee of the Board of Directors (the
"Compensation Committee") approved the terms of this Agreement,
NOW, THEREFORE, in consideration of the conditions and covenants set
forth herein, the parties agree as follows;
1. Employment. The Corporation hereby agrees to employ the Employee
pursuant to the terms and conditions of this Agreement effective the date
hereof (the "Effective Date"), and the Employee hereby accepts such employment
by the Corporation upon such terms and conditions.
2. Responsibilities and Duties. During the Term of Employment (as
defined in Section 4 hereof) the Employee shall be employed by the Corporation
as a member of the Executive Committee and Officer of the Corporation with such
responsibilities and duties as the Board of Directors of the Corporation
("Board") may from time to time determine consistent with the Employee's
position. The Employee shall devote his full working time to the performance of
his responsibilities and duties hereunder. The Employee's principal duties
shall be rendered at the Corporation's headquarters in Houston, Texas.
During the Term of Employment, the Employee will not, without the prior
written consent of the Board, render services, whether or not compensated, to
any other person or entity as an employee, independent contractor or otherwise,
provided, however, that nothing herein shall restrict the Employee from
rendering services to charitable organizations and from managing his personal
<PAGE> 2
investments in such manner as shall not interfere with the performance by the
Employee of his duties hereunder.
During the Term of Employment the Employee agrees to comply with the
policies of the Corporation with respect to conflicts of interest and business
ethics as may be adopted by the Board from time to time.
If elected in a manner consistent with the By-Laws of the Corporation,
the Employee also shall serve as a member of the Corporation's Board of
Directors.
3. Compensation. The Corporation shall compensate the Employee
during the Term of Employment hereunder in the following manner:
(a) Base Salary. During the Term of Employment, tThe Corporation shall
pay the Employee a base salary at the annual rate of $275,000 (the "Base
Salary"). Effective October 1, 1997 the Base Salary shall be $450,000. The
Base Salary is payable in accordance with the regular payroll practices of the
Company subject to review by the Board of Directors or its Compensation
Committee annually.
(b) Annual Cash Bonus. The Employee shall be entitled to additional
cash bonus compensation, the amount of which shall be determined in the
discretion of the Compensation Committee for each fiscal year during the Term
of Employment.
(c) Stock Option and Stock Grant Awards. The Corporation may award
stock options and stock grants from time to time as it deems appropriate.
4. Term of Employment.
(a) The Employee's term of employment hereunder ("Term of Employment")
shall commence on the Effective Date and shall continue until the Termination
Date, which shall mean the earliest to occur of:
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(i) September 30, 2001 (the "Expiration Date"), provided that on
each October 1st of every succeeding year after October 1, 1996, the
then Expiration Date shall be extended automatically for an additional
one year term unless ten (10) days prior to such October 1st, a written
notice of expiration is given by Company in writing to Employee and
delivered personally to him and by certified mail to his place of
notice set forth in Section 17;
(ii) the death of the Employee;
(iii) the permanent and total disability of the Employee which
renders him unable to perform his duties hereunder;
(iv) the partial or total disability of the Employee which
renders him unable to perform his duties hereunder for a period of at
least 180 consecutive days
(v) the discharge of the Employee by the Board of Directors of
the Corporation "for cause" which shall mean only one or more of the
following:
(A) The commission in the course of the Employee's
employment by the Corporation of any fraudulent act or dishonesty;
(B) Conviction of a felony (from which, through lapse of
time or otherwise, no successful appeal shall have been made)
whether or not committed in the course of his employment by the
Corporation;
(C) The willful refusal to carry out reasonable instructions
of the Board; provided, however, that the Employee may only be
discharged after he shall have been given 30 days written notice
setting forth his alleged deficiencies and; provided, further, that
the Employee shall be suspendable with pay for such 30-day period
and that he shall not, within such 30-day period, have ceased or
otherwise cured the activity or activities or omission constituting
the grounds for termination; and
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(D) The willful disclosure of any trade secrets or
confidential corporate information of the Corporation to persons
not authorized to know same, unless such disclosure is required by
any law or court order or similar process.
(vi) the voluntary written resignation by the Employee.
(b) In the event of voluntary written resignation, the Employee shall
continue to serve until released by the Board or for a period of four months,
whichever comes first.
5. Effects of Termination.
(a) In the event that the Employee is terminated for any reason other
than a termination by the Corporation for cause or a termination by Employee
upon voluntary resignation by reason of death or disability of the Employee or
by discharge of the Employee by the Corporation in breach of this Agreement,
the Employee (or his estate, as the case may be) shall be entitled to receive,
upon the occurrence of any such event:
(i) all Base Salary which would have been payable for the period
from the Termination Date until the Expiration Date;
(ii) all "Deemed Bonus" for each fiscal year which would have been
payable for the period from the Termination Date until the Expiration
Date. For this purpose, "Deemed Bonus" for each fiscal year shall equal
the highest cash bonus paid to Employee during the last three fiscal years
prior to the Termination Date;
(iii) such benefits as he may be entitled to under any welfare plans
or pension plans as defined in Sections 3(1) and 3(2) of the Employee
Retirement Income Security Act of 1974 (as amended) respectively, that are
or may be maintained by the Corporation, which would have been payable
through Expiration Date December 3l, 1995 as if such date was the
Termination Date;
(iv) any restricted stock outstanding, whether or not vested, shall
become immediately and fully vested and transferable to the full extent
possible at the time of termination;
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(v) any outstanding stock option (including any reload rights
contained therein) of any kind whatsoever shall become immediately and
fully vested and transferable to the full extent possible at the time of
termination without regard to any contingencies or conditions specified
therein, for the remainder of the original term of the option;
(vi) any amounts earned, accrued or owing to Executive but not yet
paid, including any and all obligations to be performed following
termination under Sections 6-9. Executive, or his designee, shall be
entitled to continue to receive all the benefits set forth in Section 6-9
through the later of: (1) Expiration Date as if no termination occurred,
or (2) three-years from the Termination Date.
(b) In the event that the Employee is terminated for cause or voluntarily
resigns in writing, he shall be entitled to receive the options as to which his
right of exercise has vested under any stock option plans.
(c) The Employee, by written notice to the Board (or to the Board of its
successor entity in the event of a merger, consolidation or sale of
substantially all of the assets of the Corporation) may elect to treat a Change
in Control as defined in Section 11 (a) (i) of this Agreement or any breach of
this Agreement by the Corporation (or by any such successor) of any of its
obligations under this Agreement, as a discharge of the Employee without cause
in breach of this Agreement, entitling the Employee to receive, upon the giving
of such notice, the payments provided for in paragraph (a) of this Section 5.
Notice pursuant to this Section 5 may be given by the Employee at any time
within six (6) months after the occurrence of either the Change in Control or
any breach of this Agreement which the Employee deems to be a discharge of the
Employee without cause by the Corporation.
6. Vacation. The Employee shall be entitled to paid vacation of six weeks
per Salary Year. Vacation shall be taken each Salary Year and, if not taken,
shall be forfeited.
7. Reimbursement of Expenses. The Corporation shall promptly reimburse
the Employee for all reasonable, ordinary and necessary expenses incurred by him
in the performance of his duties
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<PAGE> 6
hereunder and the Employee shall account to the Corporation there for in the
manner normally prescribed by the Corporation for reimbursement of the
Employee's expenses.
8. Other Compensation.
(a) During the Term of Employment, the Corporation shall provide
comprehensive medical, disability, and life insurance protection for the
Employee and his dependents, in accordance with the general policies of the
Corporation as in effect from time to time.
(b) The Corporation shall provide a policy of life insurance on the
life of the Employee in the amount of not less than $2,000,000 for the Employee,
under a split dollar life insurance agreement in the Employee's or his
designees name(s) on the life of the Employee alone (or joint survivorship with
his spouse). The Employee or his assignee shall bear and incur that part of the
annual premium on such policy equal to the amount of the entire economic benefit
that would be taxable to the Employee but for such payment as computed in
accordance with applicable Internal Revenue Service standards and (B) the
Corporation shall bear and incur the remainder of such premium. The terms and
conditions of this survivorship split dollar insurance arrangement shall be
evidenced in a separate split dollar agreement to be entered into between the
Employee or his assignee and the Corporation.
(c) The Corporation shall provide the Employee with an automobile, and
shall pay all related maintenance, repairs, insurance and other costs incurred
with respect to such automobile.
(d) The Corporation shall pay for club memberships necessary and
appropriate to the conduct of the Corporation's business.
(e) The Corporation shall provide the Employee with personal financial
(including tax) counseling by a firm to be chosen by the Employee.
(f) The Corporation shall provide the Employee with a personal umbrella
policy in the amount of $5,000,000.
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<PAGE> 7
9. Life Insurance. The Corporation in its discretion may apply for
and procure as owner and for its own benefit, insurance on the life of the
Employee, in such amount and in such forms as the Corporation may choose. The
Employee shall have no interest whatsoever in any such policy or policies, but,
at the request of the Corporation, shall submit to medical examinations and
supply such information and execute such documents as may reasonably be
required by the insurance company or companies to which the Corporation has
applied for insurance.
10. Non-Disclosure, Non-Competition and Non-Solicitation
(a) Non-Disclosure. The Employee agrees that all information
pertaining to the prior, current or contemplated business of the Corporation
and its subsidiaries (excluding (i) publicly available information (in
substantially the form in which it is publicly available) unless such
information is publicly available by reason of unauthorized disclosure and (ii)
information of a general nature not pertaining exclusively to the Corporation
which is generally available) are valuable and confidential assets of the
Corporation. Such information shall include, without limitation, information
relating to trade secrets, supplier lists, customer lists, financing
techniques, bidding procedures and sources and such financial statements of the
Corporation as are not available to the public. The Employee shall hold all
such information in trust and confidence for the Corporation and shall not use
or disclose any such information for other than the Corporation's business and
shall be liable for damages incurred by the Corporation as a result of
disclosure of such information by the Employee for any purpose other than the
Corporation's business, either during his employment or after his employment
terminates for whatever reason.
(b) Non-Competition. Employee agrees that during the one year period
following a termination for cause or the resignation of the Employee, he will
not accept any employment with, or render any services to, any person, firm or
corporation which competes with the Corporation's or its subsidiaries' drilling
or drilling-related activities and oil rig service or transportation business
in Alaska, Canada, the Lower 48 area, the Gulf of Mexico, the Middle East, the
North Sea, South America or the Far East.
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<PAGE> 8
(c) Non-Solicitation. Employee shall not, during his employment and
for a period of one year after the Termination Date, directly or indirectly,
individually or on behalf of other person, aid or endeavor to solicit or induce
(i) then remaining employees of the Corporation and its subsidiaries to leave
their employment with the Corporation in order to accept employment with another
person or entity, or (ii) then customers of the Corporation to purchase products
or services then sold or provided by the Corporation from another person or
entity.
(d) No Adequate Remedy at Law. It is agreed that it is impossible to
measure in money the damages which will accrue to the Corporation in the event
the Employee breaches any of the covenants in paragraphs (a) through (c) above
and, if the Corporation shall institute any action or proceeding to enforce
those covenants, the Employee hereby waives and agrees not to assert the claim
or defense that the Corporation has an adequate remedy at law. The foregoing
shall not prejudice the Corporation's right to require the Employee to account
for and pay over to the Corporation the amount of any actual damages incurred
by the Corporation as a result of any such breach, up to, but not in excess of
the compensation and other benefits derived or received by the Employee as a
result of any transaction constituting a breach of the covenants set forth in
paragraph (a), (b) or (c) above.
11. Indemnification.
(a) Defined Terms. For purposes of Sections 5 (c) and 11 through
15 inclusive, the following terms shall have the meaning given here:
(i) "Change of Control" shall mean any of the following
events:
(A) Unless approved by the affirmative vote of at
least two-thirds (2/3) of those members of the Board who are
in office immediately prior to the event(s) and who are not
employees of the Corporation:
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<PAGE> 9
(1) the merger or consolidation of the
Corporation with, or the sale of all or substantially
all of the assets of the Corporation to, any person
or entity or group of associated persons or entities;
or
(2) the direct or indirect beneficial
ownership in the aggregate of securities of the
Corporation representing twenty percent (20%) or more
of the total combined voting power of the
Corporation's then issued and outstanding securities
by any person or entity, or group of associated
persons or entities acting in concert, not affiliated
(within the meaning of the Securities Act of 1933, as
amended) with the Corporation as of the Effective
Date; or
(3) approval by the stockholders of the
Corporation of any plan or proposal for the
liquidation or dissolution of the Corporation.
(B) A change in the composition of the Board at
any time during any consecutive twenty-four (24) month period
such that the "Continuing Directors" cease for any reason to
constitute at least a seventy percent (70%) majority of the
Board.
For purposes of this clause (B) the "Continuing Directors"
shall mean those members of the Board who either:
(1) were directors at the beginning of such
consecutive 24-month period; or
(2) were elected by, or on the nomination or
recommendation of, at least a two-thirds (2/3) majority
(consisting of at least four directors) of the then existing
Board.
(ii) "Corporate Status" shall mean the status of a person
who is or was a director, officer or fiduciary of the Corporation or
of any other corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise which such person is or was serving
at the express written request of the Corporation.
9
<PAGE> 10
(iii) "Disinterested Director" shall mean a director of the
Corporation who is not and was not a party to the Proceeding in
respect of which indemnification is sought by the Employee.
(iv) "Enterprise" shall mean the Corporation and any other
corporation, partnership, joint venture, trust, employee benefit plan
or other enterprise which the Employee is or was serving as a
director, officer or fiduciary at the express written request of the
Corporation.
(v) "Expenses" shall include all reasonable attorneys'
fees, retainers, court costs, transcript costs, fees of experts,
witness fees, travel expenses, duplicating costs, printing and binding
costs, telephone charges, postage, delivery service fees, and all
other disbursements or expenses of the types customarily incurred in
connection with prosecuting, defending, preparing to prosecute or
defend, investigating or being or preparing to be a witness in a
Proceeding.
(vi) "Good Faith" shall mean the Employee's having acted
in good faith and in a manner the Employee reasonably believed to be
in, or not opposed to, the best interests of the Corporation, and,
with respect to any criminal Proceeding, having had no reasonable
cause to believe his conduct was unlawful.
(vii) "Independent Counsel" means a law firm, or a member
of a law firm, that is experienced in matters of corporation law and
neither presently is, not in the past five (5) years has been,
retained to represent: (i) the Corporation or Employee in any matter
material to either party, or (ii) any other party to the Proceeding
giving rise to a claim for indemnification hereunder. Notwithstanding
the foregoing, the term "independent Counsel" shall not include any
person who, under the applicable standards of professional conduct
then prevailing, would have a conflict of interest in representing
either the Corporation or the Employee in an action to determine the
Employee's rights under this Agreement.
(viii) "Proceeding" includes any action, suit arbitration,
alternate dispute resolution mechanism, investigation, administrative
hearing or any other actual, threatened or
10
<PAGE> 11
completed proceeding, whether civil, criminal, administrative or
investigative, other than one initiated by the Employee.
(b) In General. In connection with any Proceeding involving acts
or omissions occurring subsequent to the Effective Date, the Corporation shall
indemnify and advance Expenses to the Employee as provided in this Agreement to
the fullest extent permitted by applicable law in effect on the Effective Date
and to such greater extent as applicable law may thereafter from time to time
permit.
(c) Proceedings Other Than Proceedings by or in the Right of
Corporation. If, by reason of the Employee's Corporate Status, the Employee is
or is threatened to be made a party to any Proceeding other than a Proceeding
by or in the right of the Corporation, the Corporation shall indemnify the
Employee against Expenses, judgments, penalties, fines and amounts paid in
settlement actually and reasonably incurred by the Employee or in the
Employee's behalf in connection with such Proceeding or any claim, issue or
matter therein if the Employee acted in Good Faith.
(d) Proceedings by or in the Right of Corporation. If, by reason
of the Employee's Corporate Status, the Employee is, or is threatened to be
made a party to any Proceeding brought by or in the right of the Corporation to
procure a judgment in its favor, the Employee shall be indemnified against
Expenses, judgments, penalties and amounts paid in settlement, actually and
reasonably incurred by the Employee or on the Employee's behalf in connection
with such Proceeding if the Employee acted in Good Faith. Notwithstanding the
foregoing, no such indemnification shall be made in respect of any claim, issue
or matter in such Proceeding as to which the Employee shall have been adjudged
to be liable to the Corporation if applicable law prohibits such
indemnification; provided, however, that if applicable law so permits,
indemnification shall nevertheless be made by the Corporation in such event if
and only to the extent that the Court of Chancery of the State of Delaware or
the court in which such Proceeding shall have been brought or is pending shall
determine.
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<PAGE> 12
(e) Indemnification of a Party who is Wholly or Partly Successful.
Notwithstanding any other provision of this Agreement, to the extent that the
Employee is, by reason of the Employee's Corporate Status, a party to and is
successful on the merits or otherwise, as to one or more but less than all
claims, issues or matters in such Proceeding the Corporation shall indemnify
the Employee to the maximum extent permitted by law against all Expenses,
judgments, penalties, fines and amounts paid in settlement actually and
reasonably incurred by the Employee or on the Employee's behalf in connection
with each successfully resolved claim, issue or matter. For purposes of this
paragraph (e) and without limitation, the termination of any claim, issue or
matter in such a Proceeding by dismissal, with or without prejudice, shall be
deemed to be a successful result as to such claim, issue or matter, so long as
there has been no finding (either adjudicated or pursuant to this Section 10)
that the Employee did not act in Good Faith.
(f) Indemnification for Expenses of a Witness.
Notwithstanding any other provision of this Agreement, to the extent that the
Employee is, by reason of the Employee's Corporate Status, a witness in any
Proceeding, the Employee shall be indemnified against all Expenses actually and
reasonably incurred by the Employee or on the Employee's behalf in connection
therewith.
(g) Successors. The indemnification and advancement of expenses
provided by, or granted pursuant to, this Agreement shall continue as to the
Employee and shall inure to the benefit of the heirs, executors and
administrators of the Employee.
12. Advancement of Expenses. Notwithstanding any provision to the
contrary in Section 10 the Corporation shall advance all reasonable Expenses,
which, by reason of the Employee's Corporate Status, were incurred by or on
behalf of the Employee in connection with any Proceeding, within twenty (20)
days after the receipt by the Corporation of a statement or statements from the
Employee requesting such advance or advances, whether prior to or after final
disposition of such Proceeding. Such statement or statements shall reasonably
evidence the Expenses incurred by the Employee and shall include or be preceded
or accompanied by an undertaking by or on behalf of the Employee to repay any
Expenses if it shall ultimately be determined that the Employee is not
12
<PAGE> 13
entitled to be indemnified against such Expenses. Any advance and undertakings
to repay pursuant to this Section 12 shall be unsecured and interest-free.
13. Procedures for Determination of Entitlement to
Indemnification.
(a) Initial Request. To obtain indemnification under this
Agreement, the Employee shall submit to the Corporation a written request,
including therein or therewith such documentation and information as is
reasonably available to the Employee and which is reasonably necessary to
determine whether and to what extent the Employee is entitled to
indemnification. The Secretary of the Corporation shall promptly advise the
Board in writing that the Employee has requested indemnification.
(b) Method of Determination. A determination (if required by
applicable law) with respect to the Employee's entitlement to indemnification
shall be made as follows;
(i) if a Change in Control has occurred, unless the
Employee shall request in writing that such determination be made in
accordance with paragraph (b) (ii) of this Section 12, the
determination shall be made by Independent Counsel in a written
opinion to the Board, a copy of which shall be delivered to the
Employee;
(ii) if a Change of Control has not occurred the determination
shall be made by the Board by a majority vote of a quorum consisting
of Disinterested Directors. In the event that a quorum of the Board
consisting of Disinterested Directors is not obtainable or, even if
obtainable, such quorum of Disinterested Directors so directs, the
determination shall be made by Independent Counsel in a written
opinion to the Board, a copy of which shall be delivered to the
Employee.
(c) Selection, Payment and Discharge of Independent Counsel. In
the event the determination of entitlement to indemnification is to be made by
Independent Counsel pursuant to Section 12(b) of this Agreement, the
Independent Counsel shall be selected, paid and discharged in the following
manner:
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<PAGE> 14
(i) If a Change of Control has not occurred the
Independent Counsel shall be selected by the Board and the Corporation
shall give written notice to the Employee advising the Employee of the
identity of the Independent Counsel so selected.
(ii) If a Change of Control has occurred, the Independent
Counsel shall be selected by the Employee (unless the Employee shall
request that such selection be made by the Board, in which event
clause (i) of this Section shall apply), and the Employee shall give
written notice to the Corporation advising it of the identity of the
Independent Counsel so selected.
(iii) Following the initial selection described in clauses
(i) and (ii) of this Section 13(c), the Employee or the Corporation,
as the case may be, may, within seven (7) days after such written
notice of selection has been given, deliver to the other party a
written objection to such selection. Such objection may be asserted
only on the ground that the Independent Counsel so selected does not
meet the requirements of "Independent Counsel" and the objection shall
set forth with particularity the factual basis of such assertion.
Absent a proper and timely objection, the person so selected shall act
as Independent Counsel. If such written objection is made, the
Independent Counsel so selected may not serve as Independent Counsel
unless and until a court has determined that such objection is without
merit.
(iv) Either the Corporation or the Employee may petition
the Court of Chancery of the State of Delaware or other court of
competent jurisdiction if the parties have been unable to agree on the
selection of Independent Counsel within twenty (20) days after
submission by the Employee of a written request for indemnification
pursuant to Section I (2) of this Agreement. Such petition may request
a determination whether an objection to the party's selection is
without merit and/or seek the appointment as Independent Counsel of a
person selected by the Court shall designate. A person so appointed
shall act as Independent Counsel under Section 13(b) of this
Agreement.
(v) The Corporation shall pay any and all reasonable fees
and expenses of Independent counsel incurred by such Independent
Counsel in connection with acting pursuant to
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<PAGE> 15
this Agreement, and the Corporation shall pay all reasonable fees and
expenses incident to the procedures of this Section 13(c), regardless
of the manner in which such Independent Counsel was selected or
appointed.
(vi) Upon the due commencement of any judicial proceeding
or arbitration pursuant to Section 14(b) of this Agreement,
Independent Counsel shall be discharged and relieved of any further
responsibility in such capacity (subject to the applicable standards
of professional conduct then prevailing).
(d) Cooperation. The Employee shall cooperate with the person,
persons or entity making the determination with respect to the Employee's
entitlement to indemnification under this Agreement, including providing to
such person, persons or entity upon reasonable advance request any
documentation or information which is not privileged or otherwise protected
from disclosure and which is reasonably available to the Employee and
reasonably necessary to, such determination. Any costs or expenses (including
attorneys' fees and disbursements) incurred by the Employee in so cooperating
with the person, persons or entity making such determination shall be borne by
the Corporation (irrespective of the determination as to the Employee's
entitlement to indemnification) and the Corporation hereby indemnifies and
agrees to hold the Employee harmless therefrom.
(e) Payment. If it is determined that the Employee is entitled to
indemnification, payment to the Employee shall be made within ten (10) days
after such determination.
14. Presumption and Effect of Certain Proceedings.
(a) Burden of Proof. In making a determination with respect to
entitlement of indemnification hereunder, the person or persons or entity
making such determination shall presume that the Employee is entitled to
indemnification under this Agreement if the Employee has submitted a request
for indemnification in accordance with Section 13(a) of this Agreement, and the
Corporation shall have the burden of proof to overcome that presumption in
connection with the making of any person, persons or entity of any
determination contrary to that presumption.
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<PAGE> 16
(b) Effect of Other Proceedings. The termination of any Proceeding
or of any claim, issue or matter therein, by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent, shall not
(except as otherwise expressly provided in this Agreement) of itself adversely
affect the right of the Employee to indemnification or create a presumption
that the Employee did not act in Good Faith.
(c) Reliance as Safe Harbor. For purposes of any determination of
Good Faith, the Employee shall be deemed to have acted in Good Faith if the
Employee's action is based on the records or books of account of the
Enterprise, including financial statements, or on information supplied to the
Employee by the officers of the Enterprise in the course of their duties, or on
information or records given or reports made to the Enterprise by an
independent certified public accountant or by an appraiser or other expert
selected with reasonable care by the Enterprise. The provisions of this Section
13(c) shall not be deemed to be exclusive or to limit in any way the other
circumstances in which the Employee may be deemed to have met the applicable
standard of conduct set forth in this Agreement.
(d) Actions of Others. The knowledge and/or actions, or failure to
act, of any director, officer, agent or employee of the Enterprise shall not be
imputed to the Employee for purposes of determining the right to
indemnification under this Agreement.
15. Remedies of the Employee.
(a) Application. This Section 15 shall apply in the event of a
dispute. For purposes of this Section, "Dispute" shall mean any of the
following events:
(i) a determination is made pursuant to Section 12 of this
Agreement that the Employee is not entitled to indemnification under
this Agreement;
(ii) advancement of Expenses is not timely made pursuant to
Section I1 of this Agreement;
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<PAGE> 17
(iii) the determination of entitlement to be made pursuant to
Section 12(b) of this Agreement has not been made within ninety (90)
days after receipt by the Corporation of the request for
indemnification;
(iv) payment of indemnification is not made pursuant to
Section 11(f) of this Agreement within ten (10) days after receipt by
the Corporation of a written request therefor; or
(v) payment of indemnification is not made within ten (10)
days after a determination has been made that the Employee is entitled
to indemnification or such determination is deemed to have been made
pursuant to Section 1 of this Agreement.
(b) Adjudication. In the event of a Dispute, the Employee shall
be entitled to an adjudication in an appropriate court of the State of
Delaware, or in any other court of competent jurisdiction, of the Employee's
entitlement to such indemnification or advancement of Expenses. Alternatively,
the Employee at the Employee's option, may seek an award in arbitration to be
conducted by a single arbitrator pursuant to the rules then obtaining of the
American Arbitration Association. The Employee shall commence such proceeding
seeking an adjudication or an award in arbitration within one hundred eighty
(180) days following the date on which the Employee first has the right to
commence such proceeding pursuant to this Section 14(b). The Corporation shall
not oppose the Employee's right to seek any such adjudication or award in
arbitration.
(c) De Novo Review. In the event that a determination shall have
been made pursuant to Section 12 of this Agreement that the Employee is not
entitled to indemnification, any judicial proceeding or arbitration commenced
pursuant to this Section 14 shall be conducted in all respects as a de novo
trial, or arbitration, on the merits and the Employee shall not be prejudiced
by reason of that adverse determination. In any such proceeding or arbitration,
the Company shall have the burden of proving that the Employee is not entitled
to indemnification or advancement of Expenses, as the case may be.
(d) Corporation Bound. If a determination shall have been made or
deemed to have been made pursuant to Section 12 of this Agreement that the
Employee is entitled to indemnification, the
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<PAGE> 18
Corporation shall be bound by such determination in any judicial proceeding or
arbitration absent (i) a misstatement by the Employee of a material fact, or a
failure to disclose facts which would make Employee's statement not materially
misleading, in connection with the request for indemnification or (ii) a
prohibition of such indemnification under applicable law.
(e) Procedures Valid. The Corporation shall be precluded from
asserting in any judicial proceeding or arbitration commenced pursuant to this
Section 14 that the procedures and presumptions of Sections 12 and 13 are not
valid, binding and enforceable and shall stipulate in any such court or before
any such arbitrator that the Corporation is bound by all the provisions of this
Agreement.
(f) Expenses of Adjudication. In the event that the Employee,
pursuant to this Section I1, seeks a judicial adjudication of or an award in
arbitration to enforce the Employee's rights under, or to recover damages for
breach of, this Agreement, the Employee shall be entitled to recover from the
Corporation, and shall be indemnified by the Corporation against, any and all
Expenses actually and reasonably incurred by the Employee, in such adjudication
or arbitration, but only if and to the extent that the Employee prevails
therein.
16. Non-Exclusivity Insurance, Subrogation.
(a) Non-Exclusivity. The rights of Employee to be indemnified and
to receive advancement of Expenses as provided by this Agreement shall not be
deemed exclusive of any other rights to which the Employee may at any time be
entitled under applicable law, the Certificate of Incorporation, the By-Laws,
any agreement, a vote of stockholders, a resolution of directors or otherwise.
No amendment, alteration, rescission or replacement of this Agreement or any
provision hereof shall be effective as to the Employee with respect to any
action taken or omitted by such the Employee in the Employee's Corporate Status
prior to such amendment, alteration, rescission or replacement.
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<PAGE> 19
(b) Insurance. The Company may maintain an insurance policy or
policies against liability arising out of this Agreement or otherwise.
However, nothing contained in this Agreement shall obligate the Corporation to
maintain any directors' and officers' liability insurance.
(c) Subrogation. In the event of any payment under this Agreement,
the Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Employee, who shall execute all papers required and
take all action necessary to secure such rights, including execution of such
documents as are necessary to enable the Corporation to bring suit to enforce
such rights.
(d) No Duplicative Payment. The Corporation shall not be liable
under this Agreement to make any payment of amounts otherwise actually received
such payment under any insurance policy, contract, agreement or otherwise.
17. General Provisions.
(a) Successors and Assigns. This Agreement shall be binding upon
the Corporation and its successors and assigns and shall inure to the benefit
of the Employee and the Employee's heirs executors and administrators.
(b) Severability. If any provision or provisions of this Agreement
shall be held to be invalid, illegal or unenforceable for any reason
whatsoever:
(i) the validity, legality and enforceability of the remaining
provisions of this Agreement (including, without limitation, each
portion of any Section of this Agreement containing any such provision
held to be invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby; and
(ii) to the fullest extent possible, the provisions of this
Agreement (including, without limitation, each portion of any Section
of this Agreement containing any such provision held to be invalid,
illegal or unenforceable) shall be construed so as to give effect to
the intent manifested by the provision held invalid, illegal or
unenforceable.
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<PAGE> 20
(c) Headings. The headings of the paragraphs of this Agreement are
inserted for convenience only and shall not be deemed to constitute part of
this Agreement or to affect the construction hereof.
(d) Modification and Waiver. No supplement, modification or
amendment of this Agreement shall be binding unless executed in writing by both
the parties hereto. No waiver of any other provisions hereof (whether or not
similar) shall be binding unless executed in writing by both the parties
hereto, nor shall such waiver constitute a continuing waiver.
(e) Notice. Any notice to be given hereunder shall be given in
writing. Notice shall be deemed to be given when delivered by hand to, or
fifteen days after being mailed, postage prepaid, registered with return
receipt requested, addressed to:
If to the Corporation:
Nabors Industries, Inc.
515 W. Greens Road
Houston, TX 77067
Attn: Chairman of the Board
If to Employee:
Richard A. Stratton
9323 Windrush Drive
Spring, Texas 77379
or to such other address as either party may specify to the other in writing.
(f) Identical Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall for all purposes be deemed to be an
original but all of which shall constitute one and the same Agreement.
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<PAGE> 21
(g) Governing Law. This Agreement shall be governed by, and
interpreted in accordance with, the laws of the State of Texas.
(h) Entire Agreement. This Agreement contains the entire agreement
between the parties with respect to the employment of Employee by the
Corporation and supersedes any and all prior understandings, agreements or
correspondence between the parties.
IN WITNESS WHEREOF, the Corporation has caused this Agreement to be
signed by its duly authorized representative and Employee has hereunto set his
hand as of the day and year first above written.
NABORS INDUSTRIES, INC.
By:
-------------------------------
Anthony G. Petrello
Attest:
RICHARD A. STRATTON
----------------------------------
21
<PAGE> 1
EXHIBIT 10.15
CONSENT AND VOTING AGREEMENT AND PLAN OF MERGER
BY AND AMONG
NABORS INDUSTRIES, INC.,
NABORS ACQUISITION CORP. 96
AND
ADCOR-NICKLOS DRILLING COMPANY
AND THE
STOCKHOLDERS AND OPTION HOLDERS THEREOF
LISTED ON THE SIGNATURE PAGE HERETO
Dated as of December 20, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.01. The Merger . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.02. Effective Time . . . . . . . . . . . . . . . . . . . . 2
SECTION 1.03. Effect of the Merger . . . . . . . . . . . . . . . . . 2
SECTION 1.04. Certificate of Incorporation; By-Laws . . . . . . . . 2
SECTION 1.05. Directors and Officers . . . . . . . . . . . . . . . . 2
ARTICLE II CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES . . . . . . 3
SECTION 2.01. Conversion of Securities . . . . . . . . . . . . . . . 3
SECTION 2.02. Exchange of Certificates . . . . . . . . . . . . . . . 4
SECTION 2.03. Stock Transfer Books . . . . . . . . . . . . . . . . . 6
SECTION 2.04. Dissenting Shares . . . . . . . . . . . . . . . . . . 6
SECTION 2.05. Stock Options; Payment Rights . . . . . . . . . . . . 6
ARTICLE II A VOTING RIGHTS AND PROXY . . . . . . . . . . . . . . . . . . . 7
SECTION 2.01A. Consent and Voting Agreement . . . . . . . . . . . . . 7
SECTION 2.02A. Grant of Proxy . . . . . . . . . . . . . . . . . . . . 7
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . 8
SECTION 3.01. Organization and Qualification; Subsidiaries . . . . . 8
SECTION 3.02. Certificate of Incorporation and By-Laws . . . . . . . 8
SECTION 3.03. Capitalization . . . . . . . . . . . . . . . . . . . . 8
SECTION 3.04. Authority . . . . . . . . . . . . . . . . . . . . . . 9
SECTION 3.05. No Conflict; Required Filings and Consent . . . . . . 9
SECTION 3.06. Permits; Compliance . . . . . . . . . . . . . . . . . 10
SECTION 3.07. Financial Statements . . . . . . . . . . . . . . . . . 10
SECTION 3.08. No Undisclosed Liabilities . . . . . . . . . . . . . . 11
SECTION 3.09. Absence of Certain Changes or Events . . . . . . . . . 11
SECTION 3.10. Absence of Litigation . . . . . . . . . . . . . . . . 11
SECTION 3.11. Vote Required . . . . . . . . . . . . . . . . . . . . 12
SECTION 3.12. Brokers . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 3.13. Company Action . . . . . . . . . . . . . . . . . . . . 12
SECTION 3.14. Tax Matters . . . . . . . . . . . . . . . . . . . . . 12
SECTION 3.15. Real Property . . . . . . . . . . . . . . . . . . . . 13
SECTION 3.16. Intellectual Property . . . . . . . . . . . . . . . . 15
SECTION 3.17. Tangible Assets . . . . . . . . . . . . . . . . . . . 17
SECTION 3.18. Drill Pipe and Drill Collars . . . . . . . . . . . . . 17
SECTION 3.19. Contracts . . . . . . . . . . . . . . . . . . . . . . 17
SECTION 3.20. Notes and Accounts Receivable . . . . . . . . . . . . 18
SECTION 3.21. Powers of Attorney . . . . . . . . . . . . . . . . . . 19
SECTION 3.22. Insurance . . . . . . . . . . . . . . . . . . . . . . 19
SECTION 3.23. Employees . . . . . . . . . . . . . . . . . . . . . . 20
</TABLE>
-i-
<PAGE> 3
<TABLE>
<S> <C>
SECTION 3.24. Employee Benefits . . . . . . . . . . . . . . . . . . 19
SECTION 3.25. Guaranties . . . . . . . . . . . . . . . . . . . . . . 21
SECTION 3.26. Environment, Health & Safety . . . . . . . . . . . . . 21
SECTION 3.27. Certain Business Relationships with the Company . . . 21
SECTION 3.28. Delivery of Information . . . . . . . . . . . . . . . 22
SECTION 3.29 Limitation on Representations and Warranties . . . . . 22
ARTICLE III A REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER AND
OPTIONHOLDER 22
SECTION 3.01A. Authorization of Transaction . . . . . . . . . . . . . 22
SECTION 3.02A. Noncontravention . . . . . . . . . . . . . . . . . . . 23
SECTION 3.03A. Brokers' Fees . . . . . . . . . . . . . . . . . . . . 23
SECTION 3.04A. Company Shares . . . . . . . . . . . . . . . . . . . . 23
SECTION 3.05A. Accredited Investor . . . . . . . . . . . . . . . . . 23
SECTION 3.06A. Investment Intention . . . . . . . . . . . . . . . . . 24
SECTION 3.07A. Receipt of Information . . . . . . . . . . . . . . . . 24
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT
AND PARENT SUB . . . . . . . . . . . . . . . . . . . . . . . 24
SECTION 4.01. Organization and Qualification . . . . . . . . . . . . 24
SECTION 4.02. Certificates of Incorporation and By-Laws . . . . . . 24
SECTION 4.03. Parent Common Stock; Capitalization . . . . . . . . . 24
SECTION 4.04. Authority . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 4.05. No Conflict; Required Filings and Consents . . . . . . 25
SECTION 4.06. Limitation on Representations and Warranties . . . . . 25
SECTION 4.07. Reports; Financial Statements . . . . . . . . . . . . 26
SECTION 4.08. Absence of Certain Changes or Events . . . . . . . . . 27
SECTION 4.09. Ownership of Parent Sub; No Prior Activities . . . . . 26
SECTION 4.10. Brokers . . . . . . . . . . . . . . . . . . . . . . . 27
SECTION 4.11. Absence of Litigation . . . . . . . . . . . . . . . . 27
SECTION 4.12. Tax Matters . . . . . . . . . . . . . . . . . . . . . 27
ARTICLE V COVENANTS . . . . . . . . . . . . . . . . . . . . . . . 28
SECTION 5.01. Affirmative Covenants of the Company . . . . . . . . . 28
SECTION 5.02. Negative Covenants of the Company . . . . . . . . . . 27
SECTION 5.03. Negative Covenants of Parent . . . . . . . . . . . . . 30
SECTION 5.04. Access and Information . . . . . . . . . . . . . . . . 31
SECTION 5.05. Escrow Agreement . . . . . . . . . . . . . . . . . . . 31
ARTICLE VI ADDITIONAL AGREEMENTS . . . . . . . . . . . . . . . . . . . 32
SECTION 6.01. Appropriate Action; Consents; Filings . . . . . . . . 32
SECTION 6.02. Tax Treatment; Pooling of Interests; Affiliates . . . 33
SECTION 6.03. Public Announcements . . . . . . . . . . . . . . . . . 33
SECTION 6.04. Obligations of Parent Sub . . . . . . . . . . . . . . 33
SECTION 6.05. Employee Matters . . . . . . . . . . . . . . . . . . . 33
</TABLE>
-ii-
<PAGE> 4
<TABLE>
<S> <C>
SECTION 6.06. Registration Rights . . . . . . . . . . . . . . . . . 34
SECTION 6.07. Delivery of SEC Filing . . . . . . . . . . . . . . . . 36
SECTION 6.08. Termination of Stockholders' Agreement . . . . . . . . 36
SECTION 6.09. Best Efforts . . . . . . . . . . . . . . . . . . . . . 37
SECTION 6.10. Indemnification of Directors and Officers . . . . . . 37
SECTION 6.11. Post Closing Balance Sheet, Adjustments and
Procedures . . . . . . . . . . . . . . . . . . . . . 37
ARTICLE VII CLOSING CONDITIONS . . . . . . . . . . . . . . . . . . . . . 39
SECTION 7.01. Conditions to Obligations of Each Party Under
This Agreement . . . . . . . . . . . . . . . . . . . . 39
SECTION 7.02. Additional Conditions to Obligations of Parent . . . . 39
SECTION 7.03. Additional Conditions to Obligations of the Company . . 40
ARTICLE VIII TERMINATION, AMENDMENT, WAIVER AND INDEMNIFICATION . . . . . 40
SECTION 8.01. Termination . . . . . . . . . . . . . . . . . . . . . 40
SECTION 8.02. Investigation . . . . . . . . . . . . . . . . . . . . 41
SECTION 8.03. Amendment . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 8.04. Waiver . . . . . . . . . . . . . . . . . . . . . . . . 41
SECTION 8.05. Fees, Expenses and Other Payments . . . . . . . . . . 42
SECTION 8.06. Indemnification, Hold Back and Escrow . . . . . . . . 42
ARTICLE IX GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 9.01. Effectiveness or Representations, Warranties
and Agreements . . . . . . . . . . . . . . . . . . . . 45
SECTION 9.02. Notices . . . . . . . . . . . . . . . . . . . . . . . 45
SECTION 9.03. Certain Definitions . . . . . . . . . . . . . . . . . 46
SECTION 9.04. Headings . . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 9.05. Severability . . . . . . . . . . . . . . . . . . . . . 53
SECTION 9.06. Entire Agreement . . . . . . . . . . . . . . . . . . . 53
SECTION 9.07. Assignment . . . . . . . . . . . . . . . . . . . . . . 52
SECTION 9.08. Parties in Interest . . . . . . . . . . . . . . . . . 52
SECTION 9.09. Failure or Indulgence Not Waiver; Remedies
Cumulative . . . . . . . . . . . . . . . . . . . . . . 53
SECTION 9.10. Governing Law . . . . . . . . . . . . . . . . . . . . 53
SECTION 9.11. Jurisdiction . . . . . . . . . . . . . . . . . . . . . 53
SECTION 9.12. Counterparts . . . . . . . . . . . . . . . . . . . . . 54
</TABLE>
EXHIBIT 2.01A Written Consent of the Stockholders of ADCOR-Nicklos
Drilling Company
EXHIBIT 5.05 Form of Escrow Agreement
EXHIBIT 7.02(g) Legal Opinion of Counsel to the Company
EXHIBIT 7.03(d) Legal Opinion of Counsel to Parent
-iii-
<PAGE> 5
INDEX TO SCHEDULES
<TABLE>
<CAPTION>
SCHEDULE
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
2.05 Stock Option Shares
3.01 Subsidiaries
3.02 Officers and Directors and Certificates of Incorporation and By-Laws
3.03(a) Stockholders and Stock Options
3.03(b) Encumbrances on Subsidiary Shares
3.05 Filings and Consent
3.07 Financial Statements
3.08 Liabilities
3.09 Certain Changes or Events of the Company
3.10 Litigation Matters
3.12 Brokers
3.14(c) Tax Returns
3.14(f) Gains and Losses
3.15(a) Real Property and Tenants
3.15(b) Real Property Leased or Subleased
3.16(c) Intellectual Property Owned
3.16(d) Intellectual Property Licensed, Sublicensed, Agreements or Permission
3.17 Major Components of Active and Stacked Rigs
3.19 Contracts
3.22 Insurance Policies
3.24 Employee Benefit Plans
3.26 Environmental Matters
3.27 Certain Business Relationships with the Company
5.02 Negative Covenants
7.02(d) Contracts or Agreements Requiring Consents or Waivers
</TABLE>
The schedules and exhibits have been omitted. The Company agrees to furnish to
the Securities and Exchange Commission supplementally a copy of any omitted
schedule or exhibit.
<PAGE> 6
CONSENT AND VOTING AGREEMENT AND PLAN OF MERGER, dated as of
December 20, 1996 (this "Agreement"), by and among NABORS INDUSTRIES, INC., a
Delaware corporation ("Parent"), NABORS ACQUISITION CORP. 96, a Delaware
corporation and a wholly owned subsidiary of Parent ("Parent Sub"), ADCOR-
NICKLOS DRILLING COMPANY, a Delaware corporation (the "Company"), all of the
stockholders of the Company listed on the signature page hereto (the
"Stockholders") and all of the holders of options to purchase stock of the
Company listed on the signature page hereto (the "Optionholders").
W I T N E S S E T H:
WHEREAS, upon the terms and subject to the conditions of this
Agreement and in accordance with the General Corporation Law of the State of
Delaware ("Delaware Law"), the Parent Sub will merge with and into the Company
(the "Merger");
WHEREAS, the Board of Directors of the Company has determined
that the Merger is in the best interests of the Company and the holders of
Company Common Stock (as defined in Section 2.01(a)), has approved and adopted
this Agreement and the transactions contemplated hereby, and has recommended
approval and adoption of this Agreement by the stockholders of the Company;
WHEREAS, the Stockholders hold one hundred percent (100%) of the
outstanding voting power of the Company, have irrevocably consented to the
entering into of this Agreement and the consummation of the Merger and have
irrevocably agreed to vote in favor of the Merger at a meeting of Stockholders
(to the extent necessary), and such consent and agreement is an essential
condition and inducement to Parent to enter into this Agreement;
WHEREAS, the Executive Committee of the Board of Directors of
Parent has determined that the Merger is in the best interests of Parent and
has approved and adopted this Agreement and the transactions contemplated
hereby;
WHEREAS, for Federal income tax purposes, it is intended that the
Merger qualify as a reorganization under the provisions of section 368(a) of
the United States Internal Revenue Code of 1986, as amended (the "Code"), and
that this Agreement shall constitute a "plan of reorganization" for the
purposes of section 368 of the Code;
WHEREAS, for accounting purposes, it is intended that the Merger
shall be accounted for as a "pooling of interests"; and
WHEREAS, certain capitalized terms used in this Agreement are
defined in Section 9.03;
NOW, THEREFORE, in consideration of the foregoing and the
respective representations, warranties, covenants and agreements set forth in
this Agreement, the parties hereto agree as follows:
<PAGE> 7
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. Upon the terms and subject to the
conditions set forth in this Agreement, and in accordance with Delaware Law, at
the Effective Time (as defined in Section 1.02), Parent Sub shall be merged
with and into the Company. As a result of the Merger, the separate corporate
existence of Parent Sub shall cease and the Company shall continue as the
surviving corporation in the Merger (the "Surviving Corporation"). The name of
the Surviving Corporation shall be Nabors Acquisition Corp. 96.
SECTION 1.02. Effective Time. As promptly as practicable after
the satisfaction or, if permissible, waiver of the conditions set forth in
Article VII, the parties hereto shall cause the Merger to be consummated by
filing a certificate of merger (the "Certificate of Merger") with the Secretary
of State of the State of Delaware, in such form as required by, and executed in
accordance with the relevant provisions of, Delaware Law (the date and time of
such filing, or such later time as may be agreed to in writing by Parent,
Parent Sub and the Company and specified in the Certificate of Merger, being
the "Effective Time").
SECTION 1.03. Effect of the Merger. At the Effective Time the
effect of the Merger shall be as provided in the applicable provisions of
Delaware Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, except as otherwise provided herein, all the
property, rights, privileges, powers and franchises of Parent Sub and the
Company shall vest in the Surviving Corporation, and all debts, liabilities and
duties of Parent Sub and the Company shall become the debts, liabilities and
duties of the Surviving Corporation.
SECTION 1.04. Certificate of Incorporation; By-Laws. At the
Effective Time, the Certificate of Incorporation of Parent Sub as in effect
immediately prior to the Effective Time shall be the Certificate of
Incorporation of the Surviving Corporation, and the By-Laws of Parent Sub shall
be the By-Laws of the Surviving Corporation.
SECTION 1.05. Directors and Officers. The directors of Parent
Sub immediately prior to the Effective Time shall be the initial directors of
the Surviving Corporation, each to hold office in accordance with the
Certificate of Incorporation and By-Laws of the Surviving Corporation, and the
officers of Parent Sub immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation, in each case until their
respective successors are duly elected or appointed and qualified.
2
<PAGE> 8
ARTICLE II
CONVERSION OF SECURITIES; EXCHANGE OF CERTIFICATES
SECTION 2.01. Conversion of Securities. (a) At the Effective
Time, by virtue of the Merger and without any action on the part of Parent Sub,
the Company or the holders of any of the following securities: (i) each share
of common stock, $.01 par value per share, of the Company ("Company Common
Stock") issued and outstanding immediately prior to the Effective Time)
excluding any treasury shares held by the Company, shares held by Parent and
Dissenting Shares (as defined in Section 2.04), if any, shall be converted into
the right to receive (the "Exchange Ratio") 118.7458 fully paid, nonassessable
shares of common stock, par value $.10 per share, of Parent ("Parent Common
Stock"); subject to adjustment as set forth in Section 2.01(b), Section 3.12,
and Section 6.05 hereof, and subject to pro rata withholding of shares to be
held in escrow pursuant to Section 5.05 hereof; (ii) the outstanding Stock
Options shall be converted into the right to receive shares of Parent Common
Stock as contemplated by Section 2.05; and (iii) each share of common stock of
Parent Sub issued and outstanding immediately prior to the Effective Time shall
be converted into one validly issued, fully paid and nonassessable share of
common stock of the Surviving Corporation. Notwithstanding anything to the
contrary, in no event shall more than 3,400,000 shares of Parent Common Stock
be issued in the Merger, including all shares to be held in escrow.
(b) If between the date of this Agreement and the Effective
Time the outstanding shares of Parent Common Stock or Company Common Stock
shall have been changed into a different number of shares of a different class,
by reason of any stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares, the Exchange Ratio
shall be correspondingly adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares.
(c) All such shares of Company Common Stock shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each certificate previously evidencing any such shares shall
thereafter represent only the right to receive the Merger Consideration (as
defined in Section 2.02(b)). The holders of such certificates previously
evidencing such shares of Company Common Stock outstanding immediately prior to
the Effective Time shall cease to have any rights with respect to such shares
of Company Common Stock, except as otherwise provided herein or by law. Such
certificates previously evidencing shares of Company Common Stock shall be
exchanged for certificates evidencing whole shares of Parent Common Stock
issued in consideration therefor in accordance with the allocation procedures
of this Section 2.01 and upon the surrender of such certificates in accordance
with the provisions of Section 2.02. No fractional shares of Parent Common
Stock shall be issued, and, in lieu thereof, a cash payment shall be made
pursuant to Section 2.02(e).
(d) Each share of Company Common Stock held in the treasury of
the Company and each share of Company Common Stock owned by Parent or any
direct or indirect wholly-owned subsidiary of Parent or of the Company
immediately prior to the Effective Time
3
<PAGE> 9
shall be canceled and extinguished without any conversion thereof and no
payment shall be made with respect thereto.
SECTION 2.02. Exchange of Certificates.
(a) Exchange Agent. As of the Effective Time, Parent shall
deposit, or shall cause to be deposited, with First Chicago Trust Company or
such other bank or trust company designated by Parent and reasonably
satisfactory to the Company (the "Exchange Agent"), for the benefit of the
holders of shares of Company Common Stock, for exchange in accordance with this
Article II through the Exchange Agent (i) certificates evidencing such number
of whole shares of Parent Common Stock equal to the Exchange Ratio multiplied
by the number of shares of Company Common Stock outstanding and such number of
shares of Parent Common Stock issuable pursuant to Section 2.05 and (ii) cash
in consideration of fractional shares as provided in Section 2.02(e) (such
Parent Common Stock and cash being hereinafter referred to as the "Exchange
Fund"). The Exchange Agent shall, pursuant to irrevocable instructions,
deliver the Parent Common Stock (except that ten percent (10%) of such Parent
Common Stock shall be delivered to an escrow agent, pursuant to Sections 5.05
and 8.06 hereof) and cash out of the Exchange Fund. Except as contemplated by
Section 2.02(f) hereof, the Exchange Fund shall not be used for any other
purpose.
(b) Exchange Procedures. As soon as reasonably practicable
after the Effective Time, Parent will instruct the Exchange Agent to mail to
each holder of record of a certificate or certificates which immediately prior
to the Effective Time evidenced outstanding shares of Company Common Stock
(other than Dissenting Shares) (the "Certificates"), (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Exchange Agent and shall be in such form and have such
other provisions as Parent may reasonably specify) and (ii) instructions for
use in effecting the surrender of the Certificates in exchange for certificates
evidencing shares of Parent Common Stock. Upon surrender of a Certificate for
cancellation to the Exchange Agent together with such letter of transmittal,
duly executed, and such other customary documents as may be required pursuant
to such instructions, the holder of such Certificate shall be entitled to
receive in exchange therefor (A) certificates evidencing that number of whole
shares of Parent Common Stock which such holder has the right to receive in
respect of the shares of Company Common Stock formerly evidenced by such
Certificate in accordance with Section 2.01, less that holder's pro rata
portion of the shares (rounded to the nearest whole share) to be held in escrow
pursuant to Sections 5.05 and 8.06 hereof and (B) cash in lieu of fractional
shares of Parent Common Stock to which such holder is entitled pursuant to
Section 2.02(e) (such shares of Parent Common Stock and cash, if any, being
collectively, the "Merger Consideration"), and the Certificate so surrendered
shall forthwith be canceled. In the event of a transfer of ownership of shares
of Company Common Stock which is not registered in the transfer records of the
Company, a certificate evidencing the proper number of shares of Parent Common
Stock may be issued in accordance with this Article II to a transferee if the
Certificate evidencing such shares of Company Common Stock is presented to the
Exchange Agent, accompanied by all documents required to evidence and effect
such transfer and by evidence that any applicable stock transfer taxes have
been paid. Until surrendered as
4
<PAGE> 10
contemplated by this Section 2.02, each Certificate shall be deemed at any time
after the Effective Time to evidence only the right to receive, upon such
surrender, the Merger Consideration.
(c) Distributions with Respect to Unexchanged Shares of Parent
Common Stock. No dividends or other distributions declared or made after the
Effective Time with respect to Parent Common Stock with a record date after the
Effective Time shall be paid to the holder of any unsurrendered Certificate
with respect to the shares of Parent Common Stock evidenced thereby, and no
other part of the Merger Consideration shall be paid to any such holder, until
the holder of such Certificate shall surrender such Certificate, at which time,
subject to the effect of applicable laws, there shall be issued to the holder
(i) certificates evidencing whole shares of Parent Common Stock issued in
exchange therefor, and the amount of any cash payable with respect to a
fractional share of Parent Common Stock to which such holder is entitled
pursuant to Section 2.02(e) and the amount of dividends or other distributions
with a record date after the Effective Time theretofore paid with respect to
such whole shares of Parent Common Stock, and (ii) at the appropriate payment
date, the amount of dividends or other distributions (without interest
thereon), with a record date after the Effective Time but prior to surrender
and a payment date occurring after surrender, payable with respect to such
whole shares of Parent Common Stock. No interest shall be paid on the Merger
Consideration.
(d) No Further Rights in Company Common Stock. All shares of
Parent Common Stock issued and cash paid upon conversion of the shares of
Company Common Stock in accordance with the terms hereof shall be deemed to
have been issued or paid in full satisfaction of all rights pertaining to such
shares of Company Common Stock.
(e) No Fractional Shares. (i) No certificates or scrip
evidencing fractional shares of Parent Common Stock shall be issued upon the
surrender for exchange of Certificates, and such fractional share interests
will not entitle the owner thereof to vote or to any rights of a stockholder of
Parent.
(ii) Each holder of a Certificate having a fractional
interest arising upon the conversion of such Certificate shall, at the time of
surrender of the Certificate, be paid by the Exchange Agent an amount in cash
equal to the value of such fractional interest based on a price per share of
Parent Common Stock of $18.75.
(f) Termination of Exchange Fund. Any portion of the Exchange
Fund which remains undistributed to the holders of Company Common Stock for two
years after the Effective Time shall be delivered to Parent, upon demand, and
any holders of Company Common Stock who have not theretofore complied with this
Article II shall thereafter look only to Parent for the Merger Consideration to
which they are entitled.
(g) No Liability. Neither Parent nor the Surviving
Corporation shall be liable to any holder of shares of Company Common Stock for
any shares of Parent Common Stock, cash, or dividends or distributions with
respect thereto delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
5
<PAGE> 11
SECTION 2.03. Stock Transfer Books. On the date hereof, the
stock transfer books of the Company shall be closed and there shall be no
further registration of transfers of shares of Company Common Stock thereafter
on the records of the Company. On or after the Effective Time, any
Certificates presented to the Exchange Agent for any reason shall be converted
into the Merger Consideration.
SECTION 2.04. Dissenting Shares. If required under Delaware Law,
notwithstanding any other provisions of this Agreement to the contrary, shares
of Company Common Stock that are outstanding immediately prior to the Effective
Time and which are held by stockholders who shall have not voted in favor of
the Merger or consented thereto in writing and who shall have demanded
properly, in writing, appraisal for such shares in accordance with Section 262
of Delaware Law (collectively, the "Dissenting Shares") shall not be converted
into or represent the right to receive the Merger Consideration. Such
stockholders shall be entitled to receive payment of the appraised value of
such shares of Company Common Stock held by them in accordance with the
provisions of Section 262 of Delaware Law, except that all Dissenting Shares
held by stockholders who shall have failed to perfect or who effectively shall
have withdrawn or lost their rights to appraisal of such shares of Company
Common Stock under Section 262 of Delaware Law shall thereupon be deemed to
have been converted into and to have become exchangeable, as of the Effective
Time, for the right to receive, without any interest thereon, the Merger
Consideration, upon surrender, in the manner provided in Section 2.02, of the
certificate or certificates that formerly evidenced such shares of Company
Common Stock. Any payments required to be made to the holders of any
Dissenting Shares shall be funded by Parent or the Surviving Corporation.
SECTION 2.05. Stock Options; Payment Rights. The Parent shall
issue to each Optionholder the number of shares of Parent Common Stock set
forth on Schedule 2.05, subject to reduction in the corresponding amount as any
adjustment to the Exchange Ratio, in full satisfaction of all of such holder's
rights in respect of his or her Stock Options. Any tax withholdings in respect
of such Stock Options may be borrowed by the Optionholder from the Company at
an effective interest rate of 8.25% per annum, subject to the reasonable
approval of the terms and conditions of such loan by Parent. Each Optionholder
hereby waives and relinquishes, as of the Effective Time, any and all rights
pursuant to his or her option agreement(s) concerning the purchase of shares of
Company Common Stock, and acknowledges that all Stock Options owned by such
Optionholder shall be automatically converted, as of the Effective Time, into
the right to receive the number of shares of Parent Common Stock set forth for
such Optionholder on Schedule 2.05, subject to (i) payment by such Optionholder
of any tax or other withholding required by applicable law, (ii) reduction in
the corresponding amount of the Exchange Ratio, and (iii) withholding of ten
percent (10%) of such shares and deposit thereof in the Escrow Account. Each
Optionholder agrees to not exercise his or her Stock Options, unless this
Agreement has been terminated in accordance with its terms.
6
<PAGE> 12
ARTICLE II A
VOTING RIGHTS AND PROXY
SECTION 2.01A. Consent and Voting Agreement. Each Stockholder
hereby irrevocably consents to the entering into of this Agreement and to the
consummation of the Merger and shall contemporaneously herewith execute the
written consent attached hereto as Exhibit 2.01A (the "Consent"), and, as long
as this Agreement has not previously been terminated, further irrevocably
agrees to vote all Company Common Stock as to which the Stockholder is entitled
to vote at a meeting of the stockholders of the Company if any meeting is so
held, or by written consent without a meeting as follows: (i) in favor of
approval and adoption of this Agreement and the transactions contemplated
hereby; (ii) against any action or agreement that would result in a breach in
any material respect of any covenant, representation or warranty or any other
obligation or agreement of the Company under this Agreement; (iii) against any
action or agreement (other than this Agreement or the transactions contemplated
by this Agreement or the termination of this Agreement in accordance with its
terms), that would, directly or indirectly, impede, interfere with, delay,
postpone or attempt to discourage the Merger, including without limitation: (A)
any extraordinary corporate transaction, such as a merger, consolidation or
other business combination involving the Company and its subsidiaries; (B) a
sale or transfer of a material amount of assets of the Company and its
subsidiaries or a reorganization, recapitalization or liquidation of the
Company and its subsidiaries; (C) any change in the management or board of
directors of the Company or any Competing Transaction (as hereinafter defined),
except as otherwise agreed to in writing by Parent; (D) any material change in
the present capitalization or dividend policy of the Company; or (E) any other
material change in the Company's corporate structure or business.
SECTION 2.02A. Grant of Proxy. Each Stockholder hereby
irrevocably appoints each of the Chief Executive Officer and the President of
Parent, each with full power of substitution (such individual and his
substitutes being referred to herein as the "Proxy"), as attorneys and proxies
to vote all Company Common Stock on all matters referred to in Section 2.01A as
to which such Stockholder is entitled to vote at a meeting of the stockholders
of the Company or to which they are entitled to express consent or dissent to
corporate action in writing without a meeting, in the Proxy's absolute, sole
and binding discretion. Each Stockholder agrees to refrain from taking any
action contrary to or in any manner inconsistent with the terms of this
Agreement. Each Stockholder agrees that this grant of proxy is irrevocable and
coupled with an interest and agrees that the person designated as Proxy
pursuant hereto may, at any time, name any other person as his substituted
Proxy to act pursuant hereto, either as to a specific matter or as to all
matters. Each Stockholder hereby revokes any proxy previously granted by him
or her with respect to voting his or her shares of Company Common Stock. In
discharging its powers under this Agreement, the Proxy may rely upon advice of
counsel to Parent, and any vote made or action taken by the Proxy in reliance
upon such advice of counsel shall be deemed to have been made in good faith by
the Proxy. This grant of proxy shall terminate upon the earlier of (i) one
year from the date of this Agreement or (ii) the termination of this Agreement
pursuant to Article VIII hereof.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Parent
Sub as follows:
SECTION 3.01. Organization and Qualification; Subsidiaries.
Each of the Company and its subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, has all requisite corporate or other power and
authority to own, lease and operate its properties and to carry on its business
as it is now being conducted, and is duly qualified and in good standing to do
business in each jurisdiction in which the nature of the business conducted by
it or the ownership or leasing of its properties makes such qualification
necessary. Schedule 3.01 contains a true and compete list of all the Company's
directly or indirectly owned subsidiaries, (i) the officers and directors of
each subsidiary, (ii) the jurisdiction of organization of each subsidiary, and
(iii) the percentage of each subsidiary's outstanding capital stock or other
equity interests owned by the Company or another subsidiary of the Company.
SECTION 3.02. Certificate of Incorporation and By-Laws.
Schedule 3.02 contains (i) a list of the officers and directors of the Company
and (ii) complete and correct copies of the Certificate of Incorporation and
the By-Laws or the equivalent organizational documents, in each case as amended
or restated, of the Company and each of the entities listed on Schedule 3.01.
Neither the Company nor any of the entities listed on Schedule 3.01 is in
violation of any of the provisions of its respective Certificate of
Incorporation or By-Laws or equivalent organizational documents.
SECTION 3.03. Capitalization. (a) The authorized capital stock
of the Company consists of 35,000 shares of Company Common Stock. As of
October 31, 1996 (i) 27,016 shares of Company Common Stock were issued and
outstanding, all of which are duly authorized, validly issued, fully paid and
nonassessable and not subject to preemptive rights created by statute, the
Company's Certificate of Incorporation or By-Laws or any agreement to which the
Company is a party or bound, (ii) no shares of Company Common Stock were held
in treasury of the Company and (iii) 2,429 shares of Company Common Stock were
reserved for issuance in connection with the exercise of stock options granted
by the Company ("Stock Options"), and there have been no changes in such
numbers of shares. Schedule 3.03(a) sets forth the name and address of each
holder of Company Common Stock and the number of such securities held by such
holder. Each holder of Company Common Stock is an "accredited investor" as
that term is defined in Regulation D promulgated under the Securities Act of
1933, as amended (the "Securities Act"), or either alone or with its purchaser
representative has such knowledge and experience in financial and business
matters that it is capable of evaluating merits and risks of an investment in
Parent Common Stock,. There are no bonds, debentures, notes or other
indebtedness, issued or outstanding, having the right to vote on any matters on
which the Company's stockholders may vote. As of October 31, 1996, except for
the Stock Options, there are no options, warrants, calls or other rights
(including registration rights), agreements,
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arrangements or commitments presently outstanding obligating the Company to
issue, deliver or sell shares of its capital stock or debt securities, or
obligating the Company to grant, extend or enter into any such option, warrant,
call or other such right, agreement, arrangement or commitment, and there have
been no changes in such numbers. Schedule 3.03(a) (i) sets forth a true and
complete list of all Stock Options, showing for each option holder the number
of Stock Options held and the exercise price(s) thereof, and (ii) contains
complete and correct copies of all agreements pursuant to which Stock Options
have been granted.
(b) All the outstanding shares of capital stock, or other
equity interests in, each subsidiary of the Company are duly authorized,
validly issued, fully paid and nonassessable and except as set forth in
Schedule 3.03(b), such shares or other equity interests are owned solely by the
Company free and clear of any security interests, liens, claims, pledges,
agreements, limitations on voting rights, charges or other encumbrances of any
nature whatsoever ("Encumbrances"). Except as set forth on Schedule 3.03(b),
there are no options, warrants, calls or other rights (including registration
rights), agreements, arrangements or commitments of any character to which the
Company or any of its subsidiaries is a party relating to the issued or
unissued capital stock of, or other equity interests in, any of the
subsidiaries of the Company. The Company does not directly or indirectly own
any interest in any other corporation, partnership, joint venture or other
business association or entity.
SECTION 3.04. Authority. The Company has all requisite
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action (including, with respect to the Merger, the approval and
adoption of this Agreement by the Stockholders (who hold one hundred percent
(100%) of the outstanding shares of Company Common Stock)) and no other
corporate proceeding on the part of the Company is necessary to authorize this
Agreement or to consummate the transactions contemplated hereby. This
Agreement has been duly executed and delivered by the Company and, assuming the
due authorization, execution and delivery thereof by the Stockholders, Parent
and Parent Sub, constitutes the legal, valid and binding obligation of the
Company enforceable in accordance with its terms.
SECTION 3.05. No Conflict; Required Filings and Consent. (a)
Except as set forth in Schedule 3.05, the execution and delivery of this
Agreement by the Company does not, and the performance of this Agreement by the
Company will not (i) conflict with or violate the Certificate of Incorporation
or By-Laws, or the equivalent organizational documents, in each case as amended
or restated, of the Company or any of its subsidiaries, (ii) conflict with or
violate any federal, state, foreign or local law, statute, ordinance, rule,
regulation, order, judgment or decree (collectively, "Laws") in effect as of
the date of this Agreement and applicable to the Company or any of its
subsidiaries or by which any of their respective properties is bound or subject
to, or (iii) result in any breach of or constitute a default (or an event that
with notice or lapse of time or both would become a default) under, or give to
others any rights of termination, amendment, acceleration or cancellation of,
or require payment under, or result in the creation of an Encumbrance on, any
of the properties or assets of the Company or
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any of its subsidiaries pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which the Company or any of its subsidiaries is a party or by
which the Company or any of its subsidiaries or any of their respective
properties is bound or subject to.
(b) The execution and delivery of this Agreement by the
Company does not, and the performance of this Agreement by the Company will
not, require the Company to obtain any consent, approval, authorization or
permit of, or to make any filing with or notification to, any governmental or
regulatory authority, domestic or foreign ("Governmental Entities") based on
laws, rules, regulations and other requirements of Governmental Entities in
effect as of the date of this Agreement, except for applicable requirements, if
any, of the state securities or blue sky laws ("Blue Sky Laws") and the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR Act"),
and the filing and recordation of appropriate merger documents as required by
Delaware Law.
SECTION 3.06. Permits; Compliance. Each of the Company and its
subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted (collectively, the "Company
Permits"), and there is no action, proceeding or investigation pending or
threatened regarding suspension or cancellation of any of the Company Permits.
Neither the Company nor any of its subsidiaries is in conflict with, or in
default or violation of (a) any Law applicable to the Company or any of its
subsidiaries or which any of their respective properties is bound by or subject
to or (b) any of the Company Permits. Since December 31, 1995, neither the
Company nor any of its subsidiaries has received from any Governmental Entity
any written notification with respect to possible conflicts, defaults or
violations of Laws.
SECTION 3.07. Financial Statements. Schedule 3.07 contains
true, correct and complete copies of (i) the audited Consolidated Balance Sheet
of the Company as of December 31, 1995 (the "Balance Sheet"), and as of
December 31, 1994 and 1993, and the related Consolidated Statements of
Operations, Consolidated Statements of Cash Flows and Consolidated Statements
of Shareholders Equity for the fiscal years then ended, and the notes and
schedules thereto, together with the report thereon of Arthur Andersen &
Company (collectively, the "Financial Statements") and (ii) the unaudited
balance sheet of the Company as of September 30, 1996 (the "Interim Balance
Sheet") and the related unaudited Consolidated Statement of Operations,
Consolidated Statement of Cash Flows, and Consolidated Statement of
Shareholders Equity of the Company for the nine months ended September 30,
1996, excluding any adjustments and notes which would be included in a year-end
financial statement (collectively, the "Interim Financial Statements"). For
purposes of this Agreement and except with respect to the representations and
warranties made in this Section 3.07, references to the Balance Sheet and the
Interim Balance Sheet shall not include any notes and schedules in the
Financial Statements and the Interim Financial Statements, respectively. The
Financial Statements and the Interim Financial Statements are attached hereto
as Schedule 3.07 and have been prepared from books and records of the Company
and its subsidiaries in accordance with generally accepted accounting
principles applied on a basis consistent with preceding years and
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throughout the periods involved (except as otherwise noted therein). The
Financial Statements and the Interim Financial Statements fairly present the
consolidated financial condition, results of operations and changes in cash
flows of the Company and its subsidiaries as at the dates thereof and for the
periods indicated in the statements of earnings, operations and cash flows,
except, in the case of the Interim Financial Statements, for the absence of
notes thereto and subject to normal year-end adjustments. The Company has
common stockholders' equity of at least $21,244,000.
SECTION 3.08. No Undisclosed Liabilities. Except as set forth
on Schedule 3.08, there are no liabilities or other obligations of the Company
or any subsidiary of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise ("Liabilities"), and there is
no existing condition, situation or set of circumstances which could reasonably
be expected to result in such a Liability, other than (a) Liabilities fully
reflected or reserved against on the face of the Interim Balance Sheet as
adjusted for Liabilities incurred in the Ordinary Course of Business since
September 30, 1996 through the Effective Time; and (b) Liabilities under this
Agreement and fees and expenses related hereto.
SECTION 3.09. Absence of Certain Changes or Events. Except as
disclosed in Schedule 3.09, since December 31, 1995, the Company and its
subsidiaries have conducted their respective businesses only in the ordinary
course and in a manner consistent with past practice and there has not been:
(i) any damage, destruction or loss (not covered by insurance) with respect to
any asset of the Company or any of its subsidiaries involving cost or loss (not
covered by insurance) in excess of $25,000; (ii) any change by the Company or
its subsidiaries in their accounting methods, principles or practices; (iii)
except for dividends by a subsidiary of the Company paid to the Company or
another subsidiary of the Company, any declaration, setting aside or payment of
any dividends or distributions in respect of shares of Company Common Stock or
the shares of stock of, or other equity interests in, any subsidiary of the
Company or any redemption, purchase or other acquisition of any of the
Company's securities or any of the securities of any subsidiary of the Company;
or (iv) a Company Material Adverse Effect. Further, since December 31, 1995,
except as previously disclosed to Parent in writing, there has not been any
increase in the benefits under, or the establishment or amendment of, any
bonus, insurance, severance, deferred compensation, pension, retirement, profit
sharing, stock option (including, without limitation, the granting of stock
options, stock appreciation rights, performance awards, or restricted stock
awards), stock purchase or other Employee Benefit Plan, or any increase in the
compensation payable or to become payable to directors, officers or employees
of the Company or its subsidiaries for (A) increases prior to September 30,
1996 in salaries or wages payable or to become payable in the Ordinary Course
of Business and consistent with past practice, (B) bonuses payable after
September 30, 1996, not to exceed $200,000 in the aggregate, and (C)
termination payments agreed to by the Parent payable after September 30, 1996.
SECTION 3.10. Absence of Litigation. Except as set forth on
Schedule 3.10 hereto, (a) there is no claim, action, suit, litigation,
proceeding, arbitration or investigation of any kind, at law or in equity
(including actions or proceedings seeking injunctive relief), pending or
threatened against the Company or any of its subsidiaries or any properties or
rights of the
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Company or any of its subsidiaries, and (b) neither the Company nor any of its
subsidiaries is subject to any continuing order of, consent decree, settlement
agreement or other similar written agreement with or continuing investigation
by, any Governmental Entity, or any judgment, order, writ, injunction, decree
or award of any Governmental Entity or arbitrator. In respect of the matters
relating to or arising in connection with the actions set forth in Schedule
3.10, there is no fact, event, condition, circumstance or other matter which
either has, or is reasonably likely to have resulted in, an event or
determination having a Company Material Adverse Effect.
SECTION 3.11. Vote Required. The affirmative vote of the
holders of a majority of the outstanding shares of Company Common Stock is the
only vote of the holders of any class or series of Company capital stock
necessary to approve the Merger. The Stockholders, by executing this
Agreement, have irrevocably consented to the Merger and have irrevocably agreed
to vote in favor of the Merger and have granted an irrevocable proxy to such
effect. Such action by the Stockholders is sufficient to constitute stockholder
approval of the Merger.
SECTION 3.12. Brokers. Except as set forth on Schedule 3.12, no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of the Company.
The Exchange Ratio shall be reduced to reflect the payment of such fees by the
Company, assuming a price per share of Parent Common Stock of $18.75.
SECTION 3.13. Company Action. The Board of Directors of the
Company (at a meeting duly called and held) has (a) determined that the Merger
is in the best interests of the Company and its stockholders, (b) approved the
Merger in accordance with the provisions of Delaware Law, and (c) recommended
the approval of this Agreement and the Merger by the holders of the Company
Common Stock.
SECTION 3.14. Tax Matters. (a) Neither the Company nor any
of its subsidiaries has taken or agreed to take any action that would prevent
the Merger from constituting a reorganization qualifying under the provisions
of Section 368(a) of the Code. The Company has filed all Tax Returns that it
was required to file. All such Tax Returns were correct and complete in all
respects. All Taxes owed by the Company (whether or not shown on any Tax
Return) have been paid. The Company is not currently the beneficiary of any
extension of time within which to file any Tax Return. No claim has ever been
made by an authority in a jurisdiction where the Company does not file Tax
Returns that it is or may be subject to taxation by that jurisdiction. There
are no Security Interests on any of the assets of the Company that arose in
connection with any failure (or alleged failure) to pay any Tax.
(b) The Company has withheld and paid all Taxes required to
have been withheld and paid in connection with amounts paid or owing to any
employee, independent contractor, creditor, stockholder, or other third party.
(c) There is no dispute or claim concerning any Tax Liability
of the Company claimed or raised by any governmental authority. Schedule 3.14
lists all federal, state, local, and foreign income Tax Returns filed with
respect to the Company for taxable periods ended on or
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after January 1, 1993, which indicates those Tax Returns that have been
audited, and indicates those Tax Returns that currently are the subject of
audit. The Company has delivered to the Parent correct and complete copies of
all federal income Tax Returns, examination reports, and statements of
deficiencies assessed against or agreed to by the Company since January 1,
1993.
(d) The Company has not waived any statute of limitations in
respect of Taxes or agreed to any extension of time with respect to a Tax
assessment or deficiency.
(e) The Company has not filed a consent under Code Sec. 341(f)
concerning collapsible corporations. The Company has not made any payments, or
is not obligated to make any payments, and is not a party to any agreement that
under certain circumstances could obligate it to make any payments that will
not be deductible under Code Sec. 280G. The Company has not been a United
States real property holding corporation within the meaning of Code Sec.
897(c)(2) during the applicable period specified in Code Sec. 897(c)(1)(A)(ii).
The Company is not a party to any Tax allocation or sharing agreement. The
Company (A) has not been a member of an Affiliated Group filing a consolidated
federal income Tax Return (other than a group the common parent of which was
the Company) and (B) has no Liability for the Taxes of any Person (other than
the Company) under Treas. Reg. Section 1.1502-6 (or any similar provision of
state, local, or foreign law), as a transferee or successor by contract, or
otherwise.
(f) Schedule 3.14(f) sets forth the following information with
respect to the Company as of the most recent practicable date: (A) the tax
basis of the Company in its assets; (B) the amount of any net operating loss,
net capital loss, unused investment or other credit, unused foreign tax, or
excess charitable contribution allocable to the Company; and (C) the amount of
any intercompany items or any deferred gain or loss allocable to the Company
with respect to any intercompany transaction.
(g) The unpaid Taxes of the Company (A) do not exceed the
reserve for Tax Liability (rather than any reserve for deferred Taxes
established to reflect timing differences between book and Tax income) set
forth on the face of the Interim Balance Sheet (rather than in any notes
thereto) and (B) do not exceed that reserve as adjusted for the passage of time
through the Effective Time in accordance with the past custom and practice of
the Company in filing their Tax Returns.
SECTION 3.15 Real Property.
(a) Schedule 3.15(a) lists and describes briefly all real
property that the Company owns. With respect to each such parcel of owned real
property:
(i) the identified owner has good and marketable title
to the parcel of real property, free and clear of any Security Interest,
easement, covenant, or other restriction, except for installments of special
assessments not yet delinquent and recorded easements, covenants, and other
restrictions which do not impair the current use, occupancy, or value, or the
marketability of title (indefeasible title in Texas), of the property subject
thereto;
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(ii) there are no pending or threatened condemnation
proceedings, lawsuits, or administrative actions relating to the property or
other matters affecting materially and adversely the current use, occupancy, or
value thereof;
(iii) the legal description for the parcel contained in
the deed thereof describes such parcel fully and adequately, the buildings and
improvements are located within the boundary lines of the described parcels of
land, are not in violation of applicable setback requirements, zoning laws, and
ordinances (and none of the properties or buildings or improvements thereon are
subject to "permitted non-conforming use" or "permitted non-conforming
structure" classifications), and do not encroach on any easement which may
burden the land, and the land does not serve any adjoining property for any
purpose inconsistent with the use of the land, and the property is not located
within any flood plain or subject to any similar type restriction for which any
permits or licenses necessary to the use thereof have not been obtained;
(iv) all facilities have received all approvals of
governmental authorities (including licenses and permits) required in
connection with the ownership or operation thereof and have been operated and
maintained in accordance with applicable laws, rules, and regulations;
(v) there are no leases, subleases, licenses,
concessions, or other agreements, written or oral, granting to any party or
parties the right of use or occupancy of any portion of the parcel of real
property;
(vi) there are no outstanding options or rights of first
refusal to purchase the parcel of real property, or any portion thereof or
interest therein;
(vii) there are no parties (other than the Company) in
possession of the parcel of real property, other than tenants under any leases
disclosed in Schedule 3.15(a) who are in possession of space to which they are
entitled; and
(viii) all facilities located on the parcel of real
property are supplied with utilities and other services necessary for the
operation of such facilities, including gas, electricity, water, telephone,
sanitary sewer, and storm sewer, all of which services are adequate in
accordance with all applicable laws, ordinances, rules, and regulations and are
provided via public roads or via permanent, irrevocable, appurtenant easements
benefiting the parcel of real property.
(b) Schedule 3.15(b) lists and describes briefly all real
property leased or subleased to the Company. The Company has delivered to the
Parent correct and complete copies of the leases and subleases listed in
Schedule 3.15(b). With respect to each lease and sublease listed in Schedule
3.15(b):
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(i) the lease or sublease is legal, valid, binding,
enforceable, and in full force and effect;
(ii) the lease or sublease will continue to be legal,
valid, binding, enforceable, and in full force and effect on identical terms
following the consummation of the transactions contemplated hereby;
(iii) no party to the lease or sublease is in breach or
default, and no event has occurred which, with notice or lapse of time, would
constitute a breach or default or permit termination, modification, or
acceleration thereunder;
(iv) no party to the lease or sublease has repudiated
any provision thereof;
(v) there are no disputes, oral agreements, or
forbearance programs in effect as to the lease or sublease;
(vi) The Company has not assigned, transferred,
conveyed, mortgaged, deeded in trust, or encumbered any interest in the
leasehold or subleasehold;
(vii) all facilities leased or subleased thereunder have
received all approvals of governmental authorities (including licenses and
permits) required in connection with the operation thereof and have been
operated and maintained in accordance with applicable laws, rules, and
regulations; and
(viii) all facilities leased or subleased thereunder are
supplied with utilities and other services necessary for the operation of said
facilities.
SECTION 3.16 Intellectual Property.
(a) The Company owns or has the right to use pursuant to
license, sublicense, agreement, or permission all Intellectual Property
necessary for the operation of the businesses of the Company as presently
conducted. Each item of Intellectual Property owned or used by the Company is
owned or available for use by the Company on identical terms and conditions
immediately subsequent to the Effective Time. The Company has taken all
reasonably necessary and desirable action to maintain and protect each item of
Intellectual Property that it owns or uses.
(b) The Company has not interfered with, infringed upon,
misappropriated, or otherwise come into conflict with any Intellectual Property
rights of third parties, and none of the Stockholders and the directors and
officers (and employees with responsibility for Intellectual Property matters)
of the Company has ever received any charge, complaint, claim, demand, or
notice alleging any such interference, infringement, misappropriation, or
violation (including any claim that the Company must license or refrain from
using any Intellectual Property rights of any third party). To the Company's
knowledge, no third party has interfered with, infringed upon,
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misappropriated, or otherwise come into conflict with any Intellectual Property
rights of the Company.
(c) Schedule 3.16(c) identifies each patent or registration
which has been issued to the Company or any affiliate with respect to any of
its Intellectual Property, identifies each pending patent application or
application for registration which the Company or any affiliate has made with
respect to any of its Intellectual Property, and identifies each license,
agreement, or other permission which the Company or any affiliate has granted
to any third party with respect to any of its Intellectual Property (together
with any exceptions). The Company has delivered to the Parent correct and
complete copies of all such patents, registrations, applications, licenses,
agreements, and permissions (as amended to date). Schedule 3.16(c) also
identifies each trade name or unregistered trademark used by the Company or any
affiliate in connection with any of its businesses. With respect to each item
of Intellectual Property required to be identified in Schedule 3.16(c):
(i) the Company possesses all right, title, and
interest in and to the item, free and clear of any Security Interest, license,
or other restriction;
(ii) the item is not subject to any outstanding
injunction, judgment, order, decree, ruling, or charge;
(iii) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or threatened
which challenges the legality, validity, enforceability, use, or ownership of
the item; and
(iv) the Company has never agreed to indemnify any
Person for or against any interference, infringement, misappropriation, or
other conflict with respect to the item.
(d) Schedule 3.16(d) identifies each item of Intellectual
Property that any third party owns and that the Company or any affiliate uses
pursuant to license, sublicense, agreement, or permission, other than
shrinkwrap licenses for personal computer software. The Company has delivered
to the Parent correct and complete copies of all such licenses, sublicenses,
agreements, and permissions (as amended to date). With respect to each item of
Intellectual Property required to be identified in Schedule 3.16(d):
(i) the license, sublicense, agreement, or permission
covering the item is legal, valid, binding, enforceable, and in full force and
effect;
(ii) the license, sublicense, agreement, or permission
will continue to be legal, valid, binding, enforceable, and in full force and
effect on identical terms following the Effective Time;
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(iii) no party to the license, sublicense, agreement, or
permission is in breach or default, and no event has occurred which with notice
or lapse of time would constitute a breach or default or permit termination,
modification, or acceleration thereunder;
(iv) no party to the license, sublicense, agreement, or
permission has repudiated any provision thereof;
(v) with respect to each sublicense, the
representations and warranties set forth in subsections (i) through (iv) above
are true and correct with respect to the underlying license;
(vi) the underlying item of Intellectual Property is not
subject to any outstanding injunction, judgment, order, decree, ruling, or
charge;
(vii) no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, or demand is pending or threatened
which challenges the legality, validity, or enforceability of the underlying
item of Intellectual Property; and
(viii) the Company has not granted any sublicense or
similar right with respect to the license, sublicense, agreement, or
permission.
SECTION 3.17. Tangible Assets. Except as set forth on Schedule
3.17, the Company owns and has good and marketable title to the rigs, spares,
drill pipes and other related equipment used in its business, including but not
limited to those Assets listed on Schedule 3.17. Schedule 3.17 lists all the
major components of all the active and stacked rigs and their location. Each
active rig included on Schedule 3.17 has been maintained in accordance with
normal industry practice, subject to normal wear and tear. The value of the
drill pipes listed on Schedule 3.17 reflected on the Interim Balance Sheet is
not overstated.
SECTION 3.18. Drill Collars. The Company owns and has good and
marketable title to drill collars reflected on the Interim Balance Sheet. The
value of the drill collars reflected on the Interim Balance Sheet is not
overstated.
SECTION 3.19. Contracts. Schedule 3.19 lists the following
contracts and other agreements to which the Company is a party as of the date
hereof:
(a) any agreement (or group of related agreements) for the
lease of personal property to or from any Person providing for lease payments
in excess of $25,000 per annum or a term of more than one (1) year;
(b) any agreement (or group of related agreements) for the
purchase or sale of raw materials, commodities, supplies, products, or other
personal property, or for the furnishing or receipt of services, the
performance of which has a term more than six months, or involves consideration
in excess of $25,000.
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(c) any partnership or joint venture agreement;
(d) any agreement (or group of related agreements) under which
it has created, incurred, assumed, or guaranteed any indebtedness for borrowed
money, or any capitalized lease obligation, in excess of $25,000, or under
which it has imposed a Security Interest on any of its assets, tangible or
intangible;
(e) any agreement concerning confidentiality or
noncompetition;
(f) any agreement with any of the Stockholders and their
Affiliates;
(g) any profit sharing, stock option, stock purchase, stock
appreciation, deferred compensation, severance, or other material plan or
arrangement (including any Employee Benefit Plan) for the benefit of its
current or former directors, officers, and employees;
(h) any collective bargaining agreement;
(i) any agreement for the employment of any individual on a
full-time, part-time, consulting, or other basis providing annual compensation
in excess of $25,000, or providing severance benefits;
(j) all drilling contracts and amendments thereto for the
employment of drilling rigs as of the Effective Time;
(k) any agreement under which the consequences of a default or
termination could have a material adverse effect on the business, financial
condition, operations, results of operations, or future prospects of the
Company; or
(l) any other agreement (or group of related agreements) the
performance of which involves consideration in excess of $25,000.
The Company has delivered to the Parent a correct and complete copy of each
written agreement listed in Schedule 3.19 and a written summary setting forth
the terms and conditions of each oral agreement referred to in Schedule 3.19.
With respect to each such agreement: (A) the agreement is legal, valid,
binding, enforceable, and in full force and effect; (B) the agreement will
continue to be legal, valid, binding, enforceable, and in full force and effect
on identical terms following the consummation of the transactions contemplated
hereby; (C) no party is in breach or default, and no event has occurred which
with notice or lapse of time would constitute a breach or default, or permit
termination modification, or acceleration, under the agreement; and (D) no
party has repudiated any provision of the agreement.
SECTION 3.20. Notes and Accounts Receivable. All notes and
accounts receivable of the Company are reflected properly on the Company's
books and records and are valid receivables subject to no setoffs or
counterclaims.
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SECTION 3.21. Powers of Attorney. There are no outstanding
powers of attorney executed on behalf of the Company.
SECTION 3.22. Insurance. Schedule 3.22 sets forth the following
information with respect to each current insurance policy (including policies
providing property, casualty, liability, and workers' compensation coverage and
bond and surety arrangements) to which the Company has been a party, a named
insured, or otherwise the beneficiary of coverage:
(a) the name, address, and telephone number of the agent;
(b) the name of the insurer, the name of the policyholder, and
the name of each covered insured;
(c) the policy number and the period of coverage;
(d) the scope (including an indication of whether the coverage
was on a claims made, occurrence, or other basis) and amount (including a
description of how deductibles and ceilings are calculated and operate) of
coverage (including the amount that each rig listed on Schedule 3.17 has been
insured for); and
(e) a description of any retroactive premium adjustments or
other loss-sharing arrangements.
With respect to each such insurance policy: (A) the policy is legal, valid,
binding, enforceable, and in full force and effect; (B) the policy will
continue to be legal, valid, binding, enforceable, and in full force and effect
on identical terms following the consummation of the transactions contemplated
hereby; (C) neither the Company nor any other party to the policy is in breach
or default (including with respect to the payment of premiums or the giving of
notices), and no event has occurred which, with notice or the lapse of time,
would constitute such a breach or default, or permit termination, modification,
or acceleration, under the policy, and (D) no party to the policy has
repudiated any provision thereof. The Company has been covered during the past
three (3) years by insurance in scope and amount customary and reasonable for
the businesses in which it has engaged during the aforementioned period.
Schedule 3.22 describes any self-insurance arrangements affecting the Company.
SECTION 3.23. Employees. The Company has delivered to Parent a
true and complete list of all employees of the Company and its subsidiaries,
their positions, locations, salaries or hourly wages and severance
arrangements, each as of the date hereof. The Company is not a party to or not
bound by any collective bargaining agreement, nor has it experienced any
strikes, grievances, claims of unfair labor practices, or other collective
bargaining disputes. The Company has not committed any unfair labor practice.
There is no organizational effort presently being made or threatened by or on
behalf of any labor union with respect to employees of the Company.
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SECTION 3.24. Employee Benefits.
(a) Except as set forth on Schedule 3.24, with respect to all
employees, former employees, directors and independent contractors of the
Company and its subsidiaries and their dependents and beneficiaries, neither
the Company, its subsidiaries nor any ERISA Affiliate presently maintains,
contributes to or has any Liability under or with respect to any Employee
Benefit Plan. The plans, programs and arrangements set forth on Schedule 3.24
are herein referred to as the "Company Employee Benefit Plans." Each Company
Employee Benefit Plan (and each related trust, insurance contract or other
funding arrangement) complies in form and in operation in all material respects
with the applicable requirements of ERISA, the Code, other applicable laws and
governing documents and agreements. With respect to each Company Employee
Benefit Plan, there has been no act or omission by the Company or any of its
subsidiaries or ERISA Affiliates that would impair the right or ability of the
Company or any of its subsidiaries or ERISA Affiliates to unilaterally amend in
whole or part or terminate such Company Employee Benefit Plan at any time,
subject to the terms of any insurance contract or other contractual
arrangements with third parties, and the Company has delivered to the Buyer
true and complete copies of: (i) the plan documents, including any related
trust agreements, insurance contracts or other funding arrangements, or a
written summary of the terms and conditions of the plan if there is no written
plan document; (ii) the most recent IRS Form 5500; (iii) the most recent
financial statement and, if applicable, actuarial valuation; (iv) all
correspondence with the Internal Revenue Service, the Department of Labor and
other governmental agencies with respect to the past three plan years other
than IRS Form 5500 filings; and (v) the most recent summary plan description.
(b) Neither the Company nor any of its subsidiaries and none
of their respective directors, officers or employees has any material Liability
with respect to any Company Employee Benefit Plan for failure to comply with
ERISA, the Code, any other applicable laws or any governing documents or
agreements.
(c) No Company Employee Benefit Plan is an Employee Pension
Benefit Plan, and no Company Employee Benefit Plan has any material unfunded
Liability. With respect to the Company Employee Benefit Plans, all applicable
contributions and premium payments for all periods ending prior to the
Effective Time (including periods from the first day of the then current plan
year to the Effective Time) shall be made prior to the Effective Time in
accordance with past practice.
(d) None of the Company, any of its subsidiaries or any ERISA
Affiliate maintains, maintained, contributes to, or has any Liability
(including, but not limited to, current or potential withdrawal Liability) with
respect to any Multiemployer Plan or Employee Pension Benefit Plan.
(e) With respect to all employees and former employees of the
Company and its subsidiaries, none of the Company, any of its subsidiaries or
any ERISA Affiliate presently maintains, contributes to or has any Liability
under any funded or unfunded medical, health or life insurance plan or
arrangement for present or future retirees or present or future terminated
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employees except as required by the Consolidated Omnibus Budget Reconciliation
Act of 1985, as amended, or state continuation coverage laws. There has been
no act or acts which would result in a disallowance of a deduction or the
imposition of a tax pursuant to Section 4980B, or any predecessor provision, of
the Code or any related regulations. No event has occurred with respect to
which the Company or any of its subsidiaries or affiliates could be liable for
a material tax imposed by any of Sections 4972, 4976, 4977, 4979 or 4980 of the
Code, or for a material civil penalty under Section 502(c) of ERISA.
(f) There is no pending or to the knowledge of the Company
threatened legal action, proceeding, audit, examination or investigation
against or involving any Company Employee Benefit Plan maintained by the
Company or any ERISA Affiliate (other than routine claims for benefits). To
the knowledge of the Company there is no basis for, and there are no facts
which could give rise to, any such condition, legal action, proceeding or
investigation. Any bonding required with respect to the Company Employee
Benefit Plans in accordance with applicable provisions of ERISA has been
obtained and is in full force and effect.
SECTION 3.25. Guaranties. The Company is not a guarantor or
otherwise is liable for any Liability or obligation (including indebtedness) of
any other Person.
SECTION 3.26. Environment, Health, and Safety. (a) Except as
set forth on Schedule 3.26, the Company has complied with all Environmental,
Health, and Safety Laws, and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice has been filed or
commenced against any of them alleging any failure so to comply. Without
limiting the generality of the preceding sentence, the Company has obtained and
been in compliance with all of the terms and conditions of all permits,
licenses, and other authorizations which are required under, and has complied
with all other limitations, restrictions, conditions, standards, prohibitions,
requirements, obligations, schedules, and timetables which are contained in,
all Environmental, Health, and Safety Laws.
(b) Except as set forth on Schedule 3.26, the Company has no
Liability (and the Company has not handled or disposed of any substance,
arranged for the disposal of any substance, exposed any employee or other
individual to any substance or condition, or owned or operated any property or
facility in any manner that could form the basis for any present or future
action, suit, proceeding, hearing, investigation, charge, complaint, claim, or
demand against the Company giving rise to any Liability) for damage to any
site, location, or body of water (surface or subsurface), for any illness of or
personal injury to any employee or other individual, or for any reason under
any Environmental, Health, and Safety Law.
(c) All properties owned or leased and equipment used in the
business of the Company, its subsidiaries, and their respective predecessors
and Affiliates have been free of asbestos, PCB's, methylene chloride,
trichloroethylene, 1,2-transdichloroethylene, dioxins, dibenzofurans, and
Extremely Hazardous Substances.
SECTION 3.27. Certain Business Relationships with the Company.
Except as described in Schedule 3.27, none of the Stockholders and their
Affiliates has been involved in
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any business arrangement or relationship with the Company within the past 12
months, and none of the Stockholders and their Affiliates owns any asset,
tangible or intangible, which is used in the business of the Company.
SECTION 3.28. Delivery of Information. Each holder of capital
stock of the Company, and each holder of Stock Options, has received a copy of
the following documents relating to Parent: (i) Annual Report on Form 10-K for
the year ended September 30, 1995; (ii) Quarterly Reports on Form 10-Q for the
quarters ended December 30, 1995, March 31, 1996, and June 30, 1996; (iii)
Current Report on Form 8-K dated May 21, 1996; (iv) Proxy Statement relating to
the 1996 Annual Meeting of Shareholders; and (v) 1996 Annual Report to
Shareholders.
SECTION 3.29. Limitation on Representations and Warranties. (a)
Except as and to the extent expressly set forth in this Article III, included
on any Schedule hereto or included in any writing delivered by the Company to
Parent concurrently herewith or subsequent hereto expressly pursuant to this
Agreement, the Company makes no other representation or warranty and disclaims
all liability and responsibility for any representation, warranty, statement or
information (financial or otherwise) made or communicated (orally or in
writing) to Parent or any of its employees, agents, consultants or
representatives.
(b) The Company makes no representation or warranty to Parent
regarding the probable success or profitability of the Company.
ARTICLE III A
REPRESENTATIONS AND WARRANTIES OF EACH STOCKHOLDER
AND OPTIONHOLDER
Each Stockholder and Optionholder represents and warrants
severally, but not jointly, to Parent and Parent Sub as follows:
SECTION 3.01A. Authorization of Transaction. Such
Stockholder or Optionholder has full power and authority to execute and deliver
this Agreement and the Consent and to perform its obligations hereunder and
thereunder. This Agreement constitutes the valid and legally binding obligation
of each Stockholder or Optionholder, enforceable in accordance with its terms
and conditions. Such Stockholder or Optionholder, if a natural person, is over
21 years of age and has not had a legal representative appointed by a court of
law or otherwise act in his or her behalf or with respect to any of his or her
property. If such Stockholder is not a natural person: such Stockholder is a
corporation or other entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
organization; the execution and delivery of this Agreement and the consummation
of the transactions contemplated hereby have been duly authorized by all
necessary corporate or other action; no other corporate or other proceeding on
the part of such Stockholder is necessary to authorize this Agreement or to
consummate the transactions contemplated hereby; and this Agreement has been
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duly delivered by such Stockholder. Such Stockholder or Optionholder need not
give any notice to, make any filing with, or obtain any authorization, consent,
or approval of any Governmental Entity in order to consummate the transactions
contemplated by this Agreement.
SECTION 3.02A. Noncontravention. Neither the execution and
the delivery of this Agreement and the Consent, nor the consummation of the
transactions contemplated hereby and thereby, will (A) violate any
constitution, statute, regulation, rule, injunction, judgment, order, decree,
ruling, charge, or other restriction of any government, governmental agency, or
court to which such Stockholder or Optionholder is subject or the certificate
of incorporation and bylaws or other organizational documents of such
Stockholder or (B) conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any notice under any
agreement, contract, lease, license, instrument, or other arrangement to which
such Stockholder or Optionholder is a party, by which it is bound or to which
any of its assets is subject.
SECTION 3.03A. Brokers' Fees. Except as set forth on
Schedule 3.12, such Stockholder or Optionholder has no Liability or obligation
to pay any fees or commissions to any broker, finder, or agent with respect to
the transactions contemplated by this Agreement.
SECTION 3.04A. Company Shares. (a) Such Stockholder holds
of record and owns beneficially the number of shares of Company Common Stock
set forth next to its name on the signature page hereto, free and clear of any
restrictions on transfer (other than any restrictions under the Securities Act
and state securities laws and the restrictions in that certain Stockholders'
Agreement (as defined herein) which is to be terminated pursuant to Section
6.09), Security Interests, options, warrants, purchase rights, contracts,
commitments and equities. Such Stockholder is not a party to any option,
warrant, purchase right, or other contract or commitment that could require
such Stockholder to sell, transfer, or otherwise dispose of any capital stock
of the Company or any of its subsidiaries (other than this Agreement). Such
Stockholder is not a party to any voting trust, proxy or other agreement or
understanding with respect to the voting of any capital stock of the Company
(other than this Agreement).
(b) Such Optionholder holds Stock Options for the purchase of
the number of shares, and on the terms and conditions, set forth on Schedule
3.03(a), and has not pledged or granted any interest in such Stock Options to
any other Person.
SECTION 3.05A. Accredited Investor. Such Stockholder or
Optionholder, and each owner of an equity interest in such Stockholder or
Optionholder, is an "accredited investor" as that term is defined in Regulation
D of the Securities Act and/or such Stockholder or Optionholder or its
purchaser representative is a sophisticated investor by virtue of his
education, training and/or numerous prior investments made on his or her behalf
or through entities which he or she, alone or with others, controls. Such
Stockholder or Optionholder or its purchaser representative is knowledgeable
and experienced in financial and business matters, and is capable of evaluating
the merits and risks of an investment and of making an informed business
decision.
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SECTION 3.06A. Investment Intention. Such Stockholder or
Optionholder presently does not intend to dispose of Parent Common Stock to be
issued in the Merger (except pursuant to sales under the Shelf Registration
Statement, or as otherwise permitted under the Securities Act).
SECTION 3.07A. Receipt of Information. Such Stockholder or
Optionholder has received a copy of each of the following documents relating to
Parent: (i) Annual Report on Form 10-K for the year ended September 30, 1995;
(ii) Quarterly Reports on Form 10-Q for the quarters ended December 30, 1995,
March 31, 1996, and June 30, 1996; (iii) Current Report on Form 8-K dated May
21, 1996; (iv) Proxy Statement relating to the 1996 Annual Meeting of
Shareholders; and (v) the 1996 Annual Report to Shareholders.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PARENT SUB
Parent and Parent Sub hereby jointly and severally represent and
warrant to the Company and each Stockholder that:
SECTION 4.01. Organization and Qualification. Each of Parent,
Parent Sub and Parent's subsidiaries is a corporation, or with respect to Peak
Oilfield Services Company, an Alaska partnership, duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization and has all requisite power and authority to own,
lease and operate its properties and to carry on its business as it is now
being conducted, and Parent is duly qualified and in good standing to do
business in each jurisdiction in which the nature of the business conducted by
it or the ownership or leasing of its properties makes such qualification
necessary.
SECTION 4.02. Certificates of Incorporation and By-Laws. Parent
has heretofore furnished to the Company a complete and correct copy of the
Certificates of Incorporation and the By-Laws, as amended or restated, of each
of Parent and Parent Sub. Neither Parent nor Parent Sub is in violation of any
of the provisions of its Certificate of Incorporation or By-Laws.
SECTION 4.03. Parent Common Stock; Capitalization. (a) The
shares of Parent Common Stock to be issued pursuant to the Merger (i) will be
duly authorized, validly issued, fully paid and nonassessable and not subject
to preemptive rights created by statute, Parent's Certificate of Incorporation
or By-Laws or any agreement to which Parent is a party or is bound and (ii)
will, when sold in accordance with the Shelf Registration Statement, be
registered under the Securities Act and registered or exempt from registration
under applicable Blue Sky Laws, and listed on the American Stock Exchange.
(b) The authorized capital stock of the Parent consists of
200,000,000 shares of Parent Common Stock, 8,000,000 shares of Class B Stock,
par value $.10 per share (the
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"Parent Class B Stock"), and 10,000,000 shares of preferred stock, par value
$.10 per share (the "Parent Preferred Stock"). As of November 30, 1996 (i)
91,374,156 shares of Parent Common Stock were issued and outstanding, all of
which are duly authorized, validly issued, fully paid and nonassessable, (ii)
no shares of Parent Class B Stock or Parent Preferred Stock were outstanding,
(iii) 488,980 shares of Parent Common Stock were held in treasury of the Parent
and (iv) 13,801,483 shares of Parent Common Stock were reserved for issuance
pursuant to option and employee benefit plans and in connection with the
exercise of outstanding warrants.
SECTION 4.04. Authority. Parent and Parent Sub each has all
requisite corporate power and authority to execute and deliver this Agreement,
to perform its respective obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate action and no other corporate proceeding
on the part of Parent or Parent Sub is necessary to authorize this Agreement or
to consummate the transactions contemplated hereby. This Agreement has been
duly executed and delivered by Parent and Parent Sub and, assuming the due
authorization, execution and delivery thereof by the Stockholders and the
Company, constitutes the legal, valid and binding obligations of Parent
enforceable in accordance with its terms.
SECTION 4.05. No Conflict; Required Filings and Consents. (a)
The execution and delivery of this Agreement by Parent and Parent Sub does not,
and the performance of this Agreement by Parent and Parent Sub will not, (i)
conflict with or violate the Certificate of Incorporation or By-Laws, as
amended or restated, of Parent, Parent Sub or any of Parent's subsidiaries,
(ii) conflict with or violate any Laws in effect as of the date of this
Agreement applicable to Parent, Parent Sub or any of Parent's subsidiaries or
by which any of their respective properties is bound, or (iii) result in any
breach of or constitute a default (or an event that with notice or lapse of
time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or require payment
under, or result in the creation of a lien or encumbrance on, any of the
properties or assets of Parent, Parent Sub or any of Parent's subsidiaries
pursuant to, any note, bond, mortgage, indenture, contract, agreement, lease,
license, permit, franchise or other instrument or obligation to which Parent,
Parent Sub or any of Parent's subsidiaries is a party or by which Parent,
Parent Sub or any of Parent's subsidiaries or any of their respective
properties is bound by or subject to, except for breaches, defaults, events,
rights of termination, amendment, acceleration or cancellation, payment
obligations or liens or encumbrances that would not have a Parent Material
Adverse Effect.
(b) The execution and delivery of this Agreement by Parent and
Parent Sub does not, and the performance of this Agreement by Parent and Parent
Sub will not, require Parent or Parent Sub to obtain any consent, approval,
authorization or permit of, or to make any filing with or notification to, any
Governmental Entities, except (i) for applicable requirements, if any, of the
Securities Act, the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), Blue Sky Laws, the American Stock Exchange and the HSR Act and the
filing and recordation of appropriate merger documents as required by Delaware
Law and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not,
either individually or in the aggregate, prevent Parent or Parent Sub
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from performing its obligations under this Agreement.
SECTION 4.06. Limitation on Representations and Warranties. (a)
Except as and to the extent expressly set forth in this Article IV, included on
any Schedule hereto or included in any writing delivered by Parent to the
Company concurrently herewith or subsequent hereto expressly pursuant to this
Agreement, Parent makes no other representation or warranty and disclaims all
liability and responsibility for any representation, warranty, statement or
information (financial or otherwise) made or communicated (orally or in
writing) to the Company or any of its stockholders, employees, agents,
consultants or representatives.
(b) Parent makes no representation or warranty to the Company
or its stockholders regarding the probable success or profitability of Parent.
SECTION 4.07. Reports; Financial Statements. (a) Since October
1, 1995, Parent and its subsidiaries have filed all forms, reports, statements
and other documents required to be filed with the SEC, including, without
limitation (1) all Annual Reports on Form 10-K, (2) all Quarterly Reports on
Form 10-Q, (3) all proxy statements relating to meetings of stockholders
(whether annual or special), and (4) all Current Reports on Form 8-K,
(collectively, the "Parent SEC Reports"). The Parent SEC Reports, including
all Parent SEC Reports filed after the date of this Agreement and prior to the
Effective Time were or will be prepared in all material respects in accordance
with the requirements of applicable Law (including, the Securities Act and
Exchange Act, as the case may be, and the rules and regulations of the
Securities and Exchange Commission (the "SEC") thereunder applicable to such
Parent SEC Reports). As of their respective dates, the Parent SEC Reports did
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.
(b) Each of the consolidated financial statements (including,
in each case, any related notes thereto) contained in the Parent SEC Reports
filed prior to, on or after the date of this Agreement (i) have been or will be
prepared in accordance with, and complied or will comply as to form with, the
published rules and regulations of the SEC and generally accepted accounting
principles applied on a consistent basis throughout the periods involved
(except as otherwise noted therein) and (ii) fairly present or will fairly
present the consolidated financial position of Parent and its subsidiaries as
of the respective dates thereof and the consolidated results of their
operations and their cash flows for the periods indicated, except that any
unaudited interim financial statements were or will be subject to normal and
recurring year-end adjustments.
SECTION 4.08. Absence of Certain Changes or Events. Except as
and to the extent disclosed in the Parent SEC Reports filed prior to the date
of this Agreement or as contemplated in this Agreement, since September 30,
1995, there has not been (a) a Parent Material Adverse Effect or (b) any
significant change by Parent or its subsidiaries in their accounting methods,
principles or practices.
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SECTION 4.09. Ownership of Parent Sub; No Prior Activities. (a)
Parent Sub was formed solely for the purpose of engaging in the transactions
contemplated by this Agreement. All of the outstanding capital stock of Parent
Sub is owned directly by Parent.
(b) Except for obligations or liabilities incurred in
connection with its incorporation or organization and the transactions
contemplated by this Agreement and except for this Agreement and any other
agreements or arrangements contemplated by this Agreement, Parent Sub has not
and will not have incurred, directly or indirectly, through any subsidiary or
affiliate, any obligations or liabilities or engaged in any business activities
or any type or kind whatsoever or entered into any agreements or arrangements
with any person.
SECTION 4.10. Brokers. No broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Parent or Parent Sub.
SECTION 4.11. Absence of Litigation. There is no claim, action,
suit, litigation, proceeding, arbitration or investigation of any kind, at law
or in equity (including actions or proceedings seeking injunctive relief),
pending or threatened against the Parent or any of its subsidiaries or any
properties or rights of the Parent or any of its subsidiaries, in respect of
which there is any fact, event, condition, circumstance or other matter which
either has, or is reasonably likely to have resulted in, an event or
determination having a Parent Material Adverse Effect.
SECTION 4.12. Tax Matters. Neither Parent nor Parent Sub has
taken or agreed to take any action that would prevent the Merger from
constituting a reorganization qualifying under the provisions of Section 368(a)
of the Code.
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ARTICLE V
COVENANTS
SECTION 5.01. Affirmative Covenants of the Company. The Company
hereby covenants and agrees that, prior to the Effective Time, unless otherwise
expressly contemplated by this Agreement or consented to in writing by Parent,
the Company will and will cause its subsidiaries to: (1) (a) operate only in
the Ordinary Course of Business consistent with past practices; and (b) provide
to Parent a monthly statement of profit and loss and other accounting
statements prepared in the Ordinary Course of Business and (2) use its best
efforts to (a) preserve, in all material respects and consistent with past
custom and practice, its business and properties, including its present
operations, physical facilities, working conditions and relationships with
Persons having significant business relations with it, including without
limitation, suppliers and customers; (b) maintain and keep its properties and
assets in as good repair and condition as at present, ordinary wear and tear
excepted; and (c) keep in full force and effect insurance and bonds comparable
in amount and scope of coverage to that currency maintained.
SECTION 5.02. Negative Covenants of the Company. Except as
expressly contemplated by this Agreement or as previously disclosed to Parent
in writing or Schedule 5.02, or otherwise consented to in writing by Parent,
from the date of this Agreement until the Effective Time, the Company will not,
directly or indirectly through a subsidiary or otherwise (and the Stockholders
will not and will not cause the Company to), and will not permit any of its
subsidiaries to directly or indirectly, do any of the following:
(a) (i) increase the compensation payable to, or to become
payable to, any employee, director or executive officer; (ii) grant any
severance or termination pay to, or enter into any employment or severance
agreement with, any director, officer or employee; (iii) establish, adopt,
enter into, amend, modify or terminate any Employee Benefit Plan or arrangement
except as may be required by applicable Law; or (iv) hire any salaried
employees or pay any bonuses except bonuses of up to $200,000 in the aggregate
(as previously disclosed to Parent in writing) of which $50,000 was accrued on
the face of the Interim Balance Sheet.
(b) declare or pay any dividend on or make any other
distribution in respect of, outstanding shares of capital stock, except for
dividends by a subsidiary of the Company to the Company;
(c) (i) redeem, purchase or otherwise acquire any shares of
its or any of its subsidiaries' capital stock or any securities or obligations
convertible into or exchangeable for any shares of its or its subsidiaries'
capital stock (other than any such acquisition directly from any wholly owned
subsidiary of the Company in exchange for capital contributions or loans to
such subsidiary), or any options, warrants or conversion or other rights to
acquire any shares of its or its subsidiaries capital stock or any such
securities or obligations (except in connection with the exercise of
outstanding Stock Options referred to in Section 3.03(a) in accordance with
their terms); (ii) effect any reorganization or recapitalization; or (iii)
split, combine or reclassify any of
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its or its respective subsidiaries' capital stock or issue or authorize or
propose the issuance of any other securities in respect of, in lieu of or in
substitution for, shares of its or its respective subsidiaries' capital stock;
(d) (i) issue, deliver, award, grant or sell, or authorize
or propose the issuance, delivery, award, grant or sale (including the grant of
any security interests, liens, claims, pledges, limitations in voting rights,
charges or other encumbrances) of, any shares of any class of its or its
subsidiaries' capital stock (including shares held in treasury), any securities
convertible into or exercisable or exchangeable for any other shares, or any
rights, warrants or options to acquire, any such shares (except for the
issuance of shares upon the exercise of outstanding Stock Options in accordance
with their terms); (ii) amend or otherwise modify the terms of any such rights,
warrants or options the effect of which shall be to make such terms more
favorable to the holders thereof; or (iii) take any action to accelerate the
vesting of any of the Stock Options;
(e) acquire or agree to acquire, by merging or consolidating
with, by purchasing an equity interest in, all or a portion of the assets of,
or by any other manner, any corporation, partnership, association or other
business, organization or division (other than a wholly owned subsidiary)
thereof, or otherwise acquire or agree to acquire any assets of any other
person (other than the purchase of assets from suppliers or vendors in the
ordinary course of business and consistent with past practice) which are
material, individually or in the aggregate, to the Company and its
subsidiaries, taken as a whole;
(f) sell, lease, exchange, mortgage, pledge, transfer or
otherwise dispose of, or agree to sell, lease, exchange, mortgage, pledge,
transfer or otherwise dispose of, any of its material assets or any material
assets of any of its subsidiaries;
(g) initiate, solicit or encourage (including by way of
furnishing information or assistance), respond to, or take any other action to
facilitate, any inquiries or the making of any proposal that constitutes, or
may reasonably be expected to lead to, any Competing Transaction, or enter into
discussions or negotiate with any person or entity in furtherance of such
inquiries to obtain a Competing Transaction, or enter into an agreement with
respect to any Competing Transaction or agree to or endorse any Competing
Transaction, or authorize or permit any of the officers, directors or employees
of the Company or any of its subsidiaries or any investment banker, financial
advisor, attorney, accountant or other representative retained by the Company
or any of the Company's subsidiaries to take any such action, and the Company
shall promptly notify Parent of all relevant terms of any such inquiries and
proposals received by the Company or any of its subsidiaries or by any such
officer, director, investment banker, financial advisor or attorney, and if
such inquiry or proposal is in writing, the Company shall deliver or cause to
be delivered to Parent a copy of such inquiry or proposal. For purposes of
this Agreement, "Competing Transaction" shall mean any of the following
involving the Company, any of its subsidiaries or any affiliate of the Company:
(i) any merger, consolidation, share exchange, business combination, or other
similar transaction (other than the transactions contemplated by this
Agreement); (ii) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of 25% or more of the assets of the Company and its subsidiaries,
taken as a
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whole, in a single transaction or series of transactions; (iii) any offer
(whether cash or securities) for 25% or more of the outstanding shares of
capital stock of the Company; or (iv) any public announcement of a proposal,
plan or intention to do any of the foregoing;
(h) propose or adopt any amendments to its Certificate of
Incorporation or its By-Laws;
(i) (A) change any of its methods of accounting in effect
at December 31, 1995, or (B) make or rescind any material election relating to
taxes, settle or compromise any claim, action, suit, litigation, proceeding,
arbitration, investigation, audit or controversy relating to taxes (except
where the amount of such settlements or controversies, individually or in the
aggregate, does not exceed $25,000), or change in any material respect any of
its methods of reporting income or deductions for federal income tax purposes
from those employed in the preparation of the federal income tax return for the
taxable year ended December 31, 1995, except, in the case of clause (A) or
clause (B), as may be required by Law or generally accepted accounting
principles;
(j) enter into any Contract outside the Ordinary Course of
Business;
(k) create, or permit the creation of, any Lien upon any
Assets outside the Ordinary Course of Business;
(l) enter into any employment contract or collective
bargaining agreement, or modify the terms of any existing such contract or
agreement;
(m) sell, lease, transfer or assign any Assets with a Fair
Market Value of $25,000 or more, or Assets with an aggregate Fair Market Value
of $100,000 or more, in each case tangible or intangible;
(n) make any capital expenditures other than in the Ordinary
Course of Business, or make any capital expenditures in the aggregate in excess
of $50,000;
(o) enter any new bids for daywork or footage drilling
Contracts (with a term reasonably expected to be more than 120 days), or
turnkey contracts without Parent's consent, which shall not be unreasonably
withheld;
(p) amend, or renew, or enter into any Contract involving
operations outside of the United States; or
(q) take or agree to take any action that would or is
reasonably likely to result in any of Company's representations and warranties
set forth in this Agreement being untrue or in any of the conditions to the
Merger not being satisfied.
SECTION 5.03. Negative Covenants of Parent. Except as expressly
contemplated by this Agreement or otherwise consented to in writing by the
Company, from the
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date of this Agreement until the Effective Time, Parent will not do any of the
following:
(a) amend any of the material terms or provisions of the
Parent Common Stock;
(b) knowingly take any action which would result in a failure
to maintain the trading of Parent Common Stock on the American Stock Exchange;
(c) declare or pay any dividends or other distribution
(whether in cash, stock or other property) on outstanding shares of capital
stock;
(d) take or agree to take any action that would or is
reasonably likely to result in any of Parent's representations and warranties
set forth in this Agreement being untrue or in any of the conditions to the
Merger not being satisfied; or
(e) agree in writing or otherwise to do any of the foregoing.
SECTION 5.04. Access and Information. (a) Subject to
confidentiality agreements to which the Company or any of its subsidiaries is a
party, the Company shall and shall cause its subsidiaries to (i) afford to
Parent and its officers, directors, employees, accountants, consultants, legal
counsel, agents and other representatives (collectively, the "Representatives")
access at reasonable times upon prior notice to its officers, employees,
agents, properties, offices and other facilities and its subsidiaries and to
the books and records thereof and (ii) furnish promptly to Parent and its
Representatives such information concerning its business, properties,
contracts, records and personnel (including, without limitation, financial,
operating and other data and information) as may be reasonably requested, from
time to time, by such other party. Parent shall in good faith undertake and
complete its due diligence investigation by December 24, 1996.
(b) Subject to confidentiality agreements to which the Parent
or any of its subsidiaries is a party, the Parent shall and shall cause its
subsidiaries to, for the sole purpose of performing due diligence related to
the transactions contemplated herein, (i) afford to the Company and its
officers, directors, employees, accountants, consultants, legal counsel, agents
and other representatives (collectively, the "Company Representatives") access
at reasonable times upon prior notice to its officers, employees, agents,
properties, offices and other facilities and its subsidiaries and to the books
and records thereof and (ii) furnish promptly to the Company and the Company
Representatives such information concerning its business, properties,
contracts, records and personnel (including, without limitation, financial,
operating and other data and information) as may be reasonably requested, from
time to time, by such other party. The Company shall in good faith undertake
and complete its due diligence investigation by December 24, 1996.
SECTION. 5.05. Escrow Agreement. At or before the Effective
Time, Jack S. Blanton, Jr. (the "Shareholders' Representative"), as
representative and attorney-in-fact for the Stockholders and Optionholders,
Parent, and a third party, acceptable to Parent and the
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Shareholders' Representative, as escrow agent, shall execute and deliver the
Escrow Agreement, substantially in the form of Exhibit 5.05 hereof (the "Escrow
Agreement"). Each Stockholder and each Optionholder hereby authorizes and
appoints the Shareholders' Representative to serve as its attorney-in-fact to
execute the Escrow Agreement, and agrees to be bound by the provisions thereof.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01. Appropriate Action; Consents; Filings. (a) The
Company and Parent shall each use its best efforts to (i) take, or cause to be
taken, all appropriate action, and do, or cause to be done, all things
necessary, proper or advisable under applicable Law or otherwise to consummate
and make effective the transactions contemplated by this Agreement, (ii) obtain
from any Governmental Entities any consents, licenses, permits, waivers,
approvals, authorizations or orders required to be obtained or made by Parent
or the Company or any of their subsidiaries in connection with the
authorization, execution and delivery of this Agreement and the consummation of
the transactions contemplated herein, including, without limitation, the
Merger, (iii) make all necessary filings, and thereafter make any other
required submissions, with respect to this Agreement and the Merger required
under (A) Delaware Law (including holding a stockholders meeting and/or sending
notice of merger and appraisal rights) and the federal securities laws and the
rules and regulations thereunder, if any, and any other applicable federal or
state securities laws, (B) the HSR Act and (C) any other applicable Law;
provided that Parent and the Company shall cooperate with each other in
connection with the making of all such filings, including providing copies of
all such documents to the nonfiling party and its advisors prior to filing and,
if requested, accepting all reasonable additions, deletions or changes
suggested in connection therewith. The Company and Parent shall furnish all
information required for any application or other filing to be made pursuant to
the rules and regulations of any applicable Law in connection with the
transactions contemplated by this Agreement.
(b) (i) Each of the Company and Parent shall give (or shall
cause their respective subsidiaries to give) any notices to third parties, and
use, and cause their respective subsidiaries to use, its best efforts to obtain
any third party consents (A) necessary, proper or advisable to consummate the
transactions contemplated in this Agreement, (B) disclosed or required to be
disclosed in the Schedules contained herein, (C) otherwise required under any
contracts, licenses, leases or other agreements in connection with the
consummation of the transactions contemplated herein or (D) required to prevent
a Company Material Adverse Effect from occurring prior to or after the
Effective Time or a Parent Material Adverse Effect from occurring prior to or
after the Effective Time.
(ii) In the event that any party shall fail to obtain
any third party consent described in subsection (b) (i) above, such party shall
use its best efforts, and shall take any such actions reasonably requested by
the other party hereto, to minimize any adverse effect upon the Company and
Parent, their respective subsidiaries, and their respective businesses
resulting, or which could reasonably be expected to result after the Effective
Time, from the
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failure to obtain such consent.
SECTION 6.02. Tax Treatment; Pooling of Interests; Affiliates.
The Company and Parent shall use their best efforts, and shall cause their
Affiliates to use their best efforts to cause the Merger to qualify, and will
not take any actions which would prevent the Merger from qualifying, as a
reorganization under the provisions of section 368(a) of the Code. The
Company, Parent, the Stockholders, and the Optionholders shall, and shall cause
each of their Affiliates to, use their best efforts not to take any action
(regardless of whether such action would otherwise be permitted or not
prohibited hereunder) that will prevent Parent from accounting for the Merger
as a pooling of interests. Each Stockholder and Optionholder agrees and
undertakes that from the date hereof until such time as financial results
(including combined sales and net income) covering at least 30 days of post-
merger operations have been published (the date on which such financial results
are published shall be the "Financial Result Date"), such Stockholder or
Optionholder will not sell or in any other way alter his or her risk relative
to any Company Common Stock or Parent Common Stock received in the Merger
(within the meaning of the Codification of Financial Reporting Policies 201.01
(reprinted in 7 Fed. Sec. L. Rep. (CCH) 72,951)). Each Stockholder and
Optionholder understands that the Parent will advise it when the Financial
Result Date shall have occurred. Each Stockholder and Optionholder undertakes
to inform the Company and the Parent of any transactions involving Company
Common Stock or Parent Common Stock that he may wish to consummate during any
time prior to the Financial Result Date and will not consummate such
transaction unless the Parent shall consent thereto in writing. Parent
undertakes to file with the SEC on Form 8-K or to otherwise publicly release
financial statements reflecting the first month of combined operations of
Parent and Surviving Corporation within thirty (30) days of the end of the
period reported.
SECTION 6.03. Public Announcements. Unless otherwise required
by applicable Law (and in that event only if time does not permit), Parent and
the Company shall consult with each other before issuing any press release or
otherwise making any public statements with respect to the Merger and shall not
issue any such press release or make any such public statement prior to such
consultation.
SECTION 6.04. Obligations of Parent Sub. Parent shall take all
action necessary to cause Parent Sub to perform its obligations under this
Agreement and to consummate the Merger on the terms and conditions set forth in
this Agreement.
SECTION 6.05 Employee Matters. The Stockholders shall be
responsible for (i) all severance costs relating to Jack S. Blanton, Jr. the
current Chairman, President and Chief Executive Officer of the Company and (ii)
one-half of all severance expenses related to Company's Houston office
personnel as previously disclosed in writing to Parent who are terminated by
Parent at the Effective Time ((i) and (ii) collectively referred to as the
"Severance Amount"). The Surviving Corporation shall be responsible for all
other severance obligations. Such responsibility of the Stockholders and
Optionholders shall be taken into account by reducing the Exchange Ratio by an
amount equal to (1) the quotient of (i) the Severance Amount (ii) divided by
$18.75 and (2) further divided by the total number of shares of Company Common
Stock outstanding immediately prior to the Merger (including shares to be
issuable in
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respect of any outstanding Stock Options).
SECTION 6.06. Registration Rights. (a) Parent shall file with
the SEC as soon as practicable after the Effective Time a Shelf Registration
Statement on Form S-3 (or other applicable form) covering the continuous sale
pursuant to Rule 415 under the Securities Act (the "Shelf Registration
Statement"), in the manner specified therein (provided that such manner shall
not include an underwritten public offering), of the shares of Parent Common
Stock issued in the Merger (the "Registration Shares"). Parent shall use its
best efforts to cause the Shelf Registration Statement to be declared effective
by the SEC no later than the Financial Result Date (as defined herein) and to
remain effective until the earlier of such time as all shares of Parent Common
Stock issued in the Merger are sold pursuant to the Shelf Registration
Statement or two years from the Effective Time (the "Effective Period");
provided that in the event that Parent determines in good faith that, because
it has under consideration a significant (as defined under Regulation S-X of
the SEC) acquisition or disposition or other material transaction that has not
been publicly disclosed or that it is in the process of preparing for filing
with the SEC a Report on Form 8-K or other form, the Shelf Registration
Statement may contain a material misstatement or omission, the Parent may cause
the Shelf Registration Statement to not be used for an aggregate period not to
exceed forty-five (45) days in any twelve-month period. Notwithstanding
anything to the contrary, at any time that a Stockholder or Optionholder wishes
to sell Registered Shares pursuant to the Shelf Registration Statement, it
shall give written notice to Parent no less than one (1) Business Day prior to
the intended transaction, and Parent shall use its best efforts to advise such
Stockholder or Optionholder as promptly as practicable, but in no event in more
than one (1) Business Day, whether the transaction may proceed, and such
Stockholder or Optionholder shall not consummate any transaction or deliver a
Prospectus in the event that Parent shall so notify such Stockholder or
Optionholder, which notice shall include the number of Business Days that the
Shelf Registration Statement may not be used.
(b) Parent shall use its best efforts to cause the shares of
Parent Common Stock issued in the Merger to be approved for listing on the
American Stock Exchange (the "AMEX") or other national securities exchange in
which Parent Common Stock is principally traded as soon as practicable after
the Effective Time, but no later than the Financial Result Date. Parent will
also use its best efforts to register or qualify such shares under such other
securities or blue sky laws of the United States and keep such registration or
qualification in effect for the Effective Period, and do any and all other acts
and things which may be reasonably necessary or advisable to enable the
Stockholders and Optionholders to have the right to sell or otherwise dispose
of the Registration Shares in such jurisdictions.
(c) In connection with any registration of the Registration
Shares pursuant to this Agreement, each Stockholder and Optionholder shall
furnish the Parent with such information concerning such Stockholder or
Optionholder as the Parent may reasonably request for use in the preparation of
the Shelf Registration Statement or any preliminary prospectus, final
prospectus or summary prospectus contained therein, or any amendment or
supplement thereto ("Prospectus"), and shall cooperate fully in the preparation
and filing of a Shelf Registration Statement. Each Stockholder and
Optionholder hereby agrees to severally, but not jointly, indemnify Parent, its
officers and directors, and each person, if any, who controls Parent within
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the meaning of Section 15 of the Securities Act, against any losses, claims,
damages and liabilities, joint or several, to which Parent or any such officer
or director or controlling person may become subject under the Securities Act
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings, whether commenced or threatened, in respect thereof)
arise out of or are based upon any untrue (or alleged untrue) statement of any
material fact contained in, or any material fact omitted from (or allegedly
omitted from) the Shelf Registration Statement or Prospectus covering the
Registration Shares, if such statement or omission was made in reliance upon
and in conformity with written information furnished to Parent by such
Stockholder expressly for use in the Shelf Registration Statement or Prospectus
covering the Registration Shares.
(d) Parent will, prior to filing the Shelf Registration
Statement, furnish to counsel selected by the holders of a majority of the
Registration Shares a copy of the draft of such document which is proposed to
be filed, which document will be subject to the review of such counsel. Parent
will promptly notify such counsel of any stop order issued or threatened by the
Commission with respect to the Shelf Registration Statement and will take all
reasonable actions required to prevent the entry of such stop order or to
remove it if entered. Parent will notify such counsel and each holder of
Registration Shares, during the effectiveness of the Shelf Registration
Statement, of the occurrence of an event, if such occurrence would require the
preparation of a supplement or amendment to the prospectus contained in the
Shelf Registration Statement in order for such prospectus to not (i) contain an
untrue statement of a material fact or (ii) omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading. Parent will provide such counsel with a copy of any such
supplement or amendment. Stockholders and Optionholders shall advise Parent of
any proposed change in the manner of distribution.
(e) Parent hereby indemnifies and holds harmless each
Stockholder and Optionholder, each of its officers and directors, partners and
each person deemed to be an "underwriter" under the Securities Act, if any, and
each person controlling such Stockholder within the meaning of Section 15 of
the Securities Act against any losses, claims, damages or liabilities
severally, but not jointly, to which the Stockholder or any of the foregoing
persons may become subject under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions or proceedings, whether
commenced or threatened, in respect thereof) arise out of or are based upon any
untrue (or alleged untrue) statement of any material fact contained in the
Shelf Registration Statement or any Prospectus covering the Registration Shares
or any omission (or alleged omission) to state therein a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, except insofar as
such untrue (or alleged untrue) statement or omission (or alleged omission)
shall have been based upon information furnished to Parent by the Stockholder
or such other individuals, and Parent will reimburse the Stockholder for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such claim, loss, damage, liability, action or
proceedings; provided, however, that none of the foregoing shall affect, in any
manner whatsoever, any of the representations, warranties, undertakings,
covenants, agreements and obligations of each Stockholder or Optionholder, and
the Company under this Agreement.
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(f) In circumstances in which any indemnity provided by the
preceding paragraphs of this Section 6.06 is unavailable or insufficient, for
any reason, to hold harmless an indemnified party in respect of any losses,
claims, damages or liabilities (or actions or proceedings in respect thereof),
then each indemnifying party, in order to provide for just and equitable
contribution, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions or proceedings in respect thereof) in such proportion as is
appropriate to reflect (i) the relative fault of the indemnifying party or
parties on the one hand and the indemnified party or parties on the other hand
in connection with the statements or omissions or alleged statements or
omissions that resulted in such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) and (ii) any other relevant
equitable considerations. The relevant fault of the parties shall be
determined by reference to, among other things, whether the statement or
omission or alleged statement or omission relates to information supplied by
Parent or by any Stockholder and Optionholder, the parties' relative intents,
knowledge, access to information and opportunity to correct or prevent such
statement or omission, and any other equitable considerations appropriate in
the circumstances.
(g) Notwithstanding the foregoing provisions of this Section
6.06, the liability of each Stockholder or Optionholder under this Section 6.06
shall be limited in an amount equal to the net proceeds of the Registrable
Shares sold by such Stockholder or Optionholder.
(h) Any Stockholder or Optionholder may transfer Parent Common
Stock as a distribution to its equity owners or as a bona fide gift, and such
transferee may sell such Parent Common Stock pursuant to the Shelf Registration
Statement, provided that such transferee shall agree in writing to be bound by
the provisions of this Section 6.06.
SECTION 6.07. Delivery of SEC Filings. Parent shall promptly
deliver to the Company or to the Company's counsel a copy of all of Parent's
filings with the SEC, from the date hereof to the Effective Time, on Forms 8-K,
10-Q or 10-K or any other document which the Parent deems to be appropriate for
provision to the holders of stock and options in the Company. Upon delivery of
any such document by Parent to the Company, the Company shall promptly deliver
to each holder of capital stock of the Company and each holder of Stock Options
a copy of such document, including all exhibits thereto, and an officer of the
Company shall promptly provide to Parent an affidavit of delivery of such
copies.
SECTION 6.08. Termination of Stockholders' Agreement. The
Stockholders agree to and approve of the termination, effective as of
immediately before the Effective Time, of that certain Stockholders Agreement
dated as of September 20, 1990, among the Company (formerly known as ADCOR
Acquisitions, Inc.) and the stockholders and spouses named therein (as so
executed and as adopted by other parties from time to time, the "Stockholders'
Agreement"). The Stockholders represent that they are the holders of at least
the Required Voting Percentage (as defined in the Stockholders' Agreement).
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SECTION 6.09. Best Efforts. The parties hereto shall use their
best efforts to consummate the Merger and the other transactions contemplated
hereby as soon as practicable. The parties agree to execute such amendments to
this Agreement and the Escrow Agreement as may be necessary to enable the
Merger to qualify for pooling of interests accounting treatment; provided that
such amendments do not adversely affect such party.
SECTION 6.10. Indemnification of Directors and Officers. The
Parent agrees that the Surviving Corporation will indemnify Jack S. Blanton,
Jr., Lisa M. Judson and James Nicklos in respect of liabilities incurred by
them in connection with Texas Workers' Compensation Facility vs. Nicklos
Drilling Company et al. (Cause No. 96-09211, Travis County, Texas), or any suit
or claim arising out of the same nucleus of facts, if and to the extent that
they would be entitled to indemnification pursuant to Article VI of the Bylaws
of the Company, as adopted on August 28, 1990.
SECTION 6.11. Closing Balance Sheet, Adjustments and Procedures.
(a) After sixty (60) calendar days and on or before ninety (90) calendar days
following the Effective Time, Parent will prepare and deliver to the
Shareholders' Representative, as representative of and on behalf of all of the
Stockholders and Optionholders, a balance sheet of the Company on and as of the
Effective Time (the "Closing Balance Sheet"). Parent shall make available to
the Shareholders' Representative all information which shall be in the
possession of Parent or the Surviving Corporation and which may be reasonably
required by the Shareholders' Representative for the Shareholders'
Representative to verify whether such Closing Balance Sheet is correct. Within
thirty (30) calendar days following delivery of the Closing Balance Sheet, the
Shareholders' Representative shall notify Parent whether he agrees with the
Closing Balance Sheet; provided, however, that, in the event that the
Shareholders' Representative shall fail to so notify Parent within such 30-day
period, the Shareholders' Representative shall be deemed to have agreed with
the Closing Balance Sheet. In the event that the Shareholders' Representative
disagrees with the Closing Balance Sheet, the Shareholders' Representative
shall provide Parent with a written notice specifying the basis for the
Shareholders' Representative's disagreement, and the Shareholders'
Representative and Parent shall work in good faith to reach agreement on the
composition of the Closing Balance Sheet, but, in the event that they shall not
agree within thirty (30) calendar days following the date of such written
notice, the matter will be referred to one of the "Big Six" independent public
accounting firms, other than Arthur Andersen or Coopers & Lybrand, as the
Shareholders' Representative and Parent shall mutually agree. The fees and
disbursements of such accounting firm shall be borne equally by Parent and the
Stockholders and Optionholders. Such accounting firm shall examine the records
of the Company, and, within thirty (30) calendar days following the date upon
which such matter shall be referred to such accounting firm, such accounting
firm shall determine the disposition of any dispute with respect to the Closing
Balance Sheet (the date on which the determination is made, whether by the
accounting firm or by agreement of the parties, is referred to as the "Final
Determination Date"). Any such determination shall be final and binding on the
parties, and may be enforced by appropriate judicial or other proceedings.
(b) In the event that the common stockholders' equity as
reflected on the Closing Balance Sheet (the "Net Book Value") is less than
$21,244,000, then the amount of such
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difference shall be divided by $18.75 and the result obtained thereby (rounded
to the nearest whole share) shall be the number of shares of Parent Common
Stock that within two (2) Business Days of the Final Determination Date shall
be returned by the Stockholders and the Optionholders to Parent. Any shares of
Parent Common Stock required to be returned to Parent shall be released from
the Escrow Account. The number of such shares so returned shall be allocated
to the Stockholders and Optionholders, pro rata, based on each Stockholder's or
Optionholder's interest in shares of Parent Common Stock to be issued pursuant
to the consummation of the Merger. The Stockholders' and Optionholders'
obligation to return shares of Parent Common Stock shall be several and not
joint. In the event that the Net Book Value is greater than $21,244,000, there
shall be no return of shares required under this section.
(c) The Closing Balance Sheet shall be prepared in accordance
with GAAP applied in a manner consistent with the Company's historical
accounting policies and practices except that: (i) the Closing Balance Sheet
shall reflect as severance liabilities an amount equal to the Severance Amount
(to the extent not previously reflected in the Exchange Ratio pursuant to
Section 6.05(d)); (ii) the fixed assets shall be valued at the net book value
immediately prior to the Effective Time as carried on the Company's books,
without adjustment by Parent or the Company, from and after the Effective Time;
and (iii) all insurance claims, accounts receivable or other receivables that
are not collected prior to the date of delivery of the Closing Balance Sheet
shall be fully reserved for on the Closing Balance Sheet.
(d) Notwithstanding subsection (c) hereof, if (1) the items
reserved for pursuant to item (iii) of subsection (c) shall exceed the
corresponding reservation on the Interim Financial Statements, (2) there shall
be a deficiency in Net Book Value pursuant to subsection (b), and (3) any
collection of such items subsequent to delivery of the Closing Balance Sheet
occurs prior to the return of shares by the Stockholders and Optionholders
pursuant to subsection (b), then any deficiency in Net Book Value shall be
reduced by the amount of such collection.
(e) Upon any return of shares by the Stockholders and
Optionholders pursuant to subsection (b) hereof, if the items reserved for
pursuant to item (iii) of subsection (c) hereof shall exceed the corresponding
reservation on the Interim Financial Statements, then Parent shall assign to
the Stockholders and Optionees or their designee the right to collect a
quantity of such items which does not exceed the lesser of (1) the amount of
the deficiency in Net Book Value or (2) the amount, if any, by which the
reservation for such items pursuant to item (iii) of subsection (c) hereof
exceeds the corresponding reservation on the Interim Financial Statements.
ARTICLE VII
CLOSING CONDITIONS
SECTION 7.01. Conditions to Obligations of Each Party Under This
Agreement. The respective obligations of each party to effect the Merger and
the other transactions contemplated herein shall be subject to the satisfaction
at or prior to the Effective Time of the following conditions, any or all of
which may be waived, in whole or in part, to the
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extent permitted by applicable Law:
(a) No Order. No Governmental Entity or federal or state
court of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any statute, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent) which
is in effect and which has the effect of making the Merger illegal or otherwise
prohibiting consummation of the Merger.
(b) HSR Act. The applicable waiting period under the HSR Act
shall have expired or been terminated.
(c) Consents and Approvals. All material consents, approvals
and authorizations legally required to be obtained to consummate the Merger
shall have been obtained from all required Governmental Entities.
SECTION 7.02. Additional Conditions to Obligations of Parent.
The obligations of Parent to effect the Merger and the other transactions
contemplated herein are also subject to the following conditions, each of which
may be waived, in whole or in part, to the extent permitted by applicable Law,
by Parent:
(a) Representations and Warranties. (i) Each of the
representations and warranties of the Company contained in this Agreement shall
be true and correct when made and on and as of the Effective Time, as if made
on and as of such date, except where failure to be so true and correct would
not have a Company Material Adverse Effect, individually or in the aggregate,
and except that those representations and warranties which address matters only
as of a particular date shall remain true and correct as of such date, except
where the failure to be so true and correct would not have a Company Material
Adverse Effect. Parent shall have received a certificate of the President of
the Company to such effect; and (ii) each of the representations and warranties
of the Stockholders and Optionholders contained in this Agreement shall be true
and correct when made and on and as of the Effective Time, as if made on and as
of such date, except that those representations and warranties which address
matters only as of a particular date shall remain true and correct as of such
date.
(b) Agreements and Covenants. The Company shall have
performed or complied in all material respects with all agreements and
covenants required by this Agreement to be performed or complied with by it on
or prior to the Effective Time. Parent shall have received a certificate of the
President or Chief Financial Officer of the Company to that effect.
(c) Pooling. The Merger shall qualify for pooling of
interests accounting treatment.
(d) Third Party Consents and Waivers. The Company shall have
obtained consents and waivers, in form and substance reasonably satisfactory to
Parent, in respect of the contracts or agreements set forth on Schedule
7.02(d). For purposes of this section, material
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contracts shall include, but not be limited to, the Partnership Agreements to
which the Company or any of its subsidiaries is a party and any documents
related thereto.
(e) Company Material Adverse Effect. The Company shall not
have suffered a Company Material Adverse Effect.
(f) Legal Opinion. Parent shall have received the legal
opinion of Baker & Botts, L.L.P., covering the matters set forth on Exhibit
7.02(g) hereto.
SECTION 7.03. Additional Conditions to Obligations of the
Company. The obligation of the Company to effect the Merger and the other
transactions contemplated in this Agreement is also subject to the following
conditions, each of which may be waived, in whole or in part, to the extent
permitted by applicable Law, by the Company:
(a) Representations and Warranties. Each of the
representations and warranties of Parent and Parent Sub contained in this
Agreement shall be true and correct when made and on and as of the Effective
Time as if made on and as of such date, except where the failure to be so true
and correct would not have a Parent Material Adverse Effect, and except that
those representations and warranties which address matters only as of a
particular date shall remain true and correct as of such date, except where the
failure to be so true and correct would not have a Parent Material Adverse
Effect. Solely for purposes of this Section and in determining compliance with
the condition(s) set forth herein, any representation and warranty made by the
Parent in this Agreement shall be read and interpreted as if the qualification
stated therein with respect to materiality or Parent Material Adverse Effect
were not contained therein. The Company shall have received a certificate of
the President of Parent to such effect.
(b) Agreements and Covenants. Parent shall have performed or
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the
Effective Time. The Company shall have received a certificate of the President
of Parent to that effect.
(c) Parent Material Adverse Effect. The Parent shall not have
suffered a Parent Material Adverse Effect.
(d) Legal Opinion. The Company shall have received the legal
opinion of Baker & McKenzie, covering the matters set forth on Exhibit 7.03(d).
ARTICLE VIII
TERMINATION, AMENDMENT, WAIVER AND INDEMNIFICATION
SECTION 8.01. Termination. This Agreement may be terminated at
any time prior to the Effective Time:
(i) by mutual consent of Parent and the Company;
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(ii) by Parent, upon a material breach of any covenant
or agreement on the part of the Company set forth in this Agreement;
(iii) by the Company, upon a material breach of any
covenant or agreement on the part of Parent or Parent Sub set forth in this
Agreement;
(iv) by either Parent or Company, if there shall be any
order of a Governmental Entity which is final and nonappealable preventing the
consummation of the Merger;
(v) on or before 5:00 p.m., Houston time, on December
24, 1996, by Parent, in the event, as a result of its due diligence
investigation, Parent shall have determined, in its good faith judgment, that
(i) the results of the Company's recent operations are not supportable or (ii)
that there exist conditions which are materially adverse to the business or
assets of the Company which had not been communicated to Parent as of November
25, 1996; and
(vi) by either Parent or the Company, if the Merger
shall not have been consummated before April 30, 1997 (unless the failure to
consummate the Merger by such date shall be due to the action or failure to act
of the party seeking to terminate this Agreement).
SECTION 8.02. Investigation. Notwithstanding any of the
foregoing, the right of any party hereto to terminate this Agreement pursuant
to Section 8.01 shall remain operative and in full force and effect regardless
of any investigation made by or on behalf of any party hereto, any person
controlling any such party or any of their respective officers or directors,
whether prior to or after the execution of this Agreement.
SECTION 8.03. Amendment. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto (in the case of
the Stockholders and the Optionholders, by a number of Stockholders and/or
Optionholders who are entitled to receive or have received, in the aggregate,
two thirds of the shares of Parent Common Stock to be issued at the Effective
Time if prior to the Effective Time, or a majority of the shares of Parent
Common Stock issued if subsequent to the Effective Time).
SECTION 8.04. Waiver. At any time prior to the Effective Time,
any party hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other party hereto, (b) waive any inaccuracies
in the representations and warranties of the other party contained herein or in
any document delivered pursuant hereto and (c) waive compliance by the other
party with any of the agreements or conditions contained herein. Any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed by the party or parties to be bound thereby (in the case of the
Stockholders and the Optionholders, by a number of Stockholders and/or
Optionholders who are entitled to receive or have received, in the aggregate,
two thirds of the shares of Parent Common Stock to be issued at the Effective
Time if prior to the Effective Time, or a majority of the shares of Parent
Common Stock issued if subsequent to the Effective Time).
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SECTION 8.05. Fees, Expenses and Other Payments. Each party
shall bear its own costs and expenses in connection with this Agreement and the
transactions contemplated hereby; provided however that certain severance costs
shall be allocated as set forth in Section 6.05.
SECTION 8.06 Indemnification, Hold Back and Escrow.
(a) Each Stockholder and Optionholder of the Company
severally, but not jointly, shall indemnify and defend the Parent and hold it
harmless, to the extent provided hereby (but only by means of deduction from
the Escrow Account as set forth herein, except as otherwise provided in
subsection (g) of this Section 8.06, if applicable), from and against any and
all losses, damages, liabilities, claims, demands, judgments, settlements,
costs and expenses of any nature whatsoever (including reasonable attorneys'
fees) (collectively, "Loss") resulting from or arising out of any of (i) the
breach of any representation or warranty or agreement of the Company or a
Stockholder or Optionholder contained herein; or (ii) Liabilities of the
Company, whether or not addressed by a representation or warranty, which were
created, incurred or arose from facts, events, conditions or circumstances
existing on or before the Effective Time, to the extent that, but only to the
extent that, Liabilities were (A) not reflected or reserved against on the face
of Interim Balance Sheet as adjusted for Liabilities incurred in the Ordinary
Course of Business since September 30, 1996 (provided that the items listed on
Schedule 3.08 shall be deemed to be incurred in the Ordinary Course of
Business) or, once agreement is reached on a Closing Balance Sheet as provided
in Section 6.07, for Liabilities not reflected on the face of the Closing
Balance Sheet, or (B) Liabilities for fees and expenses related to this
Agreement (to the extent, but only to the extent, that such fees and expenses
were not reflected in adjustments to the Exchange Ratio pursuant to Section
2.01(a)). No claim for indemnification pursuant to this Section 8.06(a) may be
made subsequent to the date one (1) year after the Effective Time or in respect
of a Loss in respect of accounts receivable or for which the Parent has
otherwise been previously reimbursed by the Stockholders and Optionholders.
(b) (i) If any third party shall notify Parent with respect
to any third party claim (a "Third Party Claim") that may give rise to a Loss,
then Parent shall promptly notify the Shareholders' Representative thereof in
writing; provided, however, that no delay on the part of Parent in notifying
the Shareholders' Representative shall relieve the Stockholders or
Optionholders from any obligation hereunder unless (and then solely to the
extent) such Stockholders or Optionholders thereby are prejudiced.
(ii) The Stockholders and Optionholders will have the
right to defend the Parent against the Third Party Claim with counsel of their
choice reasonably satisfactory to Parent so long as (A) the Stockholders and
Optionholders so notify the Parent in writing within fifteen (15) days,
acknowledging that such claim is in respect of a Loss described in Section
8.06(a); (B) the amount of value in the Escrow Account (as defined in the
Escrow Agreement) exceeds the sum of the damages asserted in the Third Party
Claim and a reasonable estimate of the Stockholder's costs and expenses
(including attorneys' fees) of defending the Third Party Claim; (C) the Third
Party Claim involves only money damages and does not seek an injunction
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<PAGE> 48
or other equitable relief; (D) settlement of, or an adverse judgment with
respect to, the Third Party Claim is not, in the good faith judgment of the
Parent, likely to establish a precedential custom or practice materially
adverse to the continuing business interests of the Parent; and (E) the
Stockholders and Optionholders conduct the defense of the Third Party Claim
actively and diligently. In the event of any such defense, the Stockholders
and Optionholders shall be reimbursed from the Escrow Account promptly and
periodically for the costs of such defense (including reasonable attorneys'
fees and expenses).
(iii) So long as the Stockholders and Optionholders are
conducting the defense of the Third Party Claim in accordance with Section
8.06(b)(ii), (A) the Parent may retain separate co-counsel at its sole cost and
expense and participate in the defense of the Third Party Claim, (B) the Parent
will not consent to the entry of any judgment or enter into any settlement with
respect to the Third Party Claim without the prior written consent of the
Shareholders' Representative (which consent will not be withheld unreasonably);
and (C) the Stockholders and Optionholders will not consent to the entry of any
judgment or enter into any settlement with respect to the Third Party Claim
without the prior written consent of the Parent (which consent will not be
withheld unreasonably).
(iv) In the event any of the conditions in Section
8.06(b)(ii) is or becomes unsatisfied, however, (A) the Parent may defend
against the Third Party Claim in any manner it reasonably may deem appropriate;
provided, however, that the Parent shall not consent to the entry of any
judgment or enter into any settlement or agreement to settle a Third Party
Claim without the prior written consent of the Shareholders' Representative,
which consent shall not be unreasonably withheld; (B) the Parent shall be
reimbursed from the Escrow Account promptly and periodically for the costs of
defending against the Third Party Claim (including reasonable attorneys' fees
and expenses); and (C) the Stockholders and Optionholders will remain
responsible for any Loss the Parent actually suffers resulting from, arising
out of, relating to, in the nature of, or caused by the Third Party Claim to
the fullest extent provided in this Section 8.06.
(c) (i) Each Stockholder and each Optionholder of the
Company hereby agrees that Parent shall hold back and place into escrow
pursuant to the Escrow Agreement (the "Escrow Account"), an aggregate of
$6,375,000 in deemed value ("Indemnification Amount"), to secure the indemnity
obligations provided for herein. Initially, at the Effective Time, the
Indemnification Amount shall be represented by ten percent (10%), rounded to
the nearest whole share, of the total number of shares of Parent Common Stock
to be received by each Stockholder and each Optionholder. Each Stockholder and
each Optionholder may, commencing on the later of (i) the date on which the
Shelf Registration Statement is declared effective by the SEC and (ii) the
Financial Result Date, cause all (but not less than all) of its shares of
Parent Common Stock held in the Escrow Account to be sold in accordance with
the method of distribution set forth in the Shelf Registration Statement;
provided that such Stockholder or Optionholder shall deposit in the Escrow
Account no later than the Business Day after the settlement date of such sale
an amount of cash equal to the proceeds of such sale, and further provided that
such proceeds are greater than $18.75 per share of Parent Common Stock. The
Stockholders and Optionholders shall not be required to indemnify Parent unless
the aggregate of all amounts for which
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indemnity would otherwise be due exceeds $100,000 (the "Threshold Amount"), in
which case the Stockholders and Optionholders shall be responsible for the full
amount of such Liability excluding the Threshold Amount. The Assets in Escrow
shall be referred to as the "Escrow Assets."
(ii) At any time Parent shall have a claim for
indemnification, Parent shall submit such claim to the Shareholders'
Representative and within thirty (30) calendar days thereof the Shareholders'
Representative shall notify Parent, in writing, whether he agrees with such
claim; provided, however, that in the event that the Shareholders'
Representative shall fail to so notify Parent, the Shareholders' Representative
shall be deemed to have agreed to the release of securities or cash from the
Escrow Account. In the event that the Shareholders' Representative notifies
Parent that he disagrees with such claim, the Shareholders' Representative
shall provide Parent with a written notice specifying the basis for such
disagreement and, if the Shareholders' Representative and Parent shall be
unable to reach agreement within thirty (30) days, the matter will be submitted
to arbitration pursuant to the rules of the American Arbitration Association in
Houston, Texas, before a panel of three (3) arbitrators, the cost of which
shall be borne equally by the Stockholders and Optionholders, on one hand, and
Parent on the other. Any determination by the arbitrators shall be final and
binding on the parties.
(iii) For purposes of calculating quantities of shares to
be paid to the Parent pursuant to this Section 8.06, each share of Parent
Common Stock shall be valued at $18.75 per share, and payments in cash
deposited pursuant to Subsection 8.06(c)(i) shall be made in an amount equal to
the product of number of shares due to be paid multiplied by the proceeds
received per share. Any and all distributions to and from the Escrow Account
shall be allocated among the Stockholders and Optionholders, pro rata, based on
each Stockholder's or Optionholder's interest in shares of Parent Common Stock
to be issued pursuant to the consummation of the Merger (or cash substituted
therefore), as separate subaccounts for each holder. In no event shall the
Stockholders and Optionholders be required to indemnify Parent from Assets
other than the Escrow Assets in the Escrow Account, including the cash required
to be placed in the Escrow Account pursuant to Subsection 8.06(c)(i), if
applicable, except as otherwise provided in subsection (g) of this Section
8.06, if applicable. In the event that the Merger is consummated, these
indemnification provisions shall be Parent's sole remedy for the matters
covered in this Section.
(d) For the purposes of this Section 8.06, Stockholders and
Optionholders holding a majority of the Parent Common Stock in the Escrow
Account may, by written notice signed by them and delivered to Parent, appoint
any other individual to act in the place and stead of the Shareholders'
Representative. In the event of the death, incapacity or resignation of the
Shareholders' Representative, if no such replacement is appointed within thirty
(30) days, Parent may designate an interim replacement to serve until such
appointment.
(e) The remedy provided for in this Section 8.06 shall be the
only remedy available to Parent or Parent Sub following the Effective Time with
respect to claims for Losses described in Section 8.06(a).
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(f) In connection with this Agreement and the Escrow Agreement
and the transactions contemplated hereby and thereby, respectively, the Company
and the Stockholders and Optionholders agree that the Stockholders'
Representative shall not be liable for any error of judgment or for any act
done or omitted by the Stockholders' Representative in good faith or for any
mistake in fact or law, except its own willful misconduct or gross negligence.
(g) Notwithstanding anything to the contrary, in the event
that (i) shares of Parent Common Stock are released from the Escrow Account as
a result of the Net Book Value being less than $21,244,000 as contemplated by
Section 6.11 and (ii) the Escrow Assets are reduced to zero as a result of
indemnification claims made by Parent, each Stockholder and Optionholder shall
be, severally, but not jointly, obligated to return to Parent (i) its pro rata
share of the number of such shares of Parent Common Stock that were released
from the Escrow Account to Parent in respect of any Net Book Value Adjustment
pursuant to Section 6.11, or (ii) an amount of cash equal to the product of (x)
the number of shares of Parent Common Stock in (i) above, and (y) $18.75 per
share.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01. Effectiveness of Representations, Warranties and
Agreements. (a) Except as set forth in Section 9.01(b), the representations,
warranties and agreements of each party hereto shall remain operative and in
full force and effect regardless of any investigation made by or on behalf of
any other party hereto, any person controlling any such party or any of their
officers or directors, whether prior to or after the execution of this
Agreement.
(b) The representations, warranties and agreements in this
Agreement shall terminate on the first anniversary of the Effective Time,
except that the representations, warranties and agreements set forth in Section
3.03, and Article III A, and Section 6.06, Section 6.07 and Article VIII and
Article IX shall not so terminate.
SECTION 9.02. Notices. All notices and other communications
given or made pursuant hereto shall be in writing and shall be deemed to have
been duly given or made as of the date delivered, mailed or transmitted, and
shall be effective upon receipt, if delivered personally, mailed by registered
or certified mail (postage prepaid, return receipt requested) to the parties at
the following addresses (or at such other address for a party as shall be
specified by like changes of address) or sent by electronic transmission to the
telecopier number specified below:
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(a) If to Parent or Parent Sub:
Nabors Industries, Inc.
515 West Greens Road
Houston, Texas 77067
Attention: Anthony G. Petrello
Telecopier No.: (713) 775-8188
with a copy to:
Baker & McKenzie
805 Third Avenue
New York, New York 10022
Attention: Howard M. Berkower, Esq.
Telecopier No.: (212) 759-9133
(b) If to the Company:
ADCOR-Nicklos Drilling Company
2727 Allen Parkway, Suite 1535
Houston, Texas 77019
Attention: Jack S. Blanton, Jr.
Telecopier No.: (713) 529-3656
with a copy to:
Baker & Botts, L.L.P.
One Shell Plaza
910 Louisiana
Houston, Texas 77002-4995
Attention: J. David Kirkland, Jr., Esq.
Telecopier No.: (713) 229-1522
SECTION 9.03. Certain Definitions. For purposes of this
Agreement, the term:
"Affiliate" means a person that directly or indirectly, through
one or more intermediaries, controls, is controlled by, or is under common
control with, the first mentioned person;
"Affiliated Group" means any affiliated group within the meaning
of Code Sec. 1504 or any similar group defined under a similar provision of
state, local or foreign law;
"Agreement" as defined in the Preamble;
"AMEX" as defined in Section 6.06(b);
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"Assets" means any and all properties and assets (real, personal
or mixed, tangible or intangible) of any person;
"Balance Sheet" as defined in Section 3.07;
"Basis" means any past or present fact, situation, circumstance,
status, condition, activity, practice, plan, occurrence, event, incident,
action, failure to act, or transaction that forms or could form the basis for
any specified consequence;
"Blue Sky Laws" as defined in Section 3.05(b);
"Business Day" means any day other than a day on which banks in
the State of Texas are authorized or obligated to be closed;
"Certificate of Merger" as defined in Section 1.02;
"Certificates" as defined in Section 2.02(a);
"Code" means the Internal Revenue Code of 1986, as amended;
"Company" as defined in the Preamble;
"Company Common Stock" as defined in Section 2.01(a);
"Company Employee Benefit Plan" as defined in Section 3.24;
"Company Material Adverse Effect" means any change or effect
that, individually or when taken together with all other such changes or
effects, is or is reasonably likely to be materially adverse to the business,
properties, assets, condition (financial or otherwise), liabilities, operations
or prospects of the Company and its subsidiaries taken as a whole, at the time
of such change or effect. A Company Material Adverse Effect shall be deemed to
exist if there shall occur any event which causes or may reasonably be expected
to cause or result in estimable monetary loss which, individually or when
aggregated with all other events, exceeds $2,000,000;
"Company Permits" as defined in Section 3.06;
"Company Stock Options" as defined in Section 2.05;
"Competing Transaction" as defined in Section 5.02(g);
"Contract" of any Person means any contract, agreement or
instrument of any type whatsoever (i) to which such Person is a party and by
which such Person either has made a
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binding undertaking to perform an obligation or is entitled to any property or
right, or (ii) by which any of the assets of such Person is bound;
"Control" (including the terms "controlled", "controlled by" and
"under common control with") means the possession, directly or indirectly or as
trustee or executor, of the power to direct or cause the direction of the
management or policies of a person, whether through the ownership of stock or
as trustee or executor, by contract or credit arrangement or otherwise;
"Delaware Law" as defined in the Preamble;
"Dissenting Shares" as defined in Section 2.04;
"Effective Period" as defined in Section 6.06(a);
"Effective Time" as defined in Section 1.02;
"Employee Benefit Plan" means (a) any bonus, incentive
compensation, profit sharing, retirement, pension, group insurance, death
benefit, group health, medical expense reimbursement, workers' compensation,
dependent care, flexible benefits or cafeteria, stock option, stock purchase,
stock appreciation rights, savings, deferred compensation, consulting,
severance pay or termination pay, vacation pay, life insurance, disability,
welfare or other employee benefit or fringe benefit plan, program or
arrangement; or (b) any plan, program or arrangement which is an Employee
Pension Benefit Plan, Employee Welfare Benefit Plan or Multiemployer Plan.
"Employee Pension Benefit Plan" has the meaning set forth in
ERISA Sec. 3(2);
"Employee Welfare Benefit Plan" has the meaning set forth in
ERISA Sec. 3(1);
"Encumbrances" as defined in Section 3.03(b);
"Environmental, Health, and Safety Laws" means the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, the Resource
Conservation and Recovery Act of 1976, and the Occupational Safety and Health
Act of 1970, each as amended, together with all other laws (including rules,
regulations, codes, plans, injunctions, judgments, orders, decrees, rulings,
and charges thereunder) of federal, state, local, and foreign governments (and
all agencies thereof) concerning pollution or protection of the environment,
public health and safety, or employee health and safety, including laws
relating to emissions, discharges, releases, or threatened releases of
pollutants, contaminants, or chemical, industrial, hazardous, or toxic
materials or wastes into ambient air, surface water, ground water, or lands or
otherwise relating to the manufacture, processing, distribution, use,
treatment, storage, disposal, transport, or handling of pollutants,
contaminants, or chemical, industrial, hazardous, or toxic materials or wastes;
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"ERISA" means the Employee Retirement Income Security Act of
1974, as amended;
"ERISA Affiliate" means each person (as defined in Section 3(9)
of ERISA) that together with the Company or any of its subsidiaries (or any
person whose liabilities the Company or any of its subsidiaries has assumed or
is otherwise subject to) would be considered or has been a single employer
under Section 4001(b) of ERISA or would be considered or has been a member of
the same "controlled group", under common control, a member of the same
affiliated service group or otherwise a single employer within the meaning of
Section 414(b), (c), (m) and (o) of the Code (provided, however, that when the
subject of the provision is a Multiemployer Plan only subsections (b) and (c)
of Section 414 of the Code shall be taken into account).
"Exchange Agent" as defined in Section 2.02(a);
"Exchange Ratio" as defined in Section 2.01(a);
"Extremely Hazardous Substance" has the meaning set forth in Sec.
302 of the Emergency Planning and Community Right-to-Know Act of 1986, as
amended;
"Fair Market Value" of any Asset means the value that would be
obtained in an arm's length transaction between an informed and willing buyer
and an informed and willing seller;
"Fiduciary" has the meaning set forth in ERISA Sec. 3(21);
"Financial Result Date" as defined in Section 6.02;
"Financial Statements" as defined in Section 3.07;
"GAAP" means United States generally accepted accounting
principles as in effect from time to time;
"Government Entities" as defined in Section 3.05(b);
"HSR Act" as defined in Section 3.05(b);
"Indemnification Amount" as defined in Section 8.06(c);
"Intellectual Property" means (a) all inventions (whether
patentable or unpatentable and whether or not reduced to practice), all
improvements thereto, and all patents, patent applications, and patent
disclosures, together with all reissuances, continuations, continuations-in-
part, revisions, extensions, and reexaminations thereof, (b) all trademarks,
service marks, trade dress, logos, trade names, and corporate names, together
with all translations, adaptations, derivations, and combinations thereof and
including all goodwill
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associated therewith, and all applications, registrations, and renewals in
connection therewith, (c) all copyrightable works, all copyrights, and all
applications, registrations, and renewals in connection therewith, (d) all mask
works and all applications, registrations, and renewals in connection
therewith, (e) all trade secrets and confidential business information
(including ideas, research and development, know-how, formulas, compositions,
manufacturing and production processes and techniques, technical data, designs,
drawings, specifications, customer and supplier lists, pricing and cost
information, and business and marketing plans and proposals), (f) all computer
software (including data and related documentation), (g) all other proprietary
rights, and (h) all copies and tangible embodiments thereof (in whatever form
or medium);
"Interim Balance Sheet" as defined in Section 3.07;
"Interim Financial Statements" as defined in Section 3.07;
"Knowledge" or "Known" shall mean, with respect to any matter in
question, if an executive officer of the Company or Parent, as the case may be,
has actual knowledge of such matter;
"Laws" as defined in Section 3.05(a);
"Liabilities" as defined in Section 3.08;
"Lien" means any lien, charge, encumbrance, mortgage, conditional
sale agreement, title retention agreement, financing lease, pledge or security
interest of any kind or type and whether arising by Contract or under Law;
"Loss" as defined in Section 8.06(a);
"Merger" as defined in the Preamble;
"Merger Consideration" as defined in Section 2.02(a);
"Multiemployer Plan" has the meaning set forth in ERISA Sec.
3(37);
"Optionholders" as defined in the Preamble;
"Ordinary Course of Business" with respect to any entity, means
the ordinary course of business consistent with past custom and practice
(including with respect to quantity and frequency) of that entity;
"Parent" as defined in the Preamble;
"Parent Common Stock" as defined in Section 2.01(a);
"Parent Material Adverse Effect" shall mean any change or effect
that,
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individually or when taken together with all such other changes or effects, is
or is reasonably likely to be materially adverse to the business, properties,
assets, condition (financial or otherwise), liabilities, operations or
prospects of Parent and its subsidiaries, taken as a whole at the time of such
change or effect. A Parent Material Adverse Effect shall be deemed to exist if
there shall occur any event which causes or may reasonably be expected to cause
or result in estimable monetary loss which, individually or when aggregated
with all other events, exceeds $60,000,000;
"Parent Preferred Stock" as defined in Section 4.03;
"Parent SEC Reports" as defined in Section 4.07;
"Parent SEC Reports" as defined in Section 4.07;
"Parent Sub" as defined in the Preamble;
"PBGC" means the Pension Benefit Guaranty Corporation;
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization, or a governmental entity (or any department, agency, or political
subdivision thereof);
"Prohibited Transaction" has the meaning set forth in ERISA Sec.
406 and Code Sec. 4975;
"Prospectus" as defined in Section 6.06(c);
"Proxy" as defined in Section 2.02A;
"Registration Shares" as defined in Section 6.06(a);
"Reportable Event" has the meaning set forth in ERISA Sec. 4043;
"Representatives" as defined in Section 5.04;
"SEC" as defined in Section 4.07;
"Securities Act " means the Securities Act of 1933, as amended;
"Securities Exchange Act" means the Securities Exchange Act of
1934, as amended;
"Security Interest" means any mortgage, pledge, lien,
encumbrance, charge, or other security interest, other than (a) mechanic's,
materialmen's, and similar liens, (b) liens for Taxes not yet due and payable,
(c) purchase money liens and liens securing rental payments
51
<PAGE> 57
under capital lease arrangements, and (d) other liens arising in the Ordinary
Course of Business and not incurred in connection with the borrowing of money;
"Shelf Registration Form" as defined in Section 6.06(a);
"Significant Subsidiary" or "Significant Subsidiaries" means any
subsidiary of the Company or Parent, as the case may be, that would constitute
a Significant Subsidiary of such party within the meaning of Rule 1-02 of
Regulation S-X of the SEC;
"Stock Options" as defined in Section 3.03(a);
"Stockholder" as defined in the Preamble;
"Subsidiary" or "Subsidiaries" of the Company, Parent, the
Surviving Corporation or any other person, means any corporation, partnership,
joint venture or other legal entity of which the Company, Parent, the Surviving
Corporation or such other person, as the case may be (either alone or through
or together with any other subsidiary), owns, directly or indirectly, 50% or
more of the capital stock or other equity interests the holders of which are
generally entitled to vote for the election of the board of directors or other
governing body of such corporation or other legal entity;
"Surviving Corporation" as defined in Section 1.01;
"Tax" or "Taxes" shall mean any and all taxes, charges, fees or
levies, payable to any federal, state, local or foreign taxing authority or
agency, including, without limitation, (i) income, franchise, profits, gross
receipts, minimum, alternative minimum, estimated, ad valorem, value added,
sales, use, service, real or personal property, capital stock, license,
payroll, withholding, disability, employment, social security, workers
compensation, unemployment compensation, utility, severance, excise, stamp,
windfall profits, transfer and capital gains taxes, (ii) custom duties,
imposts, charges, levies or other similar assessments of any kind, and (iii)
interest, penalties and additions to tax imposed with respect thereto;
"Tax Return" shall mean any return, declaration, report, claim
for refund, or information return or statement relating to Taxes, including any
schedule or attachment thereto, and including any amendment thereof; and
"Third Party Claim" as defined in Section 8.06.
SECTION 9.04. Headings. The headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
SECTION 9.05. Severability. If any term or other provision of
this Agreement is determined to be invalid, illegal or incapable of being
enforced by any rule of law or public
52
<PAGE> 58
policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties
hereto shall negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner to the end that the transactions contemplated hereby are fulfilled to
the extent possible.
SECTION 9.06. Entire Agreement. This Agreement (together with
the Exhibits) constitutes the entire agreement of the parties and supersedes
all prior agreements and undertakings, both written and oral, between the
parties, or any of them, with respect to the subject matter hereof.
SECTION 9.07. Assignment. This Agreement shall not be assigned
by operation of law or otherwise except Parent Sub may, without the Company's
approval, assign its interests to a wholly owned subsidiary of Parent.
SECTION 9.08. Parties in Interest. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto, and nothing
in this Agreement, express or implied, is intended to or shall confer upon any
other person any right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement.
SECTION 9.09. Failure or Indulgence Not Waiver; Remedies
Cumulative. No failure or delay on the part of any party hereto in the exercise
of any right hereunder shall impair such right or be construed to be a waiver
of, or acquiescence in, any breach of any representation, warranty or agreement
herein, nor shall any single or partial exercise of any such right preclude
other or further exercise thereof or of any other right. All rights and
remedies existing under this Agreement are in addition to, and not exclusive
of, any rights or remedies otherwise available.
SECTION 9.10. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE,
REGARDLESS OF THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES
OF CONFLICTS OF LAW.
SECTION 9.11. JURISDICTION. EXCEPT WITH RESPECT TO MATTERS THAT
THE PARTIES HERETO HAVE AGREED TO SUBMIT TO BINDING ARBITRATIONS, EACH PARTY
HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE JURISDICTION OF ANY UNITED STATES
DISTRICT COURT LOCATED IN THE STATE OF DELAWARE OR ANY COURT OF THE STATE OF
DELAWARE, ANY ACTION, SUIT OR PROCEEDING ARISING IN CONNECTION WITH THIS
AGREEMENT, AND AGREES THAT ANY SUCH ACTION, SUIT OR PROCEEDING SHALL BE BROUGHT
ONLY IN SUCH COURT (AND WAIVES ANY OBJECTION BASED ON FORUM NON CONVENIENS OR
ANY OTHER OBJECTION TO VENUE THEREIN); PROVIDED, HOWEVER, THAT SUCH CONSENT TO
JURISDICTION IS SOLELY FOR THE PURPOSE REFERRED TO IN THIS SECTION 9.11 AND
SHALL NOT
53
<PAGE> 59
BE DEEMED TO BE A GENERAL SUBMISSION TO THE JURISDICTION OF SAID COURTS OR IN
THE STATE OF DELAWARE OTHER THAN FOR SUCH PURPOSE.
SECTION 9.12. Counterparts. This Agreement may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
54
<PAGE> 60
IN WITNESS WHEREOF, the parties hereto have executed or caused
this Agreement to be executed as of the date first written above by their
respective officer thereunto duly authorized.
NABORS INDUSTRIES, INC.
By:
-----------------------------------------
Name:
Title:
NABORS ACQUISITION CORP. 96
By:
-----------------------------------------
Name:
Title:
ADCOR-NICKLOS DRILLING COMPANY
By:
-----------------------------------------
Name:
Title:
STOCKHOLDERS OF ADCOR-NICKLOS DRILLING
COMPANY
------------------------------------------
[Name]
shares
-------
------------------------------------------
[Name]
shares
-------
I, ______________, am the spouse of _________ and hereby agree
and acknowledge that I will be bound by the terms, provisions, representations
and warranties of this Agreement as a Stockholder with respect to any shares of
stock of the Company beneficially owned by me.
------------------------------------------
[Name]
OPTIONHOLDERS OF ADCOR-NICKLOS
DRILLING COMPANY
------------------------------------------
[Name]
<PAGE> 1
EXHIBIT 10.16
STOCK PURCHASE AGREEMENT
AMONG
NABORS DRILLING USA, INC.,
SAMSON INVESTMENT COMPANY,
EASON DRILLING & SERVICES COMPANY,
SAMSON RIG COMPANY
AND
RIG PROPERTIES, INC.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I -- DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II -- SALE AND TRANSFER OF SHARES; CLOSING . . . . . . . . . . . . . 8
2.1 Purchase and Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.2 Scheduled Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.3 Actions Prior to the Closing . . . . . . . . . . . . . . . . . . . . . . 8
2.4 Actions at the Closing . . . . . . . . . . . . . . . . . . . . . . . . . 9
2.5 Effectiveness of Closing . . . . . . . . . . . . . . . . . . . . . . . . 9
2.6 Deferred Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF PURCHASER . . . . . . . . . 10
3.1 Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.2 Authorization and Enforceability . . . . . . . . . . . . . . . . . . . . 10
3.3 No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.4 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.5 Banker's/Finder's Fee . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.6 Sufficient Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.7 Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES OF SAMSON . . . . . . . . . . . 11
AND THE CORPORATIONS
4.1 Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.2 Authorization and Enforceability . . . . . . . . . . . . . . . . . . . 12
4.3 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.4 No Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.5 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.6 Operations of Newco and Newco2 . . . . . . . . . . . . . . . . . . . . 13
4.7 Litigation and Claims . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.8 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.9 Environmental, Health and Safety Compliance . . . . . . . . . . . . . . 13
4.10 Title . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.11 Employees; Employee Benefit Plans . . . . . . . . . . . . . . . . . . . 15
4.12 Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.13 Compliance With Laws; Permits . . . . . . . . . . . . . . . . . . . . . 16
4.14 Banker's/Finder's Fee . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.15 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.16 Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
4.17 Powers of Attorney . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.18 Guaranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
4.19 Completeness of Disclosure . . . . . . . . . . . . . . . . . . . . . . . 17
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
ARTICLE V -- PRE-CLOSING COVENANTS . . . . . . . . . . . . . . . . . . . . . 17
5.1 Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.2 Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.3 Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.4 Issuance of Securities . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.5 Governing Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
5.6 No Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.7 No Dispositions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.8 Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.9 Other Actions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.10 Advice of Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.11 Maintenance of Rigs . . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.12 Exclusivity of Dealing . . . . . . . . . . . . . . . . . . . . . . . . . 18
5.13 Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VI -- COVENANTS OF SELLER AND PURCHASER . . . . . . . . . . . . . . . 18
6.1 Access and Inquiry . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.2 Hart-Scott-Rodino Act . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.3 Notices to Third Parties . . . . . . . . . . . . . . . . . . . . . . . . 19
6.4 Risk of Loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.5 Inspection of Real Property and Leases . . . . . . . . . . . . . . . . . 20
6.6 No Warranty; Acceptance of Assets . . . . . . . . . . . . . . . . . . . . 20
6.7 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.8 Mutual Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.9 Preservation of Seller's Files and Records . . . . . . . . . . . . . . . 21
6.10 Access for Purposes of Litigation . . . . . . . . . . . . . . . . . . . 21
6.11 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE VII -- CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS . . . . . . . 22
7.1 Accuracy of Representations and Warranties . . . . . . . . . . . . . . . 22
7.2 Performance of Covenants and Agreements . . . . . . . . . . . . . . . . . 22
7.3 Release of Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.4 Hart-Scott-Rodino Act . . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.5 Permits, Consents, etc . . . . . . . . . . . . . . . . . . . . . . . . . 22
7.6 Litigation Concerning this Agreement . . . . . . . . . . . . . . . . . . 22
7.7 Certificate of Seller . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.8 Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
7.9 Delivery of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE VIII -- CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS . . . . . . . . 23
8.1 Accuracy of Representations and Warranties . . . . . . . . . . . . . . . 23
8.2 Performance of Covenants and Agreements . . . . . . . . . . . . . . . . . 23
8.3 Hart-Scott-Rodino Act . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
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<PAGE> 4
<TABLE>
<S> <C>
8.4 Litigation Concerning this Agreement . . . . . . . . . . . . . . . . . . 23
8.5 Certificate of Purchaser . . . . . . . . . . . . . . . . . . . . . . . . 24
8.6 Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
8.7 Delivery of Documents . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ARTICLE IX -- TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
9.2 Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE X -- INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . 25
10.1 General Indemnification by Purchaser . . . . . . . . . . . . . . . . . . 25
10.2 General Indemnification by Samson and the Seller . . . . . . . . . . . . 26
10.3 Defense of Third Party Claims . . . . . . . . . . . . . . . . . . . . . 26
10.4 Matters Involving the Parties . . . . . . . . . . . . . . . . . . . . . 28
10.5 Right to Indemnification Not Affected by Knowledge . . . . . . . . . . . 28
10.6 Consequential and Incidental Damages . . . . . . . . . . . . . . . . . . 28
10.7 Determination of Damages . . . . . . . . . . . . . . . . . . . . . . . . 28
ARTICLE XI -- TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . 29
11.1 Certain Non-Income Tax Matters . . . . . . . . . . . . . . . . . . . . . 29
11.2 Taxes Operations on or Before Closing Date . . . . . . . . . . . . . . . 29
11.3 Taxes Operations Subsequent to Closing Date . . . . . . . . . . . . . . 31
11.4 Income Taxes Resulting from this Transaction . . . . . . . . . . . . . . 31
11.5 Tax Sharing Agreements . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE XII -- GENERAL . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
12.1 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
12.2 No Other Representations, Etc . . . . . . . . . . . . . . . . . . . . . 32
12.3 Headings. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
12.4 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
12.5 Counterparts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
12.6 Binding Agreements; Assignment. . . . . . . . . . . . . . . . . . . . . 32
12.7 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
12.8 U.S. Dollars. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
12.9 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
12.10 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
12.11 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
12.12 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
12.13 Survival of Representations, Warranties, Covenants
and Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
12.14 Parties in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . 34
12.15 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
12.16 Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . 34
12.17 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
</TABLE>
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<PAGE> 5
EXHIBITS
2.4(a) FORM OF STOCK POWER
7.8 FORM OF LEGAL OPINION OF GENERAL COUNSEL OF SAMSON
8.6 FORM OF LEGAL OPINION OF COUNSEL OF PURCHASER
SCHEDULES
1.9 CONTRACTS
1.28 LEASED REAL PROPERTY
1.38 OWNED REAL PROPERTY
1.46 RIGS, INCLUDING EQUIPMENT
1.47 ROLLING STOCK
4.1(b) FOREIGN QUALIFICATIONS OF NEWCO
4.1(c) FOREIGN QUALIFICATIONS OF NEWCO2
4.1(d) FOREIGN QUALIFICATIONS OF SELLER
4.1(e) OFFICERS, DIRECTORS AND ORGANIZATIONAL DOCUMENTS
4.10 LEASES
4.12 COMMITMENTS
4.15 NOTICES OF CANCELLATION
6.1 CONFIDENTIALITY OBLIGATIONS
The schedules and exhibits have been omitted. The Company agrees to furnish to
the Securities and Exchange Commission supplementally a copy of any omitted
schedule or exhibit.
<PAGE> 6
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT, dated as of the 20th day of March, 1997
(this Agreement ), is by and between Nabors Drilling USA, Inc., a Delaware
corporation having its principal place of business at 515 West Greens Road,
Suite 1200, Houston, Texas 77067 ( Purchaser ), Samson Investment Company, a
Nevada corporation having its principal place of business at Two West Second
Street, Tulsa, Oklahoma 74103 ( Samson ), Eason Drilling & Services Company, a
Delaware corporation ( Seller ), Samson Rig Company, an Oklahoma corporation (
Newco ), and Rig Properties, Inc., a Delaware corporation ( Newco2 ).
RECITALS:
WHEREAS, Seller desires to sell, and Purchaser desires to purchase, all
of the issued and outstanding shares of capital stock in Newco and Newco2;
WHEREAS, Seller owns certain assets which will be transferred to Newco
and Newco2 prior to the sale and purchase of such shares; and
WHEREAS, as a condition to its purchase of such shares, Purchaser
requires Samson and Seller to make certain representations, warranties and
covenants and to agree to indemnify Purchaser in certain respects, all as more
fully set forth herein;
NOW, THEREFORE, in consideration of the agreements, mutual
representations, warranties and covenants herein contained, and on the terms
and subject to the conditions herein set forth, the parties hereto agree as
follows:
ARTICLE I -- DEFINITIONS
For the purposes of this Agreement, the following defined terms shall
have the meanings set forth in this Article I. All Article, Section and
Schedule numbers and references used herein refer to Articles and Sections of
this Agreement and Schedules attached hereto, or delivered simultaneously
herewith, unless otherwise specifically described.
1.1 Affiliate means a Person that, directly or indirectly through
one or more intermediaries, Controls, is Controlled by or is
under common Control with, the first mentioned Person.
1.2 Agreement means this Stock Purchase Agreement.
1.3 Assets means all Rigs, Contracts, Owned Real Property, Leases,
Rolling Stock and Miscellaneous Files and Records which in each
case are owned by Seller and are to be owned prior to Closing by
Newco and Newco2 and all franchises, approvals, permits,
licenses, orders, registrations, certificates, variances and
similar rights
<PAGE> 7
obtained from Governmental Authorities that are related to any of
the Assets to the extent that the same are capable of conveyance.
1.4 Business Day means a day which is not a Saturday, a Sunday or a
United States federal or banking holiday.
1.5 Closing means the consummation of the purchase and sale of the
Shares contemplated in this Agreement.
1.6 Closing Amount has the meaning set forth in Section 2.1.
1.7 Closing Date means the date on which the Closing shall occur.
1.8 Code means the Internal Revenue Code of 1986, as amended, or any
amending or superseding tax law of the United States of America,
together with all rules and regulations promulgated thereunder.
1.9 Contracts means all rights under the contracts, agreements and
other arrangements and documents described on Schedule 1.9.
1.10 Control (including the terms Controlled, Controlled by and
under common Control with) means the possession, directly or
indirectly or as trustee or executor, of the power to direct or
cause the direction of the management or policies of a Person,
whether through the ownership of stock or as trustee or executor,
by contract or credit arrangement or otherwise.
1.11 Corporations means Seller, Newco and Newco2.
1.12 Damages means any and all claims, penalties, fines, damages
(including, without limitation, incidental and consequential
damages with respect to third party claims), liabilities,
interest, losses, expenses or costs (including, without
limitation, Litigation Expenses and remediation costs incident to
Indemnified Claims).
1.13 DOJ means the United States Department of Justice.
1.14 Employee Benefit Plan means (a) any bonus, incentive
compensation, profit sharing, retirement, pension, group
insurance, death benefit, group health, medical expense
reimbursement, workers' compensation, dependent care, flexible
benefits or cafeteria, stock option, stock purchase, stock
appreciation rights, savings, deferred compensation, consulting,
severance pay or termination pay, vacation pay, life insurance,
disability, welfare or other employee benefit or fringe benefit
plan, program or arrangement; or (b) any plan, program or
arrangement which is an employee pension benefit plan (as defined
in ERISA Sec. 3(2)), employee welfare
2
<PAGE> 8
benefit plan (as defined in ERISA Sec. 3(1)) or multiemployer
plan (as defined in ERISA Sec. 3(37)).
1.15 Environment means soil, land surface or subsurface strata,
surface waters (including navigable waters, ocean waters,
streams, ponds, drainage basins and wetlands), groundwaters,
drinking water supply, stream sediments, ambient air (including
indoor air), plant and animal life and any other environmental
medium or natural resource.
1.16 Environmental, Health and Safety Liabilities means any cost,
damages, expense, liability, obligation or other responsibility
arising from or under Environmental Law or Occupational Safety
and Health Law and consisting of or relating to:
(a) any environmental, health or safety matters or conditions
(including on-site or off-site contamination, occupational
safety and health and regulation of chemical substances or
products);
(b) fines, penalties, judgments, awards, settlements, legal or
administrative proceedings, damages, losses, claims,
demands and response, investigative, remedial or
inspection costs and expenses arising under Environmental
Law or Occupational Safety and Health Law;
(c) financial responsibility under Environmental Law or
Occupational Safety and Health Law for cleanup costs or
corrective action, including any investigation, cleanup,
removal, containment or other remediation or response
actions required by applicable Environmental Law or
Occupational Safety and Health Law (whether or not any
such actions have been required or requested by any
Governmental Authority or any other Person) and for any
natural resource damages; or
(d) any other compliance, corrective, investigative or
remedial measures required under Environmental Law or
Occupational Safety and Health Law.
The terms removal, remedial and response action include the
types of activities covered by the United States Comprehensive
Environmental Response, Compensation and Liability Act, 42 U.S.C.
Section 9601 et seq., as amended.
1.17 Environmental Law means any Legal Requirement that requires or
relates to:
(a) advising appropriate authorities, employees and the public
of intended or actual releases of pollutants or hazardous
substances or materials, violations of discharge limits or
other prohibitions and of the commencements of
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activities, such as resource extraction or construction,
that could have significant impact on the Environment;
(b) preventing or reducing to acceptable levels the release of
pollutants or hazardous substances or materials into the
Environment;
(c) reducing the quantities, preventing the release or
minimizing the hazardous characteristics of wastes that
are generated;
(d) assuring that products are designed, formulated, packaged
and used so that they do not present unreasonable risks to
human health or the Environment when used or disposed of;
(e) protecting resources, species or ecological amenities;
(f) reducing to acceptable levels the risks inherent in the
transportation of hazardous substances, pollutants, oil or
other potentially harmful substances;
(g) cleaning up pollutants that have been released, preventing
the threat of release or paying the costs of such clean up
or prevention; or
(h) making responsible parties pay private parties, or groups
of them, for damages done to their health or the
Environment or permitting self-appointed representatives
of the public interest to recover for injuries done to
public assets.
1.18 ERISA means the Employee Retirement Income Security Act of 1974
or any successor law, together with any regulations and rules
issued pursuant to that Act or any successor law.
1.19 Form 8023-A has the meaning set forth in Section 11.4(b).
1.20 FTC means the United States Federal Trade Commission.
1.21 Governmental Authority means the governments of the United
States of America, any state of the United States of America or
any political subdivision thereof or any foreign or tribal
government or any agency, board, bureau, department or commission
of any of the foregoing, including, without limitation, any court
or other judicial or arbitral entity.
1.22 HSR Act means the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended, together with the rules and regulations
promulgated thereunder.
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1.23 Indemnified Claim means any matter which may give rise to a
claim indemnifiable pursuant to this Agreement.
1.24 Indemnified Party means the party asserting indemnification
pursuant to this Agreement.
1.25 Indemnifying Party means the party who has assumed liability for
indemnification pursuant to this Agreement.
1.26 Inspection Reports has the meaning set forth in Section 6.5.
1.27 Knowledge means, with respect to any party, either (a) the
personal knowledge, after due investigation, of any officer or
director of such party or (b) as reflected in such party's files
and records.
1.28 Leased Real Property means the real property described on
Schedule 1.28.
1.29 Leases means the lease agreements relating to the Leased Real
Property.
1.30 Legal Requirement means any federal, state, local, municipal,
foreign, international, multinational or other administrative
order, constitution, law, ordinance, principle of common law,
regulation, statute or treaty.
1.31 Lien means any charge, claim, community property interest,
condition, equitable interest, lien, encumbrance, option, pledge,
security interest, right of first refusal or restriction of any
kind, including any restriction on use, voting, transfer, receipt
of income or exercise of any other attribute of ownership.
1.32 Litigation means, with respect to any party, any claim, action,
suit, litigation, proceeding, arbitration or investigation of any
kind, at law or in equity (including actions or proceedings
seeking injunctive relief), pending or Threatened against that
party or any properties or rights of that party, and any
continuing order of, consent decree, settlement agreement or
other similar written agreement with or continuing investigation
by, any Governmental Authority or any judgment, order, writ,
injunction, decree or award of any Governmental Authority or
arbitrator.
1.33 Litigation Expenses means reasonable attorneys' fees and other
costs and expenses (including actual cost of in-house counsel)
incident to proceedings or investigations respecting, or the
prosecution or defense of, a claim.
1.34 Material Adverse Effect means any change or effect that,
individually or when taken together with all other such changes
or effects, is or is reasonably likely to be materially adverse
to the business, properties, assets, condition (financial or
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otherwise), liabilities or operations of Newco and Newco2
(assuming Newco and Newco2 owned all of the Assets) at the time
of such change or effect. A Material Adverse Effect shall be
deemed to exist if there shall occur any event which causes or
may reasonably be expected to cause or result in estimable
monetary loss which individually exceeds $250,000 or when
aggregated with all other events exceeds $750,000.
1.35 Miscellaneous Files and Records means all personal property
(other than furniture, computers and telephone systems located
within the Enid, Oklahoma, office facility), active files, on-
going contracts and books and records owned or used by the
Corporations in connection with the operation of the Assets.
1.36 Newco means Samson Rig Company, an Oklahoma corporation.
1.37 Occupational Safety and Health Law means any Legal Requirement
designed to provide safe and healthful working conditions and to
reduce occupational safety and health hazards and any program,
whether governmental or private (including those promulgated or
sponsored by industry associations and insurance companies),
designed to provide safe and healthful working conditions.
1.38 Owned Real Property means the real property described on
Schedule 1.38.
1.39 Permitted Liens means any minor imperfection of title to Owned
Real Property or similar lien which individually, or in the
aggregate with such other liens or imperfections, does not have a
Material Adverse Effect.
1.40 Person means any individual, corporation (including any non-
profit corporation), general or limited partnership, limited
liability company, joint venture, estate, trust, association,
organization, labor union or other entity or Governmental
Authority.
1.41 Post-Closing Claims means any and all claims, demands, suits,
causes of action, expenses or proceedings asserted by any Person
which, directly or indirectly, arise out of or are related to or
based on (a) the ownership of Assets or the operations of Newco
and Newco2 and (b) acts or failures to act of Newco and Newco2,
including their officers, directors, attorneys, agents,
representatives or Affiliates, in each case, occurring after the
Closing Date. Post-Closing Claims shall include, without
limitation, all Environmental, Health and Safety Liabilities
caused by, arising out of, relating to or resulting from matters
occuring subsequent to the Closing.
1.42 Pre-Closing Claims means any and all claims, demands, suits,
causes of action, expenses or proceedings asserted by any Person
which, directly or indirectly, arise out of or are related to or
based on (a) the ownership of Assets or the operations of the
Corporations and (b) acts or failures to act of the Corporations,
including their
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officers, directors, attorneys, agents, representatives or
Affiliates, in each case, occurring on or prior to the Closing
Date. Pre-Closing Claims shall include, without limitation, all
Environmental, Health and Safety Liabilities caused by, arising
out of, relating to or resulting from matters occuring prior to
the Closing.
1.43 Property Taxes has the meaning set forth in Section 11.1(b).
1.44 Purchase Price has the meaning set forth in Section 2.1.
1.45 Purchase Price Offset has the meaning set forth in Section 2.1.
1.46 Rigs means all drilling rigs, along with all accessories,
components, parts, supplies, tools and associated equipment
related to the drilling and servicing business and owned by
Seller (prior to the Closing) or Newco, which are described on
Schedule 1.46.
1.47 Rolling Stock means all motor vehicles, trailers and forklifts
used by the Seller (prior to the Closing) or Newco, which are
described on Schedule 1.47.
1.48 Samson means Samson Investment Company, a Nevada corporation.
1.49 Samson Entity means Samson and its subsidiaries and Affiliates.
1.50 Section 338(h)(10) Election has the meaning set forth in Section
11.4(a).
1.51 Seller means Eason Drilling & Services Company, a Delaware
corporation, and, unless the context requires otherwise, its
predecessors.
1.52 Shares means all of the issued and outstanding capital stock of
Newco, which consists of 500 shares of common stock, par value
$1.00 per share, and all of the issued and outstanding capital
stock of Newco2, which consists of 1,000 shares of common stock,
par value $.01 per share.
1.53 Tax means any federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, severance, stamp,
occupation, premium, windfall profits, environmental (including
taxes under Code Section 59A), customs duties, capital stock,
franchise, profits, withholding, social security (or similar),
unemployment, disability, real property, personal property,
sales, use, transfer, registration, value added, alternative or
add-on minimum, estimated or other tax of any kind whatsoever,
including any interest, penalty or addition thereto, whether
disputed or not.
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1.54 Tax Return means any return, declaration, report, claim for
refund or information return or statement relating to Taxes,
including any schedule or attachment thereto and including any
amendment thereof.
1.55 Threatened a claim, proceeding, dispute, action or other matter
will be deemed to have been Threatened with respect to a party
if (a) any demand, statement or notice has been made in writing
to such party or (b) any other event has occurred or any other
circumstances exist, of which event or circumstances such party
has Knowledge, that would lead a prudent Person in such party's
position and circumstances to conclude that such a claim,
dispute, action or other matter is likely to be asserted,
commenced, taken or otherwise pursued in the future.
1.56 Transfer Documents has the meaning set forth in Section 2.3.
1.57 Voting Debt has the meaning set forth in Section 4.3(e).
ARTICLE II -- SALE AND TRANSFER OF SHARES; CLOSING
2.1 Purchase and Sale. Subject to and upon the terms and conditions
contained herein, at the Closing, Seller shall sell and transfer the Shares to
Purchaser and Purchaser shall purchase and acquire the Shares from Seller, free
and clear of all Liens or restrictions on transfer. Upon the terms and subject
to the conditions set forth in this Agreement and in exchange for and in
consideration for the Shares and other consideration set forth in this
Agreement, Purchaser shall pay to Seller Eighty-five Million and no/100 Dollars
($85,000,000.00) (the Purchase Price ), subject to reduction by the sum of any
and all amounts designated by this Agreement as Purchase Price Offsets (as so
reduced, the Closing Amount ).
2.2 Scheduled Closing Date. The Closing shall be held on the second
Business Day following the expiration or termination of the applicable waiting
period under the HSR Act, unless Seller and Purchaser shall agree to a
different Closing Date. The Closing shall take place at 10:00 a.m. local time
at the offices of Seller in Tulsa, Oklahoma, or at such other time and place as
the parties hereto shall agree in writing. Except as provided in Article IX,
failure to consummate the purchase and sale provided for in this Agreement on
the date and time and at the place determined pursuant to this Section 2.2 will
not result in the termination of this Agreement and will not relieve any party
of any obligation under this Agreement.
2.3 Actions Prior to the Closing. Subject to Section 6.4, immediately
prior to the Closing, Seller shall, and Samson shall cause any Samson Entities
to, transfer, convey and deliver to Newco and Newco2 all right, title and
interest in and to the Assets, and Seller, Newco and Newco2 shall, and Samson
shall cause any Samson Entities to, execute, or cause to be executed, all
documents and instruments that Purchaser may reasonably require to evidence
such transfer, conveyance and delivery (the Transfer Documents ). Seller
shall not, and Samson shall ensure that the Samson Entities will not, transfer,
convey or deliver to Newco and Newco2 any assets or
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<PAGE> 14
liabilities other than those contemplated by this Agreement without the prior
written consent of Purchaser.
2.4 Actions at the Closing. At the Closing:
(a) Seller shall deliver to Purchaser certificates
representing the Shares, together with executed stock
powers in the form of Exhibit 2.4(a).
(b) Purchaser shall deliver to Seller the Closing Amount in
immediately available United States funds by wire transfer
to:
Financial Institution: Liberty Bank and Trust Company of
Tulsa,
Tulsa, Oklahoma
ABA Routing No.: 103900010
Account Name: Samson Investment Company
Account Number: 3969037
(c) Seller shall deliver to Purchaser (i) any minute books and
stock transfer books of Newco and Newco2 that are not then
in the possession of Purchaser, (ii) legally effective
resignations of all of the directors and officers of Newco
and Newco2 and (iii) any Miscellaneous Files and Records
that are not then in the possession of Purchaser.
(d) Seller shall deliver to Purchaser the certificate
described in Section 7.7.
(e) Purchaser shall deliver to Seller the certificate
described in Section 8.5.
(f) Seller, Newco and Newco2 shall deliver to Purchaser at
least one executed counterpart of all Transfer Documents.
(g) Seller shall deliver to Purchaser bring-down telegrams
from the Secretaries of State of the States of Oklahoma
and Delaware, dated as of the Closing Date, that indicate
that Newco and Newco2 are corporations existing and in
good standing in the States of Oklahoma and Delaware,
respectively.
(h) The parties shall deliver such other documents and
instruments as are required pursuant to Articles VII and
VIII, unless waived in writing by the party entitled to
delivery thereof.
2.5 Effectiveness of Closing. No action to be taken or delivery to
be made at the Closing shall be effective until all of the actions to be taken
and deliveries to be made at the Closing are complete.
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2.6 Deferred Closing. If, on the second Business Day following the
expiration or termination of any applicable waiting period under the HSR Act,
Samson and the Corporations have satisfied all conditions set forth in Articles
VII and VIII that are within the reasonable control of Samson, the Corporations
or any of their Affiliates, and if the Closing shall occur subsequent to such
second Business Day, then Purchaser shall pay to Seller at the Closing interest
on the Closing Amount accruing from and after such second Business Day until
the Closing Date, at an annual rate of eight percent.
ARTICLE III -- REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Samson and the Corporations
as follows:
3.1 Incorporation. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
with full corporate power to enter into this Agreement and perform its
obligations hereunder and thereunder.
3.2 Authorization and Enforceability. The execution and delivery of
this Agreement by Purchaser and the performance by Purchaser of its obligations
hereunder have been duly and validly authorized by all necessary corporate
action of Purchaser. This Agreement has been duly executed and validly
delivered by Purchaser and, assuming the due authorization, execution and
delivery thereof by Samson and the Corporations, is a legal, valid and binding
obligation of Purchaser, enforceable against the Purchaser in accordance with
its terms.
3.3 No Conflict. The execution and delivery of this Agreement by
Purchaser and the performance by Purchaser of its obligations hereunder do not
and will not (a) conflict with the charter documents or bylaws of Purchaser or
(b) result in the breach of any of the provisions of, constitute a default
under or give rise to a right of acceleration of, any material obligations or
to a loss of any material benefit under any judgment, writ, permit, concession,
franchise, license, order, decree or agreement to which Purchaser is a party or
by which Purchaser is bound, which breach, default, right of acceleration or
loss would materially adversely affect the ability of Purchaser to execute or
deliver or perform its obligations under this Agreement.
3.4 Consents. Except for any applicable HSR Act filing, no
authorization, consent, approval, permit or license of, filing with or
notification to any Governmental Authority, any lender or lessor or any other
Person is required to authorize or is required in connection with the
execution, delivery and performance of this Agreement on the part of Purchaser.
3.5 Banker's/Finder's Fee. Purchaser has made no agreement with any
Person regarding, nor taken any action which would cause any Person to become
entitled to, any agent's, broker's, investment banking or finder's fee in
connection with the transactions contemplated hereby.
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3.6 Sufficient Funds. Purchaser has internal resources or financing
commitments from responsible financial institutions available which are in an
aggregate amount sufficient to consummate the transactions contemplated hereby.
3.7 Investment. Purchaser is acquiring the Shares for its own
account, for investment, and not with a view to, or for offer or resale in
connection with, a distribution (within the meaning of Section 2(11) of the
Securities Act of 1933, as amended) of any of the Shares or any beneficial
interest in the Shares or distribution thereof in violation of any applicable
securities laws.
ARTICLE IV -- REPRESENTATIONS AND WARRANTIES OF SAMSON
AND THE CORPORATIONS
Samson and the Corporations hereby jointly and severally represent and
warrant to Purchaser as follows:
4.1 Incorporation.
(a) Samson is a corporation duly organized, validly existing
and in good standing under the laws of the State of Nevada
with full corporate power and authority to enter into this
Agreement and perform its obligations hereunder and
thereunder.
(b) Newco is a corporation duly organized, validly existing
and in good standing under the laws of the State of
Oklahoma, with full corporate power and authority to own,
lease and operate its properties and to carry on its
business as currently conducted and to enter into this
Agreement and perform its obligations hereunder and is a
corporation duly qualified and in good standing to do
business in each jurisdiction in which the location of the
Assets or the nature of its business makes such
qualification necessary. Schedule 4.1(b) sets forth all
of the jurisdictions where Newco is authorized, or
otherwise qualified, to do business as a foreign
corporation.
(c) Newco2 is a corporation duly organized, validly existing
and in good standing under the laws of the State of
Delaware, with full corporate power and authority to own,
lease and operate its properties and to carry on its
business as currently conducted and to enter into this
Agreement and perform its obligations hereunder and is a
corporation duly qualified and in good standing to do
business in each jurisdiction in which the location of the
Assets or the nature of its business makes such
qualification necessary. Schedule 4.1(c) sets forth all
of the jurisdictions where Newco2 is authorized, or
otherwise qualified, to do business as a foreign
corporation.
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(d) Seller is a corporation duly organized, validly existing
and in good standing under the laws of the State of
Delaware, with full corporate power and authority to own,
lease and operate its properties and to carry on its
business as currently conducted and to enter into this
Agreement and perform its obligations hereunder and is a
corporation duly qualified and in good standing to do
business in each jurisdiction in which the location of the
Assets or the nature of its business makes such
qualification necessary. Each of Seller's predecessors in
interest was duly qualified and in good standing to do
business in each jurisdiction in which the location of the
Assets or the nature of its business made such
qualification necessary. Schedule 4.1(d) sets forth all
of the jurisdictions where Seller is authorized, or
otherwise qualified, to do business as a foreign
corporation.
(e) Schedule 4.1(e) contains (i) a list of the officers and
directors of Newco and Newco2 and (ii) complete and
correct copies of (A) the Certificates of Incorporation
and the By-Laws, in each case as amended or restated, of
Newco and Newco2, (B) the agreement and plan of merger
pursuant to which Seller was created, (C) the certificate
of merger with Seller as the surviving entity and (D) all
other filings or constituent documents relating to the
merger of Seller.
4.2 Authorization and Enforceability. The execution and delivery of
this Agreement by Samson and each of the Corporations, and the performance by
such party of its obligations hereunder, have been duly and validly authorized
by all necessary corporate action of such party. This Agreement has been duly
executed and validly delivered by such party and, assuming the due
authorization, execution and delivery thereof by Purchaser, is a legal, valid
and binding obligation of such party, enforceable against such party in
accordance with its terms.
4.3 Capitalization.
(a) The Shares constitute all of the authorized, issued and
outstanding capital stock of Newco and Newco2.
(b) Seller is the sole record and beneficial owner of the
Shares. The Shares are free and clear of all Liens,
options, agreements, voting trusts and proxies.
(c) The Shares have been duly and validly issued and are fully
paid and nonassessable and were not issued in violation of
any preemptive rights.
(d) There are no rights, subscriptions, warrants, options,
calls, commitments, conversion rights, exchange rights or
agreements of any kind outstanding or in effect to
purchase or otherwise acquire (i) any capital stock or
debt securities of Newco or Newco2 or (ii) any obligations
of any kind convertible
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into, or exchangeable for, any shares of capital stock or
debt securities of Newco or Newco2.
(e) There are no bonds, debentures, notes or other
indebtedness or securities (other than the Shares) having
the right to vote on any matters on which the shareholders
may vote ( Voting Debt ) issued or outstanding related to
Newco or Newco2.
4.4 No Conflict. The execution and delivery of this Agreement by
Samson and each of the Corporations, and the performance by such party of its
obligations hereunder, do not and will not (a) conflict with the charter
documents or by-laws of such party or (b) result in the breach of any of the
provisions of, constitute a default under or give rise to a right of
acceleration of, any material obligations or to loss of any material benefit
under any judgment, writ, permit, concession, franchise, license, order, decree
or agreement to which such party is a party or by which such party is bound,
which breach, default, right of acceleration or loss would materially adversely
affect the ability of such party to execute or deliver or perform its
obligations under this Agreement.
4.5 Consents. Except for any applicable HSR Act filing, no
authorization, consent, approval, permit or license of, filing with or
notification to any Governmental Authority, any lender or lessor or any other
Person is required to authorize or is required in connection with the
execution, delivery and performance of this Agreement on the part of Samson or
the Corporations.
4.6 Operations of Newco and Newco2. Since their inception, Newco and
Newco2 have not conducted any business, nor have they suffered any Material
Adverse Effect.
4.7 Litigation and Claims. There is no Litigation pending or
Threatened against Newco or Newco2 or affecting any of the Assets or which
would reasonably be expected to affect the enforceability of the Contracts.
4.8 Insurance. All insurance coverage under Samson's insurance
programs for Seller shall be extended to Newco and Newco2 and shall be
maintained at Samson's expense until 12:01 a.m. CST on the day following the
day of the Closing. At such time, such insurance coverage shall terminate with
respect to events or occurrences following such time.
4.9 Environmental, Health and Safety Compliance. The Corporations are
not subject to liability under any Environmental Law or Occupational Safety and
Health Law that has had or is reasonably expected to have a Material Adverse
Effect.
4.10 Title. (a) As of the date hereof, Seller or another Samson
Entity has, and, as of the Closing Date, Newco will have, good and marketable
title to all Assets (other than Owned Real Property and Leases), and all such
Assets are owned, and will be owned on the Closing Date, free and clear of any
and all Liens. Samson has the power and authority to cause any Samson Entity
to transfer title to any Assets held by such Samson Entity to Newco.
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(b) With respect to each parcel of Owned Real Property:
(i) Seller has, as of the date hereof, and Newco2 will have as
of the Closing Date, good and marketable title (good and
indefeasible title in Texas) to such parcel, free and clear of
any Lien, easement, covenant or other restriction, except for
installments of special assessments not yet delinquent and
recorded easements, covenants and other restrictions which do not
impair the current use, occupancy, value or marketability of
title (indefeasibility of title in Texas), of the property
subject thereto;
(ii) there are no pending or Threatened condemnation
proceedings, lawsuits or administrative actions relating to such
parcel or other matters affecting materially and adversely the
current use, occupancy or value thereof;
(iii) the legal description for the parcel contained in the deed
thereof describes such parcel fully and adequately, the buildings
and improvements are located within the boundary lines of the
described parcels of land, are not in violation of applicable
setback requirements, zoning laws and ordinances (and none of the
properties or buildings or improvements thereon are subject to
permitted non-conforming use or permitted non-conforming
structure classifications) and do not encroach on any easement
which may burden the land, and the land does not serve any
adjoining property for any purpose inconsistent with the use of
the land, and the property is not located within any flood plain
or subject to any similar type restriction for which any permits
or licenses necessary to the use thereof have not been obtained;
(iv) to the Knowledge of Samson and the Corporations, all
facilities have received all approvals of Governmental
Authorities (including licenses and permits) required in
connection with the ownership or operation thereof and have been
operated and maintained in accordance with applicable laws, rules
and regulations;
(v) except as noted on Schedule 4.10, there are no leases,
subleases, licenses, concessions or other agreements, written or
oral, granting to any party or parties the right of use or
occupancy of any portion of the parcel;
(vi) there are no outstanding options or rights of first
refusal to purchase the parcel or any portion thereof or interest
therein;
(vii) except as noted on Schedule 4.10, there are no parties
(other than Seller as of the date hereof and Newco2 as of the
Closing Date) in possession of the parcel; and
(viii) all facilities located on the parcel are supplied with
utilities and other services necessary for the operation of such
facilities, including gas, electricity, water,
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<PAGE> 20
telephone, sanitary sewer and storm sewer, all of which services
are adequate in accordance with all applicable laws, ordinances,
rules and regulations and are provided via public roads or via
permanent, irrevocable, appurtenant easements benefitting the
parcel.
(c) Seller or another Samson Entity has, as of the date
hereof, and Newco2 will have as of the Closing Date a valid
leasehold interest in all Leased Real Property. Samson has the
power and authority to cause any Samson Entity to transfer any
leasehold interest held by such Samson Entity to Newco2. Samson
or Seller has delivered to the Purchaser correct and complete
copies of all Leases. With respect to each Lease:
(i) the Lease is legal, valid, binding, enforceable and in
full force and effect;
(ii) except as noted on Schedule 4.10, the Lease will continue
to be legal, valid, binding, enforceable and in full force and
effect on identical terms following the consummation of the
transactions contemplated hereby;
(iii) no party to the Lease is in breach or default, and no
event has occurred which, with notice or lapse of time, would
constitute a breach or default or permit termination,
modification or acceleration thereunder;
(iv) no party to the Lease has repudiated any provision
thereof;
(v) there are no disputes, oral agreements (other than those
set forth on Schedule 1.9) or forbearance programs in effect as
to the Lease;
(vi) neither of the Corporations has assigned, transferred,
conveyed, mortgaged, deeded in trust or encumbered any interest
in the leasehold;
(vii) all Leased Real Property has received all approvals of
Governmental Authorities (including licenses and permits)
required in connection with the operation thereof and has been
operated and maintained in accordance with applicable laws, rules
and regulations; and
(viii) except as noted on Schedule 4.10, all Leased Real Property
is supplied with utilities and other services necessary for the
operation of the Leased Real Property, including those set forth
in Section 4.10(b)(viii).
4.11 Employees; Employee Benefit Plans. Newco and Newco2 do not have,
and have not had since their inception, any employees. Newco and Newco2 have
no liability, either directly or indirectly as a member of a controlled group
treated as a single employer under Sections 414(b), (c), (m) or (o) of the
Code, under or with respect to: (a) any Employee Benefit Plan; (b) any funded
or
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<PAGE> 21
unfunded medical, health or life insurance plan or arrangement for retirees or
terminated employees; (c) any employment, collective bargaining or change in
control agreement; or (d) any violation of Sections 162(k) or 4980B of the
Code.
4.12 Commitments. The Corporations have not entered into, nor are the
Assets bound by, any contract, agreement, instrument or commitment, whether or
not in writing, in respect of the Assets, Newco or Newco2, other than the
Transfer Documents, the Contracts and as set forth on Schedule 4.12.
4.13 Compliance With Laws; Permits. There are no existing violations
by the Corporations of any applicable federal, state or local law or regulation
or order, decree or judgment of any Governmental Authority, except as will not
have a Material Adverse Effect. All franchises, approvals, permits, licenses,
orders, registrations, certificates, variances and similar rights obtained from
Governmental Authorities that are necessary for Newco and Newco2 to own, lease
and operate the Assets and to carry on the drilling and servicing business are
in the possession of Seller as of the date hereof, and will be in the
possession of Newco and Newco2 as of the Closing Date, and have not been, and
will not have been on the Closing Date, suspended, canceled or Threatened to be
suspended or canceled, except, in each case, as will not have a Material
Adverse Effect.
4.14 Banker's/Finder's Fee. None of the Corporations or Samson has
made any agreement with any Person regarding, nor taken any action which would
cause any Person to become entitled to, any agent's, broker's, investment
banking or finder's fee from Purchaser, Newco or Newco2 in connection with the
transactions contemplated hereby.
4.15 Contracts. Samson has delivered to Purchaser a correct and
complete copy of each written Contract and a correct and complete written
summary of the terms and conditions of each oral Contract. No material term or
provision of any Contract has been waived, amended or repudiated, and all
rights of all Samson Entities pursuant to the Contracts are held by Seller as
of the date hereof and will be held by Newco on the Closing Date. Except as
set forth on Schedule 4.15, neither Samson nor the Corporations has received
notice of any cancellation or Threatened cancellation of, or default,
acceleration or outstanding dispute under, any Contract. No party is in breach
or default of the terms of any Contract, and no event has occurred that, with
notice or lapse of time or both, would constitute a breach or default, or
permit termination, modification or acceleration, under any Contract. Samson
and the Corporations will take such steps as are necessary to ensure that the
Corporations will not breach any provisions or terms of any Contract. Each
Contract has been duly executed, constitutes the valid and enforceable
obligations of the parties thereto and will continue to be valid and
enforceable following the consummation of the transactions contemplated by this
Agreement.
4.16 Liabilities. There are no duties, liabilities or obligations of
Newco or Newco2 other than those imposed by (a) the Contracts, (b) this
Agreement and (c) applicable statutes, ordinances, rules and regulations.
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4.17 Powers of Attorney. There are no outstanding powers of attorney
executed by or on behalf of Newco or Newco2.
4.18 Guaranties. Newco and Newco2 are not guarantors of, and are not
otherwise liable for, any liability or obligation (including indebtedness) of
any other Person.
4.19 Completeness of Disclosure. No representation or warranty of
Samson, Seller, Newco or Newco2 in this Agreement and no statement in any
Schedule hereto provided by Samson, Seller, Newco or Newco2 omits to state a
material fact necessary to make the statements herein or therein, in light of
the circumstances in which they were made, not misleading. No notice given
pursuant to Section 12.17 by Samson, Seller, Newco or Newco2 will contain any
untrue statement or omit to state a material fact necessary to make the
statements therein or in this Agreement, in light of the circumstances in which
they were made, not misleading.
ARTICLE V -- PRE-CLOSING COVENANTS
Except as otherwise (a) provided for in this Agreement or (b) consented
to in writing by Purchaser, from the date of this Agreement until the Closing:
5.1 Operations. Newco and Newco2 shall not engage in any business
activity other than that required of it in order to comply with their duties
and obligations hereunder. The Corporations shall (a) preserve intact their
present business organization, (b) keep available the services of their present
officers and employees and (c) preserve their relationships with customers,
suppliers and others having business dealings with them toward the end of
preserving their goodwill and ongoing businesses.
5.2 Agreements. Samson shall not permit Newco or Newco2 to, and
Newco and Newco2 shall not, enter into any agreement with any third parties or
the Samson Entities, other than the Contracts and the Transfer Documents.
5.3 Dividends. Samson and the Corporations shall not permit the
declaration or payment of any dividend in respect of, or the repurchase or
redemption of any of, the capital stock of Newco or Newco2 or the Assets of the
Corporations.
5.4 Issuance of Securities. Newco and Newco2 shall not issue,
deliver or sell, or authorize or propose the issuance, delivery or sale of, any
shares of their capital stock of any class, any Voting Debt of Newco or Newco2
or any securities convertible into, or any rights, warrants or options to
acquire, any such shares, Voting Debt of Newco or Newco2 or convertible
securities.
5.5 Governing Documents. Neither Newco nor Newco2 shall amend or
propose to amend its Certificate of Incorporation or By-laws.
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5.6 No Acquisitions. Newco and Newco2 shall not acquire or agree to
acquire, by merging or consolidating with, by purchasing a substantial portion
of the assets of or by any other manner, any business or any corporation,
partnership, association or other business, organization or division thereof.
5.7 No Dispositions. Except as otherwise provided for in this
Agreement, the Corporations shall not sell, lease or otherwise dispose of, or
agree to sell, lease or otherwise dispose of, any of the Assets.
5.8 Indebtedness. Newco and Newco2 shall not incur any indebtedness
for borrowed money, guarantee any such indebtedness, issue or sell any debt
securities of the Corporations or guarantee any debt securities of others.
5.9 Other Actions. The Corporations and Samson shall not to take any
action that would or might result in any of the representations and warranties
of any such party set forth in this Agreement becoming untrue.
5.10 Advice of Changes. Samson shall promptly advise Purchaser orally
and in writing of any change or event having, or which, insofar as can
reasonably be foreseen, would have, a Material Adverse Effect.
5.11 Maintenance of Rigs. Samson shall cause the Corporations to, and
the Corporations shall, continue to store and maintain the Rigs in
substantially the same manner as they were stored and maintained prior to the
date hereof.
5.12 Exclusivity of Dealing. Samson and the Corporations will not,
and will cause each of their employees, officers, directors and agents not to,
directly or indirectly solicit, initiate or encourage any inquiries or
proposals from, discuss or negotiate with, provide any non-public information
to, or consider the merits of any unsolicited inquiries or proposals from, any
Person (other than Purchaser) relating to any transaction involving any (a)
sale or transfer of (i) the business of Newco or Newco2, (ii) Assets or (iii)
capital stock of Newco or Newco2 or (b) merger, consolidation, business
combination or similar transaction involving Newco or Newco2.
5.13 Best Efforts. Between the date of this Agreement and the Closing
Date, Samson and the Corporations will use their best efforts to cause the
conditions in Articles VII and VIII to be satisfied.
ARTICLE VI -- COVENANTS OF SELLER AND PURCHASER
6.1 Access and Inquiry. Subject to the terms of this Agreement and
any outstanding confidentiality obligations, all of which are set forth on
Schedule 6.1, Purchaser and/or its authorized representatives, at reasonable
times, shall have access to, at Purchaser's expense, all of the Assets,
including without limitation, placing an employee of Purchaser on any real
property where any
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Assets are located to inspect and/or inventory such Assets. Seller shall cause
the Corporations to cause their officers, employees and management personnel to
cooperate fully with Purchaser's reasonable requests. In connection therewith,
Seller shall permit Purchaser, at Purchaser's expense, to photocopy relevant
information and records of the Corporations at any reasonable time.
6.2 Hart-Scott-Rodino Act. Within three Business Days following
execution of this Agreement, Seller and Purchaser shall file or cause to be
filed appropriate Notification and Report Forms under the HSR Act with respect
to this Agreement and the transaction contemplated herein. Seller and
Purchaser shall cooperate to coordinate such filings and to make reasonable
efforts to respond to any governmental request or inquiry with respect thereto;
but none of Seller, Purchaser, or any of their respective Affiliates shall be
required to make any payment (other than for reasonable legal fees and, in the
case of Purchaser, the HSR Act filing fees) that it is not presently
contractually required to make, divest any assets (including but not limited to
the Assets), make any change in the conduct of its business or that of the
Corporations, accept any limitation on the future conduct of its business or
that of the Corporations, enter into any other agreement or arrangement with
any Person that it is not presently contractually required to enter into,
accept any significant modification in any existing agreement or arrangement or
agree to any of the foregoing. Seller and Purchaser shall request early
termination of the waiting period under the HSR Act upon the filing of the
Notification and Report Forms.
6.3 Notices to Third Parties. Samson, the Corporations and Purchaser
shall cooperate to make all other filings and to give notice to all third
parties that may reasonably be required to consummate the transactions
contemplated by this Agreement.
6.4 Risk of Loss. Except as specifically set forth in Section 6.1 of
this Agreement, the risk of any loss, damage, impairment, confiscation or
condemnation of the Assets, or any part thereof, shall be upon Samson and the
Seller at all times prior to the Closing. In any such event, Seller shall
promptly notify Purchaser of such event, and the proceeds of or any claim for
any loss payable under any insurance policy, judgment or award with respect
thereto shall be payable to the Seller. In any such event, Purchaser shall, at
its sole option, elect by written notice to Seller either: (a) to require
Seller to repair, replace or restore any such property to the reasonable
satisfaction of Purchaser as soon as possible after its loss, impairment,
confiscation or condemnation; or (b) to treat as a Purchase Price Offset the
value of the lost, destroyed or damaged Asset. If Purchaser elects subsection
(b) above, then the lost, destroyed or damaged Asset shall no longer be deemed
an Asset for purposes of this Agreement, and Seller shall not transfer to Newco
the lost, destroyed or damaged Asset. In such event, the amount of the
Purchase Price Offset shall be determined by mutual agreement of Purchaser and
Seller. If Purchaser and Seller cannot reach such agreement on the amount of
the Purchase Price Offset prior to the Closing Date, the Purchase Price Offset
shall be estimated for the purposes of Closing as equal to the lesser amount
asserted in good faith by either of such parties, and such parties subsequently
shall mutually appoint an independent appraiser to finally determine the amount
of the Purchase Price Offset and shall pay to each other any applicable
difference between the estimated amount and such appraised amount.
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6.5 Inspection of Real Property and Leases. At any time, whether
prior to Closing or within 60 days subsequent thereto, Purchaser shall have the
right to conduct an environmental, health and safety assessment, the scope of
which may be determined by the Purchaser at its sole discretion and which may
include sampling and testing, of the Owned Real Property and the Leased Real
Property (the Inspection Reports ). If Purchaser prepares Inspection Reports,
Purchaser shall deliver to Seller the Inspection Reports promptly upon
completion thereof. Such Inspection Reports shall set forth the results of
Purchaser's environmental assessment of the Owned Real Property and Leased Real
Property. Upon completion of Purchaser's due diligence, including, without
limitation, any Inspection Reports, Purchaser shall have the option, at its
sole discretion, of requiring Seller to re-purchase (a) from Purchaser or
Newco2 any Owned Real Property or any Lease or (b) from Purchaser the Shares of
Newco2. In such event, the purchase price for such property or lease shall be
determined by mutual agreement of the parties (but in no event shall the
aggregate price for all such property and leases exceed $500,000), and the
purchase price for the Shares of Newco2 shall be $500,000. If Purchaser and
Seller cannot reach such agreement on the amount of the purchase price within
60 days subsequent to the Closing Date, the purchase price shall be estimated
as equal to the lesser amount asserted in good faith by either of such parties
and such estimated amount shall be paid by Seller, and such parties
subsequently shall mutually appoint an independent appraiser to finally
determine the amount of the purchase price and shall pay to each other any
applicable difference between the estimated amount and such appraised amount.
If the Purchaser exercises its option pursuant to this Section, the Purchaser
shall have use of and access to the Leased Real Property or the Owned Real
Property at no charge for up to 120 days after the repurchase of such Shares to
relocate the Assets from the Leased Real Property or the Owned Real Property,
as the case may be.
6.6 No Warranty; Acceptance of Assets. EXCEPT AS OTHERWISE PROVIDED
IN THIS AGREEMENT, (a) SELLER MAKES NO WARRANTY, EXPRESS OR IMPLIED, REGARDING
THE ASSETS OR REGARDING COMMERCIAL SUITABILITY OF THE OWNED REAL PROPERTY OR
LEASED REAL PROPERTY, (b) AT THE CLOSING, PURCHASER WILL KNOWINGLY AND
VOLUNTARILY ACCEPT THE ASSETS (OTHER THAN THE OWNED REAL PROPERTY AND THE
LEASES) AS IS AND WHERE IS, AND (c) NO REPRESENTATION OR WARRANTY, EXPRESS
OR IMPLIED, HAS BEEN MADE BY OR ON BEHALF OF THE SELLER WITH RESPECT TO THE
PRESENT CONDITION OF THE ASSETS OR THE PRESENT OR FUTURE SUITABILITY THEREOF
FOR ANY INTENDED USE BY PURCHASER.
6.7 Further Assurances. The parties agree (a) to furnish upon request
to each other such further information, (b) to execute and deliver to each
other such other documents, and (c) to do such other acts and things, all as
any other party may reasonably request for the purpose of carrying out the
intent of this Agreement and the documents referred to in this Agreement.
6.8 Mutual Cooperation. Each party to this Agreement shall cooperate
with the other parties, which cooperation shall include the furnishing of
testimony and other evidence, permitting access to employees and providing
information regarding the whereabouts of former employees, as
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reasonably requested by such other party in connection with the prosecution or
defense of any claims or other matters relating to the Corporations or the
Assets or the other parties' obligations under this Agreement.
6.9 Preservation of Seller's Files and Records. For a period of six
(6) years after the Closing, Seller shall preserve all files and records in
Seller's possession relating to Newco, Newco2 or the Assets and shall allow
Purchaser or its designee access to such files and records and the right to
make copies and extracts therefrom at any time during normal business hours,
and shall not dispose of any thereof; provided, however, that during the sixth
year after the Closing, Seller shall give Purchaser written notice of its
intention to dispose of any part thereof upon expiration of said six (6) year
period, and Purchaser may, within a period of sixty (60) days after receipt of
said notice, notify Seller of Purchaser's desire to retain one or more of the
items to be disposed of. Seller shall, upon receipt of such notice from
Purchaser, at Purchaser's expense, deliver to Purchaser the items specified in
Purchaser's notice to Seller which Purchaser has elected to retain.
6.10 Access for Purposes of Litigation. After the Closing Date, and
subject to any other obligations of Purchaser, Purchaser shall, and shall cause
Newco and Newco2 to, cooperate with Samson and/or its authorized
representatives to provide reasonable access to, and make available for
inspection, any Assets and corporate records of Newco or Newco2 deemed
necessary by Samson to permit Samson to participate in that certain lawsuit
entitled Samson Investment Company and Subsidiaries v. Commissioner of
Internal Revenue, Docket No. 20424-96, United States Tax Court. Purchaser
shall and shall cause Newco and Newco2 to cause their officers, employees and
management personnel to cooperate fully with Samson's requests for such access
and inspection. Samson's inspection of any Assets and inspection or
photocopying of any corporate records and information shall be at Samson's
expense. The provisions of this Section shall be specifically binding on any
successors or assigns of Purchaser, Newco, Newco2 or the Assets and shall
further survive for a period of six (6) years following the Closing.
6.11 Expenses. Except as set forth in Section 9.2, whether or not the
transactions contemplated herein are consummated, each party to this Agreement
shall pay all expenses incurred by it or its Affiliates, or on its or its
Affiliates' behalf, in connection with the preparation, authorization,
execution and performance of this Agreement, including, but not limited to, all
fees and expenses of agents, representatives, counsel and accountants engaged
by it, except that Purchaser shall be solely responsible for the costs and
expenses incurred in connection with obtaining all permits and licenses not
presently required by the Corporations and required by Purchaser, Newco or
Newco2 to continue Newco's or Newco2's business after the Closing; provided,
however, that each party hereto agrees to pay the costs and expenses, including
reasonable attorneys' fees incurred by the other party in successfully (a)
enforcing any of the terms of this Agreement or (b) proving that the other
party breached any of the terms of this Agreement in any manner or respect; and
provided further that Purchaser shall pay any filing fee required for filings
under the HSR Act.
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ARTICLE VII -- CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS
All obligations of Purchaser under this Agreement are subject, at
Purchaser's option, to the fulfillment, prior to or at the Closing, of each of
the conditions set forth in this Article VII. Purchaser may waive any
condition specified in this Article VII by executing a writing so stating at or
prior to the Closing or by electing to proceed with the Closing with such
condition unsatisfied. If Purchaser waives any such unsatisfied condition,
Purchaser shall not be deemed to have waived any other rights or remedies it
may have with respect to such condition.
7.1 Accuracy of Representations and Warranties. Each and every
representation and warranty of Samson and the Corporations under this Agreement
shall be true and accurate as of the date when made and as of the Closing,
except where failure to be so true and accurate would not, either alone or in
the aggregate, have a Material Adverse Effect.
7.2 Performance of Covenants and Agreements. Samson and the
Corporations shall have fully performed in all material respects all of the
covenants and agreements required to be performed by Samson and the
Corporations at or prior to the Closing in accordance with this Agreement.
7.3 Release of Liens. Except for Permitted Liens, on or before the
Closing Date, Seller shall have caused the recordation in the appropriate
governmental offices of releases of any and all Liens which encumber either the
Shares or the Assets.
7.4 Hart-Scott-Rodino Act. All waiting periods under the HSR Act
applicable to the transactions contemplated by this Agreement shall have
expired, by passage of time or by valid early termination by the FTC or the
DOJ; no representative of either the FTC or the DOJ shall be taking the
position that any of such waiting periods has not commenced to run or has not
expired for any reason; and no representative of either the FTC or the DOJ
shall have requested a delay of the Closing for a period which has not expired,
which request has not been withdrawn.
7.5 Permits, Consents, etc. There shall be no material
authorization, consent, approval, permit or license of, filing with or
notification to any Governmental Authority, any lender or lessor or any other
Person required to authorize or required in connection with the execution,
delivery and performance of this Agreement on the part of Samson or the
Corporations which has not been accomplished or obtained.
7.6 Litigation Concerning this Agreement. No action, suit,
proceeding, investigation, inquiry or request for information by any third
Person shall have been instituted or Threatened against Seller or Purchaser or
any of their respective Affiliates that questions, or reasonably could be
expected to lead to subsequent questioning of, the validity or legality of this
Agreement or the transactions contemplated hereby which, if successful, would
materially adversely affect the right of Purchaser to consummate the
transactions contemplated by this Agreement or to utilize the Assets.
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7.7 Certificate of Seller. Each of the Corporations and Samson shall
have delivered to Purchaser a certificate of such party signed by the President
or any Vice President of such party certifying that each of the conditions set
forth in Sections 7.1 and 7.2 have been fulfilled.
7.8 Legal Opinion. Purchaser shall have received the opinion of the
General Counsel of Samson as to this Agreement and the transactions
contemplated hereby, dated as of the Closing Date, in form and substance as set
forth on Exhibit 7.8.
7.9 Delivery of Documents. Each of the Corporations and Samson shall
have executed and delivered all other documents required under the terms of
this Agreement to be executed and delivered by such party to Purchaser at or
prior to the Closing.
ARTICLE VIII -- CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS
All obligations of Seller under this Agreement are subject, at Seller's
option, to the fulfillment, prior to or at the Closing, of each of the
conditions set forth in this Article VIII. Seller may waive any condition
specified in this Article VIII by executing a writing so stating at or prior to
the Closing or by electing to proceed with the Closing with such condition
unsatisfied. If Seller waives any such unsatisfied condition, Seller shall not
be deemed to have waived any other rights or remedies it may have with respect
to such condition.
8.1 Accuracy of Representations and Warranties. Each and every
representation and warranty of Purchaser under this Agreement shall be true and
accurate as of the date when made and as of the Closing, except where failure
to be so true and accurate would not, either alone or in the aggregate, have a
material adverse effect on the business or the operations of Purchaser.
8.2 Performance of Covenants and Agreements. Purchaser shall have
fully performed in all material respects all of the covenants and agreements
required to be performed by Purchaser at or prior to the Closing in accordance
with this Agreement.
8.3 Hart-Scott-Rodino Act. All waiting periods under the HSR Act
applicable to the transactions contemplated by this Agreement shall have
expired, by passage of time or by valid early termination by the FTC or the
DOJ; no representative of either the FTC or the DOJ shall be taking the
position that any of such waiting periods has not commenced to run or has not
expired for any reason; and no representative of either the FTC or the DOJ
shall have requested a delay of the Closing for a period which has not expired,
which request has not been withdrawn.
8.4 Litigation Concerning this Agreement. No action, suit,
proceeding, investigation, inquiry or request for information by any third
Person shall have been instituted or Threatened against Seller or Purchaser or
any of their respective Affiliates, that questions, or reasonably could be
expected to lead to subsequent questioning of, the validity or legality of this
Agreement or the transactions contemplated hereby which, if successful, would
materially adversely affect the right
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of Seller to consummate the transactions contemplated by this Agreement or to
continue the business of the Corporations substantially as currently conducted.
8.5 Certificate of Purchaser. Purchaser shall have delivered to
Seller a certificate of Purchaser signed by the President or any Vice President
of Purchaser certifying that each of the conditions set forth in Sections 8.1
and 8.2 have been fulfilled.
8.6 Legal Opinion. Samson shall have received the opinion of in-
house counsel to Nabors as to this Agreement and the transactions contemplated
hereby, dated as of the Closing Date, in form and substance as set forth on
Exhibit 8.6.
8.7 Delivery of Documents. Purchaser shall have executed and
delivered all other documents required under the terms of this Agreement to be
executed and delivered by the Purchaser to Seller at or prior to Closing.
ARTICLE IX -- TERMINATION
9.1 Termination. This Agreement and the transactions contemplated
hereby may be terminated at any time prior to the Closing:
(a) by mutual written agreement of Samson and Purchaser; or
(b) by Purchaser, if (i) the conditions set forth in Article
VII have not all been fulfilled (or waived by Purchaser)
on or before the sixtieth day following the expiration or
termination of any waiting period under the HSR Act, and
(ii) Purchaser has complied with all of the obligations
applicable to it as set forth in this Agreement
(excluding, however, any obligations not complied with
solely as a result of non-performance by Samson or either
of the Corporations), then, unless the parties shall agree
otherwise in an amendment to this Agreement executed in
accordance with Section 12.7, Purchaser may terminate this
Agreement by giving notice to Samson in the manner
provided in Section 12.17;
(c) by Samson, if (i) the conditions set forth in Article VIII
have not all been fulfilled (or waived by Samson) on or
before the sixtieth day following the expiration or
termination of any waiting period under the HSR Act, and
(ii) Samson and each of the Corporations has complied with
all of the obligations applicable to it as set forth in
this Agreement (excluding, however, any obligations not
complied with solely as a result of non-performance by
Purchaser), then, unless the parties shall agree otherwise
in an amendment to this Agreement executed in accordance
with Section 12.7, Samson may terminate this Agreement by
giving notice to Purchaser in the manner provided in
Section 12.17;
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(d) by Purchaser, if Samson or either of the Corporations
shall be in material breach of this Agreement and such
breaching party shall fail to remedy such breach within
seven Business Days after written notice specifying such
breach in reasonable detail and demanding that the same be
remedied;
(e) by Samson, if Purchaser shall be in a material breach of
this Agreement and shall fail to remedy such breach within
seven Business Days after written notice specifying such
breach in reasonable detail and demanding that the same be
remedied; or
(f) by either Purchaser or Samson if any waiting period under
the HSR Act has not expired or terminated by September 1,
1997.
9.2 Effect of Termination. Each party's right of termination under
Section 9.1 is in addition to any other rights it may have under this Agreement
or otherwise, and the exercise of a right of termination will not be an
election of remedies. If this Agreement is terminated pursuant to Section 9.1,
all further obligations of the parties under this Agreement will terminate,
except that the obligations in Sections 6.10, 9.2 and 12.10 will survive;
provided, however, that if this Agreement is terminated pursuant to Section
9.1(b), (c), (d) or (e), then, at the sole election of the terminating party,
(a) the non-terminating parties, jointly and severally, shall pay to the
terminating party all third-party costs and expenses incurred by the
terminating party as a result of its entering into this Agreement and working
to consummate the transactions contemplated hereby, plus $5,000,000 in cash or
(b) the terminating party may exercise any other right or remedy it may have at
law, in equity or pursuant to this Agreement, including but not limited to
rights to sue for damages or require specific performance, against any or all
of the non-terminating parties. If the terminating party elects the remedy set
forth in subsection (a) of this Section, such remedy shall be exclusive and
shall constitute liquidated damages (and not a penalty) for all claims that the
terminating party may have with respect to any breach by any non-terminating
parties.
ARTICLE X -- INDEMNIFICATION
10.1 General Indemnification by Purchaser.
(a) Subject to the terms, conditions and limitations of this
Article, Purchaser shall indemnify, defend and hold
harmless Seller and its Affiliates from and against any
Damages, directly or indirectly, caused by, arising out
of, relating to or resulting from (i) the failure of
Purchaser to perform or fulfill any agreement or covenant
to be performed or fulfilled by it under this Agreement;
(ii) any inaccuracy in any representation or breach of any
warranty of Purchaser set forth in Article III; and (iii)
all Post-Closing Claims. Such indemnity shall include any
Taxes due as a result of payments under this indemnity.
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(b) Purchaser's obligation to indemnify Seller and its
Affiliates under Sections 10.1(a)(i) and (ii) shall expire
and be of no further force and effect on the third
anniversary of the Closing Date, except with respect to
claims Seller has asserted against Purchaser in writing,
setting forth with reasonable specificity the nature of
such claim, on or before such date.
(c) Purchaser's obligation to indemnify Seller and its
Affiliates under Section 10.1(a)(iii) shall not expire.
10.2 General Indemnification by Samson and the Seller.
(a) Subject to the terms, conditions and limitations of this
Article, Samson and Seller shall, jointly and severally,
indemnify, defend and hold harmless Purchaser and its
Affiliates, Newco and Newco2 from and against any Damages,
directly or indirectly, caused by, arising out of,
relating to or resulting from (i) the failure of Samson or
the Corporations to perform or fulfill any agreement or
covenant to be performed and fulfilled by it under this
Agreement; (ii) any inaccuracy in any representation or
breach of any warranty of Samson or the Corporations set
forth in Article IV; (iii) all Pre-Closing Claims; (iv)
any and all claims asserted by the Internal Revenue
Service or any local, state, federal, tribal or foreign
taxing authority against Purchaser, Newco or Newco2 for
Taxes for which Samson or Seller is liable pursuant to
Article XI; and (v) any inaccuracy in Section 4.3 or 4.10.
Such indemnity shall include any Taxes due as a result of
payments under this indemnity.
(b) Samson's and Seller's obligation to indemnify Purchaser
under Sections 10.2(a)(i) and (ii) shall expire and be of
no further force and effect on the third anniversary of
the Closing Date, except with respect to claims Purchaser
has asserted against Seller in writing, setting forth with
reasonable specificity the nature of such claim, on or
before such date.
(c) Samson's and Seller's obligation to indemnify Purchaser
under Sections 10.2(a)(iii), (iv) and (v) shall not
expire.
10.3 Defense of Third Party Claims.
(a) If any third party shall notify any party with respect to
an Indemnified Claim, such Indemnified Party shall notify
the Indemnifying Party in writing promptly after learning
of an Indemnified Claim but the failure to notify the
Indemnifying Party will not relieve the Indemnifying Party
of any liability that it may have to any Indemnified
Party, except to the extent (and then solely to the
extent) that the Indemnifying Party demonstrates that the
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defense of such action is prejudiced by the Indemnifying
Party's failure to give such notice.
(b) The Indemnifying Party will, unless the Indemnified Claim
involves Taxes, be entitled to participate in the defense
of such claim and, to the extent that it wishes (unless
(i) the Indemnifying Party is also a party to such claim
and the Indemnified Party determines in good faith that
joint representation would be inappropriate or (ii) the
Indemnifying Party fails to provide reasonable assurance
to the Indemnified Party of its financial capacity to
defend such claim and provide indemnification with respect
to such claim), to assume the defense of such claim with
counsel satisfactory to the Indemnified Party and, after
notice from the Indemnifying Party to the Indemnified
Party of its election to assume the defense of such claim,
the Indemnifying Party will not, as long as it diligently
conducts such defense, be liable to the Indemnified Party
under this Article X for any fees of other counsel or any
other expenses with respect to the defense of such claim,
in each case subsequently incurred by the Indemnified
Party in connection with the defense of such claim, other
than reasonable costs of investigation. If the
Indemnifying Party assumes the defense of a claim, (i) it
will be conclusively established for purposes of this
Agreement that the claims made in that claim are within
the scope of and subject to indemnification; (ii) no
compromise or settlement of such claims may be effected
by the Indemnifying Party without the Indemnified Party's
consent unless (A) there is no finding or admission of any
violation of Legal Requirements or any violation of the
rights of any Person and no effect on any other claims
that may be made against the Indemnified Party and (B) the
sole relief provided is monetary damages that are paid in
full by the Indemnifying Party; and (iii) the Indemnified
Party will have no liability with respect to any
compromise or settlement of such claims effected without
its consent. If notice is given to an Indemnifying Party
of the commencement of any claim and the Indemnifying
Party does not, within ten days after the Indemnified
Party's notice is given, give notice to the Indemnified
Party of its election to assume the defense of such claim,
the Indemnifying Party will be bound by any determination
made in such claim or any compromise or settlement
effected by the Indemnified Party.
(c) Notwithstanding the foregoing, if an Indemnified Party
determines in good faith that there is a reasonable
probability that a claim may adversely affect it or its
affiliates other than as a result of monetary damages for
which it would be entitled to indemnification under this
Agreement, the Indemnified Party may, by notice to the
Indemnifying Party, assume the exclusive right to defend,
compromise or settle such claim, but the Indemnifying
Party will not be bound by any determination of a claim so
defended or any
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compromise or settlement effected without its consent
(which may not be unreasonably withheld).
(d) The Indemnifying Party hereby consents to the non-
exclusive jurisdiction of any court in which a claim is
brought against any Indemnified Person for purposes of any
claim that an Indemnified Person may have under this
Agreement with respect to such claim or the matters
alleged therein, and agrees that process may be served on
the Indemnifying Party with respect to such a claim
anywhere in the world.
10.4 Matters Involving the Parties. In the event an Indemnified Party
should have a Indemnified Claim against an Indemnifying Party hereunder that
does not involve a claim by a third party, the Indemnified Party shall transmit
to the Indemnifying Party a written notice describing in reasonable detail the
nature of the claim, an estimate of the amount of damages attributable to such
claim and the basis of the Indemnified Party's request for indemnification
under this Agreement. If the Indemnifying Party does not notify the
Indemnified Party within 30 days of its receipt of such notice that the
Indemnifying Party disputes such claim, the claim shall be deemed a liability
of the Indemnifying Party hereunder and shall be paid within 30 days of the
expiration of the initial 30-day period.
10.5 Right to Indemnification Not Affected by Knowledge. The right to
indemnification, payment of Damages or other remedy based on such
representations, warranties, covenants and obligations will not be affected by
any investigation conducted, or any Knowledge acquired (or capable of being
acquired) by the party claiming indemnification at any time (whether before or
after the execution and delivery of this Agreement or the Closing Date), with
respect to the accuracy or inaccuracy of or compliance with any such
representation, warranty, covenant or obligation. The waiver of any condition
based on the accuracy of any representation or warranty or on the performance
of or compliance with any covenant or obligation, will not affect the right to
indemnification, payment of Damages or other remedy based on such
representations, warranties, covenants and obligations. The remedies provided
in this Article will not be exclusive of or limit any other remedies that may
be available to the Indemnified Party.
10.6 Consequential and Incidental Damages. Except to the extent
asserted by a third party against a party hereto, no party hereto shall seek
consequential or incidental damages from any other party pursuant to this
Article, nor shall it accept payment of any award or judgment rendered in favor
of one party against another party, to the extent that such award or judgment
includes consequential or incidental damages.
10.7 Determination of Damages. Buyer, Seller and Samson shall make
adjustments for tax benefits and insurance coverage in determining Damages for
purposes of this Agreement. All indemnification payments shall be deemed
adjustments to the Purchase Price.
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<PAGE> 34
ARTICLE XI -- TAX MATTERS
11.1 Certain Non-Income Tax Matters.
(a) Samson and the Seller shall be liable for and pay all
Taxes which are sales, use, transfer, stamp, conveyance,
value added or other similar taxes, duties, excises or
governmental charges imposed by any taxing jurisdiction,
domestic or foreign, and all recording or filing fees,
notarial fees and other similar costs of Closing with
respect to the transfer of the Shares or the transfer of
Assets to Newco or Newco2 pursuant to this Agreement.
Samson and the Seller, with respect to such taxes, shall
timely prepare and file or shall cause to be timely
prepared and filed with the appropriate Governmental
Authority all Tax Returns, that are required and due to be
filed after the Closing Date and to pay or cause to be
paid all taxes due with respect to such Tax Returns.
(b) All Taxes which are personal property taxes ( Property
Taxes ) which are imposed for periods or portions of
periods on or prior to the Closing Date with respect to
any of the Assets or with respect to Newco or Newco2 shall
be paid by Samson or the Seller and Samson or the Seller
shall be liable for such Property Taxes, and all Property
Taxes imposed for periods or portions of periods after the
Closing Date shall be paid by the Purchaser. Such
Property Taxes shall be prorated between the Seller and
the Purchaser as of the Closing Date. Prior to the
Closing Date, the parties shall mutually agree on an
estimate of the amount of Property Taxes relating to Owned
Real Property to be paid by Seller, and such estimated
amount shall be a Purchase Price Offset. If Seller's
portion of Property Taxes is finally determined to vary
from such estimated amount, the parties shall pay to each
other any applicable difference between the estimated
amount and the finally determined amount.
11.2 Taxes Operations on or Before Closing Date. Seller shall be
liable for any and all Taxes applicable to the operations of Newco and Newco2
with respect to all periods occurring on or before the Closing Date as follows:
(a) Seller shall be liable for any Taxes owing with respect to
any taxable period of Newco or Newco2 which ends on or
before the Closing Date. With respect to any taxable
period of Newco or Newco2 which ends on or before the
Closing Date, Seller shall timely prepare and file, or
shall cause to be timely prepared and filed, with the
appropriate Governmental Authority, any and all Tax
Returns that are required and due to be filed with respect
to such taxable period (whether or not the filing date for
any taxable period occurs on or after the Closing Date),
and to timely pay or cause to be timely paid,
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<PAGE> 35
any and all Taxes due with respect to such Tax Returns.
Purchaser shall (i) provide, or cause to be provided, to
Seller any data, reports, copies of prior Tax Returns or
other information in the possession of Purchaser or the
Corporations, (ii) make available to Seller for
consultation such personnel of Purchaser, Newco or Newco2
as may have relevant knowledge with respect to such
information and (iii) cooperate and cause Newco and Newco2
to cooperate with Seller, in order to enable Seller to
fulfill its obligations under the preceding sentence;
provided, however, that Seller shall reimburse Purchaser,
Newco or Newco2 for the costs and expenses of such
services. Any Taxes reflected in such Tax Returns, which
were not actually paid by Newco, Newco2 or Seller prior to
the Closing Date and related to any time period prior to
the Closing Date shall be timely paid by Seller directly
to the appropriate Governmental Authority.
(b) With respect to any taxable period of Newco or Newco2
which ends after the Closing Date and which taxable period
encompasses time periods occurring both before and after
the Closing Date, Purchaser shall timely prepare and file,
or shall cause to be timely prepared and filed, with the
appropriate Governmental Authority, any and all Tax
Returns that are required and due to be filed with respect
to such taxable period, and shall pay, or cause to be
paid, all Taxes due with respect to such returns
attributed to periods after the Closing. Seller shall be
liable for and timely pay, or cause to be paid, all Taxes
due with respect to such Tax Returns attributable to
periods prior to or on the Closing Date.
(c) Purchaser will pay, or will cause to be paid, to Seller
any and all refunds of Taxes received by Purchaser or any
Affiliate of Purchaser after the Closing Date and
attributable to Taxes previously paid to the appropriate
Governmental Authority by Seller, Newco or Newco2 (or any
predecessor or Affiliate of Seller, Newco or Newco2) with
respect to all taxable periods ending on or before the
Closing Date. Such payment will be made by check to
Seller within ten days after Purchaser's receipt of any
such Tax refund from the appropriate Governmental
Authority.
(d) In the event of a proposed adjustment by any appropriate
Governmental Authority to increase any Taxes incurred by
Newco or Newco2 for any taxable period ending on or before
the Closing Date and for which Samson, Seller, Newco or
Newco2 previously filed the related Tax Return, Purchaser
will promptly notify Samson, of such proposed adjustment,
and Samson, if it so elects, and at its own expense, may
contest such adjustment with the appropriate Governmental
Authority on behalf of Newco or Newco2; provided, however,
that a delay or failure to so notify the Seller shall not
relieve Seller of any liability pursuant to this Section
11.2(d) unless such
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<PAGE> 36
delay or failure causes Seller to lose the right to assert
a reasonable defense to such claim or adjustment. Any
additional Taxes which become due and payable as a result
of such adjustment will be indemnifiable pursuant to the
provisions of Article X hereof.
11.3 Taxes Operations Subsequent to Closing Date. Purchaser shall be
liable for any and all Taxes applicable to the operations of Newco and Newco2
with respect to all periods occurring subsequent to the Closing Date as
follows:
With respect to any taxable period of Newco or Newco2 which commences
subsequent to the Closing Date, Purchaser shall timely prepare and file, or
shall cause to be timely prepared and filed, with the appropriate Governmental
Authority any and all Tax Returns that are required and due to be filed with
respect to such taxable periods, and to pay or cause to be paid, any and all
Taxes with respect to such Tax Returns. Any Taxes due with respect to such Tax
Returns shall be paid by Purchaser directly to the appropriate Governmental
Authority.
11.4 Income Taxes Resulting from this Transaction.
(a) Both Purchaser and Seller are eligible to and may make a
timely and effective election under Section 338(g) of the
Code, with respect to the purchase and sale of the Shares
hereunder. Further, both Seller and Purchaser are
eligible to and may make or may cause to be made a timely
and effective election under Section 338(h)(10) of the
Code (the Section 338(h)(10) Election ).
(b) In order to assure that Purchaser will be able to make a
Section 338(h)(10) Election, Purchaser will deliver to
Samson, at least five days prior to the Closing, a
completed Internal Revenue Service Form 8023-A and any
required schedules thereto ( Form 8023-A ) and any
analogous state tax form, providing for the Section
338(h)(10) Election and any analogous state election.
Samson shall review and comment on the Form 8023-A prior
to the Closing. At the Closing, Samson and Purchaser
shall execute two Forms 8023-A and any analogous state tax
forms. Upon written instructions from Purchaser, Samson
and Purchaser will each timely file the Form 8023-A and
any required supplements thereto and any analogous state
tax forms and will provide assurance to each other that
they have done so.
(c) Any Tax liabilities incurred as a result of the Section
338(h)(10) Election (including without limitation, any
income Tax liabilities resulting from a state failure to
recognize the Section 338(h)(10) Election) or as a result
of the failure of Newco or Newco2 to qualify for a Section
338(h)(10) Election (other than as a result of any acts or
failures to act by Purchaser) will be the responsibility
of Seller, and the provisions of Sections 11.2(a) and
11.2(b) of this Agreement shall apply to such Tax
liabilities.
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11.5 Tax Sharing Agreements. All tax sharing agreements or similar
agreements with respect to or involving Newco or Newco2 shall be terminated as
of the Closing Date and, after the Closing Date, Newco and Newco2 shall not be
bound thereby or have any liability thereunder.
ARTICLE XII -- GENERAL
12.1 Entire Agreement. This Agreement and the other agreements,
documents and instruments being delivered at the Closing set forth the entire
agreement and understanding of the parties with respect to the transactions
contemplated hereby and supersede all prior agreements, arrangements and
understandings relating to the subject matter hereof, whether written or oral.
12.2 No Other Representations, Etc. No representation, promise,
inducement or statement of intention relating to the transactions contemplated
by this Agreement has been made by or on behalf of any party hereto which is
not set forth in this Agreement.
12.3 Headings. The Article and Section headings contained in this
Agreement are for convenient reference only and shall not in any way affect the
meaning or interpretation of this Agreement.
12.4 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF TEXAS, EXCLUDING THE
CONFLICT OF LAWS PROVISIONS THEREOF THAT WOULD OTHERWISE REQUIRE THE
APPLICATION OF THE LAW OF ANY OTHER JURISDICTION.
12.5 Counterparts. This Agreement may be executed in multiple
counterparts (including counterparts executed by one party), each of which
shall be an original, but all of which shall constitute a single agreement.
12.6 Binding Agreements; Assignment. This Agreement shall be binding
upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns. This Agreement shall not be assignable by
any party without the prior written consent of the other parties; provided,
however, that Purchaser may assign any or all of its rights and interests
hereunder to one or more of its Affiliates and may designate one or more of its
Affiliates to perform any or all of its obligations hereunder (in which case
Purchaser nonetheless shall remain responsible for the performance of all of
its obligations hereunder).
12.7 Amendment. This Agreement may be amended only in a writing
executed by the parties hereto which specifically states that it amends this
Agreement.
12.8 U.S. Dollars. All dollar amounts set forth or referenced herein
are deemed to be expressed in U.S. currency.
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12.9 Publicity. The parties hereto agree that, following the
execution of this Agreement, any party may issue or cause the publication of a
press release or other public announcement with respect to the transactions
contemplated by this Agreement if both Purchaser and Samson shall have mutually
agreed to the content of such press release or other public announcement,
except that Purchaser or Samson may in any event make such filings and
disclosures as may be required by applicable law, rule, regulation or
requirement of any applicable stock exchange.
12.10 Confidentiality. Between the date of this Agreement and the
Closing Date, the parties hereto will maintain in confidence, and will cause
the directors, officers, employees, agents and advisors of Purchaser, Samson
and the Corporations to maintain in confidence, and not use to the detriment of
a party to this Agreement any information obtained from a party to this
Agreement in connection with this Agreement or the transactions contemplated
herein, unless (a) such information is already known to such party or to others
not bound by a duty of confidentiality or such information becomes publicly
available through no fault of such party, (b) use of such information is
necessary or appropriate in making any filing or obtaining any consent or
approval required for the consummation of the transactions contemplated herein
or (c) the furnishing or use of such information is required by legal
proceedings or applicable law or requirement of the American Stock Exchange.
If the transactions contemplated by this Agreement are not consummated, each
party will return or destroy all information provided to it by the other party.
The provisions of this Section shall survive notwithstanding the termination of
this Agreement.
12.11 Severability. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Furthermore, in lieu of such illegal, invalid or
unenforceable provision, there shall be added automatically as a part of this
Agreement a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
12.12 Waiver. All of the original rights and powers of any party
hereunder shall remain in force notwithstanding any neglect, forbearance or
delay in enforcement thereof, and no party shall be deemed to have waived any
of its rights, any provision of this Agreement or any notice given hereunder
unless such waiver is in a writing signed by an officer of the waiving party.
A waiver by any of Samson or the Corporations shall be deemed to be a waiver by
all of such parties. No such waiver by a party of any breach by another party
of any provision of this Agreement shall be deemed a waiver of any continuing,
future or recurring breach of such provision or any other provision of this
Agreement. No action taken pursuant to this Agreement, including, without
limitation, any investigation by or on behalf of any party, shall be deemed to
constitute a waiver by the party taking such action or compliance with any
representations, warranties, covenants or agreements contained in this
Agreement.
12.13 Survival of Representations, Warranties, Covenants and
Agreements. Except as otherwise provided herein, all representations,
warranties, covenants and agreements of the parties
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<PAGE> 39
contained in this Agreement or in any Schedule shall survive the execution and
delivery of this Agreement and consummation of the transactions provided for in
this Agreement and any related agreements, notwithstanding any investigation
made by, or on behalf of, the parties. The representations and warranties
contained in Articles III and IV of this Agreement shall terminate three years
following the Closing Date, except that Sections 4.3, 4.9 and 4.10 shall not so
terminate.
12.14 Parties in Interest. This Agreement shall not confer any rights
or remedies upon any Person other than the parties hereto and their respective
successors and permitted assigns. Samson acknowledges that the Corporations
are wholly controlled by Samson. Accordingly, Samson agrees that any act or
failure to act resulting in a breach of any of the terms of this Agreement by
the Corporations prior to the consummation of the Closing or by the Seller
shall be deemed to be the act or failure to act of Samson, and Samson shall
assume any and all liability arising from such act or failure to act.
12.15 Construction. THE PARTIES HAVE PARTICIPATED JOINTLY IN THE
NEGOTIATION AND DRAFTING OF THIS AGREEMENT. IF AN AMBIGUITY OR QUESTION OF
INTENT OR INTERPRETATION ARISES, THIS AGREEMENT SHALL BE CONSTRUED AS IF
DRAFTED JOINTLY BY THE PARTIES, AND NO PRESUMPTION OR BURDEN OF PROOF SHALL
ARISE FAVORING OR DISFAVORING ANY PARTY BY VIRTUE OF THE AUTHORSHIP OF ANY OF
THE PROVISIONS OF THIS AGREEMENT. Any reference to any federal, state, local
or foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the context requires otherwise. The
word including shall mean including without limitation. Nothing in the
Schedules hereto shall be deemed adequate to disclose an exception to a
representation or warranty made herein unless the Schedule identifies the
exception with reasonable particularity and describes the relevant facts in
reasonable detail. Without limiting the generality of the foregoing, the mere
listing (or inclusion of a copy) of a document or other item shall not be
deemed adequate to disclose an exception to a representation or warranty made
herein (unless the representation or warranty concerns the existence of the
document or other item itself). The Parties intend that each representation,
warranty and covenant contained herein shall have independent significance.
12.16 Specific Performance. Each of the parties acknowledges and
agrees that the other parties would be damaged irreparably if any of the
provisions of this Agreement are not performed in accordance with their
specific terms or otherwise are breached. Accordingly, each party agrees that
any of the other parties shall be entitled to an injunction or injunctions to
prevent breaches of the provisions of this Agreement and to enforce
specifically this Agreement and the terms and provisions hereof in any action
instituted in any court of the United States or any state thereof having
jurisdiction over the parties and the matter, in addition to any other remedy
to which such other party may be entitled at law or in equity.
12.17 Notices. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be deemed to have been duly
given if in writing and delivered
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(a) personally, (b) by facsimile transmission, (c) by courier service or (d) by
registered or certified mail, return receipt requested, at the following
addresses:
IF TO NEWCO OR NEWCO2 (PRIOR TO THE CLOSING) OR SAMSON OR
SELLER:
Samson Investment Company
Two West Second Street
Tulsa, Oklahoma 74103
Attention: C. Philip Tholen
Facsimile number: (918) 591-1729
Confirmation number: (918 ) 591-1918
With copy to:
Samson Investment Company
Two West Second Street
Tulsa, Oklahoma 74103
Attention: General Counsel
Facsimile number: (918) 591-1718
Confirmation number: (918) 591-1009
IF TO NEWCO OR NEWCO2 (SUBSEQUENT TO THE CLOSING) OR
PURCHASER:
Nabors Drilling USA, Inc.
515 West Greens Road, Suite 1200
Houston, Texas 77067
Attention: President
Facsimile number: (281) 872-5205
Confirmation number: (281) 874-0035
With copies to:
Nabors Drilling USA, Inc.
515 West Greens Road, Suite 1200
Houston, Texas 77067
Attention: Legal Department
Facsimile number: (281) 872-5205
Confirmation number: (281) 874-0035
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<PAGE> 41
and
Baker & McKenzie
805 Third Avenue
New York, NY 10022
Attention: Howard M. Berkower
Facsimile number: (212) 759-9133
Confirmation number: (212) 751-5700
Notice to a copy to address shall be provided as a courtesy, but shall not be
deemed to be actual notice received by a party for any purpose. Any party may
change the address to which such communications are to be directed to it by
giving written notice to the other party in the manner provided in this
Section.
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<PAGE> 42
IN WITNESS WHEREOF, this Stock Purchase Agreement has been duly executed
and delivered by the duly authorized officers of the parties hereto as of the
date first above written.
"SAMSON" "PURCHASER"
Samson Investment Company Nabors Drilling USA, Inc.
By: /s/ C. PHILIP THOLEN By: /s/ LARRY P. HEIDT
---------------------------- ----------------------------
C. Philip Tholen Name: Larry P. Heidt
----------------------------
Executive Vice President Title: Executive Vice President
----------------------------
"SELLER"
Eason Drilling & Services Company
By: /s/ C. PHILIP THOLEN
----------------------------
C. Philip Tholen
Attorney-in-fact
"NEWCO"
Samson Rig Company
By: /s/ C. PHILIP THOLEN
----------------------------
C. Philip Tholen
President
"NEWCO2"
Rig Properties, Inc.
By: /s/ C. PHILIP THOLEN
----------------------------
C. Philip Tholen
President
37
<PAGE> 1
EXHIBIT 10.17
NABORS INDUSTRIES, INC.
1996 CHAIRMAN'S EXECUTIVE STOCK PLAN
1. Purpose of Plan. The purpose of 1996 Chairman's Executive Stock Plan (the
"Plan") is (i) to provide an incentive for the Chairman of the Board,
("Covered Employee") of Nabors Industries, Inc. ("Nabors" or the "Company")
by encouraging ownership of the Company's common stock, $.10 par value,
(the "Common Stock"), and (ii) to aid the Company in retaining such officer
upon whose efforts the Company's success and future growth depends.
2. Administration. The Plan shall be administered by an independent committee
(the "Committee") appointed by the Company's Board of Directors (the
"Board"), as hereinafter provided.
The Committee shall be appointed from time to time by the Board and shall
consist of not fewer than two members. No member of the Committee shall be
eligible to participate in the Plan while serving as a member of the
Committee. All members of the Committee shall be "disinterested persons"
as defined by Rule 16b-3 of the Securities Exchange Act of 1934, as amended
(the "34 Act") or any successor thereto. The Board shall designate one of
the members of the Committee as the Committee Chairman. The Committee
shall hold its meetings at such times and places as it may determine. A
majority of its members shall constitute a quorum. All determinations of
the Committee shall be made by a majority of its members. Any decision or
determination reduced to writing and signed by all members shall be
effective as if made by a majority vote at a meeting duly called and held.
The Committee may appoint a secretary (who need not be a member of the
Committee). For purposes of administration, the Committee, subject to the
terms of the Plan, shall have final authority to establish such rules and
regulations, and take such other administrative actions as it deems
necessary or advisable. All determinations and interpretations made by the
Committee shall be final, conclusive and binding on all persons, including
persons granted options hereunder ("Optionees") and their legal
representatives and beneficiaries. No member of the Committee shall be
liable for any act or omission with respect to his services on the
Committee, if he acts in good faith and in a manner he reasonably believes
to be in or not opposed to the best interests of the Company.
3. Stock Available for Stock Awards and Option Grants. There shall be
available for the grant of options under the Employee Plan a total of
850,000 Shares of Common Stock. This amount is subject to any adjustments
which may be made pursuant to Section 5(f) hereof. Shares of Common Stock
with respect to which options are granted under the Plan may be either
authorized and unissued shares of Common Stock, or previously issued shares
of Common Stock held in the treasury of the Company, or both. Shares of
Common Stock reserved for options which have terminated or expired prior to
exercise shall be available for further awards or grants. The principles
of Section 162(m) of the Internal Revenue Code of 1986, as amended, and the
regulations thereunder, shall govern.
4. (a) Eligibility. Option grants under the Plan may be made to Covered
Employees. Stock Options made to a Covered Employee whether or not they
hold or have held awards or grants previously, under the Plan or otherwise
granted or assumed by Nabors. In selecting a Covered Employee to receive
awards or grants, the Committee may take into consideration any factors it
may deem relevant, including its estimate of the individual's present and
potential contributions to the success of the Company.
<PAGE> 2
(b) Description of Compensation. The maximum amount of compensation
payable to an employee attributable to the exercise of stock options
granted under the Plan shall be equal to the maximum number of Shares of
Common Stock for which options can be granted to an employee multiplied by
the difference between the Fair Market Value on the date of exercise less
the exercise price (which is no less than the Fair Market Value on the date
of the grant of the option).
5. Terms and Conditions of Stock or Options. The Committee shall, in its
discretion, prescribe the terms and conditions of the grants hereunder,
which terms and conditions need not be the same in each case, subject to
the following:
(a) Number of Shares. Each option grant shall state the number of shares
of Common Stock to which it pertains.
(b) Option Exercise Price. The option exercise price shall be set by the
Committee, but shall be no less than the Fair Market Value per share of
Common Stock on the date of the grant of the option. The option price is
to be paid, upon exercise, in cash or, in the discretion of the Committee,
in options or Shares of the Company to be valued at fair market value at
the time of exercise. For purposes of the Plan, the Fair Market Value per
share of Common Stock shall be the last sale price regular way on the date
of reference, or, in the case no sale takes place on such date, the average
of the closing high bid and low asked prices regular way, in either case on
the principal national securities exchange on which the Common Stock is
listed or admitted to trading or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, the last sale
price reported on the National Market System of the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") on such date, or
the average of the closing high bid and low asked prices of the Common
Stock in the over-the-counter market reported on NASDAQ on such date,
whichever is applicable or, if there are not such prices reported on NASDAQ
on such date, then as furnished to the Committee by any New York Stock
Exchange member selected from time to time by the Committee for such
purpose. If there is no bid or asked price reported on any such date, the
market value shall be determined by any other appropriate method selected
by the Committee.
(c) Option Period. The Committee may specify a period for exercise of an
option (the "Option Period") which period shall in no event be more than
ten years from the date of grant. Options may, in the discretion of the
Committee, be exercisable in installments during the Option Period and such
installments may be accelerated based upon target prices for Nabors Common
Stock. Any shares of Common Stock not purchased on any applicable
installment date may be purchased thereafter at any time before the
expiration date of the Option Period subject to Section 5(e) hereof.
(d) Exercise of Options. In order to exercise an option, the Optionee
shall deliver to Nabors written notice specifying the number of shares of
Common Stock to be purchased, together with a certified or bank cashier's
check payable to the order of Nabors in the full amount of the purchase
price therefor; provided, however, that the Committee may, in its
discretion, allow such payments to be made in whole or in part in Common
Stock delivered, or options surrendered, by the Optionee valued at the Fair
Market Value of such Common Stock.
If the Optionee so requests, shares of Common Stock purchased upon exercise
of an option may be issued in the name of the Optionee or another person.
An Optionee shall not have any of the rights of a stockholder until the
shares of Common Stock are issued to him. An option may not be exercised
for less than the lesser of (i) ten shares of Common Stock, or (b) the
number of shares of Common Stock remaining subject to such option.
<PAGE> 3
(e) Effect of Termination of Employment. Any option granted hereunder may
be exercised by the Optionee, his heirs, devisees, legatees or assigns at
any time before the relevant expiration date, whether or not Optionee ceases
to be an employee and whether or not such employment is terminated by
voluntary written resignation, by action of the Company for cause, without
cause, or by reason of death or disability, with respect to all options as
to which his right of exercise has vested or as to which his right of
exercise shall vest in accordance with the next sentence of this paragraph
on the date of his termination of employment. In the event of a termination
of employment for any reason, except by the Company for cause or by
voluntary resignation by Optionee, all unvested options shall be immediately
exercisable as of the date of his termination of his employment. The term
"for cause" shall be defined by the Committee at the time of the grant of an
Option pursuant to this Plan.
(f) Adjustments. In the event of a reorganization, recapitalization, stock
split, stock dividend, Extraordinary Dividend, combination of shares,
consolidation, merger (other that a merger or consolidation which does not
result in any reclassification, conversion, exchange or cancellation of
outstanding shares), any sale or transfer by the Company of all or
substantially all of its assets or any tender offer or exchange offer for or
the acquisition, directly or indirectly, by any person or group of all or a
majority of the then outstanding voting securities of the Company, rights
offering, or any other change in the corporate structure or rights with
respect to any shares of the Company, adjustments shall be made to the
number or type of stock granted pursuant to this Plan and, in order to
prevent dilution or enlargement of the rights of Optionee, to the number of
Options, and the type and option price of stock subject to outstanding
Options or as provided below with respect to Extraordinary Dividend. In the
case of an Extraordinary Dividend, the Optionee shall be entitled to have
distributed to him upon the exercise of any portion of the option an amount
equal to the Extraordinary Dividend her would have received had he exercised
such portion of the option immediately prior to the declaration of the
Extraordinary Dividend. For this purpose, an Extraordinary Dividend shall
mean any dividend or dividends paid or declared in the twelve month period
immediately prior to the day after any such declaration in excess in the
aggregate of 7% of the average Closing Price of the Common Stock during such
period.
(g) Registration, Listing and Qualification of Shares of Common Stock. The
Company, within six months of the date any opinion granted pursuant to this
Plan first becomes vested and exercisable, shall register all the shares
underlying the options on a Registration Statement on Form S-8 ("S-8").
The Company shall also prepare and file a Form S-3 prospectus with such
S-8. The Company within six months of the date of any opinion granted
pursuant to this Plan first becomes vested and exercisable, shall list all
the shares underlying the options on the American Stock Exchange with an
Additional Listing Application. The company may require Optionee to furnish
to the Company, prior to the issuance of any shares upon the exercise of
all or any part of this option, an agreement in which Optionee acknowledges
the status of the shares and the conditions and the restrictions, if any,
upon their sale or distribution under the applicable securities law.
(h) Withholding of Taxes. No option may be exercised, unless the Optionee
has paid, or has made provision, satisfactory to the Committee for payment
of, Federal, state and local income taxes, or any other taxes (other than
stock transfer taxes), which the Company may be obligated to collect as a
result of the issue or transfer of shares of Common Stock upon exercise of
an option. The Committee may authorize that shares of Common Stock or
options to be applied towards the payment of withholding taxes.
(i) Transferability. Options granted pursuant to this Plan may be
transferred by the Employee with the consent of the Company which shall not
be unreasonably withheld at any time; provided however, Section 5(e) of
this Plan shall be applied based on the Employee and his status and not
that of any assignee.
<PAGE> 4
(j) Other Terms and Conditions. The Committee may impose such other terms
and conditions, not inconsistent with the terms hereof, on the grant or
exercise of options, or on the grant of stock, as it deems advisable.
6. Stockholder's Rights. Neither an Optionee nor their respective legal
representatives, legatees or distributees, as the case may be, shall have
any of the rights or privileges of a stockholder of the Company by virtue
of an award of stock, or grant of an Option, except with respect to any
shares of Common Stock actually issued or transferred of record and
delivered to one of the aforementioned persons.
7. Governing Laws. The Employee Plan and all rights and
obligations thereunder shall be construed in accordance with and governed
by the laws of the State of Delaware.
<PAGE> 1
EXHIBIT 10.18
NABORS INDUSTRIES, INC.
1996 EXECUTIVE OFFICERS STOCK PLAN
1. Purpose of Plan. The purpose of 1996 Executive Officers Stock Plan (the
"Plan") is (i) to provide incentives for executive officers, ("Covered
Employee") of Nabors Industries, Inc. ("Nabors" or the "Company") by
encouraging their ownership of the Company's common stock, $.10 par value,
(the "Common Stock"), and (ii) to aid the Company in retaining such
officers upon whose efforts the Company's success and future growth
depends.
2. Administration. The Plan shall be administered by an independent committee
(the "Committee") appointed by the Company's Board of Directors (the
"Board"), as hereinafter provided.
The Committee shall be appointed from time to time by the Board and shall
consist of not fewer than two members. No member of the Committee shall be
eligible to participate in the Plan while serving as a member of the
Committee. All members of the Committee shall be "disinterested persons"
as defined by Rule 16b-3 of the Securities Exchange Act of 1934, as
amended, or any successor thereto. The Board shall designate one of the
members of the Committee as the Committee Chairman. The Committee shall
hold its meetings at such times and places as it may determine. A majority
of its members shall constitute a quorum. All determinations of the
Committee shall be made by a majority of its members. Any decision or
determination reduced to writing and signed by all members shall be
effective as if made by a majority vote at a meeting duly called and held.
The Committee may appoint a secretary (who need not be a member of the
Committee). For purposes of administration, the Committee, subject to the
terms of the Plan, shall have final authority to establish such rules and
regulations, and take such other administrative actions as it deems
necessary or advisable. All determinations and interpretations made by the
Committee shall be final, conclusive and binding on all persons, including
persons granted options hereunder ("Optionees") and their legal
representatives and beneficiaries. No member of the Committee shall be
liable for any act or omission with respect to his services on the
Committee, if he acts in good faith and in a manner he reasonably believes
to be in or not opposed to the best interests of the Company.
3. Stock Available for Stock Option Grants. There shall be available for the
grant of stock options under the Plan a total of 860,000 Shares of Common
Stock. This amount is subject to any adjustments which may be made
pursuant to Section 5(f) hereof. No Covered Employee may receive grants in
excess of 50% of the total shares of Common Stock authorized to be issued
under the Plan. Shares of Common Stock with respect to which options are
granted under the Plan may be either authorized and unissued shares of
Common Stock, or previously issued shares of Common Stock held in the
treasury of the Company, or both. Shares of Common Stock reserved for
options which have terminated or expired prior to exercise shall be
available for further grants hereunder, subject to the per employee
limitations of this Section 3. In applying the 50% per employee
limitation, the principles of Section 162(m) of the Internal Revenue Code
of 1986, as amended, and the regulations thereunder, shall govern.
4. Eligibility. Option grants under the Plan may be made to Covered Employees.
Stock Options may be granted to a Covered Employee whether or not he holds
or has held grants previously, under the Plan or otherwise granted or
issued by Nabors. In selecting a Covered Employee to receive grants, the
Committee may take into consideration any factors it may deem relevant,
including its estimate of the individual's present and potential
contributions to the success of the Company.
<PAGE> 2
5. Terms and Conditions of Options. The Committee shall, in its discretion,
prescribe the terms and conditions of the grants hereunder, which terms and
conditions need not be the same in each case, subject to the following:
(a) Number of Shares. Each option grant shall state the number of shares
of Common Stock to which it pertains.
(b) Option Exercise Price. The option exercise price shall be set by the
Committee, but shall be no less than the Fair Market Value per share of
Common Stock on the date of the grant of the option; provided that at no
time shall the option exercise price per share be less than the par value
per share of the Common Stock The option price is to be paid, upon
exercise, in cash or, in the discretion of the Committee, in options or
Shares of the Company to be valued at fair market value at the time of
exercise. For purposes of the Plan, the "Fair Market Value" per share of
Common Stock shall be the last sale price regular way on the date of
reference, or, in the case no sale takes place on such date, the average of
the closing high bid and low asked prices regular way, in either case on
the principal national securities exchange on which the Common Stock is
listed or admitted to trading or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, the last sale
price reported on the National Market System of the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") on such date, or
the average of the closing high bid and low asked prices of the Common
Stock in the over-the-counter market reported on NASDAQ on such date,
whichever is applicable or, if there are not such prices reported on NASDAQ
on such date, then as furnished to the Committee by any New York Stock
Exchange member selected from time to time by the Committee for such
purpose. If there is no bid or asked price reported on any such date, the
market value shall be determined by any other appropriate method selected
by the Committee.
(c) Option Period. The Committee may specify a period for exercise of an
option (the "Option Period") which period shall in no event be more than
ten years from the date of grant. Options may, in the discretion of the
Committee, be exercisable in installments during the Option Period and such
installments may be accelerated based upon target prices for the Common
Stock. Any shares of Common Stock not purchased on any applicable
installment date may be purchased thereafter at any time before the
expiration date of the Option Period, subject to Section 5(e) hereof.
(d) Exercise of Options. In order to exercise an option, the Optionee
shall deliver to Nabors written notice specifying the number of shares of
Common Stock to be purchased, together with a certified or bank cashier's
check payable to the order of Nabors in the full amount of the purchase
price therefor; provided, however, that the Committee may, in its
discretion, allow such payments to be made in whole or in part in Common
Stock delivered, or options surrendered, by the Optionee valued at the Fair
Market Value of such Common Stock.
If the Optionee so requests, shares of Common Stock purchased upon exercise
of an option may be issued in the name of the Optionee or another person.
An Optionee shall not have any of the rights of a stockholder until the
shares of Common Stock are issued to him. An option may not be exercised
for less than the lesser of (i) ten shares of Common Stock or (ii) the
number of shares of Common Stock remaining subject to such option.
<PAGE> 3
(e) Effect of Termination of Employment. Unless otherwise determined by the
Committee in its discretion, an option may not be exercised after the
Optionee has ceased to be in the employ of the Company whether such
Optionee's employment is terminated by voluntary resignation of the Optionee
or by action of the Company with cause, without cause, or by reason of death
or disability. Unless otherwise determined by the Committee, awards of
Common Stock which have not vested on and as of the date of termination
shall be forfeited. The Committee, in its discretion, however, may in all
cases extend the period of vesting or the time to exercise an option
following termination of employment, but not beyond the Option Period.
(f) Adjustments. In the event of a reorganization, recapitalization,
stock split, stock dividend, Extraordinary Dividend, combination of shares,
consolidation, merger (other that a merger or consolidation which does not
result in any reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock), any sale or transfer by the Company
of all or substantially all of its assets or any tender offer or exchange
offer for or the acquisition, directly or indirectly, by any person or
group of all or a majority of the then outstanding voting securities of the
Company, rights offering, or any other change in the corporate structure or
rights with respect to any shares of the Company, adjustments shall be made
to the number of shares or type of stock granted pursuant to this Plan and,
in order to prevent dilution or enlargement of the rights of Optionee, to
the number of options, and the type and option price of stock subject to
outstanding options or as provided below with respect to Extraordinary
Dividend. In the case of an Extraordinary Dividend, the Optionee shall be
entitled to have distributed to him upon the exercise of any portion of the
option an amount equal to the Extraordinary Dividend he would have received
had he exercised such portion of the option immediately prior to the
declaration of the Extraordinary Dividend. For this purpose, an
"Extraordinary Dividend" shall mean any dividend or dividends paid or
declared in the twelve-month period immediately prior to the day after any
such declaration in excess in the aggregate of 7% of the average Closing
Price of the Common Stock during such period.
(g) Registration, Listing and Qualification of Shares of Common Stock.
The Company, within six months of the date any option granted pursuant to
this Plan first becomes vested and exercisable, shall register all the
shares underlying the options on a Registration Statement on Form S-8
("S-8"). The Company shall also prepare and file a Form S-3 prospectus
with such S-8. The Company within six months of the date of any option
granted pursuant to this Plan first becomes vested and exercisable, shall
list all the shares underlying the options subject to notice of issuance,
on the American Stock Exchange in an Additional Listing Application. The
Company may require an Optionee to furnish to the Company, prior to the
issuance of any shares upon the exercise of all or any part of his option,
an agreement in which Optionee acknowledges the status of the shares and
the conditions and the restrictions, if any, upon their sale or
distribution under the applicable securities laws.
(h) Withholding of Taxes. No option may be exercised, unless the
Optionee has paid, or has made provision, satisfactory to the Committee for
payment of, Federal, state and local income taxes, or any other taxes
(other than stock transfer taxes), which the Company may be obligated to
collect as a result of the issue or transfer of shares of Common Stock upon
exercise of an option. The Committee may authorize that shares of Common
Stock or options to be applied towards the payment of withholding taxes.
(i) Transferability. Options granted pursuant to this Plan may be
transferred by the Employee with the consent of the Company, which consent
shall not be unreasonably withheld; provided, however, Section 5(e) of this
Plan shall be applied based on the Optionee and his status and not that of
any assignee.
<PAGE> 4
(j) Other Terms and Conditions. The Committee may impose such other
terms and conditions, not inconsistent with the terms hereof, on the grant
or exercise of options, as it deems advisable.
6. Stockholder's Rights. Neither an Optionee nor his legal representatives,
legatees or distributees, as the case may be, shall have any of the rights
or privileges of a stockholder of the Company by virtue of a grant of an
option hereunder, except with respect to any shares of Common Stock
actually issued or transferred of record and delivered to one of the
aforementioned persons.
7. Governing Laws. The Plan and all rights and obligations thereunder shall
be construed in accordance with and governed by the internal laws of the
State of Delaware without giving effect to the conflicts of law provisions
thereof.
<PAGE> 1
EXHIBIT 10.19
NABORS INDUSTRIES, INC.
1996 EXECUTIVE OFFICERS INCENTIVE STOCK PLAN
1. Purpose of Plan. The purpose of 1996 Executive Officers Incentive Stock
Plan (the "Plan") is (i) to provide incentives for executive officers,
("Covered Employee") of Nabors Industries, Inc. ("Nabors" or the "Company")
by encouraging their ownership of the Company's common stock, $.10 par
value, (the "Common Stock"), and (ii) to aid the Company in retaining such
officers upon whose efforts the Company's success and future growth
depends.
2. Administration. The Plan shall be administered by an independent committee
(the "Committee") appointed by the Company's Board of Directors (the
"Board"), as hereinafter provided.
The Committee shall be appointed from time to time by the Board and shall
consist of not fewer than two members. No member of the Committee shall be
eligible to participate in the Plan while serving as a member of the
Committee. All members of the Committee shall be "disinterested persons"
as defined by Rule 16b-3 of the Securities Exchange Act of 1934, as
amended, or any successor thereto. The Board shall designate one of the
members of the Committee as the Committee Chairman. The Committee shall
hold its meetings at such times and places as it may determine. A majority
of its members shall constitute a quorum. All determinations of the
Committee shall be made by a majority of its members. Any decision or
determination reduced to writing and signed by all members shall be
effective as if made by a majority vote at a meeting duly called and held.
The Committee may appoint a secretary (who need not be a member of the
Committee). For purposes of administration, the Committee, subject to the
terms of the Plan, shall have final authority to establish such rules and
regulations, and take such other administrative actions as it deems
necessary or advisable. All determinations and interpretations made by the
Committee shall be final, conclusive and binding on all persons, including
persons granted options hereunder ("Optionees") and their legal
representatives and beneficiaries. No member of the Committee shall be
liable for any act or omission with respect to his services on the
Committee, if he acts in good faith and in a manner he reasonably believes
to be in or not opposed to the best interests of the Company.
3. Stock Available for Stock Option Grants. There shall be available for the
grant of stock options under the Plan a total of 3,600,000 Shares of Common
Stock. This amount is subject to any adjustments which may be made
pursuant to Section 5(f) hereof. No Covered Employee may receive grants in
excess of 50% of the total shares of Common Stock authorized to be issued
under the Plan. Shares of Common Stock with respect to which options are
granted under the Plan may be either authorized and unissued shares of
Common Stock, or previously issued shares of Common Stock held in the
treasury of the Company, or both. Shares of Common Stock reserved for
options which have terminated or expired prior to exercise shall be
available for further grants hereunder, subject to the per employee
limitations of this Section 3. In applying the 50% per employee
limitation, the principles of Section 162(m) of the Internal Revenue Code
of 1986, as amended, and the regulations thereunder, shall govern.
4. Eligibility. Option grants under the Plan may be made to Covered Employees.
Stock Options may be granted to a Covered Employee whether or not he holds
or has held grants previously, under the Plan or otherwise granted or
issued by Nabors. In selecting a Covered Employee to receive grants, the
Committee may take into consideration any factors it may deem relevant,
including its estimate of the individual's present and potential
contributions to the success of the Company.
<PAGE> 2
5. Terms and Conditions of Options. The Committee shall, in its discretion,
prescribe the terms and conditions of the grants hereunder, which terms and
conditions need not be the same in each case, subject to the following:
(a) Number of Shares. Each option grant shall state the number of shares
of Common Stock to which it pertains.
(b) Option Exercise Price. The option exercise price shall be set by the
Committee, but shall be no less than the Fair Market Value per share of
Common Stock on the date of the grant of the option; provided that at no
time shall the option exercise price per share be less than the par value
per share of the Common Stock The option price is to be paid, upon
exercise, in cash or, in the discretion of the Committee, in options or
Shares of the Company to be valued at fair market value at the time of
exercise. For purposes of the Plan, the "Fair Market Value" per share of
Common Stock shall be the last sale price regular way on the date of
reference, or, in the case no sale takes place on such date, the average of
the closing high bid and low asked prices regular way, in either case on
the principal national securities exchange on which the Common Stock is
listed or admitted to trading or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, the last sale
price reported on the National Market System of the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") on such date, or
the average of the closing high bid and low asked prices of the Common
Stock in the over-the-counter market reported on NASDAQ on such date,
whichever is applicable or, if there are not such prices reported on NASDAQ
on such date, then as furnished to the Committee by any New York Stock
Exchange member selected from time to time by the Committee for such
purpose. If there is no bid or asked price reported on any such date, the
market value shall be determined by any other appropriate method selected
by the Committee.
(c) Option Period. The Committee may specify a period for exercise of an
option (the "Option Period") which period shall in no event be more than
ten years from the date of grant. Options may, in the discretion of the
Committee, be exercisable in installments during the Option Period and such
installments may be accelerated based upon target prices for the Common
Stock. Any shares of Common Stock not purchased on any applicable
installment date may be purchased thereafter at any time before the
expiration date of the Option Period, subject to Section 5(e) hereof.
(d) Exercise of Options. In order to exercise an option, the Optionee
shall deliver to Nabors written notice specifying the number of shares of
Common Stock to be purchased, together with a certified or bank cashier's
check payable to the order of Nabors in the full amount of the purchase
price therefor; provided, however, that the Committee may, in its
discretion, allow such payments to be made in whole or in part in Common
Stock delivered, or options surrendered, by the Optionee valued at the Fair
Market Value of such Common Stock.
If the Optionee so requests, shares of Common Stock purchased upon exercise
of an option may be issued in the name of the Optionee or another person.
An Optionee shall not have any of the rights of a stockholder until the
shares of Common Stock are issued to him. An option may not be exercised
for less than the lesser of (i) ten shares of Common Stock or (ii) the
number of shares of Common Stock remaining subject to such option.
<PAGE> 3
(e) Effect of Termination of Employment. Unless otherwise determined by the
Committee in its discretion, an option may not be exercised after the
Optionee has ceased to be in the employ of the Company whether such
Optionee's employment is terminated by voluntary resignation of the Optionee
or by action of the Company with cause, without cause, or by reason of death
or disability. Unless otherwise determined by the Committee, awards of
Common Stock which have not vested on and as of the date of termination
shall be forfeited. The Committee, in its discretion, however, may in all
cases extend the period of vesting or the time to exercise an option
following termination of employment, but not beyond the Option Period.
(f) Adjustments. In the event of a reorganization, recapitalization,
stock split, stock dividend, Extraordinary Dividend, combination of shares,
consolidation, merger (other that a merger or consolidation which does not
result in any reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock), any sale or transfer by the Company
of all or substantially all of its assets or any tender offer or exchange
offer for or the acquisition, directly or indirectly, by any person or
group of all or a majority of the then outstanding voting securities of the
Company, rights offering, or any other change in the corporate structure or
rights with respect to any shares of the Company, adjustments shall be made
to the number of shares or type of stock granted pursuant to this Plan and,
in order to prevent dilution or enlargement of the rights of Optionee, to
the number of options, and the type and option price of stock subject to
outstanding options or as provided below with respect to Extraordinary
Dividend. In the case of an Extraordinary Dividend, the Optionee shall be
entitled to have distributed to him upon the exercise of any portion of the
option an amount equal to the Extraordinary Dividend he would have received
had he exercised such portion of the option immediately prior to the
declaration of the Extraordinary Dividend. For this purpose, an
"Extraordinary Dividend" shall mean any dividend or dividends paid or
declared in the twelve-month period immediately prior to the day after any
such declaration in excess in the aggregate of 7% of the average Closing
Price of the Common Stock during such period.
(g) Registration, Listing and Qualification of Shares of Common Stock.
The Company, within six months of the date any option granted pursuant to
this Plan first becomes vested and exercisable, shall register all the
shares underlying the options on a Registration Statement on Form S-8
("S-8"). The Company shall also prepare and file a Form S-3 prospectus
with such S-8. The Company within six months of the date of any option
granted pursuant to this Plan first becomes vested and exercisable, shall
list all the shares underlying the options subject to notice of issuance,
on the American Stock Exchange in an Additional Listing Application. The
Company may require an Optionee to furnish to the Company, prior to the
issuance of any shares upon the exercise of all or any part of his option,
an agreement in which Optionee acknowledges the status of the shares and
the conditions and the restrictions, if any, upon their sale or
distribution under the applicable securities laws.
(h) Withholding of Taxes. No option may be exercised, unless the
Optionee has paid, or has made provision, satisfactory to the Committee for
payment of, Federal, state and local income taxes, or any other taxes
(other than stock transfer taxes), which the Company may be obligated to
collect as a result of the issue or transfer of shares of Common Stock upon
exercise of an option. The Committee may authorize that shares of Common
Stock or options to be applied towards the payment of withholding taxes.
(i) Transferability. Options granted pursuant to this Plan may be
transferred by the Employee with the consent of the Company, which consent
shall not be unreasonably withheld; provided, however, Section 5(e) of this
Plan shall be applied based on the Optionee and his status and not that of
any assignee.
<PAGE> 4
(j) Other Terms and Conditions. The Committee may impose such other terms
and conditions, not inconsistent with the terms hereof, on the grant or
exercise of options, as it deems advisable.
6. Stockholder's Rights. Neither an Optionee nor his legal
representatives, legatees or distributees, as the case may be, shall
have any of the rights or privileges of a stockholder of the Company by
virtue of a grant of an option hereunder, except with respect to any shares
of Common Stock actually issued or transferred of record and delivered to
one of the aforementioned persons.
7. Governing Laws. The Plan and all rights and obligations thereunder
shall be construed in accordance with and governed by the internal laws of
the State of Delaware without giving effect to the conflicts of law
provisions thereof.
<PAGE> 1
EXHIBIT 10.20
NABORS INDUSTRIES, INC.
1997 EXECUTIVE OFFICERS INCENTIVE STOCK PLAN
1. Purpose of Plan. The purpose of 1997 Executive Officers Incentive Stock
Plan (the "Plan") is (i) to provide incentives for executive officers,
("Covered Employee") of Nabors Industries, Inc. ("Nabors" or the "Company")
by encouraging their ownership of the Company's common stock, $.10 par
value, (the "Common Stock"), and (ii) to aid the Company in retaining such
officers upon whose efforts the Company's success and future growth
depends.
2. Administration. The Plan shall be administered by an independent committee
(the "Committee") appointed by the Company's Board of Directors (the
"Board"), as hereinafter provided.
The Committee shall be appointed from time to time by the Board and shall
consist of not fewer than two members. No member of the Committee shall be
eligible to participate in the Plan while serving as a member of the
Committee. All members of the Committee shall be "disinterested persons"
as defined by Rule 16b-3 of the Securities Exchange Act of 1934, as
amended, or any successor thereto. The Board shall designate one of the
members of the Committee as the Committee Chairman. The Committee shall
hold its meetings at such times and places as it may determine. A majority
of its members shall constitute a quorum. All determinations of the
Committee shall be made by a majority of its members. Any decision or
determination reduced to writing and signed by all members shall be
effective as if made by a majority vote at a meeting duly called and held.
The Committee may appoint a secretary (who need not be a member of the
Committee). For purposes of administration, the Committee, subject to the
terms of the Plan, shall have final authority to establish such rules and
regulations, and take such other administrative actions as it deems
necessary or advisable. All determinations and interpretations made by the
Committee shall be final, conclusive and binding on all persons, including
persons granted options hereunder ("Optionees") and their legal
representatives and beneficiaries. No member of the Committee shall be
liable for any act or omission with respect to his services on the
Committee, if he acts in good faith and in a manner he reasonably believes
to be in or not opposed to the best interests of the Company.
3. Stock Available for Stock Option Grants. There shall be available for the
grant of stock options under the Plan a total of 2,450,000 Shares of Common
Stock. This amount is subject to any adjustments which may be made
pursuant to Section 5(f) hereof. No Covered Employee may receive grants in
excess of 50% of the total shares of Common Stock authorized to be issued
under the Plan. Shares of Common Stock with respect to which options are
granted under the Plan may be either authorized and unissued shares of
Common Stock, or previously issued shares of Common Stock held in the
treasury of the Company, or both. Shares of Common Stock reserved for
options which have terminated or expired prior to exercise shall be
available for further grants hereunder, subject to the per employee
limitations of this Section 3. In applying the 50% per employee
limitation, the principles of Section 162(m) of the Internal Revenue Code
of 1986, as amended, and the regulations thereunder, shall govern.
4. Eligibility. Option grants under the Plan may be made to Covered Employees.
Stock Options may be granted to a Covered Employee whether or not he holds
or has held grants previously, under the Plan or otherwise granted or
issued by Nabors. In selecting a Covered Employee to receive grants, the
Committee may take into consideration any factors it may deem relevant,
including its estimate of the individual's present and potential
contributions to the success of the Company.
<PAGE> 2
5. Terms and Conditions of Options. The Committee shall, in its discretion,
prescribe the terms and conditions of the grants hereunder, which terms and
conditions need not be the same in each case, subject to the following:
(a) Number of Shares. Each option grant shall state the number of shares
of Common Stock to which it pertains.
(b) Option Exercise Price. The option exercise price shall be set by the
Committee, but shall be no less than the Fair Market Value per share of
Common Stock on the date of the grant of the option; provided that at no
time shall the option exercise price per share be less than the par value
per share of the Common Stock The option price is to be paid, upon
exercise, in cash or, in the discretion of the Committee, in options or
Shares of the Company to be valued at fair market value at the time of
exercise. For purposes of the Plan, the "Fair Market Value" per share of
Common Stock shall be the last sale price regular way on the date of
reference, or, in the case no sale takes place on such date, the average of
the closing high bid and low asked prices regular way, in either case on
the principal national securities exchange on which the Common Stock is
listed or admitted to trading or, if the Common Stock is not listed or
admitted to trading on any national securities exchange, the last sale
price reported on the National Market System of the National Association of
Securities Dealers Automated Quotation System ("NASDAQ") on such date, or
the average of the closing high bid and low asked prices of the Common
Stock in the over-the-counter market reported on NASDAQ on such date,
whichever is applicable or, if there are not such prices reported on NASDAQ
on such date, then as furnished to the Committee by any New York Stock
Exchange member selected from time to time by the Committee for such
purpose. If there is no bid or asked price reported on any such date, the
market value shall be determined by any other appropriate method selected
by the Committee.
(c) Option Period. The Committee may specify a period for exercise of an
option (the "Option Period") which period shall in no event be more than
ten years from the date of grant. Options may, in the discretion of the
Committee, be exercisable in installments during the Option Period and such
installments may be accelerated based upon target prices for the Common
Stock. Any shares of Common Stock not purchased on any applicable
installment date may be purchased thereafter at any time before the
expiration date of the Option Period, subject to Section 5(e) hereof.
(d) Exercise of Options. In order to exercise an option, the Optionee
shall deliver to Nabors written notice specifying the number of shares of
Common Stock to be purchased, together with a certified or bank cashier's
check payable to the order of Nabors in the full amount of the purchase
price therefor; provided, however, that the Committee may, in its
discretion, allow such payments to be made in whole or in part in Common
Stock delivered, or options surrendered, by the Optionee valued at the Fair
Market Value of such Common Stock.
If the Optionee so requests, shares of Common Stock purchased upon exercise
of an option may be issued in the name of the Optionee or another person.
An Optionee shall not have any of the rights of a stockholder until the
shares of Common Stock are issued to him. An option may not be exercised
for less than the lesser of (i) ten shares of Common Stock or (ii) the
number of shares of Common Stock remaining subject to such option.
<PAGE> 3
(e) Effect of Termination of Employment. Unless otherwise determined by the
Committee in its discretion, an option may not be exercised after the
Optionee has ceased to be in the employ of the Company whether such
Optionee's employment is terminated by voluntary resignation of the Optionee
or by action of the Company with cause, without cause, or by reason of death
or disability. Unless otherwise determined by the Committee, awards of
Common Stock which have not vested on and as of the date of termination
shall be forfeited. The Committee, in its discretion, however, may in all
cases extend the period of vesting or the time to exercise an option
following termination of employment, but not beyond the Option Period.
(f) Adjustments. In the event of a reorganization, recapitalization,
stock split, stock dividend, Extraordinary Dividend, combination of shares,
consolidation, merger (other that a merger or consolidation which does not
result in any reclassification, conversion, exchange or cancellation of
outstanding shares of Common Stock), any sale or transfer by the Company
of all or substantially all of its assets or any tender offer or exchange
offer for or the acquisition, directly or indirectly, by any person or
group of all or a majority of the then outstanding voting securities of the
Company, rights offering, or any other change in the corporate structure or
rights with respect to any shares of the Company, adjustments shall be made
to the number of shares or type of stock granted pursuant to this Plan and,
in order to prevent dilution or enlargement of the rights of Optionee, to
the number of options, and the type and option price of stock subject to
outstanding options or as provided below with respect to Extraordinary
Dividend. In the case of an Extraordinary Dividend, the Optionee shall be
entitled to have distributed to him upon the exercise of any portion of the
option an amount equal to the Extraordinary Dividend he would have received
had he exercised such portion of the option immediately prior to the
declaration of the Extraordinary Dividend. For this purpose, an
"Extraordinary Dividend" shall mean any dividend or dividends paid or
declared in the twelve-month period immediately prior to the day after any
such declaration in excess in the aggregate of 7% of the average Closing
Price of the Common Stock during such period.
(g) Registration, Listing and Qualification of Shares of Common Stock. The
Company, within six months of the date any option granted pursuant to this
Plan first becomes vested and exercisable, shall register all the shares
underlying the options on a Registration Statement on Form S-8 ("S-8").
The Company shall also prepare and file a Form S-3 prospectus with such
S-8. The Company within six months of the date of any option granted
pursuant to this Plan first becomes vested and exercisable, shall list all
the shares underlying the options subject to notice of issuance, on the
American Stock Exchange in an Additional Listing Application. The Company
may require an Optionee to furnish to the Company, prior to the issuance of
any shares upon the exercise of all or any part of his option, an agreement
in which Optionee acknowledges the status of the shares and the conditions
and the restrictions, if any, upon their sale or distribution under the
applicable securities laws.
(h) Withholding of Taxes. No option may be exercised, unless the Optionee
has paid, or has made provision, satisfactory to the Committee for payment
of, Federal, state and local income taxes, or any other taxes (other than
stock transfer taxes), which the Company may be obligated to collect as a
result of the issue or transfer of shares of Common Stock upon exercise of
an option. The Committee may authorize that shares of Common Stock or
options to be applied towards the payment of withholding taxes.
(i) Transferability. Options granted pursuant to this Plan may be
transferred by the Employee with the consent of the Company, which consent
shall not be unreasonably withheld; provided, however, Section 5(e) of this
Plan shall be applied based on the Optionee and his status and not that of
any assignee.
<PAGE> 4
(j) Other Terms and Conditions. The Committee may impose such other terms
and conditions, not inconsistent with the terms hereof, on the grant or
exercise of options, as it deems advisable.
6. Stockholder's Rights. Neither an Optionee nor his legal representatives,
legatees or distributees, as the case may be, shall have any of the rights
or privileges of a stockholder of the Company by virtue of a grant of an
option hereunder, except with respect to any shares of Common Stock
actually issued or transferred of record and delivered to one of the
aforementioned persons.
7. Governing Laws. The Plan and all rights and obligations thereunder shall
be construed in accordance with and governed by the internal laws of the
State of Delaware without giving effect to the conflicts of law provisions
thereof.
<PAGE> 1
EXHIBIT 10.21
INDEMNITY AGREEMENT
THIS INDEMNITY AGREEMENT is made and entered into this ____ day of
_________, 19__ by and among NABORS INDUSTRIES, INC., a corporation organized
and existing under the laws of Delaware (the "Corporation") and MR. EUGENE M.
ISENBERG (the "Director").
W I T N E S S E T H:
WHEREAS, the Corporation desires to have the Director serve as a
director of the Corporation; and
WHEREAS, the Director is willing to serve as a director of the
Corporation upon the execution and delivery by the Corporation of this Indemnity
Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and of the
mutual promises herein contained, the parties hereby agree as follows:
1. Acceptance. The Director hereby accepts, effective the date hereof
(the "Effective Date"), the appointment as a director of the Corporation, and so
long as he continues to be a director of the Corporation, the Director shall
exercise all functions required by the Certificate of Incorporation and By-laws
of the Corporation, Delaware General Corporation Law and other relevant laws.
2. Indemnification.
(a) Defined Terms. For purposes of Sections 2 through 7
inclusive, the following terms shall have the meaning given here:
(i) "Change of Control" shall mean any of the
following events:
(A) Unless approved by the affirmative vote
of at least two-thirds (2/3) of those members of the
board of directors of the Company (the "Board") who
are in office immediately prior to the event(s) and
who are not employees of the Corporation:
(1) the merger or consolidation of the
Corporation with, or the sale of all or substantially
all of the assets of the Corporation to, any person
or entity or group of associated persons or entities;
or
(2) the direct or indirect beneficial
ownership in the aggregate of securities of the
Corporation representing twenty percent (20%) or more
of the total combined voting power of the
Corporation's then issued and outstanding securities
by any person or entity, or group of associated
persons or entities acting in concert, not affiliated
(within the meaning of the Securities Act of 1933, as
amended) with the Corporation as of the Effective
Date; or
(3) approval by the stockholders of the
Corporation of any plan or proposal for the
liquidation or dissolution of the Corporation.
(B) A change in the composition of the Board
at any time during any consecutive twenty-four (24)
month period such that the "Continuing Directors"
cease for any reason to constitute at least a seventy
percent (70%) majority of the Board.
<PAGE> 2
For purposes of this clause (B), the
"Continuing Directors" shall mean those members of
the Board who either:
(1) were directors at the beginning of such
consecutive 24-month period; or
(2) were elected by, or on the nomination or
recommendation of, at least a two-thirds (2/3)
majority (consisting of at least four directors) of
the then existing Board.
(ii) "Corporate Status" shall mean
the status of a person who is or was a
director, officer or fiduciary of the
Corporation or of any other corporation,
partnership, joint venture, trust, employee
benefit plan or other enterprise which such
person is or was serving at the express
written request of the Corporation.
(iii) "Disinterested Director" shall
mean a director of the Corporation who is
not and was not a party to the Proceeding in
respect of which indemnification is sought
by the Director.
(iv) "Enterprise" shall mean the
Corporation and any other corporation,
partnership, joint venture, trust, employee
benefit plan or other enterprise which the
Director is or was serving as a director,
officer or fiduciary at the express written
request of the Corporation.
(v) "Expenses" shall include all
reasonable attorneys' fees, retainers, court
costs, transcript costs, fees of experts,
witness fees, travel expenses, duplicating
costs, printing and binding costs, telephone
charges, postage, delivery service fees, and
all other disbursements or expenses of the
types customarily incurred in connection
with prosecuting, defending, preparing to
prosecute or defend investigating or being
or preparing to be a witness in a
Proceeding.
(vi) "Good Faith" shall mean the
Director's having acted in good faith and in
a manner the Director reasonably believed to
be in, or not opposed to, the best interests
of the Corporation, and, with respect to any
criminal Proceeding, having had no
reasonable cause to believe his conduct was
unlawful.
(vii) "Independent Counsel" means a
law firm, or a member of a law firm, that is
experienced in matters of corporation law
and neither presently is, nor in the past
five (5) years has been, retained to
represent: (i) the Corporation or Director
in any matter material to either such party,
or (ii) any other party to the Proceeding
giving rise to a claim for indemnification
hereunder. Notwithstanding the foregoing,
the term Independent Counsel" shall not
include any person who, under the applicable
standards of professional conduct then
prevailing, would have a conflict of
interest in representing either the
Corporation or the Director in an action to
determine the Director's rights under this
Agreement.
(viii) "Proceeding" includes any
action, suit arbitration, alternate dispute
resolution mechanism, investigation,
administrative hearing or any other actual,
threatened or completed proceeding, whether
civil, criminal, administrative or
investigative, other than one initiated by
the Director.
<PAGE> 3
(b) In General. In connection with any Proceeding
involving acts or omissions occurring subsequent to the
Effective Date, the Corporation shall indemnify and advance
Expenses to the Director as provided in this Agreement to the
fullest extent permitted by applicable law in effect on the
Effective Date and to such greater extent as applicable law
may thereafter from time to time permit.
(c) Proceedings Other Than Proceedings by or in the Right of
Corporation. If, by reason of the Director's Corporate Status, the Director is
or is threatened to be made a party to any Proceeding other than a Proceeding by
or in the right of the Corporation, the Corporation shall indemnify the Director
against Expenses, judgments, penalties, fines and amounts paid in settlement
actually and reasonably incurred by the Director or in the Director's behalf in
connection with such Proceeding or any claim, issue or matter therein if the
Director acted in Good Faith.
(d) Proceedings by or in the Right of Corporation. If, by
reason of the Director's Corporate Status, the Director is, or is threatened to
be made a party to any Proceeding brought by or in the right of the Corporation
to procure a judgment in its favor, the Director shall be indemnified against
Expenses, judgments, penalties and amounts paid in settlement, actually and
reasonably incurred by the Director or on the Director's behalf in connection
with such Proceeding if the Director acted in Good Faith. Notwithstanding the
foregoing, no such indemnification shall be made in respect of any claim, issue
or matter in such Proceeding as to which the Director shall have been adjudged
to be liable to the Corporation if applicable law prohibits such
indemnification; provided, however that if applicable law so permits,
indemnification shall nevertheless be made by the Corporation in such event if
and only to the extent that the Court of Chancery of the State of Delaware or
the court in which such Proceeding shall have been brought or is pending shall
determine.
(e) Indemnification of a Party Who is Wholly or Partly
Successful. Notwithstanding any other provision of this Agreement, to the extent
that the Director is, by reason of the Director's Corporate Status, a party to
and is successful on the merits or otherwise, in any Proceeding, the Director
shall be indemnified to the maximum extent permitted by law, against all
Expenses, judgments, penalties, fines and amounts paid in settlement, actually
and reasonably incurred by the Director or on the Director's behalf in
connection therewith. If the Director is not wholly successful on the merits or
otherwise, as to one or more but less than all claims, issues or matters in such
Proceeding the Corporation shall indemnify the Director to the maximum extent
permitted by law against all Expenses, judgments, penalties, fines and amounts
paid in settlement actually and reasonably incurred by the Director on the
Director's behalf in connection with each successfully resolved claim, issue or
matter. For purposes of this paragraph (e) and without limitation, the
termination of any claim, issue or matter in such a Proceeding by dismissal,
with or without prejudice, shall be deemed to be a successful result as to such
claim, issue or matter, so long as there has been no finding (either adjudicated
or pursuant to this Section 2) that the Director did not act in Good Faith.
(f) Indemnification for Expenses of a Witness. Notwithstanding
any other provision of this Agreement, to the extent that the Director is, by
reason of the Director's Corporate Status, a witness in any Proceeding, the
Director shall be indemnified against all Expenses actually and reasonably
incurred by the Director or on the Director's behalf in connection therewith.
(g) Successors. The indemnification and advancement of
expenses provided by, or granted pursuant to, this Agreement shall continue as
to the Director and shall inure to the benefit of the heirs, executors and
administrators of the Director.
3. Advancement of Expenses.
Notwithstanding any provision to the contrary in Section 2, the
Corporation shall advance all reasonable Expenses, which, by reason of the
Director's Corporate Status, were incurred by or on behalf of the Director in
connection with any Proceeding, within twenty (20) days after the receipt by the
Corporation of a
<PAGE> 4
statement or statements from the Director requesting such advance or advances,
whether prior to or after final disposition of such Proceeding. Such statement
or statements shall reasonably evidence the Expenses incurred by the Director
and shall include or be preceded or accompanied by an undertaking by or on
behalf of the Director to repay any Expenses if it shall ultimately be
determined that the Director is not entitled to be indemnified against such
Expenses. Any advance and undertakings to repay pursuant to this section 3 shall
be unsecured and interest-free.
4. Procedures For Determination of Entitlement to Indemnification.
(a) Initial Request. To obtain indemnification under this Agreement,
the Director shall submit to the Corporation a written request, including
therein or therewith such documentation and information as is reasonably
available to the Director and which is reasonably necessary to determine whether
and to that extent the Director is entitled to indemnification. The Secretary of
the Corporation shall promptly advise the Board in writing that the Director has
requested indemnification.
(b) Method of Determination. A determination (if required by
applicable law) with respect to the Director's entitlement to indemnification
shall be made as follows:
(i) if a Change in Control has occurred, unless the Director
shall request in writing that such determination be made in accordance with
paragraph (b)(ii) of this Section 4, the determination shall be made by
Independent Counsel in a written opinion to the Board, a copy of which shall be
delivered to the Director;
(ii) if a Change of Control has not occurred, the determination
shall be made by the Board by a majority vote of a quorum consisting of
Disinterested Directors. In the event that a quorum of the Board consisting of
Disinterested Directors is not obtainable or, even if obtainable, such quorum of
Disinterested Directors so directs, the determination shall- be made by
Independent Counsel in a written opinion to the Board, a copy of which shall be
delivered to the Director.
(c) Selection, Payment and Discharge of Independent Counsel. In the
event the determination of entitlement to indemnification is to be made by
Independent Counsel pursuant to Section 4(b) of this Agreement, the Independent
Counsel shall be selected, paid and discharged in the following manner:
(i) If a Change of Control has not occurred, the Independent
Counsel shall be selected by the Board and the Corporation shall give written
notice to the Director advising the Director of the identity of the Independent
Counsel so selected.
(ii) If a Change of Control has occurred, the Independent
Counsel shall be selected by the Director (unless the Director shall request
that such selection be made by the Board, in such event clause (i) of this
Section shall apply), and the Director shall give written notice to the
Corporation advising it of the identity of the Independent Counsel so selected.
(iii) Following the initial selection described in clauses (i)
and (ii) of this Section 4(c), the Director or the Corporation, as the case may
be, may, within seven (7) days after such written notice of selection has been
given, deliver to the other party a written objection to such selection. Such
objection may be asserted only on the ground that the Independent Counsel so
selected does not meet the requirements of "Independent Counsel" and the
objection shall set forth with particularity the factual basis of such
assertion. Absent a proper and timely objection, the person so selected shall
act as Independent Counsel. If such written objection is made, the Independent
Counsel so selected may not serve as Independent Counsel unless and until a
court has determined that such objection is without merit.
<PAGE> 5
(iv) Either the Corporation or the Director may petition the
Court of Chancery of the State of Delaware or any other court of competent
jurisdiction if the parties have been unable to agree on the selection of
Independent Counsel within twenty (20) days after submission by the Director of
a written request for indemnification pursuant to Section 4(a) of this
Agreement. Such petition may request a determination whether an objection to the
party's selection is without merit and/or seek the appointment as Independent
Counsel of a person selected by the Court or by such other person as the Court
shall designate. A person so appointed shall act as Independent Counsel under
Section 4(b) of this Agreement.
(v) The Corporation shall pay any and all reasonable fees and
expenses of Independent Counsel incurred by such Independent Counsel in
connection with acting pursuant to this Agreement, and the Corporation shall pay
all reasonable fees and expenses incident to the procedures of this Section
4(c), regardless of the manner in which such Independent Counsel was selected or
appointed.
(vi) Upon the due commencement of any judicial proceeding or
arbitration pursuant to Section 6(b) of this Agreement, Independent Counsel
shall be discharged and relieved of any further responsibility in such capacity
(subject to the applicable standards of professional conduct then prevailing).
(d) Cooperation. The Director shall cooperate with the person,
persons or entity making the determination with respect to the Director's
entitlement to indemnification under this Agreement, including providing to such
person, persons or entity upon reasonable advance request any documentation or
information which is not privileged or otherwise protected from disclosure and
which is reasonably available to the Director and reasonably necessary to such
determination. Any costs or expenses (including attorneys' fees and
disbursements) incurred by the Director in so cooperating with the person,
persons or entity making such determination shall be borne by the Corporation
(irrespective of the determination as to the Director's entitlement to
indemnification) and the Corporation hereby indemnifies and agrees to hold the
Director harmless therefrom.
(e) Payment. If it is determined that the Director is entitled to
indemnification, payment to the Director shall be made within ten (10) days
after such determination.
5. Presumption and Effect of Certain Proceedings.
(a) Burden of Proof. In making a determination with respect to
entitlement of indemnification hereunder, the person or persons or entity making
such determination shall presume that the Director is entitled to
indemnification under this Agreement if the Director has submitted a request for
indemnification in accordance with Section 4(a) of this Agreement, and the
Corporation shall have the burden of proof to overcome that presumption in
connection with the making of any person, persons or entity of any determination
contrary to that presumption.
(b) Effect of Other Proceedings. The termination of any Proceeding
or of any claim, issue or matter therein, by judgment, order, settlement or
conviction, or upon a plea of nolo contendere or its equivalent, shall not
(except as otherwise expressly provided in this Agreement) of itself adversely
affect the right of the Director to indemnification or create a presumption that
the Director did not act in Good Faith.
(c) Reliance as Safe Harbor. For purposes of any determination of
Good Faith, the Director shall be deemed to have acted in Good Faith if the
Director's action is based on the records or books of account of the Enterprise,
including financial statements, or on information supplied to the Director by
the officers of the Enterprise in the course of their duties, or on information
or records given or reports made to the Enterprise by an independent certified
public accountant or by an appraiser or other expert selected with reasonable
care by the Enterprise. The provisions of this Section 5(c) shall not be deemed
to be exclusive or to limit in any way the other circumstances in which the
Director may be deemed to have met the applicable standard of conduct set forth
in this Agreement.
<PAGE> 6
(d) Actions of Others. The knowledge and/or actions, or failure to
act, of any director, officer, agent or employee of the Enterprise shall not be
imputed to the Director for purposes of determining the right to indemnification
under this Agreement.
6. Remedies of the Employee.
(a) Application. This Section 6 shall apply in the event of a
Dispute. For purposes of this Section, "Dispute" shall mean any of the following
events:
(i) a determination is made pursuant to Section 4 of this
Agreement that the Director is not entitled to indemnification under
this Agreement;
(ii) advancement of Expenses is not timely pursuant to Section 3
of this Agreement;
(iii) the determination of entitlement to be made pursuant to
Section 4(b) of this Agreement has not been made within ninety (90)
days after receipt by the Corporation of the request for
indemnification;
(iv) payment of indemnification is not made pursuant to Section
2(f) of this Agreement within ten (10) days after receipt by the
Corporation of a written request therefor; or
(v) payment of indemnification is not made within ten (10) days
after a determination has been made that the Director is entitled to
indemnification or such determination is deemed to have been made
pursuant to Section 4 of this Agreement.
(b) Adjudication. In the event of a Dispute, the Director shall be
entitled to an adjudication in an appropriate court of the State of Delaware, or
in any other court of competent jurisdiction, of the Director's entitlement to
such indemnification or advancement of Expenses. Alternatively, the Director at
the Director's option, may seek an award in arbitration to be conducted by a
single arbitrator pursuant to the rules then obtaining of the American
Arbitration Association. The Director shall commence such proceeding seeking an
adjudication or an award in arbitration within one hundred eighty (180) days
following the date on which the Director first has the right to commence such
proceeding pursuant to this Section 6(b). The Corporation shall not oppose the
Director's right to seek any such adjudication or award in arbitration.
(c) De Novo Review. In the event that a determination shall have
been made pursuant to Section 4 of this Agreement that the Director is not
entitled to indemnification, any judicial proceeding or arbitration commenced
pursuant to this Section 6 shall be conducted in all respects as a de novo
trial, or arbitration, on the merits and the Director shall not be prejudiced by
reason of that adverse determination. In any such proceeding or arbitration, the
Company shall have the burden of proving that the Director is not entitled to
indemnification or advancement of Expenses, as the case may be.
(d) Corporation Bound. If a determination shall have been made or
deemed to have been made pursuant to Section 4 of this Agreement that the
Director is entitled to indemnification, the Corporation shall be bound by such
determination in any judicial proceeding or arbitration absent (i) a
misstatement by the Director of a material fact, in connection with the request
for indemnification or a failure to disclose facts which would make Director's
statement not materially misleading, or (ii) a prohibition of such
indemnification under applicable law.
(e) Procedures Valid. The Corporation shall be precluded from
asserting in any judicial proceeding or arbitration commenced pursuant to this
Section 6 that the procedures and presumptions of Sections 4 and 5 are not
valid, binding and enforceable and shall stipulate in any such court or before
any such arbitrator that the Corporation is bound by all the provisions of this
Agreement.
(f) Expenses of Adjudication. In the event that the Director,
pursuant to this Section 6, seeks a judicial adjudication of or an award in
arbitration to enforce the Director's rights under, or to recover damages for
breach of, this
<PAGE> 7
Agreement, the Director shall be entitled to recover from the Corporation, and
shall be indemnified by the Corporation against, any and all Expenses actually
and reasonably incurred by the Director in such adjudication or arbitration, but
only if and to the extent that the Director prevails therein.
7. Non-Exclusivity Insurance, Subrogation.
(a) Non-Exclusivity. The rights of Director to be indemnified and to
receive advancement of Expenses as provided by this Agreement shall not be
deemed exclusive of any other rights to which the Director may at any time be
entitled under applicable law, the Certificate of Incorporation, the By-Laws,
any agreement, a vote of stockholders, a resolution of directors or otherwise.
No amendment, alteration, rescission or replacement of this Agreement or any
provision hereof shall be effective as to the Director with respect to any
action taken or omitted by such the Director in the Director's Corporate Status
prior to such amendment, alteration, rescission or replacement.
(b) Insurance. The Corporation may maintain an insurance policy or
policies against liability arising out of this Agreement or otherwise. However,
nothing contained in this Agreement shall obligate the Corporation to maintain
any directors' and officers' liability insurance.
(c) Subrogation. In the event of any payment under this Agreement,
the Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of the Director, who shall execute all papers required and
take all action necessary to secure such rights, including execution of such
documents as are necessary to enable the Corporation to bring suit to enforce
such rights, subject to any conflicting rights of an insurer pursuant to a
policy obtained under Section 7(b) above.
(d) No Duplicative Payment. The Corporation shall not be liable
under this Agreement to make any payment of amounts otherwise indemnifiable
hereunder if and to the extent that the Director has otherwise actually received
such payment under any insurance policy, contract, agreement or otherwise.
8. Reliance. The Corporation acknowledges that in the course of the
Director's duties as such the Director shall at all times be entitled to rely on
and to comply with any request or direction, whether oral or written, of any
director, officer or employee of the Corporation, or person he reasonably
believes to be such director, officer or employee, and in no event shall the
exercises of the Director's duties as such pursuant to such request or direction
constitute willful misconduct or gross negligence on the part of the Director.
9. Director's Individual Capacity. The corporation further acknowledges
that the Director is undertaking to act as a director of the Corporation at the
request of the Corporation and solely in the Director's individual capacity and
not in any capacity as a director, officer, member, partner, employee, trustee
or other representative of any other corporation, partnership, association,
business trust, trust or similar organization or entity. The Corporation further
covenants and agrees to indemnify any such organization or entity from and
against any and all claims, threats, suits (whether instituted by the
Corporation or any other person or entity), damages, penalties, liabilities,
costs and expenses (including, without limitation, legal fees, costs and
disbursements) incurred, suffered or expended by or threatened against such
organization with respect to any action or inaction taken in the course of the
Director's duties as such director, including such claims, threats, suits,
damages, penalties, liabilities, costs or expenses as were caused by willful
misconduct or gross negligence on the part of the Director; provided, however,
that the foregoing shall not be deemed to limit any right of action the
Corporation may have against the Director for contribution or otherwise.
10. Reservation of Rights. The indemnification provided by this
Agreement shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under statute, agreement, vote of
stockholders or disinterested directors or otherwise, and shall continue after
the Director has ceased to be a director of the Corporation.
11. Amendment. The terms of this Agreement may be enlarged, modified or
altered only by an instrument in writing executed by all of the parties hereto.
<PAGE> 8
12. Waiver, Etc. Any waiver on the part of any party hereto of any
right or interest under this Agreement shall not constitute the waiver of any
other right or interest or any subsequent waiver of such right or interest. The
failure of any party at any time to require performance of any provision of this
Agreement shall not affect the right of such party to require full performance
thereof at any time thereafter. Any waiver by any party of a breach of any
provision of this Agreement shall not constitute a waiver of any subsequent
breach thereof and shall not nullify the effectiveness of such provision. The
failure by any party to give notice of a breach of any provision of this
Agreement shall not constitute a waiver of such breach.
13. Binding Effect. Each reference herein to any party shall be deemed
to include his or its successors and assigns, legal representatives, executors
or administrators.
14. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware.
15. Severability. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, and this Agreement shall continue in full force and
effect except for any such invalid or unenforceable provision.
16. Captions. The captions throughout this Agreement are for
convenience only and are not intended to limit or be used in the interpretation
of the provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date hereinabove mentioned.
<PAGE> 9
Nabors Industries, Inc. has entered into Indemnity Agreements in substantially
the form attached hereto with each of the directors listed below, each effective
as of the date set forth beside the director's name:
NAME EFFECTIVE DATE
Isenberg, Eugene 3/5/91
Stratton, Richard 3/5/91
Whitman, Martin J. 3/5/91
Wexler, Jack 3/5/91
Berman, Warren 3/5/91
Hurford, Gary 1/15/91, as amended
4/12/91 to clarify
effective date of
Indemnity Agreement
Putze, Louis 3/5/91
Sheinfeld, Myron 3/5/91
McLachlin, Daniel 3/5/91
Petrello, Anthony G. 12/10/91
<PAGE> 1
EXHIBIT 11
NABORS INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended September 30,
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Primary:
Average shares outstanding 96,034 85,429 83,966
Net effect of dilutive stock options and warrants-based
on the treasury stock method using
average market price 6,166 7,733 4,052
-------- -------- --------
Total 102,200 93,162 88,018
-------- -------- --------
Net income $114,808 $ 70,500 $ 51,104
-------- -------- --------
Per share amount $ 1.12 $ .76 $ .58
======== ======== ========
Fully Diluted:
Average shares outstanding 96,034 85,429 83,966
Net effect of dilutive stock options and warrants-based
on the treasury stock method using
quarter-end market price, if higher than
average market price 7,847 8,488 6,271
Assumed conversion of 5% convertible notes (1) 9,517 - -
-------- -------- --------
Total 113,398 93,917 90,237
-------- -------- --------
Net income $114,808 $ 70,500 $ 51,104
Add 5% convertble note interest, net
of federal income tax effect (1) 5,606 - -
-------- -------- --------
Total $120,414 $ 70,500 $ 51,104
-------- -------- --------
Per share amount $ 1.06 $ .75 $ .57
======== ======== ========
</TABLE>
(1) The convertible securities issued during May 1996 are not included in the
fully diluted earnings per share calculation for the year ended September
30, 1996 because inclusion would have been anti-dilutive.
<PAGE> 1
EXHIBIT 12
NABORS INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(In thousands, except ratio amounts)
<TABLE>
<CAPTION>
Year Ended September 30,
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Pretax income $ 182,410 $ 81,600 $ 58,628
Add fixed charges as adjusted (from below) 16,980 12,258 7,933
--------- --------- ---------
Earnings $ 199,390 $ 93,858 $ 66,561
--------- --------- ---------
Fixed charges:
Interest expense:
Interest on indebtedness $ 15,993 $ 11,356 $ 7,297
Capitalized 1,191 985 747
Amortization of debt costs 527 528 314
Interest portion of rental expense 460 374 322
--------- --------- ---------
Fixed charges before adjustments 18,171 13,243 8,680
Less capitalized interest (1,191) (985) (747)
--------- --------- ---------
Fixed charges as adjusted $ 16,980 $ 12,258 $ 7,933
--------- --------- ---------
Ratio (earnings divided by fixed charges
before adjustments) 10.97 7.09 7.67
--------- --------- ---------
</TABLE>
<PAGE> 1
FRONT COVER
(OUTLINE DRAWING OF RIG)
NABORS INDUSTRIES 1997
ANNUAL REPORT
<PAGE> 2
================================================================================
NABORS INDUSTRIES 1997 ANNUAL REPORT
================================================================================
FINANCIAL HIGHLIGHTS
================================================================================
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended September 30,
OPERATING DATA 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $ 1,029,303 $ 719,743 $ 572,788 $ 484,268 $ 419,406
Depreciation and
amortization 66,391 46,117 31,042 26,241 22,434
Operating income 154,761 77,099 58,555 9,299 38,257
Net income 114,808 70,500 51,104 1,350 38,558
Net income per share -
fully diluted $ 1.06 $ .75 $ .57 $ .02 $ .49
Weighted average number
of shares outstanding -
fully diluted 113,398 93,917 90,237 85,743 78,288
<CAPTION>
Year Ended September 30,
OPERATING DATA 1992 1991 1990 1989 1988
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $ 312,407 $ 264,239 $ 153,920 $ 85,600 $ 63,060
Depreciation and
amortization 16,526 10,119 5,232 3,884 3,502
Operating income 34,705 30,324 14,383 5,346 403
Net income 33,740 29,724 16,401 7,165 23,522
Net income per share -
fully diluted $ .45 $ .42 $ .26 $ .14 $ .85
Weighted average number
of shares outstanding -
fully diluted 74,821 70,728 62,513 51,644 27,671
</TABLE>
<TABLE>
<CAPTION>
As of September 30,
BALANCE SHEET DATA 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cash and short-term
marketable securities $ 11,044 $ 104,027 $ 15,334 $ 45,232 $ 70,458
Working capital 70,872 172,091 33,892 77,248 113,653
Property, plant and
equipment, net 861,393 511,203 393,464 283,141 270,865
Total assets 1,234,232 871,274 593,272 490,273 493,927
Long-term obligations 229,507 229,504 51,478 61,879 73,109
Stockholders' equity 727,843 457,822 368,750 317,424 307,583
Capital expenditures
including acquisitions 396,668 174,483 144,560 62,907 84,752
<CAPTION>
As of September 30,
BALANCE SHEET DATA 1992 1991 1990 1989 1988
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Cash and short-term
marketable securities $ 14,783 $ 15,139 $ 29,332 $ 6,484 $ 13,354
Working capital 33,831 15,650 40,956 7,784 8,678
Property, plant and
equipment, net 220,761 185,543 109,928 42,728 28,357
Total assets 339,930 285,615 226,846 75,519 61,123
Long-term obligations 49,294 37,489 37,729 7,760 4,254
Stockholders' equity 201,058 157,302 117,335 47,215 36,101
Capital expenditures
including acquisitions 61,124 88,104 73,943 19,751 7,414
</TABLE>
<TABLE>
<CAPTION>
GEOGRAPHIC DISTRIBUTION
OF EARNINGS YEAR ENDED SEPTEMBER 30,
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
North America $ 852,368 $ 532,638 $ 416,475 $ 323,149 $ 235,716
International 176,935 187,105 156,313 161,119 183,690
----------- ----------- ----------- ----------- -----------
$ 1,029,303 $ 719,743 $ 572,788 $ 484,268 $ 419,406
----------- ----------- ----------- ----------- -----------
Operating income (loss):
North America $ 134,994 $ 61,611 $ 47,989 $ 36,841 $ 26,092
International 36,103 27,848 20,293 (14,663) 23,091
Corporate (14,581) (12,360) (9,727) (11,284) (10,926)
Merger expenses (1,755) -- -- (1,595) --
----------- ----------- ----------- ----------- -----------
$ 154,761 $ 77,099 $ 58,555 $ 9,299 $ 38,257
----------- ----------- ----------- ----------- -----------
<CAPTION>
GEOGRAPHIC DISTRIBUTION
OF EARNINGS YEAR ENDED SEPTEMBER 30,
1992 1991 1990 1989 1988
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
North America $ 147,506 $ 165,438 $ 101,335 $ 67,888 $ 63,060
International 164,901 98,801 52,585 17,712 --
----------- ----------- ----------- ----------- -----------
$ 312,407 $ 264,239 $ 153,920 $ 85,600 $ 63,060
----------- ----------- ----------- ----------- -----------
Operating income (loss):
North America $ 12,618 $ 15,119 $ 9,422 $ 9,116 $ 4,390
International 35,111 27,527 13,640 609 --
Corporate (13,024) (12,322) (8,679) (4,379) (3,987)
Merger expenses -- -- -- -- --
----------- ----------- ----------- ----------- -----------
$ 34,705 $ 30,324 $ 14,383 $ 5,346 $ 403
----------- ----------- ----------- ----------- -----------
</TABLE>
1
<PAGE> 3
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NABORS INDUSTRIES 1997 ANNUAL REPORT
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TO OUR SHAREHOLDERS
- --------------------------------------------------------------------------------
DURING FISCAL 1997, YOUR COMPANY BEGAN TO EXPERIENCE AN ACCELERATION IN THE
GROWTH OF ITS OPERATIONAL AND FINANCIAL PERFORMANCE. FAVORABLE DEVELOPMENTS IN
VIRTUALLY EVERY AREA OF OUR BUSINESS WERE THE RESULT OF BOTH STRONG MARKETS AND
THE SOLID POSITIONS WE HAVE CAREFULLY CULTIVATED OVER THE LAST DECADE.
- --------------------------------------------------------------------------------
The best illustration of the magnitude of this year's performance is the
doubling of our operating income to $154.8 million. The operating leverage in
our business is apparent when one considers that this increase in operating
income came from a 43 percent improvement in revenues, which exceeded $1 billion
for the first time. Net income posted an increase of 63 percent to $114.8
million, or $1.06 per share. This is particularly noteworthy considering the
$0.47 per share increase in deferred (non-cash) taxes and 19.5 million
additional fully diluted shares. Other financial measures are equally
favorable. Net operating profit after current tax represented a return on
capital employed of 16 percent. Our capital structure improved even further as
total debt as a percentage of capitalization declined from 35 percent to 27
percent. Our improving performance, solid financial position and strong outlook
were recognized by Moody's Investor Services with an upgrade of our corporate
credit rating to A3.
The year's operational accomplishments are equally significant and should
provide an expanded base for further growth. We completed over $230 million in
acquisitions while reinvesting another $160 million in technological
enhancements and rig-related component replacements, upgrades, reactivations and
new-builds. We responded to the need for additional qualified entry level rig
crews by establishing a training facility that is turning out 40 new roughnecks
per month, while preparing seasoned crew members for higher level jobs. We
further improved our safety record, which is always our top priority, and we
will continue to strive for even higher levels of performance. We also achieved
a more favorable position in most operational aspects of our extensive worldwide
fleet. Specifically, utilization increased from 58 percent to 65 percent, which
is particularly significant considering that the size of the fleet also
increased during the fiscal year, from 310 to 410 rigs. In our US Lower 48
unit, the daily average gross margin
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2
<PAGE> 4
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NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
per rig (rig level cash flow) increased substantially and significant increases
occurred in all of our other operating units as well.
Progress continues toward reaching and expanding our potential in many
areas and from many sources. As we move forward, the prioritization of our
efforts will be in four areas that promise attractive returns. Our first
priority will be to optimize the return from our existing active fleet. Current
average rig dayrates are barely half of what we believe is required for economic
replacement of rigs, while Nabors' worldwide utilization stands at just 65
percent.
Our next priority is to activate our stacked rigs as market conditions
warrant in both the domestic and international markets. This can be accomplished
with relatively small amounts of additional capital per rig, allowing us to
economically meet our customer needs for additional high quality, lower cost,
deep SCR rigs for some time to come. Nearly $100 million of 1997's investments
went to accumulating these rigs, which represent a majority of the world's
remaining stacked premium rigs.
Additionally, there remains significant potential for Nabors to increase
the extent of other value-added services we provide to our customers and we will
continue to focus on this in the coming year. Our efforts will be directed at
further market penetration with our existing products and services while we
seek to develop other business lines. Several examples of this additional
aspect of our strategic focus were apparent in 1997. Among these was the
expansion of our presence in the top drive drilling market, evidenced by a 50
percent increase in the number of top drives shipped by Canrig Drilling
Technology. We also entered the mudlogging and drilling instrumentation
business with the acquisition of Epoch Well Logging. Both of these developments
represent a further integration of our services, both vertically in that Canrig
and Epoch are suppliers to our own rig fleet and horizontally in that they
constitute new business lines with significant potential.
We will also continue to seek attractive investment opportunities, both
internally in the form of expanding and enhancing our asset base and externally
in the form of acquisitions. Nabors' growing technical and operational staff
represents an ever increasing level of intellectual capital that, along with our
financial capacity, allow us to undertake more varied, larger and more complex
projects worldwide. Acquisitions will continue to be a prominent focus. We have
the organizational resources in-house needed to prospect for, analyze and
quickly consummate a transaction with minimal reliance on outside advisors.
We believe the long-term fundamentals are conducive to attaining these
goals. Since 1982, an oversupply of crude oil globally and natural gas in North
America has reduced the number of wells that would normally have been drilled
annually to meet growing demand and offset depletion of existing reservoirs.
- --------------------------------------------------------------------------------
3
<PAGE> 5
- --------------------------------------------------------------------------------
NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
[PHOTO]
EUGENE M. ISENBERG
Chairman and Executive Officer
[PHOTO]
ANTHONY G. PETRELLO
President and Chief Operating Officer
[PHOTO]
RICHARD A. STRATTON
Vice Chairman
Today, this excess supply has been greatly diminished, if not exhausted,
and incremental production must now come through the drilling of additional
wells. Exacerbating this situation is an apparent acceleration in the depletion
rate of North American gas production, which is requiring a significantly larger
number of rigs operating just to keep gas deliverability constant. This creates
numerous opportunities for increasing the yield from our existing assets and
reinvesting our increasing cash flow in new and upgraded rigs and other
services.
Clearly these are exciting times for Nabors but they are not without
challenges. We must continue to help our customers improve their per barrel of
oil equivalent (boe) lifting and finding costs. This requires continued
improvements in drilling efficiency through implementation of new technology,
improved practices and the creation of more value-added services. An essential
element of this is the aggressive steps we are taking to overcome the shortage
of experienced personnel by recruiting and training new rig hands, field
supervisors, engineers and managers. We must also redouble our efforts to create
an even safer working environment, particularly as we face the challenges
presented by a rapidly expanding work force.
The balance of this report will describe to you in more detail the various
components of our business, the diverse nature and quantity of our assets, our
competitive advantages, and how these elements collectively translate into
increased value for our customers and our investors. Thank you for the
confidence your ownership of Nabors demonstrates. We look forward to another
prosperous year and hope to report our continued progress to you.
Sincerely,
/s/ EUGENE M. ISENBERG
Eugene M. Isenberg
Chairman and Chief Executive Officer
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4
<PAGE> 6
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THE BUSINESS NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
NABORS IS THE WORLD'S LARGEST PROVIDER OF LAND AND PLATFORM DRILLING CONTRACT
SERVICES FOR EXPLORATION AND DEVELOPMENT OF OIL, GAS AND GEOTHERMAL WELLS. OUR
CUSTOMER BASE REPRESENTS MOST OF THE WORLD'S MAJOR INTEGRATED OIL COMPANIES,
SIGNIFICANT INDEPENDENT PRODUCERS AND GOVERNMENT-OWNED OIL COMPANIES. OUR
CUSTOMERS CONTRACT WITH US ON A COMPETITIVE BID BASIS TO CONSTRUCT THEIR WELLS.
THE SCOPE OF THE MAJORITY OF OUR SERVICES ENTAILS THE PROVISION OF A SUITABLE
DRILLING RIG, VARIOUS AUXILIARY EQUIPMENT AND SERVICES, AND THE PERSONNEL
NECESSARY TO EFFICIENTLY CARRY OUT THIS TASK. A SMALLER, BUT GROWING PORTION OF
OUR BUSINESS IS THE PROVISION OF OTHER SERVICES AND EQUIPMENT RELATED TO
DRILLING AND THE PRODUCTION OF OIL AND GAS.
The construction of a well involves the drilling rig, which varies greatly
in size, style, configuration and complexity, numerous pieces of additional
equipment and several types of services. Our customers may have as many as 10 to
15 different contractors and suppliers on a more sophisticated well. Among these
suppliers are providers of drilling and completion fluids, drilling tools such
as bits, directional measurement and steering systems, wellhead and tubular
goods, cementing, formation testing and evaluation, and other auxiliary goods
and services including location construction, transportation, final cleanup and
environmental restoration.
Nabors concentrates on the deeper, more sophisticated drilling in most of
the world's larger and sustainable producing regions. The bulk of the drilling
conducted by Nabors is accomplished on land where the Company owns over 400
active and stacked rigs. However, the offshore component of our business has
increased in the last few years and today represents nearly 15 percent of our
total revenues.
A significant portion of Nabors' offshore and Alaskan North Slope revenues
comes from two other aspects of the business called workover and
reentry/redrilling. This involves going back into existing wells and repairing
or redrilling the well, often horizontally, to restore or enhance the
hydrocarbon production. Special rigs are used for this purpose on both land and
offshore.
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5
<PAGE> 7
- --------------------------------------------------------------------------------
THE BUSINESS NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
Nabors enters into contracts with its customers that govern the commercial
terms of our work. The great majority of our contracts are on a daywork
compensation basis, wherein we conduct the drilling of the well at the
customer's direction for an agreed price per day, regardless of the time
required and without the consequences of weather or geologic risk. Occasionally,
when we judge the assumption of risk as rational and the risk/reward balance
attractive, we drill wells either on a footage or turnkey basis, which is a lump
sum price for a completed well. Frequently, contracts for our offshore,
international and Alaskan rigs are for a defined term of one to three years. The
duration of contracts in the US Lower 48 and Canada are usually on a
well-to-well basis or for a specified number of wells.
CORE BUSINESSES
Nabors' four core business units are Alaska, the US Lower 48 and Canada,
International and Sundowner/Nabors Offshore Drilling, Inc.
ALASKA
Nabors and its predecessor companies drilled the discovery well and
confirmation wells on the supergiant Prudhoe Bay field and we have been the
leading North Slope contractor since 1963. The Company holds many of the
drilling records in Alaska and was one of the pioneers in horizontal drilling,
which was initially applied full-scale on the North Slope. The Company currently
operates nine highly specialized arctic drilling and workover/redrilling rigs on
the North Slope and three more conventional land rigs in the Kenai/Cook Inlet
area, as well as one offshore platform drilling rig. A 50 percent-owned joint
venture, Peak Oilfield Services Company (Peak), is also active in Alaska and is
expanding into the Lower 48. Peak is involved in moving rigs from one drilling
location to another; in other heavy oilfield hauling; in oilfield construction
of roads and pads, pipelines and facilities; and in maintenance and operation of
production facilities and equipment.
1997 saw an increase in the number of rigs running and was a robust year
for the construction activities of Peak. We commenced initial development
drilling operations on the Badami field, 26 miles east of Prudhoe Bay on the
Arctic Ocean coastline. The drillsites and interconnecting roads for Badami were
constructed by another 50 percent joint venture, Alaska Interstate Construction.
We believe 1998 holds the promise of a significant increase in activity
with a long stacked rig scheduled for reactivation and commencement of
developmental drilling operations in the Prudhoe Bay unit and subsequently on
North Star, a new offshore satellite field development project. The commencement
of numerous other satellite field developments and existing field rework
projects are planned. This may require new-built, modularized, quick-moving
arctic rigs in support of our customers' efforts to arrest the decline in
production from the North Slope. Production peaked at 1.8 million barrels of oil
per day (bopd) in 1988 and has since declined to less than 1.5 million bopd.
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6
<PAGE> 8
PAGE 7
PHOTO HERE
(WET TRIP ON RIG FLOOR)
- --------------------------------------------------------------------------------
7
<PAGE> 9
- --------------------------------------------------------------------------------
THE BUSINESS NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
US LOWER 48 AND CANADA
Nabors is the leading North American land drilling company with some 90
years of operating experience. The US Lower 48 unit operates in every region of
the country except the northeastern quadrant, with a large concentration of
assets in the most significant producing regions. Our US Lower 48 and Canadian
operations encompass a combined total of approximately 330 actively marketed
rigs. In the US Lower 48, we also have approximately 45 premium rigs in stacked
condition that can be economically reactivated to meet increasing demand as
market conditions warrant. There is also a large quantity of major component
equipment for use in assembling new rigs or upgrading stacked rigs, or to repair
and/or replace operating rigs. Almost 60 percent of the rigs in these fleets
have drilling capacities of greater than 15,000 feet and over 40 percent are
powered with diesel electric SCR systems. In addition, there are a significant
number of wheel mounted, highly mobile rigs which are also in strong demand
since their inherently lower moving costs create a competitive advantage.
Nabors is the industry leader in total footage drilled and drills a high
proportion of the directional, horizontal and multi-lateral wells undertaken by
the industry. In Canada, the Company has particular expertise in drilling deep
gas wells and wells with high levels of "sour" hydrogen sulfide.
During 1997, the fleet grew through acquisitions by over 60 rigs, while
utilization increased from 55 percent to 64 percent. The US Lower 48 average
daily gross margin per rig rose significantly over the previous year's levels as
pricing moved upward in response to limited supply and increased demand.
We believe the prospects for 1998 look promising with numerous projects
planned by our customers that will require incremental deep premium rigs.
Activity in every area is expected to be steady to increasing, particularly in
areas that have lagged in recent years. The integration of our value-added
services into our own fleet will continue, further benefiting our overall
returns while creating new market opportunities with external customers.
INTERNATIONAL
Nabors has a long and productive record in the international drilling
arena. We have been in Venezuela for more than 50 years, in Saudi Arabia for 35
years and have extensive experience in numerous other countries. Nabors' rigs
and crews have conducted some of the most difficult international drilling
operations. We also drilled the major Yemen discovery wells and virtually all of
the development wells there.
Nabors' International fleet consists of 46 land rigs and one offshore
jackup rig. These assets are concentrated in the Middle East with 19 rigs and in
South America, primarily in Venezuela, with 17 rigs. Six additional rigs were
recently added to the
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8
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- --------------------------------------------------------------------------------
THE BUSINESS NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
Company's expanding Saudi Arabia operation. Five of these rigs are conducting
development drilling operations in the large, strategically important Shaybah
field, a remote and logistically difficult area of Saudi Arabia. This field is
expected to be producing 500 thousand bopd by 1999.
We believe 1998 promises to be a robust year with an increase in bidding
activity, portending a large increase in international rig demand in virtually
every area in which we currently operate, and in several areas where we have
expansion interests.
SUNDOWNER/NABORS OFFSHORE DRILLING, INC.
The Nabors Offshore Division is composed of Sundowner Offshore Services,
Inc., which conducts workover and reentry/ redrilling operations, and Nabors
Offshore Drilling, Inc., which focuses on offshore drilling projects. Both units
operate in the Gulf of Mexico, as well as in a number of foreign locations. The
Company has developed innovative platform rig designs for both workover and
drilling rigs that provide significant economic advantages over competitive
rigs. All of the platform rigs are capable of operating in any water depth in
which a production platform is located, including the highly prospective deep
water basins throughout the world. Our rigs are capable of being adapted for use
on deep water Tension Leg Platforms, Floating Production Systems and the new
generation Spar Platforms.
The 15 Sundowner and Super Sundowner workover/redrilling rigs are of
modular design and are therefore highly mobile. In fact, the very name Sundowner
was derived from the Company's ability to complete a rig-up by sundown.
Sundowner also operates five shallow water workover/redrilling jackup rigs.
Nabors Offshore Drilling operates five conventionally configured API
(American Petroleum Institute) rigs, two innovative land rig conversions and
three of its proprietary Minimum Area, Self-Erecting (MASE(TM)) offshore
platform drilling rigs. The MASE(TM) rig is patterned after the Sundowner
workover rig configuration. It is lighter, occupies less space and moves at
significantly less cost than conventional API platform rigs.
In 1997, utilization and rates for both companies' rigs increased
significantly. Additionally, one new Sundowner workover rig and one new platform
drilling rig were added to the fleet.
We believe 1998 will be a year of further improvement with continued
revenue and utilization increases expected. One additional API rig and the two
rigs added in late fiscal 1997 should be largely incremental to 1998 results.
Strong market demand is expected to continue, including in the international
market.
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9
<PAGE> 11
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THE BUSINESS NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
OTHER BUSINESSES
Other businesses include Canrig Drilling Technology, a manufacturer of top
drives which are used on most offshore rigs, as well as on many of the more
sophisticated land drilling rigs; Epoch Well Logging, which furnishes mudlogging
services and manufactures rig instrumentation systems; and Peak Oilfield
Services, an oilfield construction and transportation company which moves rigs
and related equipment from one drilling site to another. During 1997, we also
expanded our Performance Drilling Services business, which offers turnkey and
complete project management services to our customers.
[Graphs regarding operational and statistical
information to be interspursed throughout.]
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10
<PAGE> 12
- --------------------------------------------------------------------------------
THE ASSETS NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
AMONG NABORS' STRENGTHS IS THE SIZE, DIVERSITY, PREMIUM QUALITY AND GEOGRAPHIC
LOCATION OF OUR PHYSICAL ASSETS. WE ARE ABLE TO MEET OUR CUSTOMERS' REQUIREMENTS
ECONOMICALLY WITH THE OPTIMUM RIG FOR ANY DEPTH RANGE IN MOST OF THE WORLD'S
SIGNIFICANT OIL AND GAS PRODUCING REGIONS.
- --------------------------------------------------------------------------------
LAND RIGS
Nabors has the largest land rig fleet. The majority of our rigs, some 60
percent of our worldwide fleet, are the more sophisticated rigs capable of
drilling to 15,000 feet or deeper. Even more important is the premium nature of
our fleet, with over 40 percent of our rigs being diesel-electric SCR rigs,
widely preferred for deeper, more sophisticated wells.
Recent advancements in seismic and directional drilling capabilities have
made it possible to locate, identify and economically exploit deeper, smaller
and previously uneconomic or unidentified reservoirs. This development is
particularly noteworthy in the US Lower 48 gas drilling market where Nabors is
well positioned.
Deep SCR rigs are becoming more in demand as land drilling markets
worldwide tend toward deeper formations and/or more directional, extended reach
or horizontal wells. This in turn creates increased demand for big rigs,
particularly SCR rigs, which provide a number of operational and economic
advantages when compared to typical mechanical rigs.
The time required to move rigs between wells is also becoming increasingly
important to our customers, especially on short duration wells or in-field roads
where weight limits are less stringent. The impact of mobilization costs can be
significant on operator economics, as well as the contractor's competitive
position, since moving costs are amortized over the number of days required to
drill the well.
This has given rise to the development of a number of highly mobile Nabors
rigs. The best example is in Alaska where the Company operates a fleet of
sophisticated, modularized arctic rigs. The arctic North Slope rigs consist of
self-propelled or towed modules weighing up to 2.5 million pounds, but easily
transportable from location to location. These large rigs are capable of moving
between wells on the same drillsite in a matter of hours and require only one to
two days when moving between drillsites. They are also fully winterized and
self-contained so that the working environment is comfortable in temperatures
approaching -70 degrees Fahrenheit, with wind chill factors as low as -140
degrees. These rigs possess integral containment and disposal systems designed
to prevent contaminants or drilling fluids from reaching the sensitive arctic
environment.
- --------------------------------------------------------------------------------
11
<PAGE> 13
- --------------------------------------------------------------------------------
THE ASSETS NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
Other modularization and specialized moving systems are utilized to
increase mobility of desert rigs at work in the Middle East. Many of these rigs
are mounted on a chassis with oversized sand tires, allowing each rig to be
transported across the soft desert sand in larger packages, thus reducing moving
costs.
In the US Lower 48, Canada and internationally, a small but significant
percentage of our fleet are the highly mobile, wheel mounted, shallower (6,000
to 12,000 feet) land drilling rigs capable of moving and rigging-up or down more
quickly than conventional substructure rigs.
OFFSHORE RIGS
Nabors maintains a growing fleet of technically sophisticated offshore
platform drilling and workover rigs through our Sundowner and Nabors Offshore
Drilling subsidiaries. These include MASE(TM), Tortuga and API drilling rigs,
and Sundowner, Super Sundowner and jackup workover/redrilling rigs.
The Minimum Area, Self-Erecting (MASE(TM)) rig is a new generation offshore
drilling rig with innovative features designed to enhance our customers'
economics. It is modular in design, occupies less space and weighs significantly
less than conventional platform drilling rigs. A MASE(TM) rig is capable of
being erected with standard platform cranes, thus eliminating the need for
expensive derrick barges. It is also engineered to assume several different
configurations, which allow the rig to be installed on most offshore platforms
with minimal interference with production equipment on the drill deck.
The Tortuga rig is an equally innovative offshore drilling rig that
showcases Sundowner's engineering expertise. It is a land rig that has been
converted to work as an offshore platform rig. It has been especially
cost effective on the narrower structures which characterize several platforms
in the shallow waters of the Gulf of Mexico, near the mouth of the Mississippi
River where mudslides often occur.
The Sundowner and Super Sundowner are offshore workover/redrilling rigs
designed to re-enter existing wells and replace tubing, improve flow or perform
other remedial action. The Super Sundowner can also perform redrilling or
sidetracking operations, which are often done horizontally at a higher cost, but
which pay off in increased production of oil and gas. Both rigs are highly
mobile, meaning they can rig-up and rig-down in a very short period of time,
making the rig very cost effective for the customer.
AUXILIARY ASSETS
Nabors has additional assets that are increasingly contributing to Company
revenues. These include top drives manufactured by Canrig, a Nabors subsidiary,
which are being placed on many
- --------------------------------------------------------------------------------
12
<PAGE> 14
- --------------------------------------------------------------------------------
THE ASSETS NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
of the Company's land rigs. Top drives are especially valuable for directional
drilling and other technically difficult drilling operations. They provide a
value-added service for our customers while contributing to an improved Nabors
gross margin per rig.
The acquisition of Epoch provides a similar opportunity. Nabors is
currently placing Rigwatch(TM), a sophisticated drilling monitoring device, on
many of its rigs. This product performs a valuable function for our customers
while also increasing the revenues generated per rig.
- --------------------------------------------------------------------------------
13
<PAGE> 15
- --------------------------------------------------------------------------------
THE ASSETS NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
AREAS OF OPERATION
- --------------------------------------------------------------------------------
[MAP]
- --------------------------------------------------------------------------------
RIG FLEET
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
LAND RIG FLEET LESS THAN 10,000' 15,000' 20,000'
386 ACTIVELY MARKETED RIGS* 10,000' TO 14,999' TO 19,999' AND DEEPER TOTAL
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALASKA
North Slope 3 1 5 9
Kenai/Cook Inlet 1 2 3
- ---------------------------------------------------------------------------------------------
INTERNATIONAL
Middle East 3 7 4 5 19
South and Central America 1 7 2 7 17
CIS 3 1 1 5
Africa 1 1 2
Far East 2 1 3
- ---------------------------------------------------------------------------------------------
US LOWER 48 33 93 115 59 300
- ---------------------------------------------------------------------------------------------
CANADA 12 3 8 5 28
- ---------------------------------------------------------------------------------------------
TOTAL 49 118 135 84 386
- ---------------------------------------------------------------------------------------------
</TABLE>
* As of December 31, 1997.
14
<PAGE> 16
- --------------------------------------------------------------------------------
THE ASSETS NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
OFFSHORE RIG FLEET MASE SUNDOWNER SUPER SUNDOWNER PLATFORM
37 ACTIVELY MARKETED RIGS* DRILLING WORKOVER WORKOVER DRILLING JACKUP BARGE TOTAL
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ALASKA 1 1
- --------------------------------------------------------------------------------------------------------------------
INTERNATIONAL
Middle East 1 1
South and Central America 1 1 2
CIS 1 1
Europe and Africa 1 1 2
- --------------------------------------------------------------------------------------------------------------------
GULF OF MEXICO 2 6 5 7** 5 5*** 30
- --------------------------------------------------------------------------------------------------------------------
TOTAL 3 8 7 8** 6 5*** 37
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
* As of December 31, 1997.
** Number includes a rig under construction, deploying in January 1998.
*** Number includes three P&A barges.
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
LESS THAN 10,000' 10,000' TO 14,999' 15,000' TO 19,999' 20,000' AND DEEPER
US LOWER 48 RIG FLEET ----------------- ------------------ ------------------ ------------------
300 ACTIVELY MARKETED RIGS* MECH SCR MECH SCR MECH SCR MECH SCR TOTAL
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
East Texas District 11 1 11 14 8 45
South Texas District 1 8 3 1 22 10 45
Arkoma District 6 8 1 10 4 1 7 37
Gulf Coast District 1 2 5 4 6 16 34
California District 2 1 3 4 1 6 5 22
Wyoming District 11 2 20 3 12 3 1 3 55
North Dakota District 10 11 2 23
West Texas District 10 18 7 2 2 39
- ------------------------------------------------------------------------------------------------------------------------------
TOTAL 30 3 79 14 58 57 10 49 300
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* As of December 31, 1997.
15
<PAGE> 17
- --------------------------------------------------------------------------------
THE ASSETS NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
(ILLUSTRATED DRAWINGS OF DIFFERENT RIG TYPES HERE)
- --------------------------------------------------------------------------------
16
<PAGE> 18
- --------------------------------------------------------------------------------
THE EDGE NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
NABORS BELIEVES IT HAS A COMPETITIVE EDGE IN MOST OF ITS MARKETS RESULTING FROM
THE PREMIUM NATURE AND GEOGRAPHIC DIVERSITY OF THE FLEET, A MATURE AND
MULTI-REGIONAL OPERATIONAL INFRASTRUCTURE, THE ABILITY TO INTEGRATE VERTICALLY
AND HORIZONTALLY AND AN EVER INCREASING LEVEL OF TECHNICAL AND OPERATIONAL
INTELLECTUAL CAPITAL. ALL OF THESE ARE SUPPORTED BY OUR STRONG FINANCIAL
POSITION.
- --------------------------------------------------------------------------------
THE FLEET
Many of these competitive advantages stem from the characteristics of our
rig fleet. In fact, we have more total rigs, more SCR rigs, more deep drilling
rigs, more arctic rigs and more stacked premium rigs and components than any
other contractor. We have a solid position in the offshore platform workover and
drilling business and we are looking to the future with a number of advanced
innovative concepts under development. Nabors is also well positioned in the
highly mobile, shallow land drilling rig market, both domestically and
internationally. Our breadth of markets and assets means we can move rigs,
ancillary equipment and services anywhere in the world to serve our customers'
global requirements, or to take advantage of more favorable markets where better
long-term opportunities are believed to exist.
The size of our fleet also provides economies of scale. This is especially
true in purchasing and logistics, where our ability to buy needed supplies and
equipment for almost 420 active rigs worldwide gives us not only bargaining
power, but also the ability to better optimize the allocation of our capital
equipment and resources. A good example of this is our various supplier
arrangements that deliver better economies and flexibility to Nabors, while
providing vendors with a larger, more stable and predictable order flow.
Nabors also has a favorable basis in its assets, having purchased most of
our fleet at prices well below the costs of new rigs and substantially less than
today's fair market value. As a result, we have lower fixed costs per unit,
which benefits our customers, enhances our profitability and gives us further
competitive advantage in bidding.
- --------------------------------------------------------------------------------
17
<PAGE> 19
- --------------------------------------------------------------------------------
THE EDGE NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
MATURE INFRASTRUCTURE
Nabors already has in place an extensive infrastructure of operational
management and technical support in most of the stable, long-term oil and gas
producing regions worldwide. This gives us an advantage because of our
established critical operating mass; our available suitable assets, like those
uniquely required in the Middle East, the Arctic and offshore; and the high
level of our local operating expertise. Combined with our extensive asset base
and worldwide presence, the Nabors infrastructure allows us to add or redeploy
rigs within or between regions to take advantage of new opportunities, with
minimal capital investment or expansion of overhead. It also insures that new
crews are trained properly and that a consistent, systematic, organized safety
program is implemented on every rig.
HUMAN RESOURCES
Nabors believes we have an edge in the quality of our people. Few other
contractors have the depth and breadth of field experience and the highly
technical and operational staff we offer our customers. Nabors' worldwide
presence allows us to translate the knowledge and experience resident in our
people between our various operations, permitting us to bring a multitude of
skills and experience to any unique drilling or logistical problem.
Our engineering staff is adept at designing, constructing, modifying and
deploying a multitude of rigs in almost every style and application to meet our
customers' requirements. This experience has helped us develop a high degree of
technical competence and innovation, and has led to the development of such
proprietary products as Sundowner workover rigs, the MASE(TM) rigs and a new
generation of rig instrumentation to be launched in 1998. Our human intellectual
capital continues to expand rapidly in this area, giving Nabors the ability to
efficiently plan and execute ever larger and more sophisticated projects.
The Nabors management team strives to combine financial expertise,
operational expertise and a variety of business experiences into one homogeneous
unit, a factor that we believe has placed the Company in the market position we
now enjoy. To maintain and further expand this position, we are actively
recruiting engineers and technically oriented MBAs. The goals in developing
this group are to preserve the experience resident in our more senior staff, to
bring new dimensions to our thinking and to provide for tomorrow's leadership of
Nabors. We are simultaneously honing our edge in field experience and execution
by implementing training programs for entry level crews, as well as further
technical, business and leadership programs for our more seasoned field
personnel.
- --------------------------------------------------------------------------------
18
<PAGE> 20
PAGE 19
PHOTO HERE
(ALASKA RIG 28 - CLOSE-UP)
- --------------------------------------------------------------------------------
19
<PAGE> 21
PAGE 20
PHOTO HERE
(ALASKA RIG 28 - FAR AWAY)
- --------------------------------------------------------------------------------
20
<PAGE> 22
- --------------------------------------------------------------------------------
THE EDGE NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
FINANCIAL STRENGTH
We believe Nabors has an edge in financial strength. This includes
favorable earnings and cash flow, an excellent credit rating, access to capital
and a low debt to equity ratio. This should allow us to make acquisitions or
investments in new and existing rigs and components, as well as invest in and
implement improved systems and technology. It also allows us to be prepared to
quickly seize and exploit opportunities, as exemplified by our recent
acquisitions of the majority of the remaining premium stacked rigs at a cost of
over $100 million.
Our financial strength also allows us to bid on and execute current and
prospective, large and capital intensive projects simultaneously. We recently
deployed three newly-built offshore platform rigs and currently have inquiries
pending that collectively could amount to several hundred million dollars in
potential investment. These inquiries underscore the magnitude of worldwide
demand for rigs in our US Lower 48, International, offshore and Alaskan markets.
- --------------------------------------------------------------------------------
21
<PAGE> 23
- --------------------------------------------------------------------------------
THE EDGE NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
(Photos, charts or graphs regarding operations to be inserted here)
- --------------------------------------------------------------------------------
22
<PAGE> 24
- --------------------------------------------------------------------------------
THE OPPORTUNITY NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
A PRIME ELEMENT THAT DISTINGUISHES NABORS FROM OUR COMPETITORS IS THE BREADTH OF
OPPORTUNITIES AVAILABLE TO US AS A RESULT OF OUR WORLDWIDE MARKETS, OUR DIVERSE
ASSET BASE AND THE INTEGRATION OF OTHER RELATED BUSINESSES. THESE OPPORTUNITIES
WILL RECEIVE THE ATTENTION OF THIS ORGANIZATION AND THE DEDICATION OF RESOURCES
IN PROPORTION TO THE MAGNITUDE OF THEIR EXPECTED YIELD PER DOLLAR OF INCREMENTAL
CAPITAL INVESTED, AND OUR CONFIDENCE IN THEIR NEAR-TERM ACHIEVEMENT.
- --------------------------------------------------------------------------------
ACQUISITIONS AND INTERNAL INVESTMENT
Nabors will continue to look for accretive acquisitions in the form of
either additional rigs or related products and services. Acquisitions have
historically been a large contributor to the Company's success and we will
continue to seek a variety of opportunities in the coming years.
We also foresee continuation of internal investment opportunities in many
areas. Most of these are expected to be in the form of new proprietary or highly
specialized rigs where economically sound returns on incremental capital can be
achieved. In recent years numerous such opportunities have been available to us
through our offshore operations. We have built three of our innovative MASE(TM)
rigs, three more conventional platform drilling rigs, two Super Sundowner
workover/redrilling rigs and one Sundowner workover rig. We expect that there
will continue to be additional sound investment opportunities from this division
both domestically, in the Gulf of Mexico, and internationally, where full-scale
development of deep water prospects should create a significant number of
opportunities for these types of rigs. Worldwide, there are currently numerous
bids pending for capital intensive, highly specialized, deeper rigs similar to
several of our existing rigs.
ADDITIONAL WELLSITE CONTENT
Nabors also expects to focus on further expanding the extent of value-added
products and services we offer our customers. This may consist of finding new
business lines that can augment our rig fleet. The size of our fleet makes
Nabors the largest consumer of many types of drilling related equipment and
services. As such, Nabors' in-house requirements alone represent a large,
vertically integrated market which any new venture we decide to embark on would
immediately possess. The breadth of our operations domestically and
internationally and the attendant infrastructure provides the opportunity to
market these products throughout the industry, thus also horizontally
integrating these businesses. The addition of companies like Epoch and Canrig
has allowed us to integrate in this way, thus improving our own cost structure
while creating new lines of business.
- --------------------------------------------------------------------------------
23
<PAGE> 25
- --------------------------------------------------------------------------------
THE OPPORTUNITY NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
OPTIMIZE THE EXISTING ASSET BASE
Our primary focus and dedication of resources will be in two areas that we
believe promise a higher return on the incremental capital requirements.
First, we will seek to optimize the utilization and profitability of our
existing ready-to-drill fleet. Next, we will reactivate our stacked premium rigs
as market conditions warrant. Nabors has invested over $100 million in stacked
assets in the last year, both to increase our performance and to furnish our
customers with additional high quality rigs at costs lower than newly built
rigs.
The achievement of both of these objectives should result from a
combination of higher average year-to-year rig activity and pricing along with
strong bidding activity in all of our markets. While the demand for additional
premium rigs appears to be strong, fundamental trends in the supply and demand
balance of both rigs and oil and gas should hasten the realization of these
goals despite any short-term variations in activity.
We cannot project with any certainty the worldwide supply/demand balance of
oil and gas that sets pricing, and effects our customers' spending levels.
However, we believe the fundamentals in the external market environment are
conducive to an acceleration of the magnitude and pace of the realization of
these opportunities. The excess supply of oil worldwide and natural gas in North
America that has limited drilling for the last decade has diminished. Much of
the incremental oil and gas production required to fill the gap between demand
and depletion must come from additional drilling.
Regardless of the level or even absence of growth in demand for energy
worldwide, over time the supply/demand balance of rigs should continue to
improve. The combination of attrition of the existing fleet, increasing
component costs and the increase in the drilling of deeper and more
sophisticated wells are the largest factors in bringing this about.
Meanwhile, the impact on rig demand of an accelerating depletion rate of
hydrocarbon reserves, particularly natural gas in North America, is only now
beginning to be felt. The natural gas depletion rate in Canada, for instance,
has steadily risen from 13 percent in 1990 to around 23 percent today. When
combined with a 4 percent growth rate, it means that approximately 27 percent of
the past year's production must be replaced each year just to keep pace. As a
result, in Canada 17 out of 20 rigs drilling are working just to keep supply
constant regardless of demand. In the US, indications are that the same trend is
occurring. Natural gas depletion data versus the number of rigs drilling
indicates that higher well volumes per drilling day are not materializing. This
is evidenced by the fact that since early 1995, a near doubling of the number of
rigs drilling for gas has yet to result in any appreciable increase in supply.
There is also a growing concensus that
- --------------------------------------------------------------------------------
24
<PAGE> 26
PAGE 25
PHOTO HERE
(TRAINING SHOT - RIG FLOOR)
- --------------------------------------------------------------------------------
25
<PAGE> 27
- --------------------------------------------------------------------------------
THE OPPORTUNITY NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
new supplies of gas associated with deep water oil projects or additional
Canadian exports will not provide any significant offset to increasing depletion
rates, further improving the current rig demand outlook. This North American
situation is further compounded by rapidly increasing demand for the same rigs
internationally, where the supply of deep premium rigs is exhausted.
This Annual Report on Form 10-K includes certain statements that may be
deemed to be "forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1988 and Section 21E of the Securities Exchange Act of
1984, as amended. All statements, other than statements of historical facts,
included in this Annual Report on Form 10-K that address activities, events or
developments that Nabors Industries, Inc. (collectively with its subsidiaries,
"Nabors" or the "Company") "expects", "projects", "believes"or "anticipates"
will or may occur in the future, including such matters as future capital
expenditures and investments in the acquisition and refurbishment of rigs
(including the amount and nature thereof), repayment of debt, expansion and
other development trends of the contract drilling industry, business strategies,
expansion and growth of operations and other such matters are forward-looking
statements. These statements are based on certain assumptions and analyses made
by management of the Company in light of its experience and its perception of
historical trends, current conditions, expected future developments and other
factors it believes are appropriate in the circumstances. Such statements are
subject to a number of risks and uncertainties, including those discussed herein
and in the Company's 10-K filing, general economic and business conditions,
prices of crude oil and natural gas, foreign exchange and currency fluctuations,
the business opportunities (or lack thereof) that may be presented to and
pursued by the Company, changes in laws or regulations and other factors, many
of which are beyond the control of the Company. Any such statements are not
guarantees of future performance and actual results or developments may differ
materially from those projected in the forward-looking statements.
- --------------------------------------------------------------------------------
26
<PAGE> 28
PAGE 27
PHOTO HERE
(RIG REFURBISHMENT 1 - BREEN RD SHOP)
- --------------------------------------------------------------------------------
27
<PAGE> 29
PAGE 28
PHOTO HERE
(RIG REFURBISHMENT 2 - BREEN RD SHOP)
- --------------------------------------------------------------------------------
28
<PAGE> 30
- --------------------------------------------------------------------------------
THE RESULTS NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
================================================================================
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
Operating Data(1) 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $ 1,029,303 $ 719,743 $ 572,788 $ 484,268 $ 419,406
Operating expenses:
Direct costs 737,780 539,665 434,097 369,677 313,458
General and
administrative expenses 68,616 56,862 49,094 47,770 45,257
Depreciation and
amortization 66,391 46,117 31,042 26,241 22,434
Merger expenses 1,755 -- -- 1,595 --
Provision for reduction in
carrying value of assets -- -- -- 29,686(2) --
----------- ----------- ----------- ----------- -----------
Operating income 154,761 77,099 58,555 9,299 38,257
Interest income
(expense), net (13,098) (9,189) (5,917) (5,778) (7,733)
Other income, net 40,747 13,690 5,990 2,718 11,593
----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes (benefits) 182,410 81,600 58,628 6,239 42,117
Income taxes (benefits) 67,602 11,100 7,524 4,889 3,559
----------- ----------- ----------- ----------- -----------
Net income (loss) before
extraordinary gain 114,808 70,500 51,104 1,350 38,558
Extraordinary gain -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Net income $ 114,808 $ 70,500 $ 51,104 $ 1,350 $ 38,558
----------- ----------- ----------- ----------- -----------
Fully diluted earnings (loss)
per share:
Net income (loss) before
extraordinary gain $ 1.06 $ .75 $ .57 $ .02 $ .49
Extraordinary gain -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Net Income $ 1.06 $ .75 $ .57 $ .02 $ .49
----------- ----------- ----------- ----------- -----------
Weighted average number
of shares outstanding -
fully diluted 113,398 93,917 90,237 85,743 78,288
----------- ----------- ----------- ----------- -----------
<CAPTION>
YEAR ENDED SEPTEMBER 30,
Operating Data(1) 1992 1991 1990 1989 1988
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $ 312,407 $ 264,239 $ 153,920 $ 85,600 $ 63,060
Operating expenses:
Direct costs 215,939 187,873 111,405 64,285 50,682
General and
administrative expenses 45,237 35,923 22,900 12,085 8,473
Depreciation and
amortization 16,526 10,119 5,232 3,884 3,502
Merger expenses -- -- -- -- --
Provision for reduction in
carrying value of assets -- -- -- -- --
----------- ----------- ----------- ----------- -----------
Operating income 34,705 30,324 14,383 5,346 403
Interest income
(expense), net (4,349) 551 1,153 48 (8,422)
Other income, net 5,559 2,395 3,341 1,790 4,012
----------- ----------- ----------- ----------- -----------
Income (loss) before income
taxes (benefits) 35,915 33,270 18,877 7,184 (4,007)
Income taxes (benefits) 2,175 3,546 2,476 19 (780)
----------- ----------- ----------- ----------- -----------
Net income (loss) before
extraordinary gain 33,740 29,724 16,401 7,165 (3,227)
Extraordinary gain -- -- -- -- 26,749(3)
----------- ----------- ----------- ----------- -----------
Net income $ 33,740 $ 29,724 16,401 $ 7,165 $ 23,522
----------- ----------- ----------- ----------- -----------
Fully diluted earnings (loss)
per share:
Net income (loss) before
extraordinary gain $ .45 $ .42 $ .26 $ .14 $ (.12)
Extraordinary gain -- -- -- -- .97(3)
----------- ----------- ----------- ----------- -----------
Net Income $ .45 $ .42 $ .26 $ .14 .85
----------- ----------- ----------- ----------- -----------
Weighted average number
of shares outstanding -
fully diluted 74,821 70,728 62,513 51,644 27,671
----------- ----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
Balance Sheet Data(1) 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Cash and short-term
marketable securities $ 11,044 $ 104,027 $ 15,334 $ 45,232 $ 70,458
Working capital 70,872 172,091 33,892 77,248 113,653
Property, plant and
equipment, net 861,393 511,203 393,464 283,141 270,865
Long-term marketable
securities 42,279 11,839 9,645 20,266 --
Total assets 1,234,232 871,274 593,272 490,273 493,927
Long-term obligations 229,507 229,504 51,478 61,879 73,109
Stockholders' equity 727,843 457,822 368,750 317,424 307,583
Capital expenditures
including acquisitions 396,668 174,483 144,560 62,907 84,752
Funded debt to capital ratio 0.27:1 0.35:1 0.20:1 0.21:1 0.24:1
<CAPTION>
AS OF SEPTEMBER 30,
Balance Sheet Data(1) 1992 1991 1990 1989 1988
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Cash and short-term
marketable securities $ 14,783 $ 15,139 $ 29,332 $ 6,484 $ 13,354
Working capital 33,831 15,650 40,956 7,784 8,678
Property, plant and
equipment, net 220,761 185,543 109,928 42,728 28,357
Long-term marketable
securities -- -- -- -- --
Total assets 339,930 285,615 226,846 75,519 61,123
Long-term obligations 49,294 37,489 37,729 7,760 4,254
Stockholders' equity 201,058 157,302 117,335 47,215 36,101
Capital expenditures
including acquisitions 61,124 88,104 73,943 19,751 7,414
Funded debt to capital ratio 0.28:1 0.24:1 0.27:1 0.23:1 0.25:1
</TABLE>
(1) The results of operations and financial position for all years prior to
1995 have been retroactively restated to include the results of operations
and financial position of Sundowner Offshore Services, Inc., which was
merged with the Company during October 1994. Other acquisitions' results
of operations and financial position have been included beginning on the
respective dates of acquisition and include Cleveland Drilling Company,
Inc. (August 1997), Chesley Pruet Drilling Company (April 1997),
Adcor-Nicklos Drilling Company (January 1997, retroactive to October
1996), Noble Drilling Corporation land rigs (December 1996), Exeter
Drilling Company and its subsidiary, JW Gibson Well Services Company
(April 1996), Delta Drilling Company (January 1995), Grace Drilling
Company (June 1993), Henley Drilling Company (November 1990), Loffland
Brothers Company (March 1990) and the Westburne Group of Companies
(November 1988).
(2) Represents reduction in carrying value of the Company's Yemen logistical
assets and inventory, as well as facility closure costs in certain
international areas, including Yemen, totaling $.35 per share.
(3) Represents gain recognized in connection with the Company's
reorganization.
29
<PAGE> 31
- --------------------------------------------------------------------------------
NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
FISCAL YEAR 1997 COMPARED TO FISCAL YEAR 1996
Company revenues for fiscal year 1997 ("1997") totaled $1,029.3 million,
representing a $309.6 million or 43% increase compared to fiscal year 1996
("1996"). Operating income during 1997 totaled $154.8 million, compared to
$77.1 million during 1996, representing an increase of 101%. Net income totaled
$114.8 million ($1.06 per fully diluted share) during 1997, compared to $70.5
million ($.75 per fully diluted share) during the prior year. The significant
improvement in operating results during 1997 reflects a number of positive
trends and developments in each of the Company's businesses. Most notable is
the convergence of the supply and demand for rigs on a worldwide basis. The
continued attrition in the supply of quality rigs, coupled with an increase in
demand, is exerting upward pressure on rig pricing, which is having a
correspondingly positive effect on the Company's results. The same situation is
also generating higher utilization in almost all of the Company's operating
areas. This year's results also benefited from the contribution of several
acquisitions in the Company's US Lower 48 unit and continued strong oil and
natural gas prices. Net income was also positively affected during 1997 by a
gain on the sale of the Company's UK North Sea operation. Partially offsetting
these increases was an increase in the Company's effective tax rate to 37%
during 1997 from 14% during 1996, resulting from non-cash US federal deferred
income taxes, which reduced net income.
The following tables set forth information with respect to the Company and
its subsidiaries on a consolidated basis by geographical area:
<TABLE>
<CAPTION>
INCREASE (DECREASE)
--------------------------------
(In thousands, except percentages) 1997 1996 1995 1997 TO 1996 1996 TO 1995
---------- --------- --------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenues:
North America $ 852,368 $ 532,638 $ 416,475 $ 319,730 60% $116,163 28%
International 176,935 187,105 156,313 (10,170) (5%) 30,792 20%
---------- --------- --------- --------- ---- -------- ----
$1,029,303 $ 719,743 $ 572,788 $ 309,560 43% $146,955 26%
---------- --------- --------- --------- ---- -------- ----
Operating income(loss):
North America $ 134,994 $ 61,611 $ 47,989 $ 73,383 119% $ 13,622 28%
International 36,103 27,848 20,293 8,255 30% 7,555 37%
Corporate (14,581) (12,360) (9,727) (2,221) (18%) (2,633) (27%)
Merger expenses (1,755) -- -- (1,755) N/A -- N/A
---------- --------- --------- --------- ---- -------- ----
$ 154,761 $ 77,099 $ 58,555 $ 77,662 101% $ 18,544 32%
---------- --------- --------- --------- ---- -------- ----
1997 1996 1995
------------------------------------------------------------------------------
RIG RIG RIG RIG RIG RIG
YEARS UTILIZATION YEARS UTILIZATION YEARS UTILIZATION
----- ----------- ----- ----------- ----- -----------
Rig activity(1):
North America 227.4 66% 152.6 58% 131.4 54%
International 31.0 60% 28.5 61% 25.9 60%
----- ---- ----- ---- ----- ----
258.4 65% 181.1 58% 157.3 56%
----- ---- ----- ---- ----- ----
</TABLE>
(1) Excludes labor contracts and JW Gibson workover and well servicing rigs.
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------- -------------
<S> <C> <C> <C>
Average West Texas intermediate
crude oil spot ($/bbl)(1) $ 21.78 $ 20.50 $ 18.30
Average US natural gas spot ($/mcf)(1) $ 2.43 $ 2.11 $ 1.45
Average US land rig count(2) 764 633 624
Average International land rig count(2) 556 553 542
</TABLE>
(1) Source: Bloomberg
(2) Source: Baker Hughes
North America revenues totaled $852.4 million during 1997, representing a
60% increase over 1996. This increase was primarily attributable to a
significant increase in revenues for the Company's US Lower 48 operations. US
Lower 48 revenues increased 83% as a result of contributions from the
acquisition of Exeter Drilling Company and its subsidiary JW Gibson Well Service
Company during April 1996; the December 1996 purchase of the Noble Drilling
Corporation land rigs; the acquisition of Adcor-Nicklos Drilling Company
("Adcor") during January 1997, which was
30
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NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
accounted for as a pooling-of-interests with Adcor results retroactively
included to October 1, 1996; and the acquisition of Chesley Pruet Drilling
Company land rigs during April 1997. Additionally, dayrates and rig
utilization improved in the US Lower 48 as a result of increased rig demand,
primarily for deep drilling, silicon-controlled rectifier (SCR) rigs.
Revenues for the Gulf of Mexico operations increased by 29% during 1997 as a
result of increased equivalent rig years and higher dayrates for the
Company's platform drilling rigs and platform workover rigs, as well as
higher dayrates for the Company's jackup workover rigs as compared to 1996.
Platform drilling equivalent rig years increased in part as a result of the
newly constructed MASE(TM) rigs 802 and 803, which began working during June
1996 and November 1996, respectively. Additionally, rigs 269 and 270, land
rigs adapted for platform drilling applications, began working in the Gulf
of Mexico during June 1996 and August 1997, respectively. Jackup workover
rig years were lower than 1996 as a result of two rigs that were down for
repairs during the third quarter of 1997. Canada operation revenues
increased 90% during 1997 as a result of the contribution of nine land rigs
purchased from Noble Drilling Corporation during December 1996, as well as
an improvement in dayrates and rig utilization as compared to 1996. Alaskan
operation revenues increased by 10% as a result of increased activity for
Peak Oilfield Services, the Company's Alaskan construction and logistics
joint venture. Drilling revenues in Alaska were flat as increased dayrates
were offset by a decrease in equivalent rig years. Equivalent North America
rig years increased to 227.4 years during 1997 compared to 152.6 years
during 1996.
International revenues totaled $176.9 million during 1997, representing a
5% decrease compared to 1996 as a result of the sale of the Company's UK North
Sea labor contract operation during November 1996. Equivalent international rig
years, excluding labor contracts, increased to 31.0 years during 1997 compared
to 28.5 years during 1996.
Middle Eastern revenues increased significantly compared to 1996 due to new
contracts in Saudi Arabia for six rigs, three of which commenced operations
during the third quarter of 1996 and three of which commenced operations during
the second quarter of 1997. Additionally, a jackup rig began operating in the
Persian Gulf during March 1997. CIS revenues increased as a result of increased
rig activity in Kazakhstan during 1997.
South and Central American revenues decreased by 8% compared to 1996. The
decrease was primarily attributable to lower rig activity in Venezuela, and the
completion of two contracts in Costa Rica during 1996. These decreases were
partially offset, however, by the contributions of MASE(TM) rig 801, which began
operations in Trinidad during January 1996, and Super Sundowner XII, which was
redeployed from the Gulf of Mexico and began operations in Brazil during
December 1996.
The following table sets forth selected consolidated financial information
of the Company expressed as a percentage of total operating revenues:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
----- ----- -----
Operating expenses:
Direct costs 71.7% 75.0% 75.8%
General and administrative expenses 6.7% 7.9% 8.6%
Depreciation and amortization 6.4% 6.4% 5.4%
Merger expenses .2% -- --
----- ----- -----
Operating expenses 85.0% 89.3% 89.8%
----- ----- -----
Operating income 15.0% 10.7% 10.2%
Other income 2.7% .6% --
----- ----- -----
Income before income taxes 17.7% 11.3% 10.2%
Income taxes 6.5% 1.5% 1.3%
----- ----- -----
Net income 11.2% 9.8% 8.9%
----- ----- -----
</TABLE>
Direct costs as a percentage of revenues decreased to 72% during 1997 as
compared to 75% during 1996. The resulting increase in the gross margin
percentage during 1997 is largely the result of improved margins in essentially
all of the Company's operations on the strength of improved dayrates. Partially
offsetting the increase in dayrates was the impact of an increased percentage of
the Company's revenues being derived from the Company's US Lower 48 operations,
as these contracts are usually at a lower gross margin percentage than Gulf of
Mexico, Alaska and International contracts.
General and administrative expenses as a percentage of revenues decreased
during 1997 due primarily to the increase in revenues for the US Lower 48
operations, since these expenses were spread over a larger revenue base.
Merger expenses of $1.8 million, relating to the merger with Adcor, were
recorded during the first quarter of 1997.
Interest expense increased during 1997, as a result of the interest
associated with the $172.5 million 5% Convertible Subordinated Notes issued on
May 28, 1996 (the "5% Notes"). Interest income increased during 1997 due to the
higher average cash and cash equivalent balances that resulted from investing
the remaining proceeds from the 5% Notes.
Other income increased during 1997 primarily due to a $29.9 million gain
recorded on the sale of the Company's UK North Sea operation, in which the
Company received approximately $36.0 million plus the value of working capital
in cash, as well as 10.8 million four-year warrants to acquire stock in Abbot
Group plc. The Company subsequently exercised the warrants and sold the
underlying shares for net proceeds of $9.4 million. Other
31
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NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
income for fiscal year 1997 also included $2.6 million in realized and
unrealized gains from equity security transactions, $.6 million of dividend
income and gains on sales of long-term assets amounting to $2.2 million. The
Company also recorded foreign currency gains totaling $.9 million during
1997. During 1997, the Venezuelan bolivar devalued by approximately 6%. As a
result of the devaluation, the Company recognized an insignificant
translation gain as the Company had a bolivar denominated net monetary
liability position. The Company continues to reduce its net monetary
position in Venezuela by borrowing in the local currency. The Company
increased its exposure to foreign currency devaluation in Saudi Arabia
during 1997 and 1996 as a result of increased activity there resulting from
a number of new drilling contracts. The Company has offset a portion of its
foreign currency exposure in Saudi Arabia through the use of forward
exchange contracts.
Other income during 1996 included $4.9 million in realized and unrealized
gains from equity securities transactions and $.5 million in dividend income.
Also included were gains on dispositions of long-term assets totaling $7.2
million. Foreign currency gains totaled $.5 million during 1996, relating
primarily to Venezuela.
During 1997, the Company began recording non-cash US federal deferred
income taxes based on the relationship between the amount of the Company's
unused US federal net operating loss carryforwards ("US NOL") and the temporary
differences between the book basis and tax basis in the Company's assets. The
temporary differences primarily arise from using accelerated depreciation for
tax return purposes as compared to a lower depreciation amount recorded for
financial statement purposes. Additionally, the Company recorded higher UK taxes
during 1997 as a result of the sale of the UK operation, resulting in a 1997
effective tax rate of 37% compared to an effective tax rate of 14% for 1996. The
effective tax rate for financial statement purposes during fiscal 1998 should
approximate 38%. Non-cash US federal deferred taxes should represent the
majority of this amount until that point in time when the US NOL has been fully
utilized or expires. The current and deferred income tax provisions for 1996
relate primarily to foreign operations as substantially all of the US taxable
income and temporary differences between the book basis and tax basis of the
Company's assets were offset by available US NOL.
Fiscal Year 1996 Compared to Fiscal Year 1995
Company revenues for 1996 totaled $719.7 million, representing a $147.0
million or 26% increase compared to fiscal year 1995 ("1995"). Operating income
during 1996 totaled $77.1 million, compared to $58.6 million during 1995. Net
income totaled $70.5 million ($.75 per share) during 1996, compared to $51.1
million ($.57 per share) during the prior year. The significant improvement in
operating results during 1996 is attributable to the Company's operations in
Alaska, the US Lower 48, the Gulf of Mexico and South America.
North America revenues totaled $532.6 million during 1996, representing a
28% increase over 1995. The increase was primarily attributable to more
equivalent rig years in the US Lower 48, where revenues increased by 30% due to
the addition of the Exeter Drilling Company rigs acquired in April 1996 and the
Delta Drilling Company rigs acquired in January 1995. Revenues for the Gulf of
Mexico operations increased by 28% during the current year as compared to the
prior year. This was the result of increased equivalent rig years and higher
dayrates for the Company's platform drilling rigs, platform workover rigs and
jackup workover rigs. Platform drilling equivalent rig years increased in part
as a result of the purchase of rig 85. This rig was purchased during 1995, but
did not commence operations until the first quarter of 1996. Additionally, the
newly constructed MASE(TM) rig 802 and rig 269, an adapted land rig, began
working in June 1996. Platform workover equivalent rig years increased due to
the addition of the newly constructed Super Sundowner XVI rig, which commenced
operations in September 1995, and Sundowner XII, which was redeployed from
Australia to the Gulf of Mexico in May 1995. Alaskan operation revenues
increased by 26% as a result of increased equivalent rig years and the October
1995 acquisition of Alaska Interstate Construction by Peak Oilfield Services.
Equivalent rig years for North America during 1996 totaled 152.6 years, compared
to 131.4 years during 1995.
International revenues totaled $187.1 million during 1996, representing a
20% increase compared to 1995. Equivalent International rig years, excluding
labor contracts, increased to 28.5 years during 1996 compared to 25.9 years
during 1995.
Middle Eastern revenues increased during 1996 due to new contracts in Saudi
Arabia for three rigs which commenced operations in the third quarter of 1996.
Africa revenues were lower during 1996 due to reduced rig activity.
South and Central American revenues increased significantly compared to
1995. The increase was primarily attributable to the newly constructed MASE(TM)
rig 801, which began operations in Trinidad during January 1996, and a one rig
drilling contract in Colombia, which commenced during November 1995.
Additionally, increased revenues resulted from increased activity and higher day
rates in Venezuela.
UK North Sea revenues increased during 1996 as a result of additional labor
contracts. Subsequent to year-end, during November 1996 the Company completed
the sale of its UK North Sea operation. The transaction will result in a gain
which will be reflected in the Company's financial statements in the first
quarter of 1997.
32
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NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
Direct costs as a percentage of revenues decreased to 75% during 1996 as
compared to 76% during 1995. The resulting increase in gross margin percentage
during 1996 is largely due to improved margins for the Company's South American
operations, including Venezuela and Colombia, and the contribution of the newly
constructed MASE(TM) rig 801. Improved margins for the Company's Gulf of Mexico
operations also contributed. These improvements in operating margins were
partially offset, however, by a decline in the margins earned for the Company's
Middle Eastern operations, resulting primarily from higher than expected costs
related to the deployment of three rigs to Saudi Arabia during the third quarter
of 1996. Steps are being taken by the Company to restore the expected level of
profitability of these rigs and to recover some of the unexpected costs incurred
to date. Additionally, a decrease in operating margins resulted because an
increased percentage of the Company's total revenues during 1996 were generated
by the Company's US Lower 48 operations. These contracts are usually at a lower
gross margin percentage than the Gulf of Mexico, Alaskan and International
contracts.
General and administrative expenses as a percentage of revenues decreased
during 1996 due to an expanding revenue base in the US Lower 48 and Gulf of
Mexico.
Depreciation and amortization expense as a percentage of revenues totaled
6% during 1996 as compared to 5% during 1995. The increase in depreciation and
amortization is the result of capital expenditures for new rig construction,
enhancements and acquisitions made during 1995 and 1996.
Interest expense increased during 1996, primarily as a result of the
interest associated with the 5% Notes, as well as short-term, high interest
borrowings in Venezuela for foreign currency hedging purposes. Interest income
increased during 1996 due to higher average cash and cash equivalent balances
that resulted from investing remaining proceeds from the 5% Notes.
Other income during 1996 included $4.9 million in realized and unrealized
gains from equity security transactions and $.5 million in dividend income. Also
included were gains on dispositions of long-term assets totaling $7.2 million.
Foreign currency gains totaled $.5 million during 1996, relating primarily to
Venezuela. In December 1995, the Venezuelan bolivar devalued by approximately
71%, from an official fixed exchange rate of 170 bolivars per US dollar to 290
per US dollar. As a result of the devaluation, the Company recognized a
translation gain of $.3 million during 1996 because the Company had a bolivar
denominated net monetary liability position. In April 1996, the Venezuelan
government eliminated exchange rate control policies that had been established
in June 1994. As a result, the bolivar was allowed to float and devalued by an
additional 55%-70% as the exchange rate ranged from 450-500 bolivars to the US
dollar. The Company recognized an insignificant translation gain during the
third quarter of 1996 as a result of this devaluation. During 1996, the Company
reduced its net monetary position by borrowing in the local currency. The
Company increased its foreign currency exposure in Saudi Arabia during 1996 as a
result of increased activity there resulting from a number of new drilling
contracts. The Company, through the use of forward exchange contracts, has
offset a portion of its foreign exchange exposure in Saudi Arabia. The Company
will continue to monitor its foreign currency exposures.
Other income during 1995 included $2.6 million in realized and unrealized
gains from equity security transactions and $.3 million in dividend income.
Gains on dispositions of long-term assets totaled $6.1 million, including a $4.1
million insurance gain recorded for a rig damaged in Venezuela. Foreign currency
losses totaled $3.2 million during 1995. The 1995 losses included $2.5 million
in foreign currency losses in British pound sterling.
The current and deferred income tax provisions for 1996 and 1995 relate
primarily to foreign operations as substantially all of the US taxable income is
offset by available US NOL. As a result of the Company's available US NOL, the
Company does not expect to pay any regular US federal income taxes until the
Company's US NOL has been fully utilized or expires. A valuation allowance is
provided to reduce deferred tax assets, which includes net operating loss
carryforwards, to a level which, more likely than not, will be realized. Primary
factors considered by management to determine the size of the allowance include
the competitive and cyclical nature of the Company's primary markets, and the
expiration timing of the net operating loss carryforwards. For accounting
purposes, the Company expects to begin, during the first quarter of 1997,
recording non-cash US federal deferred income taxes based on the relationship
between the amount of the Company's unused US NOL and the temporary differences
between the book basis and tax basis in the Company's assets. The temporary
differences primarily arise from having accelerated depreciation for tax return
purposes as compared to a lower depreciation amount recorded for financial
statement purposes. As a result, the Company's effective tax rate for financial
statement purposes during 1997 and thereafter should be in the 35% to 38% range.
Non- cash deferred taxes should represent the majority of this amount until that
point in time when the US NOL has been fully utilized or expires.
LIQUIDITY AND CAPITAL RESOURCES
The Company's financial condition continues to strengthen, as evidenced by
the upgrade of the Company's senior debt rating to "A3" by Moody's Investor
Service during 1997. The Company generates significant cash from operations and
has substantial borrowing capacity under various credit facility arrangements.
Additionally, the Company has proven access to public debt and equity capital
markets.
The Company had working capital of $70.9 million as of September 30, 1997,
representing a $101.2 million decrease as compared to 1996. The decrease in
working capital relates primarily to a $91.9 million decrease in cash and cash
equivalents and a $28.9 million increase in short-term borrowings. Cash proceeds
remaining from the May 28, 1996 issuance of the 5% Notes,
33
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NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
together with short-term borrowings and cash flows from operations, were used to
fund acquisitions and capital expenditures totaling $386.0 million during
1997. Increases in other current assets and current liabilities balances,
attributable to the Company's growth during 1997, increased working capital
by $19.6 million. The ratio of funded debt to funded debt plus shareholder's
equity, commonly referred to as the debt to capital ratio, was 0.27:1 and
0.35:1 as of September 30, 1997 and 1996, respectively. The improvement in
the debt to capital ratio is the result of an increase in shareholders'
equity resulting from the Company's earnings, common stock issued in
connection with the Adcor merger and other common stock transactions,
partially offset by an increase in funded debt relating primarily to
additional short-term borrowings.
Net cash provided by operating activities totaled $165.0 million during
1997, compared to $84.1 million during 1996. During 1997 and 1996, net income
was increased for non-cash items, such as depreciation and deferred taxes, but
was partially offset by the negative impact on cash from changes in the
Company's working capital accounts.
Net cash used for investing activities totaled $326.1 million during 1997,
compared to $160.4 million during 1996. Cash paid for acquisitions and capital
expenditures represented the primary uses of cash during 1997 and 1996. During
1997, cash was provided by the sale of the UK North Sea operation and other
fixed assets. During 1996, cash was provided by the sales and maturities of
marketable securities, as well as proceeds from the disposition of long-term
assets.
Financing activities provided cash totaling $68.6 million during 1997,
compared to $160.1 million during 1996. During 1997, cash was provided by
short-term borrowings and common stock transactions, primarily the exercise of
stock options, partially offset by reductions in long-term obligations. During
1996, cash was provided by long-term borrowings, primarily attributable to the
5% Notes, and common stock transactions, partially offset by a reduction in
short-term borrowings and principal payments on long-term obligations.
The Company's cash and cash equivalents and short-term investments in
marketable securities totaled $11.0 million as of September 30, 1997. In
addition, the Company had long-term investments in marketable securities of
$42.3 million. The Company currently has credit facility arrangements with
various banks with total availability of $256.8 million. As of September 30,
1997, remaining availability, after borrowings on the facilities and outstanding
letters of credit, totaled approximately $204.7 million.
During September 1997, the Company replaced an existing $100 million credit
facility with a $200 million unsecured revolving credit facility with a
syndicate of banks. The $200 million credit facility is a committed facility
with a term of five years. Loans under the new credit facility bear interest, at
the option of the Company, at the agent bank's prime rate or LIBOR plus a margin
(0.25% at September 30, 1997) that varies depending on the Company's senior
unsecured debt rating.
On April 15, 1997, the Company filed a universal shelf registration
statement on Form S-3 with the Securities and Exchange Commission to allow the
Company to offer, from time to time, up to $300.0 million in debt securities,
preferred stock, common stock, depository shares or warrants, and for secondary
sales of securities not involving the Company of up to $50.0 million. The
registration statement was declared effective by the Securities and Exchange
Commission on May 2, 1997. During 1997, the Company did not issue any securities
that had been registered under the shelf registration statement.
During July 1997, the Company executed an agreement to sell all of the
stock in the Company's wholly owned subsidiary, JW Gibson Well Service Company
("Gibson") to Key Energy Group, Inc. ("Key"). The assets of Gibson consist of 74
active well servicing and workover rigs, associated auxiliary equipment, trucks,
inventory, and several yards and related facilities. The transaction, which has
already received regulatory approval, is subject to certain closing conditions
and is expected to close during January 1998. At the time of closing, the
Company will receive $20.0 million plus the value of Gibson's working capital in
cash, 100,000 shares of Key common stock and 265,000 warrants to acquire stock
in Key at $18.00 per share. The transaction, when closed, will result in a gain
which will be reflected in the Company's financial statements during 1998.
As of September 30, 1997, the Company had capital expenditure commitments
totaling approximately $50.5 million.
Capital expenditures for 1998 should include spending for construction
projects, enhancements and reactivation of existing rig assets, including the
addition of top drive units, as well as normal levels of replacement or
sustaining capital. Additionally, the Company completed several acquisitions
during the periods presented and will continue to evaluate opportunities to
acquire assets or businesses to enhance the Company's core operations. Such
capital expenditures and acquisitions are subject to the discretion of the
Company and will depend on management's view of market conditions and other
factors.
The Company's capital expenditures are classified as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
New construction $ 14,664 $ 39,191 $ 21,577
Enhancement 86,766 45,334 40,695
Acquisition 234,492 53,208 57,463
Sustaining 60,746 36,750 24,825
--------- --------- ---------
$ 396,668 $ 174,483 $ 144,560
--------- --------- ---------
</TABLE>
The current cash and cash equivalents, short-term investments, credit
facility position, projected cash flow generated from current operations and
cash provided by the sale of Gibson are expected to adequately finance the
Company's sustaining capital and debt service requirements for the next twelve
months.
34
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NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
OTHER MATTERS
This document contains certain statements that may be deemed to be
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. The forward looking statements are based on current expectations of
management that are subject to a number of risks, uncertainties and assumptions
that could cause actual results to differ materially from those expected,
estimated or projected.
The Company's businesses depend, to a large degree, on the level of
spending by oil and gas companies for exploration, development and production
activities. Therefore, a sustained increase or decrease in the price of oil or
natural gas, which could have a material impact on exploration, development and
production activities, could materially affect the Company's financial
condition, results of operations and cash flows.
During December 1997, the Board of Directors approved changing the
Company's fiscal year-end from September 30 to December 31, effective for the
calendar year beginning January 1, 1998. A three-month fiscal transition period
from October 1, 1997 through December 31, 1997 (the "Transition Period") will
precede the start of the new fiscal year period.
In January 1997, the Securities and Exchange Commission issued Financial
Reporting Release 48 ("FRR 48"), which expands the disclosure requirements with
respect to certain derivative and other financial instruments. FRR 48, which is
effective for fiscal years ending after June 15, 1998, requires enhanced
descriptions in the footnotes to the financial statements and also requires
certain qualitative and quantitative disclosures outside the financial
statements regarding market risk related to derivative and other financial
instruments. The Company will adopt FRR 48 at the beginning of fiscal year 1998.
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 ("SFAS 128"), Earnings Per Share. SFAS
128 is effective for fiscal years ending after December 15, 1997. SFAS 128 is
designed to improve the earnings per share ("EPS") information provided in the
financial statements by simplifying the existing computational guidelines as
prescribed by APB Opinion No. 15, Earnings Per Share, revising the disclosure
requirements, and increasing the comparability of EPS data on an international
basis. SFAS 128 requires restatement of all prior-period EPS data presented
after the effective date and early application is not permitted. The Company
will adopt the provisions of SFAS 128 at the beginning of the Transition Period.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), Reporting Comprehensive
Income. SFAS 130, which is effective for fiscal years beginning after December
15, 1997, establishes standards for reporting and presentation of comprehensive
income and its components. SFAS 130 requires that all items that are required to
be recognized under accounting standards as components of comprehensive income
be reported in a financial statement that is displayed with the same prominence
as other financial statements. The Company will adopt SFAS 130 at the beginning
of fiscal year 1998.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), Disclosures about Segments
of an Enterprise and Related Information. SFAS 131, which is effective for
fiscal years beginning after December 15, 1997, establishes revised guidelines
for determining an entity's operating segments, as well as the type and level of
financial information to be disclosed. The Company will adopt SFAS 131 at the
beginning of fiscal year 1998.
35
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NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
- --------------------------------------------------------------------------------
To the Stockholders and Board of Directors
of Nabors Industries, Inc.
We have audited the accompanying consolidated balance sheets of Nabors
Industries, Inc. and Subsidiaries as of September 30, 1997 and 1996, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for each of the three years in the period ended September 30, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Nabors
Industries, Inc. and Subsidiaries as of September 30, 1997 and 1996, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended September 30, 1997, in conformity with generally
accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
- ----------------------------
Coopers & Lybrand L.L.P.
Houston, Texas
November 12, 1997
36
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NABORS INDUSTRIES 1997 ANNUAL REPORT
================================================================================
CONSOLIDATED BALANCE SHEETS
================================================================================
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
SEPTEMBER 30,
ASSETS 1997 1996
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 3,919 $ 95,867
Marketable securities 7,125 8,160
Accounts receivable, net 244,956 172,720
Inventory and supplies 21,372 18,528
Prepaid expenses and other current assets 28,456 33,259
----------- -----------
Total current assets 305,828 328,534
Property, plant and equipment, net 861,393 511,203
Marketable securities 42,279 11,839
Other long-term assets 24,732 19,698
----------- -----------
TOTAL ASSETS $ 1,234,232 $ 871,274
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term obligations $ 3,939 $ 7,738
Short-term borrowings 39,087 10,235
Trade accounts payable 86,092 64,955
Accrued liabilities 93,842 64,063
Income taxes payable 11,996 9,452
----------- -----------
Total current liabilities 234,956 156,443
Long-term obligations 229,507 229,504
Other long-term liabilities 13,606 9,139
Deferred income taxes 28,320 18,366
----------- -----------
TOTAL LIABILITIES 506,389 413,452
----------- -----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, par value $.10 per share:
Authorized 10,000 shares; none issued or outstanding -- --
Capital stock, par value $.10 per share:
Authorized common shares 200,000 in 1997 and 1996;
issued and outstanding 101,240 in 1997 and 87,470 in 1996 10,124 8,747
Authorized Class B shares 8,000; none issued or outstanding -- --
Capital in excess of par value 391,859 250,995
Cumulative translation adjustment (2,317) (2,692)
Net unrealized gain on marketable securities 19,087 3,728
Retained earnings since May 1, 1988 312,254 200,208
Less treasury stock, at cost, 489 common shares in 1997 and 1996 (3,164) (3,164)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 727,843 457,822
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,234,232 $ 871,274
----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
37
<PAGE> 39
NABORS INDUSTRIES 1997 ANNUAL REPORT
================================================================================
CONSOLIDATED STATEMENTS OF INCOME
================================================================================
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended September 30,
1997 1996 1995
---------- -------- --------
<S> <C> <C> <C>
REVENUES $1,029,303 $719,743 $572,788
Operating expenses: ---------- -------- --------
Direct costs 737,780 539,665 434,097
General and administrative expenses 68,616 56,862 49,094
Depreciation and amortization 66,391 46,117 31,042
Merger expenses 1,755 -- --
---------- -------- --------
Operating expenses 874,542 642,644 514,233
---------- -------- --------
Operating income 154,761 77,099 58,555
---------- -------- --------
Other income (expense):
Interest expense (16,520) (11,884) (7,611)
Interest income 3,422 2,695 1,694
Other income, net 40,747 13,690 5,990
---------- -------- --------
Other income 27,649 4,501 73
---------- -------- --------
Income before income taxes 182,410 81,600 58,628
---------- -------- --------
Income taxes:
Current 11,459 8,488 4,913
Deferred 56,143 2,612 2,611
---------- -------- --------
Total income taxes 67,602 11,100 7,524
---------- -------- --------
NET INCOME $ 114,808 $ 70,500 $ 51,104
---------- -------- --------
EARNINGS PER SHARE:
PRIMARY $ 1.12 $ .76 $ .58
---------- -------- --------
FULLY DILUTED $ 1.06 $ .75 $ .57
---------- -------- --------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
PRIMARY 102,200 93,162 88,018
---------- -------- --------
FULLY DILUTED 113,398 93,917 90,237
---------- -------- --------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
38
<PAGE> 40
- --------------------------------------------------------------------------------
NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
NET
CAPITAL UNREALIZED
COMMON STOCK IN EXCESS CUMULATIVE GAIN ON TOTAL
------------------- OF PAR TRANSLATION MARKETABLE RETAINED TREASURY STOCKHOLDERS'
SHARES PAR VALUE VALUE ADJUSTMENT SECURITIES EARNINGS STOCK EQUITY
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCES, SEPTEMBER 30, 1994 84,383 $ 8,438 $ 218,319 $ (2,748) $ 1,345 $ 95,165 $ (3,095) $ 317,424
Net income 51,104 51,104
Translation adjustment 78 78
Reclassification of pre-quasi-
reorganization tax benefit 8,178 (8,178) --
Unrealized loss on
marketable securities, net (991) (991)
Issuance of common shares
for stock options exercised 505 51 2,012 2,063
Issuance of common shares
for stock awards 129 13 758 771
Repurchase of common shares (1,699) (1,699)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES, SEPTEMBER 30, 1995 85,017 8,502 229,267 (2,670) 354 138,091 (4,794) 368,750
Net income 70,500 70,500
Translation adjustment (22) (22)
Reclassification of pre-quasi-
reorganization tax benefit 8,383 (8,383) --
Unrealized gain on
marketable securities, net 3,374 3,374
Issuance of common shares
for stock options exercised 2,422 242 11,769 12,011
Issuance of common shares
for stock awards 31 3 214 217
Issuance of treasury stock in
connection with acquisition
of assets 2,370 1,630 4,000
Repurchase of Company warrants (1,008) (1,008)
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES, SEPTEMBER 30, 1996 87,470 8,747 250,995 (2,692) 3,728 200,208 (3,164) 457,822
Net income 114,808 114,808
Translation adjustment 375 375
Unrealized gain on
marketable securities, net 15,359 15,359
Issuance of common shares
for stock options exercised 8,897 890 49,679 50,569
Issuance of common shares
for stock awards 19 2 131 133
Issuance of common shares
in connection with Adcor
merger 3,354 335 23,409 (2,762) 20,982
Issuance of common shares
for warrants exercised 1,500 150 8,100 8,250
Tax benefit recognized on exercised
stock option deductions 59,545 59,545
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCES, SEPTEMBER 30, 1997 101,240 $10,124 $391,859 $ (2,317) $19,087 312,254 $(3,164) $727,843
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
39
<PAGE> 41
- --------------------------------------------------------------------------------
NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 114,808 $ 70,500 $ 51,104
Adjustments to net income:
Depreciation and amortization 66,391 46,117 31,042
Deferred taxes 56,143 2,612 2,611
Gain on dispositions of long-term assets and business,
marketable securities and other (43,604) (12,026) (8,459)
Foreign currency transaction and translation (gains) losses (919) (510) 3,160
Non-cash compensation element of stock awards and options 133 152 476
Equity in earnings of affiliates (450) (139) --
Other 265 201 (207)
(Decrease) increase, net of effects from acquisitions and dispositions, from
changes in:
Accounts receivable (76,646) (21,089) (13,715)
Inventory and supplies (3,415) (4,149) 962
Prepaid expenses and other current assets 349 (7,968) (2,723)
Other long-term assets (1,540) (7,699) (792)
Accounts payable and accrued liabilities 46,751 12,005 12,895
Income taxes payable 3,760 4,576 2,497
Other long-term liabilities 2,978 1,541 (5,085)
- ---------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 165,004 84,124 73,766
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities, held-to-maturity -- -- (5,121)
Maturities of marketable securities, held-to-maturity -- 2,000 21,254
Sales of marketable securities, held-to-maturity -- -- 12,416
Purchases of marketable securities, available-for-sale (4,803) -- (2,273)
Sales of marketable securities, available-for-sale -- 1,698 5,189
Purchases of marketable securities, trading -- (11,280) --
Sales of marketable securities, trading 3,653 8,766 --
Exercise of warrants 9,417 -- --
Cash paid for acquisitions, net (118,134) (28,317) (19,572)
Cash received from disposition of long-term assets and business 52,174 15,726 10,039
Capital expenditures (267,882) (146,440) (109,321)
Investment in affiliates (502) (2,548) --
- ---------------------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (326,077) (160,395) (87,389)
- ---------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
(Increase) decrease in restricted cash (24) 861 (795)
Long-term borrowings -- 183,295 4,538
Reduction of long-term obligations (19,040) (14,633) (20,317)
Increase (decrease) in short-term borrowings 28,852 (20,449) 19,522
Common stock and treasury stock transactions 58,819 11,026 150
- ---------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 68,607 160,100 3,098
- ---------------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (92,466) 83,829 (10,525)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 95,867 12,038 22,563
ADJUSTMENT FOR ADCOR CASH, BEGINNING OF PERIOD 518 -- --
- ---------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 3,919 $ 95,867 $ 12,038
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
40
<PAGE> 42
- --------------------------------------------------------------------------------
NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Nabors Industries, Inc. (collectively with its subsidiaries, "Nabors" or
the "Company") is the largest land drilling contractor in the world. The
Company, which was incorporated in Delaware in 1978, engages in oil and gas
land drilling operations in North America (in Alaska, the US Lower 48 states
and Canada), and internationally (in the Middle East, the Far East, the CIS,
North and West Africa and South and Central America). The Company also provides
offshore drilling, well servicing and workover services in the Gulf of Mexico,
Alaska's Cook Inlet and several international markets. To supplement its primary
businesses the Company also manufactures top drives and drilling instrumentation
systems, and provides oilfield management, engineering, transportation,
construction, maintenance, well logging and other support services in selected
domestic and international markets.
The Company's businesses depend, to a large degree, on the level of
spending by oil and gas companies for exploration, development and production
activities. Therefore, a sustained increase or decrease in the price of oil or
natural gas, which could have a material impact on exploration, development and
production activities, could materially affect the Company's financial
condition, results of operations and cash flows.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements of the Company include the accounts
of the Company and all subsidiaries. All significant intercompany accounts and
transactions are eliminated in consolidation. The Company has an investment
representing a 33 1/3% ownership interest in a company which is accounted for
using the equity method.
The Company's investments in several joint ventures are accounted for
under the proportionate consolidation method. The Company's proportionate share
of the joint ventures' net assets and net income was as follows:
<TABLE>
<CAPTION>
September 30,
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Net assets $ 31,723 $ 27,895 $ 22,755
Net income 10,695 6,464 4,868
</TABLE>
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include demand deposits, commercial paper and
various other short-term investments with original maturities of three months
or less.
MARKETABLE SECURITIES
The Company's marketable securities consist only of marketable equity
securities. Equity securities that are classified as available-for-sale or
trading are stated at fair value. Unrealized holding gains and losses for
available-for-sale securities are excluded from earnings and, until realized,
are reported net of taxes in a separate component of stockholders' equity.
Unrealized gains and losses on securities classified as trading are reported in
earnings currently.
In computing realized gains and losses on the sale of equity securities,
the cost of the equity securities sold is determined using the specific cost of
the security when originally purchased.
INVENTORY AND SUPPLIES
Inventory and supplies are composed of replacement parts and supplies held
for use in the operations of the Company, and top drives that are manufactured
by a Company subsidiary for resale. Inventory and supplies are valued at the
lower of weighted average cost or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, including renewals and betterments, are
stated at cost, while maintenance and repairs are expensed currently. Interest
costs applicable to the construction of drilling and other equipment is
capitalized as a component of the cost of such assets. The Company provides for
depreciation of drilling rigs on the unit-of-production method over a 3,800-day
period after provision for salvage value. To provide for any deterioration that
may occur while the rigs are not operating, a depreciation charge is provided
for using the straight-line method over an assumed depreciable life of 20
years. Depreciation on buildings, oilfield hauling and mobile equipment, and
other machinery and equipment is computed using the straight-line method over
the estimated useful life of the asset after provision for salvage value
(buildings - 10 to 30 years; oilfield hauling and mobile equipment and other
machinery and equipment - 3 to 10 years). Amortization of capitalized leases is
included in depreciation and amortization expense. The Company reviews its
assets for impairment and provisions for permanent asset impairment are charged
to income when indicators of impairment are present, and when it is considered
probable that the carrying values of equipment may not be recovered over their
remaining service lives, based on estimates of future net cash flows on an
undiscounted basis. Upon retirement or other disposal of fixed assets, the cost
and related accumulated depreciation are removed from the respective accounts,
and any gains or losses are included in results of operations.
INCOME TAXES
The Company utilizes the asset and liability method in accounting for
income taxes 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.
United States deferred income taxes have not been provided on unremitted
earnings of subsidiaries located outside the United States, as such earnings
are considered permanently reinvested.
41
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- --------------------------------------------------------------------------------
NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
REVENUE RECOGNITION
Revenues and costs on daywork contracts are recognized daily, revenues and
costs applicable to footage and turnkey contracts are recognized when the well
is completed (completed contract method), and revenues and related costs for
the manufacturing operation are recognized when products are shipped or
services are rendered to the customer.
FOREIGN CURRENCY TRANSLATION
For certain foreign subsidiaries, such as those in Canada and Saudi
Arabia, the local currency is the functional currency. Assets and liabilities
are translated at year-end exchange rates, and income and expenses are
translated at the average exchange rates prevailing during the year.
Translation gains or losses are accumulated in a separate section of
stockholders' equity and transaction gains and losses are included in net
income. For subsidiaries operating in highly inflationary countries, such as
Venezuela, and for certain other subsidiaries, the US dollar is the functional
currency and translation gains and losses are included in net income.
The Company utilizes forward exchange contracts and local currency
borrowings to hedge its exposure to exchange rate fluctuations in connection
with monetary assets and liabilities held in certain foreign currencies. The
carrying amounts of the forward exchange contracts equal their fair value and
are adjusted at each balance sheet date for changes in exchange rates. Realized
and unrealized gains and losses on the forward contracts are deferred and
recognized as foreign currency gains or losses over the life of the contract.
The Company does not hold or issue foreign exchange contracts or other
derivative financial instruments for speculative purposes.
Foreign currency transaction and translation gains (losses) for 1997, 1996
and 1995 totaled $.9 million, $.5 million and ($3.2) million, respectively, and
are included in the caption "Other income, net" in the accompanying
consolidated statements of income. During 1997, the Venezuelan bolivar devalued
by approximately 6%. As a result of the devaluation, the Company recognized an
insignificant translation gain, as the Company had a bolivar denominated net
monetary liability position. The Company continues to reduce its net monetary
position in Venezuela by borrowing in the local currency. The Company increased
its exposure to foreign currency devaluation in Saudi Arabia during 1997 and
1996 as a result of increased activity there resulting from a number of new
drilling contracts. To hedge a portion of its foreign currency exposure in
Saudi Arabia, the Company holds forward exchange contracts maturing at various
dates through June 30, 1999 with face values of approximately $34.4 million and
$39.7 million at September 30, 1997 and 1996, respectively. Unrealized losses
associated with these forward contracts amount to $.1 million and $.3 million
at September 30, 1997 and 1996, respectively.
During December 1995, the Venezuelan bolivar devalued by approximately
71%, from an official fixed exchange rate of 170 bolivars to 290 bolivars to
the US dollar. As a result of the devaluation, the Company recognized a
translation gain of $.3 million during 1996, as the Company had a bolivar
denominated net monetary liability position. In April 1996, the Venezuelan
government eliminated exchange rate control policies that had been established
in June 1994. As a result, the bolivar was allowed to float, and devalued by an
additional 55% to 70% as the exchange rate ranged from 450 to 500 bolivars to
the US dollar. The Company recognized an insignificant translation gain during
the third quarter of 1996 as a result of the devaluation.
The 1995 losses include $2.5 million in foreign currency losses in British
pound sterling.
EARNINGS PER SHARE
The Company's earnings per share are based upon the weighted average
number of common shares ("Shares") outstanding during the year, excluding
Shares held in treasury. Shares reserved for issuance against stock options
outstanding under the Company's stock option plans and stock warrants issued
are considered common stock equivalents if dilutive.
In 1997, fully diluted earnings per share reflects the assumed conversion
of the $172.5 million 5% Convertible Subordinated Notes due 2006, issued on May
28, 1996 (the "5% Notes"). As a result, net income plus $5.6 million of after
tax interest expense incurred on the 5% Notes is divided by the weighted
average shares outstanding, after giving effect to dilutive stock options and
warrants, as well as 9.5 million shares assumed to be issued on conversion of
the 5% Notes. Conversion of the 5% Notes is not assumed for 1996 as it would
have been anti-dilutive.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), Earnings Per
Share. SFAS 128, which is effective for fiscal years ending after December 15,
1997, is designed to improve the earnings per share ("EPS") information
provided in the financial statements by simplifying the existing computational
guidelines as prescribed by APB Opinion No. 15, Earnings Per Share, revising
the disclosure requirements and increasing the comparability of EPS data on an
international basis. SFAS 128 requires restatement of all prior-period EPS data
presented after the effective date and early application is not permitted. The
Company will adopt the provisions of SFAS 128 at the beginning of the
Transition Period (Note 14).
STOCK-BASED COMPENSATION
At the beginning of fiscal 1997, the Company adopted Statement of
Financial Accounting Standards No. 123 ("SFAS 123"), Accounting for Stock-Based
Compensation. SFAS 123 encourages but does not require companies to record
compensation cost for stock-based employee compensation plans at fair value.
The Company has chosen to continue to account for stock-based compensation
using the intrinsic value method prescribed by Accounting Principles Board
Opinion No. 25 ("APB No. 25"), Accounting for Stock Issued to Employees.
Accordingly, compensation cost for stock options is measured as the excess, if
any, of the quoted
42
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- --------------------------------------------------------------------------------
NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
market price of the Company's stock at the date of grant over the amount an
employee must pay to acquire the stock. Additionally, pro forma disclosures of
net income and earnings per share, as if the fair value method of accounting
defined in SFAS 123 had been applied, are provided in Note 8.
CASH FLOW INFORMATION
Cash paid for income taxes and interest during 1997, 1996 and 1995 was as
follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Income taxes $ 6,303 $ 3,160 $ 5,045
Interest, net of capitalized interest 15,028 8,324 7,064
</TABLE>
A summary of the Company's non-cash activities during 1997, 1996 and 1995
is as follows:
<TABLE>
<CAPTION>
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Acquisition of businesses:
Fair value of assets acquired
less negative goodwill $ 124,415 $ 50,400 $ 39,385
Goodwill 4,050 3,825 --
Consideration paid:
Cash (118,134) (29,051) (20,000)
Treasury shares issued -- (4,000) --
--------- -------- --------
Liabilities assumed or created 10,331 21,174 19,385
--------- -------- --------
Property, plant and equipment
additions by notes payable 4,400 -- --
Disposition of businesses:
Equity consideration received 567 -- --
</TABLE>
CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist primarily of investments in commercial
paper with maturities of less than three months, and other temporary cash
investments that the Company has with a variety of companies and financial
institutions. The Company believes that the credit risk in such instruments is
minimal. In addition, the Company's trade receivables are with a variety of
domestic, international and national oil and gas companies. Management
considers this credit risk to be limited due to these companies' financial
resources.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument:
o CASH AND CASH EQUIVALENTS The carrying amounts approximate fair value due to
the relatively short period to maturity of these instruments.
o MARKETABLE SECURITIES The carrying amounts of marketable securities are
adjusted to fair value based on quoted market prices.
o SHORT-TERM BORROWINGS The carrying amounts approximate fair value due to the
relatively short period to maturity of these instruments.
o FORWARD EXCHANGE CONTRACTS The carrying amounts of forward exchange contracts
are adjusted to fair value based on quoted exchange rates.
o LONG-TERM DEBT The fair value of the Company's long-term debt is estimated
based on quoted market prices, where applicable, or based on the present value
of expected cash flows relating to existing borrowings discounted at rates
currently available to the Company for long-term borrowings with similar terms
and maturities. The fair value of the Company's long-term debt is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
1997 1996
- --------------------------------------------------------------------------------
CARRYING FAIR CARRYING FAIR
(In thousands) VALUE VALUE VALUE VALUE
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
5.00% Convertible
Subordinated Notes $ 172,500 $ 382,657 $ 172,500 $ 175,088
9.18% Senior
Secured Notes 40,000 45,570 40,000 43,324
Other long-term
obligations 20,946 20,946 24,742 24,742
--------- --------- --------- ---------
$ 233,446 $ 449,173 $ 237,242 $ 243,154
--------- --------- --------- ----------
</TABLE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions. These estimates and assumptions affect the reported amounts of
assets and liabilities, the 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.
OTHER RECENT ACCOUNTING PRONOUNCEMENTS
In January 1997, the Securities and Exchange Commission issued Financial
Reporting Release 48 ("FRR 48"), which expands the disclosure requirements with
respect to certain derivative and other financial instruments. FRR 48, which is
effective for fiscal years ending after June 15, 1998, requires enhanced
descriptions in the footnotes to the financial statements and also requires
certain qualitative and quantitative disclosures outside the financial
statements regarding market risk related to derivative and other financial
instruments. The Company will adopt FRR 48 at the beginning of fiscal year
1998.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 ("SFAS 130"), Reporting Comprehensive
Income. SFAS 130, which is effective
43
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NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
for fiscal years beginning after December 15, 1997, establishes standards for
reporting and presentation of comprehensive income and its components. SFAS 130
requires that all items that are required to be recognized under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. The Company will adopt SFAS 130 at the beginning of fiscal year
1998.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 ("SFAS 131"), Disclosures about Segments
of an Enterprise and Related Information. SFAS 131, which is effective for
fiscal years beginning after December 15, 1997, establishes revised guidelines
for determining an entity's operating segments, as well as the type and level
of financial information to be disclosed. The Company will adopt SFAS 131 at
the beginning of fiscal year 1998.
2. ACQUISITIONS, CAPITAL EXPENDITURES AND DISPOSITIONS
During August 1997, the Company completed the acquisition of Cleveland
Drilling Company, Inc. ("Cleveland") for $11.7 million, plus the value of
working capital in cash. The Cleveland fleet consisted of seven rigs (six
active, one stacked), six of which were diesel electric SCR rigs located in the
United States. The acquisition was accounted for under the purchase method of
accounting; accordingly, the total purchase price was allocated to net assets
based on estimated fair values. The results of Cleveland's operations have been
included in the consolidated financial statements of the Company commencing on
the effective date of the acquisition.
During July 1997, the Company executed an agreement to sell all of the
stock in the Company's wholly owned subsidiary, JW Gibson Well Service Company
("Gibson"), to Key Energy Group, Inc. ("Key"). The assets of Gibson consist of
74 active well servicing and workover rigs, associated auxiliary equipment,
trucks, inventory, and several yards and related facilities. The transaction,
which has already received regulatory approval, is subject to certain closing
conditions and is expected to close during January 1998. At the time of
closing, the Company will receive $20.0 million plus the value of Gibson's
working capital in cash, 100,000 shares of Key common stock and 265,000
warrants to acquire stock in Key at $18.00 per share. The transaction, when
closed, will result in a gain which will be reflected in the Company's
financial statements during 1998.
During April 1997, the Company completed the acquisition of substantially
all of the assets of Chesley Pruet Drilling Company ("Chesley Pruet") and an
affiliate for cash. The Chesley Pruet fleet consisted of 10 active and two
stacked land rigs located in the United States. The acquisition, which also
included drill pipe and component equipment, was accounted for under the
purchase method of accounting.
During April 1997, the Company completed the purchase of 25 stacked land
rigs and a large complement of component equipment located in the United
States, from a subsidiary of Samson Investment Company ("Samson") for $85.0
million in cash.
During January 1997, the Company completed the acquisition of
Adcor-Nicklos Drilling Company ("Adcor") through a merger of a wholly owned
subsidiary with and into Adcor. In the merger, all of the stock of Adcor was
exchanged for 3,354,175 shares of Nabors common stock. The Adcor fleet
consisted of 30 active and six stacked land rigs located in the United States.
The assets also include drill pipe, spare drilling equipment, yards, vehicles
and other support equipment. The transaction was accounted for as a
pooling-of-interests. The results of operations of Adcor were included in the
Company's fiscal 1997 results commencing January 1, 1997. The historical
consolidated financial statements of the Company were retroactively restated to
include the results of operations, financial position and cash flows of Adcor
commencing on October 1, 1996. The historical consolidated financial statements
of the Company prior to fiscal year 1997 were not restated as the effect in
those years was not significant. Accordingly, an adjustment was made to the
Company's retained earnings on October 1, 1996 to record the cumulative
retained deficit of Adcor as of September 30, 1996.
During December 1996, the Company acquired 47 land drilling rigs from
Noble Drilling Corporation and certain of its subsidiaries for $60.0 million in
cash. The fleet of rigs consisted of 19 operating rigs and 28 stacked rigs in
various stages of completeness with 38 of the rigs located in the United States
and nine located in Canada. The acquisition was accounted for under the
purchase method of accounting.
During November 1996, the Company completed the sale of its wholly owned
subsidiary, Nabors Drilling & Energy Services UK Ltd. to a wholly owned
subsidiary of Abbot Group plc, a diversified holding company listed on the
London stock exchange. The Company received approximately $36.0 million plus
the value of working capital in cash, as well as 10.8 million four-year
warrants to acquire stock in Abbot Group plc., and recorded a gain of $29.9
million during 1997. The Company subsequently exercised such warrants
throughout 1997, and sold the underlying shares for net proceeds of $9.4
million.
During April 1996, the Company acquired Exeter Drilling Company ("Exeter")
and its subsidiary, JW Gibson Well Service Company, from Occidental Oil and Gas
Corporation. The consideration paid consisted of $18.0 million in cash, $4.0
million of Nabors common stock (266,223 shares), and $10.6 million paid in cash
for Exeter's and Gibson's working capital. Exeter's land drilling rig fleet
consisted of 47 actively marketed rigs in the United States and two located
internationally. Gibson operated 78 workover and well servicing land rigs
located in the United States. The acquisition was accounted for under the
purchase method of accounting.
During January 1995, the Company acquired Delta Drilling Company
("Delta"), a company engaged in the business of contract land drilling in the
United States. The purchase price of Delta was
44
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NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
approximately $20.0 million in cash plus liabilities assumed. Delta owned 30
rigs, as well as yard and office facilities. The acquisition was accounted for
under the purchase method of accounting.
During October 1994, the Company consummated its merger with Sundowner
Offshore Services, Inc. ("Sundowner"), a company that provides contract well
servicing and workover services in the Gulf of Mexico and various international
offshore markets and utilizes self-contained, modular platform rigs and jackup
workover rigs. Under the merger agreement, Sundowner stockholders received 2.8
shares of the Company's common stock for each of their shares of Sundowner. As
a result, the Company issued 13,081,600 common shares to Sundowner
stockholders. The merger was accounted for as a pooling-of-interests.
Accordingly, the accompanying consolidated financial statements were
retroactively restated to include the results of operations, financial position
and cash flows of Sundowner for all periods prior to consummation of the
merger.
3. MARKETABLE SECURITIES
Marketable securities classified as current and long-term assets are as
follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
(In thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Current assets:
Equity securities, classified as trading,
at fair value $ 7,125 $ 8,160
Long-term assets:
Equity securities, classified as
available-for-sale, at fair value 42,279 11,839
</TABLE>
The fair value of equity securities that were classified as
available-for-sale exceeded the cost by approximately $29.4 million and $3.7
million as of September 30, 1997 and 1996, respectively. During 1997, the
Company received $3.7 million of proceeds and realized gains of $1.6 million
resulting from the sale of certain investments in equity securities that had
been classified as trading. The Company also recorded unrealized holding gains
totaling $1.1 million on equity securities classified as trading.
During 1996, the Company received $1.7 million of proceeds and realized
gains of $.5 million, and received $8.8 million of proceeds and realized gains
of $1.9 million resulting from the sale of certain investments in equity
securities that had been classified as available-for-sale and trading,
respectively. The Company also recorded unrealized gains totaling $2.5 million
on equity securities classified as trading.
During 1995, the Company sold debt securities with an amortized cost of
$12.6 million and recorded a loss of $.2 million. The debt securities
previously had been classified as held-to-maturity and were sold to fund the
acquisition of Delta. The Company also recorded a gain totaling $2.4 million
and received $6.3 million of proceeds in a combination of shares, warrants and
cash in settlement of the tender offer for the Company's investment in certain
equity securities, and from other sales of equity securities classified as
available-for-sale. During 1995, the Company recorded unrealized gains totaling
$.2 million on equity securities classified as trading.
4. PROPERTY, PLANT AND EQUIPMENT
The major components of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
(In thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Land $ 5,995 $ 3,986
Buildings 17,953 14,891
Contract drilling and related equipment 1,087,702 680,050
Oilfield hauling and mobile equipment 47,465 43,077
Other machinery and equipment 17,878 20,070
---------- ---------
1,176,993 762,074
Less: accumulated depreciation
and amortization(1) (315,600) (250,871)
---------- ---------
$ 861,393 $ 511,203
---------- ---------
</TABLE>
(1) Includes, as of September 30, 1997 and 1996, reserves of $54.6 million and
$54.8 million, respectively, resulting from the permanent impairment of
certain asset values.
Repair and maintenance expense included in direct costs in the statements
of income amounted to $116.9 million, $81.4 million and $63.2 million for the
years ended September 30, 1997, 1996 and 1995, respectively.
Interest expense of $1.2 million, $1.0 million and $.7 million was
capitalized during 1997, 1996 and 1995, respectively.
5. SHORT-TERM BORROWINGS AND LETTERS OF CREDIT
The Company has available lines of credit with various banks that permit
borrowing at interest rates generally not to exceed, at the option of the
Company, each bank's prime rate or LIBOR plus .25% as of September 30, 1997 and
LIBOR plus .75% as of September 30, 1996. The weighted average interest rate on
short-term borrowings outstanding as of September 30, 1997 and 1996, excluding
short-term borrowings in the local currency for hedging purposes in Venezuela,
equaled 5.74% and 5.65%, respectively. The weighted average interest rate
inclusive of the Venezuela borrowings outstanding as of September 30, 1997 and
1996 equaled 6.95% and 13.35%, respectively.
During September 1997, the Company replaced an existing $100 million
revolving credit facility with a $200 million unsecured revolving credit
facility with a syndicate of banks. The $200 million credit facility is a
committed facility with a term of
45
<PAGE> 47
- --------------------------------------------------------------------------------
NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
five years. Loans under the new credit facility bear interest, at the option of
the Company, at the agent bank's prime rate or LIBOR, plus a margin (.25% at
September 30, 1997) that varies depending on the Company's senior unsecured
debt rating. The loans are guaranteed by certain subsidiaries of the Company
and contain affirmative and negative covenants regarding, among other things,
limitations on liens, and maintenance of financial ratios regarding funded debt
to capitalization, interest coverage and minimum net worth.
Availability and borrowings under these lines of credit are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
(In thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Lines of credit available $ 256,786 $ 66,120
Short-term borrowings outstanding 39,087 10,235
Letters of credit outstanding 12,951 11,657
</TABLE>
6. LONG-TERM OBLIGATIONS
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
(In thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
5.00% Convertible Subordinated Notes
payable in their entirety May 2006 $ 172,500 $ 172,500
9.18% Senior Secured Notes payable in semi-
annual installments of $4,000 commencing
January 2002 40,000 40,000
Loans payable in varying amounts in
August 1998, November 1998, January 1999
and April 1999 12,995 12,995
10.25% Senior Secured Notes payable in semi-
annual installments of $3,000 commencing
July 1992, net -- 5,936
Medium-term notes payable, maturing from
1996 to 2001, from 6.0% to 9.0%(1) 7,951 5,811
--------- ---------
233,446 237,242
Less: current portion (3,939) (7,738)
--------- ---------
$ 229,507 $ 229,504
--------- ---------
</TABLE>
(1) Certain of these obligations are collateralized by specific assets
financed with the related proceeds. The aggregate net book value of such
assets approximated $20.3 million and $8.7 million as of September 30, 1997
and 1996, respectively.
On May 28, 1996, the Company issued $172.5 million of 5% Convertible
Subordinated Notes with a scheduled maturity on May 15, 2006. Interest on the
5% Notes is payable semi-annually on May 15 and November 15 of each year,
commencing November 15, 1996. The 5% Notes are convertible into common shares
of the Company at any time, at the option of the holder, at a conversion price
of $18.125 per share, subject to adjustment in certain events. The 5% Notes are
redeemable at the option of the Company, in whole or in part, at any time on or
after May 15, 1999, initially at 103.5% and at decreasing prices thereafter to
100% at maturity, in each case together with accrued and unpaid interest. The
5% Notes also may be repaid at the option of the holder at 101%, together with
accrued and unpaid interest, any time prior to May 15, 2006 if there is a
change in control, as defined in the subordinated indenture. The proceeds from
the 5% Notes were used to repay several term loans and reduce outstanding
borrowings on the Company's credit facilities. The remaining proceeds were used
for general corporate purposes, including capital expenditures, acquisitions
and working capital.
The Company issued 9.18% Senior Secured Notes in the principal amount of
$40.0 million (the "9.18% Senior Secured Notes") to the John Hancock Mutual
Life Insurance Company ("John Hancock"), pursuant to an Amended and Restated
Note Purchase Agreement dated October 1, 1992. The 9.18% Senior Secured Notes
are due in semi-annual installments of $4.0 million commencing January 2002 and
impose certain restrictions on the Company, including restrictions on the
payments of dividends and certain business combinations. The Company may pay
dividends to the extent the Company's cumulative dividends, plus certain other
payments since March 31, 1989, do not exceed 50% of the Company's cumulative
net income since March 31, 1989, plus the proceeds of any offering of equity
securities of the Company that are not redeemable at the option of the holder
of the securities. As of September 30, 1997, retained earnings available for
dividend totaled approximately $237.0 million. Also, proceeds from the sale of
certain assets must be used to prepay the Senior Secured Notes to the extent
that an amount equal to such proceeds is not invested by the Company during a
two-year period. The Senior Secured Notes also require that certain financial
tests be met on a consolidated Company basis, the most restrictive of which
requires working capital to be in excess of $5.0 million. The Senior Secured
Notes are guaranteed by the Company and are collateralized by net assets with
an aggregate book value of approximately $26.8 million and $27.8 million as of
September 30, 1997 and 1996, respectively. Interest on the Senior Secured Notes
is payable semi-annually on July 31 and January 31 of each year.
During 1995, a subsidiary of the Company entered into a revolving loan
agreement with a Canadian governmental entity whereby it can borrow up to $20.0
million for the construction of certain drilling equipment that is exported
from Canada by one of the Company's subsidiaries. The loan proceeds can be
drawn quarterly based on the amount of qualifying drilling equipment exported
from Canada during the immediately preceding three-month period, and each is
due for repayment three years after the date the individual advances are made.
The Company received its first advance totaling $2.2 million during August
1995, and subsequent advances of $2.9 million, $3.7 million and $4.2 million in
November 1995, January 1996 and April 1996, respectively. The loans bear
interest at 90-day LIBOR plus .50% (6.25% at September 30, 1997). The loans
are collateralized by several
46
<PAGE> 48
- --------------------------------------------------------------------------------
NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
drilling rigs located in the US with an aggregate net book value of
approximately $27.4 million and $29.2 million as of September 30, 1997 and
1996, respectively. The loans are guaranteed by the Company and require the
Company, on a consolidated basis, to maintain various financial ratios, the
most restrictive of which requires working capital to be in excess of $5.0
million.
As of September 30, 1997, the maturities of long-term obligations for the
five years after 1997 are as follows:
<TABLE>
<CAPTION>
(In thousands)
- --------------------------------------------------------------------------------
<S> <C>
1998 $ 3,939
1999 13,956
2000 2,885
2001 166
2002 8,000
Thereafter 204,500
---------
$ 233,446
---------
</TABLE>
7. INCOME TAXES
The Company's income tax, reconciled to the United States federal income
tax using the federal statutory rate, and an analysis of the income tax
provision is as follows:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
(In thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total pretax income(1) $ 182,410 $ 81,600 $ 58,628
--------- -------- --------
Expected federal income tax
using the 35% statutory rate 63,844 28,560 20,520
Recognition of net loss carryforwards -- (20,801) (18,949)
Alternative Minimum Tax 1,113 543 574
State income taxes 1,453 469 672
Foreign taxes and other 1,192 2,329 4,707
--------- -------- --------
Total income tax $ 67,602 $ 11,100 $ 7,524
--------- -------- --------
Analysis of the income tax provision:
Current:
US federal $ 1,113 $ 543 $ 574
State and local 35 15 72
Foreign 10,311 7,930 4,267
--------- -------- --------
11,459 8,488 4,913
--------- -------- --------
Deferred:
US federal 49,269 -- --
State and local 2,200 454 600
Foreign 4,674 2,158 2,011
--------- -------- --------
56,143 2,612 2,611
--------- -------- --------
Total income tax $ 67,602 $ 11,100 $ 7,524
--------- -------- --------
</TABLE>
(1) Includes foreign income before taxes of $30.9 million, $17.2 million, $7.5
million, respectively, for the years ended September 30, 1997, 1996 and
1995.
The components of the Company's net deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 30,
(In thousands) 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 57,795 $ 59,653
Accrued liabilities not deducted
for tax purposes 29,430 17,770
General tax credits 4,208 3,207
--------- ---------
Deferred tax asset 91,433 80,630
Valuation allowance -- (25,869)
--------- ---------
Net deferred tax asset 91,433 54,761
Deferred tax liabilities:
Excess tax over book depreciation (109,475) (73,127)
Unrealized gain on marketable securities (10,278) --
--------- ---------
Net deferred tax liability $ (28,320) $ (18,366)
--------- ---------
</TABLE>
In conjunction with the acquisition of Cleveland (Note 2), deferred tax
liabilities of $2.9 million were recorded during 1997.
For US federal income tax purposes, the Company has net operating loss
carryforwards of approximately $164.5 million that, if not utilized, will expire
from 1999 to 2009. The net operating loss carryforwards for Alternative Minimum
Tax purposes are approximately $83.3 million. There are Alternative Minimum Tax
credit carryforwards of $3.1 million available to offset future regular tax
liabilities. In addition, the Company has approximately $1.1 million of
investment-tax-credit carryforwards expiring at various dates from 1997 to
2001.
Under US federal tax law, the amount and availability of loss
carryforwards (and certain other tax attributes) are subject to a variety of
interpretations and restrictive tests applicable to the Company and its
subsidiaries. The utilization of such carryforwards could be limited or
effectively lost upon certain changes in ownership. Accordingly, although the
Company believes substantial loss carryforwards are available to it, no
assurance can be given concerning such loss carryforwards, or whether or not
such loss carryforwards will be available in the future.
The Company's accumulated deficit of $56.9 million as of May 1, 1988 was
eliminated by a transfer to paid-in capital through an accounting
reorganization of its stockholders' equity accounts (quasi-reorganization). The
quasi-reorganization did not involve any revaluation of assets or liabilities
because their fair values were, respectively, not less than or greater than
their book values.
The Company adopted its quasi-reorganization in the context of its
reliance, at that time, on Statement of Financial Accounting Standards No. 96,
Accounting For Income Taxes ("SFAS 96"), which provided for recognition in the
statement of income, the tax benefits of operating loss and tax-credit
carryforward items that arose prior to a quasi-reorganization such as that
implemented by the Company.
47
<PAGE> 49
- --------------------------------------------------------------------------------
NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
Subsequent to the issuance of SFAS 96 in September 1989, the Securities
and Exchange Commission issued Staff Accounting Bulletin No. 86 ("SAB 86"). This
bulletin set forth the SEC staff's view that the tax benefits of operating loss
and tax-credit carryforward items that arose prior to a quasi-reorganization
must be reported as a direct credit to paid-in capital following a
quasi-reorganization involving only an elimination of a deficit in retained
earnings.
Since the Company implemented its quasi-reorganization based on SFAS 96
and prior to the issuance of SAB 86, it reported carryforward tax benefits
directly in the statement of income, and then reclassified the amount of such
benefit from retained earnings to paid-in capital. The SEC has informed the
Company that, under the circumstances, it will not object to the Company's
accounting for these tax benefits. If the provisions of SAB 86 had been
applied, net income for the years ended September 30, 1996 and 1995 would have
been reduced by $8.4 million ($.09 per share) and $8.2 million ($.09 per
share), respectively.
Statement of Financial Accounting Standards No. 109, Accounting For Income
Taxes, which supersedes SFAS 96 and was adopted by the Company at the beginning
of 1994, includes a "grandfathering" provision that permits the Company to
continue its present method of accounting for the utilization of its operating
loss and tax-credit carryforward items that arose before the Company's 1988
quasi-reorganization.
In 1997, income tax benefits of $59.5 million, related to employee stock
option transactions, were recorded directly to stockholders equity.
8. CAPITAL STOCK AND STOCK OPTIONS
CAPITAL STOCK
During January 1997, the Company completed the acquisition of Adcor
whereby the Company acquired all the outstanding shares of Adcor in exchange
for 3,354,175 newly issued shares of the Company's common stock (Note 2).
During January 1997, warrants to acquire 1,500,000 shares of the Company's
common stock were exercised at a price of $5.50 per share. The warrants had
originally been issued to a financial institution during 1990 and were
exercisable until January 31, 1997.
During June 1996, 1,100,000 warrants previously issued in connection with
the acquisition of the drilling assets of Grace Drilling Company expired.
During April 1996, the Company issued 266,223 common shares that were
previously held in treasury to Occidental Oil and Gas Corporation in connection
with the Exeter acquisition (Note 2).
During October 1995, the Company purchased for $1.0 million, 650,000
warrants that the Company had previously issued in connection with the purchase
of several drilling rigs in April 1994.
During December 1994, the Company purchased 250,000 shares of its common
stock in the open market at a cost of $1.7 million, or $6.80 per share.
During December 1996, the Company's Board of Directors rescinded the
Company's stock repurchase plan due to uncertainties regarding the Securities
and Exchange Commission's Staff Accounting Bulletin No. 96. Rescinding the plan
allows the Company to avoid potential issues when it uses the
pooling-of-interests method of accounting for mergers. The Company did not
repurchase any shares under the stock repurchase plan since its original
authorization during December 1995.
During October 1994, the Company completed its merger with Sundowner
whereby the Company acquired all of the outstanding shares of Sundowner in
exchange for 13,081,600 newly issued registered shares of the Company's common
stock (Note 2).
The Company is authorized to issue up to 10,000,000 shares of preferred
stock with a par value of $.10 per share in one or more series, and to fix the
powers, designations, preferences and rights to each series.
As of September 30, 1997 there were no warrants outstanding. As of
September 30, 1996 there were warrants outstanding to purchase 1,500,000 common
shares at $5.50 per share, exercisable until January 31, 1997. As of September
30, 1995 there were warrants outstanding to purchase 1,500,000 common shares at
$5.50 per share, exercisable until January 31, 1997; 1,100,000 common shares at
$16.18 per share, exercisable until June 1996; and 650,000 common shares at
$7.92 per share, exercisable until April 1996.
STOCK OPTION PLANS
As of September 30, 1997, the Company has several stock option plans under
which options to purchase common shares may be granted to key officers,
directors and managerial employees of the Company and its subsidiaries. Options
granted under the plans are at prices equal to the fair market value of the
stock on the date of the grant. Options granted under the plans are exercisable
in varying cumulative periodic installments after one year. In the case of
certain key executives, options granted under the plans are subject to
accelerated vesting related to target common stock prices, or may vest
immediately on the grant date. Options granted under the plans cannot be
exercised more than ten years from the date of grant. Options to purchase
127,395 and 599,395 common shares remained available for grant as of September
30, 1997 and 1996, respectively.
48
<PAGE> 50
- --------------------------------------------------------------------------------
NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
A summary of stock option transactions during the three years ended
September 30, 1997 is as follows:
<TABLE>
<CAPTION>
Weighted
Average
Exercise
(Share amounts in thousands) Shares Price
- ---------------------------------------------------------
<S> <C> <C>
Options outstanding:
September 30, 1994 8,719 $ 4.78
Granted 4,453 6.42
Exercised (505) 3.77
Forfeited (47) 6.03
- ---------------------------------------------------------
Options outstanding:
September 30, 1995 12,620 $ 5.39
Granted 2,339 9.97
Exercised (2,422) 4.97
Forfeited (126) 8.01
- ---------------------------------------------------------
Options outstanding:
September 30, 1996 12,411 $ 6.31
Granted 11,706 21.72
Exercised (8,897) 5.68
Forfeited (118) 10.34
- ---------------------------------------------------------
Options outstanding
September 30, 1997 15,102 $ 18.59
- ---------------------------------------------------------
</TABLE>
Of the options outstanding, 13,268,670, 10,873,345 and 9,301,019 were
exercisable at weighted average exercise prices of $19.30, $5.98 and $5.03 as
of September 30, 1997, 1996 and 1995, respectively.
A summary of stock options outstanding at September 30, 1997 is as follows:
<TABLE>
<CAPTION>
Options Outstanding
--------------------------------------------------
Weighted Weighted
Number Average Average
Outstanding Remaining Exercise
(Share amounts in thousands) at 9/30/97 Contractual Life Price
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Range of exercise prices:
$ 1.07 - 1.63 237 3.3 $ 1.10
4.04 - 5.88 307 5.0 4.83
6.25 - 8.63 1,110 6.6 6.73
9.56 - 14.25 1,769 8.2 9.99
15.50 - 22.50 7,614 9.1 17.59
23.31 - 30.94 4,063 9.8 29.50
40.25 2 9.9 40.25
- --------------------------------------------------------------------------------
15,102 8.8 $ 18.59
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Options Exercisable
----------------------------------
Weighted
Number Average
Exercisable Exercise
(Share amounts in thousands) at 9/30/97 Price
- ---------------------------------------------------------------
<S> <C> <C>
Range of exercise prices:
$ 1.07 - 1.63 237 $ 1.10
4.04 - 5.88 307 4.83
6.25 - 8.63 716 6.82
9.56 - 14.25 1,270 9.74
15.50 - 22.50 6,721 17.61
23.31 - 30.94 4,018 29.55
- ---------------------------------------------------------------
13,269 $ 19.30
- ---------------------------------------------------------------
</TABLE>
The weighted average fair value of options granted during the years ended
September 30, 1997 and 1996 was $4.96 and $2.46, respectively.
The fair value of each stock option granted is estimated on the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions for grants during 1997 and 1996, respectively: risk-free
interest rates of 5.80% and 5.25%; dividend yield of 0.0% for both years;
expected life of 2.1 years and 2.5 years; and volatility of 30.9% for both
years.
Had compensation cost for the Company's stock-based compensation plans
been recognized in accordance with SFAS 123, the Company's net income and fully
diluted earnings per share would have been $66.1 million and $.63 per share,
respectively, for the year ended September 30, 1997 and $68.1 million and $.73
per share, respectively, for the year ended September 30, 1996. The effects of
applying SFAS 123 in this pro forma disclosure are not indicative of future
amounts. SFAS 123 does not apply to awards prior to 1996.
The Company has two stock grant plans under which grants of common shares
may be awarded to key officers, directors and managerial employees of the
Company and its subsidiaries. Shares granted under the plans generally vest in
varying cumulative periodic installments.
A summary of stock grant transactions during the three years ended
September 30, 1997 is as follows:
<TABLE>
<CAPTION>
1997 1996 1995
(Share amounts in thousands) Shares Shares Shares
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Stock grants:
Outstanding at beginning of year 38 80 132
Granted -- -- 77
Vested (19) (31) (129)
Forfeited -- (11) --
- --------------------------------------------------------------------------------
Outstanding at end of year 19 38 80
- --------------------------------------------------------------------------------
</TABLE>
49
<PAGE> 51
- --------------------------------------------------------------------------------
NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
9. EMPLOYEE BENEFIT PLANS
Certain of the Company's employees are covered by defined contribution
plans. The Company's contributions to the plans are based on employee
contributions and totaled $4.4 million, $3.6 million and $2.9 million for the
years ended September 30, 1997, 1996 and 1995, respectively. The Company does
not provide post-employment benefits to its employees.
10. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company and its subsidiaries occupy various facilities and lease
certain equipment under leases that range in length from 1 to 40 years. The
minimum rental commitments under non-cancelable operating leases, with lease
terms in excess of one year subsequent to September 30, 1997, are as follows:
<TABLE>
<CAPTION>
(In thousands)
- --------------------------------------------------------------------------------
<S> <C>
1998 $ 2,732
1999 2,624
2000 1,852
2001 175
2002 77
Thereafter 1,057
-------
$ 8,517
-------
</TABLE>
The above amounts do not include property taxes, insurance or normal
maintenance that the lessees are required to pay. Rental expense relating to
operating leases with terms greater than 30 days amounted to $3.1 million, $2.5
million and $2.2 million for the years ended September 30, 1997, 1996 and 1995,
respectively.
EMPLOYMENT CONTRACTS
The Company has entered into employment contracts with certain of its
employees. The Company's minimum salary and bonus obligations under these
contracts are as follows:
<TABLE>
<CAPTION>
(In thousands)
- --------------------------------------------------------------------------------
<S> <C>
1998 $ 2,689
1999 2,448
2000 2,395
2001 2,390
2002 140
--------
$ 10,062
--------
</TABLE>
Pursuant to an employment agreement with an officer, the Company has
provided a non-interest bearing loan for approximately $2.9 million.
CAPITAL EXPENDITURES
As of September 30, 1997 and 1996, the Company had capital expenditure
commitments totaling approximately $50.5 million and $17.5 million,
respectively.
CONTINGENCIES
The Company is a defendant or otherwise involved in a number of
lawsuits in the ordinary course of its business. In the opinion of management,
the Company's ultimate liability with respect to these pending lawsuits is not
expected to have a significant or material adverse effect on the Company's
consolidated financial position or results of operations.
50
<PAGE> 52
- -------------------------------------------------------------------------------
NABORS INDUSTRIES 1997 ANNUAL REPORT
- -------------------------------------------------------------------------------
11. SUPPLEMENTAL BALANCE SHEET AND
INCOME STATEMENT INFORMATION
Accounts receivable is net of an allowance for doubtful accounts of $2.8
million and $1.5 million as of September 30, 1997 and 1996, respectively.
Accrued liabilities include the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
(In thousands) 1997 1996
- --------------------------------------------------------------
<S> <C> <C>
Accrued compensation $ 30,055 $ 23,145
Deferred revenue 15,143 5,975
Workers' compensation liabilities 12,368 9,178
Other accrued liabilities 36,276 25,765
- --------------------------------------------------------------
$ 93,842 $ 64,063
- --------------------------------------------------------------
</TABLE>
Other income, net includes the following:
<TABLE>
<CAPTION>
SEPTEMBER 30,
(In thousands) 1997 1996 1995
- -------------------------------------------------------------------
<S> <C> <C> <C>
Gains on marketable securities
and warrants $ 11,461 $ 4,871 $ 2,406
Gains on dispositions of
long-term assets and business 32,143 7,155 6,053
Dividend income 572 486 297
Foreign currency gains (losses) 919 510 (3,160)
Other (4,348) 668 394
- -------------------------------------------------------------------
$ 40,747 $ 13,690 $ 5,990
- -------------------------------------------------------------------
</TABLE>
12. UNAUDITED QUARTERLY FINANCIAL INFORMATION
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1997
------------------------------------------------
(In thousands, except FIRST SECOND THIRD FOURTH
per share amounts) QUARTER(1) QUARTER QUARTER QUARTER
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 217,077 $ 238,683 $ 267,911 $ 305,632
Gross profit(2) 54,439 61,217 80,686 95,181
Operating income 23,612 28,202 45,193 57,754
Net income 20,115 21,441 31,132 42,120
Earnings per share:
Primary $ .20 $ .21 $ .30 $ .40
Fully diluted $ .20 $ .21 $ .29 $ .37
- ----------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30, 1996
----------------------------------------------
(In thousands, FIRST SECOND THIRD FOURTH
except per share amounts) QUARTER QUARTER QUARTER QUARTER
- --------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues $ 164,338 $ 163,319 $ 181,336 $ 210,750
Gross profit(2) 39,879 43,299 46,766 50,134
Operating income 17,332 18,189 20,550 21,028
Net income 15,262 16,822 18,669 19,747
Earnings per share:
Primary $ .17 $ .18 $ .20 $ .21
Fully diluted $ .17 $ .18 $ .20 $ .21
- --------------------------------------------------------------------
</TABLE>
(1) The results of operations for the first quarter have been retroactively
restated to include the results of operations of Adcor, which was merged
with the Company during January 1997 (Note 2).
(2) Gross profit excludes depreciation, general and administrative expenses
and merger expenses.
51
<PAGE> 53
- --------------------------------------------------------------------------------
NABORS INDUSTRIES 1997 ANNUAL REPORT
- --------------------------------------------------------------------------------
13. DISTRIBUTION OF EARNINGS AND ASSETS
The following table sets forth financial information with respect to the
Company and its subsidiaries, on a consolidated basis, by geographical area:
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
(In thousands) 1997 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues(1)(2):
North America $ 852,368 $ 532,638 $ 416,475
International 176,935 187,105 156,313
----------- ---------- ----------
$ 1,029,303 $ 719,743 $ 572,788
----------- ---------- ----------
Operating income (loss):
North America $ 134,994 $ 61,611 $ 47,989
International 36,103 27,848 20,293
Corporate (14,581) (12,360) (9,727)
Merger expenses (1,755) -- --
----------- ---------- ----------
$ 154,761 $ 77,099 $ 58,555
----------- ---------- ----------
Assets:
North America $ 899,449 $ 496,664 $ 354,733
International 263,787 243,230 217,953
Corporate 70,996 131,380 20,586
----------- ---------- ----------
$ 1,234,232 $ 871,274 $ 593,272
----------- ---------- ----------
</TABLE>
(1) No material revenues were derived from transactions between geographic
areas of operation.
(2) No customers provided 10% or more of consolidated revenues in the years
presented. In the opinion of management, the loss of a single customer
would not have a material adverse effect on the Company's business.
14. SUBSEQUENT EVENTS (UNAUDITED)
During November 1997, the Company completed the acquisition of domestic
land drilling assets from Veco Drilling, Inc. ("Veco") and Diamond L Drilling &
Production ("Diamond L") for approximately $25.0 million in cash. The Veco fleet
consisted of six land drilling rigs located in California and Nevada and two
platform labor contracts offshore California. The Diamond L fleet consisted of
three rigs located in east Texas. The acquisitions will be accounted for under
the purchase method of accounting.
During December 1997, the Board of Directors approved changing the
Company's fiscal year-end from September 30 to December 31, effective for the
calendar year beginning January 1, 1998. A three-month fiscal transition period
from October 1, 1997 through December 31, 1997 (the "Transition Period") will
precede the start of the new fiscal year period.
52
<PAGE> 54
CORPORATE INFORMATION
CORPORATE ADDRESS
Nabors Industries, Inc.
515 West Greens Road
Suite 1200
Houston, Texas 77067
Telephone: (281) 874-0035
Fax: (281) 872-5205
FORM 10-K
Copies may be obtained at no charge by writing to the Secretary at the corporate
office of the Company.
TRANSFER AGENT
First Chicago Trust Company of New York
P.O. Box 2500
Jersey City, New Jersey 07303
INVESTOR CONTACT
Dennis A. Smith
Director of Corporate Development
INDEPENDENT ACCOUNTANTS
Coopers & Lybrand L.L.P.
Houston, Texas
PRICE OF COMMON STOCK
As of September 30, 1997, there were 100,750,363 shares of Common Stock
outstanding held by 1,803 holders of record.
The Common Stock is listed on the American Stock Exchange under the symbol
"NBR". The following table sets forth the reported high and low sales prices of
the Common Stock on the Composite Tape for the quarters indicated.
<TABLE>
<CAPTION>
STOCK PRICE
FISCAL YEAR HIGH LOW
- ------------------------------------------------------------------
1996
<S> <C> <C>
First Quarter 11 3/8 8 1/16
Second Quarter 15 1/4 10 1/4
Third Quarter 16 5/8 13 7/8
Fourth Quarter 17 3/8 13
- ------------------------------------------------------------------
1997
First Quarter 21 1/2 13 1/4
Second Quarter 22 14 3/4
Third Quarter 25 1/16 17 3/4
Fourth Quarter 40 7/8 24 7/8
- ------------------------------------------------------------------
</TABLE>
PRINCIPAL OPERATING SUBSIDIARIES
Nabors Alaska Drilling, Inc.
Anchorage, Alaska
James Denney, President
Nabors Drilling
International Limited
Houston, Texas
Siegfried Meissner, President
Nabors Drilling USA, Inc.
Houston, Texas
Richard A. Stratton, President
Larry P. Heidt, Executive
Vice President
Nabors Drilling Limited
Nisku, Alberta
Duane A. Mather, President
Peak Oilfield Services
Company
Anchorage, Alaska
Michael R. O' Conner,
President
Loffland Brothers de
Venezuela, C.A.
Caracas, Venezuela
Siegfried Meissner, President
Sundowner Offshore
Services, Inc.
Houston, Texas
Jerry C. Shanklin, President
and Chairman
Nabors Offshore Drilling, Inc.
Houston, Texas
Jerry C. Shanklin, President
CANRIG Drilling Technology, Ltd.
Magnolia, Texas
Allan Richardson, President
EPOCH Well Logging, Inc.
Bakersfield, California
Christopher P. Papouras,
President
DIRECTORS
Eugene M. Isenberg
Chairman and Chief Executive
Officer, Nabors Industries, Inc.
Anthony G. Petrello
President and Chief Operating
Officer, Nabors Industries, Inc.
Richard A. Stratton
Vice Chairman,
Nabors Industries, Inc.
Gary T. Hurford
President, Hunt Oil Company
Hans W. Schmidt
Formerly Director,
Deutag Drilling
Myron M. Sheinfeld
Attorney,
Sheinfeld, Maley & Kay
Jack Wexler
International Business
Consultant
Martin J. Whitman
Chief Executive Officer,
M.J. Whitman, Inc.
Chairman, Danielson
Holding Corporation
Chairman, Third Avenue Trust
OFFICERS
Eugene M. Isenberg
Chairman and Chief
Executive Officer
Anthony G. Petrello
President and
Chief Operating Officer
Richard A. Stratton
Vice Chairman
Daniel McLachlin
Vice President and
Corporate Secretary
Bruce P. Koch
Vice President of Finance
Design: Savage Design Group, Inc., Houston, Texas
<PAGE> 1
EXHIBIT 21
SIGNIFICANT SUBSIDIARIES
SUBSIDIARY NAME JURISDICTION
Canrig Drilling Technology Ltd. Delaware
Epoch Well Logging, Inc. California
Loffland Brothers de Venezuela, C.A. Venezuela
Nabors Alaska Drilling, Inc. Alaska
Nabors Corporate Services, Inc. Delaware
Nabors Drilling International Limited Delaware
Nabors Drilling Limited Canada
Nabors Drilling USA, Inc. Delaware
Nabors International, Inc. Delaware
Nabors Offshore Drilling, Inc. Delaware
Peak Oilfield Services Company (50% ownership) Akaska
Sundowner Offshore Services, Inc. Nevada
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration
Statements of Nabors Industries, Inc. on Form S-8 (Registration Numbers
333-11313, 33-87322, 33-87324, 33-47521, 33-45097, 33-36229, 33-56000 and
33-54858) and on Form S-3 (Registration Numbers 333-20501 and 333-25233) of our
report dated November 12, 1997 on our audits of the consolidated financial
statements of Nabors Industries, Inc. and Subsidiaries as of September 30, 1997
and 1996, and for each of the three years in the period ended September 30,
1997, which reports are included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Houston, Texas
December 29, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> SEP-30-1997
<CASH> 3,919
<SECURITIES> 7,125
<RECEIVABLES> 247,789
<ALLOWANCES> 2,833
<INVENTORY> 21,372
<CURRENT-ASSETS> 305,828
<PP&E> 1,176,993
<DEPRECIATION> 315,600
<TOTAL-ASSETS> 1,234,232
<CURRENT-LIABILITIES> 234,956
<BONDS> 229,507
0
0
<COMMON> 10,124
<OTHER-SE> 717,719
<TOTAL-LIABILITY-AND-EQUITY> 1,234,232
<SALES> 1,029,303
<TOTAL-REVENUES> 1,029,303
<CGS> 737,780
<TOTAL-COSTS> 737,780
<OTHER-EXPENSES> 136,762
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,520
<INCOME-PRETAX> 182,410
<INCOME-TAX> 67,602
<INCOME-CONTINUING> 114,808
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 114,808
<EPS-PRIMARY> 1.12
<EPS-DILUTED> 1.06
</TABLE>
<PAGE> 1
EXHBIT 99.1
================================================================================
- --------------------------------------------------------------------------------
CREDIT AGREEMENT
Dated as of September 5, 1997
among
NABORS INDUSTRIES, INC.,
as a Borrower, and
NABORS ALASKA DRILLING, INC.,
NABORS DRILLING USA, INC.,
NABORS INTERNATIONAL, INC.,
SUNDOWNER OFFSHORE SERVICES, INC.,
NABORS OFFSHORE DRILLING, INC., and
NABORS DRILLING INTERNATIONAL LIMITED,
as Subsidiary Borrowers, and
THE OTHER SUBSIDIARY
BORROWERS FROM TIME TO TIME PARTY HERETO,
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Administrative Agent and
as Letter of Credit Issuing Bank and Swing Loan Bank,
WELLS FARGO BANK (TEXAS), NATIONAL ASSOCIATION
as Documentation Agent,
and
THE OTHER FINANCIAL INSTITUTIONS FROM
TIME TO TIME PARTY HERETO
Arranged by
BANCAMERICA SECURITIES, INC.
================================================================================
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01 Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Other Interpretive Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
1.03 Accounting Principles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE II THE CREDITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.01 Amounts and Terms of Commitments; Loan Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(a) The Revolving Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(b) Swing Loan Commitment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(c) Loan Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(d) Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
2.02 Certain Pricing Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
2.03 Procedure for Borrowing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(a) Notice of Borrowing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(b) Funding Mechanics . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
(c) Interest Rate Periods . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.04 Conversion and Continuation Elections Regarding Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
2.05 Voluntary Termination or Reduction of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
2.06 Optional Prepayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.07 Mandatory Prepayments of Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.08 Repayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(a) The Revolving Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
(b) Swing Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.09 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
2.10 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(a) Arrangement, Agency Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
(b) Commitment Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.11 Computation of Fees and Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.12 Payments by the Borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
2.13 Payments by the Banks to the Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
2.14 Sharing of Payments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.15 Special Provisions for Swing Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(a) Banks to Make Revolving Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(b) Participations in Swing Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(c) Acknowledged Privity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(d) Unconditional Obligation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE III THE LETTERS OF CREDIT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.01 The Letter of Credit Subfacility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
3.02 Issuance, Amendment and Renewal of Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
3.03 Risk Participations, Drawings and Reimbursements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
3.04 Repayment of Participations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
3.05 Role of the Issuing Bank . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.06 Obligations Absolute . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
3.07 Cash Collateral Pledge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
3.08 Letter of Credit Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(a) Risk Participation Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(b) Fronting Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
</TABLE>
- i -
<PAGE> 3
<TABLE>
<S> <C>
(c) Computation and Payment of Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
(d) Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
3.09 Uniform Customs and Practice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE IV TAXES, YIELD PROTECTION AND ILLEGALITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.01 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
4.02 Illegality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
4.03 Increased Costs and Reduction of Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
4.04 Funding Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.05 Inability to Determine Rates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
4.06 Reserves on Offshore Rate Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
4.07 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE V CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
5.01 Conditions of Initial Credit Extensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(a) Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(b) Resolutions; Incumbency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(c) Organization Documents; Good Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
(d) Legal Opinions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(e) Payment of Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(f) Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
(g) Other Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.02 Conditions of Initial Advance to each Subsidiary Borrower . . . . . . . . . . . . . . . . . . . . . . . . . 37
5.03 Conditions to All Credit Extensions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(a) Notice, Application . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(b) Continuation of Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(c) No Existing Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
(d) Legality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
ARTICLE VI REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.01 Corporate Existence and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.02 Corporate Authorization; No Contravention . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
6.03 Governmental Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.04 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.05 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.06 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.07 ERISA Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
6.08 Use of Proceeds; Margin Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.09 Title to Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.11 Financial Condition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6.12 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.13 Regulated Entities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.14 No Burdensome Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.15 Copyrights, Patents, Trademarks and Licenses, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.16 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.17 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
6.18 Labor Controversies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
6.19 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ARTICLE VII AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
7.01 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<S> <C>
7.02 Certificates; Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
7.03 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
7.04 Preservation of Corporate Existence, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.05 Maintenance of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
7.06 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.07 Payment of Obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.08 Compliance with Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.09 Compliance with ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.10 Inspection of Property and Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
7.11 Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7.12 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7.13 New Subsidiary Guarantors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7.14 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
7.15 Certain Terms Concerning Subordinated Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ARTICLE VIII NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.01 Limitation on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
8.02 Disposition of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
8.03 Consolidations and Mergers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.04 Loans and Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
8.05 Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
8.06 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
8.07 Joint Ventures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
8.08 Change in Structure; Subsidiary Borrowers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
8.09 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
8.10 Change in Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
8.11 Accounting Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
8.12 Foreign Subsidiary Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
8.13 Capitalization Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
8.14 Minimum Net Worth . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
8.15 Interest Coverage Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
8.16 Subsidiary Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
8.17 Debt of SPVs; No Liens or Stock Held by SPVs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
ARTICLE IX EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
9.01 Event of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
(a) Non-Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
(b) Representation or Warranty . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
(c) Specific Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
(d) Other Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
(e) Cross-Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
(f) Insolvency; Voluntary Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(g) Involuntary Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(h) ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(i) Monetary Judgments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(j) Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
(k) Guarantor Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
9.02 Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
9.03 Rights Not Exclusive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
ARTICLE X THE AGENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
10.01 Appointment and Authorization; Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
10.02 Delegation of Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
</TABLE>
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<PAGE> 5
<TABLE>
<S> <C>
10.03 Liability of Agent-Related Persons and Documentation Agent . . . . . . . . . . . . . . . . . . . . . . . . 57
10.04 Reliance by Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
10.05 Notice of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
10.06 Credit Decision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
10.07 Indemnification of Agent-Related Persons and Documentation Agent . . . . . . . . . . . . . . . . . . . . . 59
10.08 Agent and Documentation Agent in Individual Capacity . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
10.09 Successor Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
10.10 Withholding Tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60
10.11 Documentation Agent; Arranger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
ARTICLE XI MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
11.01 Amendments and Waivers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
11.02 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
11.03 No Waiver; Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
11.04 Costs and Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
11.05 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
11.06 Payments Set Aside . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
11.07 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
11.08 Assignments, Participations, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
11.09 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
11.10 Set-off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
11.11 Company as Subsidiary Borrower Representative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
11.12 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
11.13 Indemnity and Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
11.14 Notification of Addresses, Lending Offices, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
11.15 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
11.16 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
11.17 No Third Parties Benefited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
11.18 GOVERNING LAW AND JURISDICTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
11.19 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
11.20 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
</TABLE>
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<PAGE> 6
SCHEDULES
Schedule 2.01 Commitments
Schedule 2.02 Pricing Chart
Schedule 6.16 Subsidiaries and Investments
Schedule 8.01 Permitted Liens
Schedule 11.02 Lending Offices; Addresses for Notices
EXHIBITS
Exhibit A Form of Notice of Borrowing
Exhibit B Form of Notice of Conversion/Continuation
Exhibit C Form of Compliance Certificate
Exhibit D-1 Form of Legal Opinion of Outside Counsel to the
Company and Subsidiaries
Exhibit D-2 Form of Legal Opinion of Internal Counsel to the
Company and Subsidiaries
Exhibit E Form of Assignment and Acceptance
Exhibit F Form of Revolving Note
Exhibit G Form of Swing Loan Note
Exhibit H Form of Parent Guaranty
Exhibit I Form of Subsidiary Guaranty
Exhibit J Form of Subsidiary Borrower Counterpart
Exhibit K Form of Swing Loan Participation Certificate
Certain schedules and the exhibits have been omitted. The Company agrees
to furnish to the Securities and Exchange Commission supplementally a copy of
any omitted schedule or exhibit.
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<PAGE> 7
CREDIT AGREEMENT
This CREDIT AGREEMENT is entered into as of September 5, 1997, among
NABORS INDUSTRIES, INC., a Delaware corporation (the "Company"), NABORS ALASKA
DRILLING, INC., an Alaska corporation and a Wholly-Owned Subsidiary of the
Company, NABORS DRILLING USA, INC., a Delaware corporation and a Wholly-Owned
Subsidiary of the Company, NABORS INTERNATIONAL, INC., a Delaware corporation
and a Wholly-Owned Subsidiary of the Company, SUNDOWNER OFFSHORE SERVICES,
INC., a Nevada corporation and a Wholly-Owned Subsidiary of the Company, NABORS
OFFSHORE DRILLING, INC., a Delaware corporation and a Wholly-Owned Subsidiary
of the Company, NABORS DRILLING INTERNATIONAL LIMITED, a Delaware corporation
and a Wholly-Owned Subsidiary of the Company, the other Subsidiary Borrowers
(as defined herein) from time to time party to this Agreement, the several
financial institutions from time to time party to this Agreement (collectively,
the "Banks"; individually, a "Bank"), BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION, as Issuing Bank, as Swing Loan Bank and as administrative
agent (the "Agent") for the Banks and WELLS FARGO BANK (TEXAS), NATIONAL
ASSOCIATION, as documentation agent (the "Documentation Agent").
WHEREAS, the Company and the Subsidiary Borrowers have requested, and
the Banks have agreed to make available to the Company and the Subsidiary
Borrowers, a revolving credit facility, including a letter of credit
subfacility and swingline subfacility, upon the terms and conditions set forth
in this Agreement;
NOW, THEREFORE, in consideration of the mutual agreements, provisions
and covenants contained herein, and for other good and valuable consideration
the receipt and sufficiency of which are acknowledged hereby, the parties
hereto agree as follows, intending to be legally bound:
ARTICLE I
DEFINITIONS
1.01 Certain Defined Terms. The following terms have the following
meanings:
"Acquisition" means any transaction or series of related
transactions for the purpose of or resulting, directly or indirectly, in (a)
the acquisition of all or substantially all of the assets of a Person, or of
any business or division of a Person, (b) the acquisition of in excess of 50%
of the capital stock, partnership interests, membership interests or equity of
any Person, or otherwise causing any Person to become a Subsidiary, or (c) a
merger or consolidation or any other combination with another Person (other
than a Person that is a Subsidiary) provided that the Company or the Subsidiary
is the surviving entity.
"Affiliate" means, as to any Person, any other Person which,
directly or indirectly, is in control of, is controlled by, or is under common
control with, such Person. A Person shall be deemed to control another Person
if the controlling Person possesses, directly or indirectly, the power to
direct or cause the direction of the management and policies of the other
Person, whether through the ownership of voting securities, membership
interests, by contract, or otherwise.
"Agent" means BofA in its capacity as administrative agent for
the Banks hereunder, and any successor agent arising under Section 10.09.
<PAGE> 8
"Agent-Related Persons" means BofA and any successor Agent
arising under Section 10.09 and any successor Issuing Bank or Swing Loan Bank
hereunder, together with their respective Affiliates (including the Arranger),
and the officers, directors, employees, agents and attorneys-in-fact of such
Persons and Affiliates.
"Agent's Payment Office" means the address for payments set
forth on Schedule 11.02 or such other address as the Agent may from time to
time specify.
"Agreement" means this Credit Agreement.
"Applicable Margin" means the amount determined in accordance
with the provisions of Section 2.02 of this Agreement.
"Arranger" means BancAmerica Securities, Inc., a Delaware
corporation.
"Assignee" has the meaning specified in subsection 11.08(a).
"Attorney Costs" of a Person means and includes all fees and
disbursements of any law firm or other external counsel and all disbursements
of internal counsel.
"Bank" has the meaning specified in the introductory clause
hereto. References to the "Banks" shall include BofA, including in its capacity
as Issuing Bank and in its capacity as Swing Loan Bank; for purposes of
clarification only, to the extent that BofA may have any rights or obligations
in addition to those of the Banks due to its status as Issuing Bank or Swing
Loan Bank, its status as such will be specifically referenced.
"Bankruptcy Code" means the Federal Bankruptcy Reform Act of
1978 (11 U.S.C. Section 101, et seq.).
"Base Rate" means, for any day, the higher of: (a) 0.50% per
annum above the latest Federal Funds Rate; and (b) the per annum rate of
interest in effect for such day as publicly announced from time to time by BofA
in San Francisco, California, as its "reference rate." (The "reference rate" is
a rate set by BofA based upon various factors including BofA's costs and
desired return, general economic conditions and other factors, and is used as a
reference point for pricing some loans, which may be priced at, above, or below
such announced rate.) Any change in the reference rate announced by BofA shall
take effect at the opening of business on the day specified in the public
announcement of such change.
"Base Rate Loan" means a Revolving Loan or a Swing Loan that
bears interest based on the Base Rate.
"Basis Point" means one one-hundredth of one percent (1/100th
of 1%).
"BofA" means Bank of America National Trust and Savings
Association, a national banking association.
"Borrowers" means the Company, Nabors Alaska Drilling, Inc.,
Nabors Drilling USA, Inc., Nabors International, Inc., Sundowner Offshore
Services, Inc., Nabors Offshore Drilling, Inc., Nabors Drilling International
Limited, and the other Subsidiary Borrowers from time to time party hereto.
"Borrowing" means a borrowing hereunder consisting of
Revolving Loans or Swing Loans of the same Type made to a Borrower on the same
day by the Banks under Article II, and, other than in the case of Base Rate
Loans, having the same Interest Period.
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<PAGE> 9
"Borrowing Date" means any date on which a Borrowing occurs
under Article II.
"Business Day" means any day other than a Saturday, Sunday or
other day on which commercial banks in Houston, Texas, New York, New York, or
San Francisco, California are authorized or required by law to close and, if
the applicable Business Day relates to any Offshore Rate Loan, means such a day
on which dealings are carried on in the applicable offshore dollar interbank
market.
"Capital Adequacy Regulation" means any guideline, request or
directive of any central bank or other Governmental Authority, or any other
law, rule or regulation, whether or not having the force of law, in each case,
regarding capital adequacy of any bank or of any corporation controlling a
bank.
"Capital Lease" means a capital lease as determined in
accordance with GAAP.
"Capitalization Ratio" means, at any time, the ratio of
Consolidated Total Debt to Consolidated Total Capitalization.
"Cash Collateralize" means to pledge and deposit with or
deliver to the Agent, for the benefit of the Agent and the Banks, as collateral
for the Obligations of the Borrowers, cash or deposit account balances pursuant
to documentation in form and substance satisfactory to the Agent and the
Issuing Bank (which documents are hereby consented to by the Banks).
Derivatives of such term shall have corresponding meaning. Each of the Company
and each Borrower hereby grants the Agent, for the benefit of the Agent and the
Banks, a security interest in all such cash and deposit account balances, if
any, which are required pursuant to the terms of this Agreement. Cash
collateral shall be maintained in blocked, non-interest bearing deposit
accounts at BofA.
"Change of Control" means (a) purchase or acquisition,
directly or indirectly, by any "person" or "group" within the meaning of
Section 13(d)(3) and 14(d)(2) of the Securities and Exchange Act of 1934 (a
"Group"), of "beneficial ownership" (as such term is defined in Rule 13d-3
under the Exchange Act) of securities of the Company which, together with any
securities owned beneficially by any "affiliates" or "associates" of such Group
(as such terms are defined in Rule 12b-2 under the Exchange Act), shall
represent more than fifty percent (50%) of the combined voting power of the
Company's securities which are entitled to vote generally in the election of
directors and which are outstanding on the date immediately prior to the date
of such purchase or acquisition and controls the majority of the Board of
Directors; or (b) a sale of all or substantially all of the assets of the
Company and its Subsidiaries taken as a whole to any Person or Group (other
than to another Subsidiary Borrower(s)); or (c) the liquidation or dissolution
of the Company; or (d) the first day on which a majority of the Board of
Directors of the Company are not Continuing Directors (as herein defined). As
herein used, "Continuing Director" means any member of the Board of Directors
of the Company who (x) is a member of such Board of Directors as of the date of
this Agreement or (y) was nominated for election or elected to such Board of
Directors with the affirmative vote of two-thirds of the Continuing Directors
who were members of such Board of Directors at the time of such nomination or
election.
"Closing Date" means the date on which all conditions
precedent set forth in Section 5.01 are satisfied or waived by all Banks (or,
in the case of subsection 5.01(e), waived by the Person entitled to receive
such payment).
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<PAGE> 10
"Code" means the Internal Revenue Code of 1986, and
regulations promulgated thereunder.
"Commitment", as to each Bank, has the meaning specified in
Section 2.01.
"Commitment Fee" has the meaning set forth in subsection
2.10(b).
"Compliance Certificate" means a certificate substantially in
the form of Exhibit C.
"Consolidated EBITDA" means, for the relevant period, the sum
of: (a) the Consolidated Net Income for such period, (b) Consolidated Interest
Expense, (c) all taxes measured by income to the extent included in the
determination of such Consolidated Net Income and (d) all amounts treated as
expenses for depreciation and the amortization of intangibles of any kind for
such period to the extent included in the determination of such Consolidated
Net Income for the relevant period; provided, however, that Consolidated Net
Income shall be computed for the purposes of this definition (i) without regard
to non-recurring costs incurred in connection with any acquisition or non-cash
write-ups and write-downs, (ii) without giving effect to extraordinary losses
or extraordinary gains for such period, (iii) without including net income (or
loss) of any Person not a Subsidiary except to the extent of cash dividends or
distributions actually received by the Company and its Subsidiaries and (iv)
without including earnings in respect of assets or interests securing
Non-Recourse Debt.
"Consolidated Interest Expense" means, for the relevant
period, for the Company and its Subsidiaries, without duplication, the amount
of interest expense, determined on a consolidated basis in accordance with
GAAP, for such period on the aggregate principal amount of the Indebtedness of
the Company and its Subsidiaries.
"Consolidated Net Income" means, for any period, the net
income (or net loss) of the Company and its Subsidiaries for such period taken
as a single accounting period determined in accordance with GAAP.
"Consolidated Net Worth" means, at any date, an amount equal
to the consolidated stockholders' equity of the Company and its Subsidiaries
determined in accordance with GAAP determined as of such date, excluding (i)
any Redeemable Preferred Stock, (ii) the book value of any assets or interests
securing Non-Recourse Debt and the Non- Recourse Debt secured by a lien on such
assets or interests, (iii) the cumulative effect on retained earnings of the
net income or loss of any SPV, except to the extent that the Company and its
Subsidiaries have actually received cash in respect of dividends or
distributions from such Person, and (iv) the book value of all investments in
SPVs.
"Consolidated Total Assets" means, at any time, the aggregate
book value of assets of the Company and its Subsidiaries which would be shown
as assets on a consolidated balance sheet of the Company and its Subsidiaries
as of such time prepared in accordance with GAAP, after eliminating (x) all
amounts attributable to interests in SPVs and (y) the book value of assets or
interests securing Non-Recourse Debt.
"Consolidated Total Capitalization" means, at any time, the
sum of (a) Consolidated Total Debt and (b) Consolidated Net Worth for such
period.
"Consolidated Total Debt" means, for the Company and its
Subsidiaries, at any time, without duplication, the sum of: (a) Indebtedness
for borrowed money (including subordinated debt) or for the deferred purchase
price of property or services, and all other interest-bearing Indebtedness, (b)
obligations under leases which in
- 4 -
<PAGE> 11
accordance with GAAP should be recorded as Capital Leases, and (c) all
Redeemable Preferred Stock, valued at the applicable redemption price.
"Contingent Obligation" means, as to any Person, any direct or
indirect liability of that Person, whether or not contingent, with or without
recourse, (a) with respect to any Indebtedness, lease, dividend, letter of
credit or other obligation (the "primary obligations") of another Person (the
"primary obligor"), including any obligation of that Person (i) to purchase,
repurchase or otherwise acquire such primary obligations or any security
therefor, (ii) to advance or provide funds for the payment or discharge of any
such primary obligation, or to maintain working capital or equity capital of
the primary obligor or otherwise to maintain the net worth or solvency or any
balance sheet item, level of income or financial condition of the primary
obligor, (iii) to purchase property, securities or services primarily for the
purpose of assuring the owner of any such primary obligation of the ability of
the primary obligor to make payment of such primary obligation, or (iv)
otherwise to assure or hold harmless the holder of any such primary obligation
against loss in respect thereof (each, a "Guaranty Obligation"); (b) with
respect to any Surety Instrument (other than any Letter of Credit) issued for
the account of that Person or as to which that Person is otherwise liable for
reimbursement of drawings or payments; (c) to purchase any materials, supplies
or other property from, or to obtain the services of, another Person if the
relevant contract or other related document or obligation requires that payment
for such materials, supplies or other property, or for such services, shall be
made regardless of whether delivery of such materials, supplies or other
property is ever made or tendered, or such services are ever performed or
tendered, or (d) in respect of any Swap Contract. The amount of any Contingent
Obligation shall, in the case of Guaranty Obligations, be deemed equal to the
stated or determinable amount of the primary obligation in respect of which
such Guaranty Obligation is made or, if not stated or if indeterminable, the
maximum reasonably anticipated liability in respect thereof, and in the case of
other Contingent Obligations other than in respect of Swap Contracts, shall be
equal to the maximum reasonably anticipated liability in respect thereof and,
in the case of Contingent Obligations in respect of Swap Contracts, shall be
equal to the Swap Termination Value.
"Contractual Obligation" means, as to any Person, any
provision of any security issued by such Person or of any agreement,
undertaking, contract, indenture, mortgage, deed of trust or other instrument,
document or agreement to which such Person is a party or by which it or any of
its property is bound.
"Conversion/Continuation Date" means any date on which, under
Section 2.04, a Borrower (a) converts Loans of one Type to another Type, or (b)
continues as Loans of the same Type, but with a new Interest Period, Loans
having Interest Periods expiring on such date.
"Credit Extension" means and includes (a) the making of any
Revolving Loan hereunder, (b) the making of any Swing Loan hereunder, and (c)
the Issuance of any Letter of Credit hereunder.
"Default" means any event or circumstance which, with the
giving of notice, the lapse of time, or both, would (if not cured or otherwise
remedied during such time) constitute an Event of Default.
"Default Rate" has the meaning set forth in subsection
2.09(c).
"Documentation Agent" means Wells Fargo Bank (Texas), National
Association, in its capacity as documentation agent.
"Dollars", "dollars" and "$" each mean lawful money of the
United States.
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<PAGE> 12
"Effective Amount" means (i) with respect to any Revolving
Loans, on any date, the aggregate outstanding principal amount thereof after
giving effect to any Borrowings and prepayments or repayments of Revolving
Loans occurring on such date; (ii) with respect to any Swing Loans, on any
date, the aggregate outstanding principal amount thereof after giving effect to
any Borrowings and prepayments or repayments of Swing Loans occurring on such
date; and (iii) with respect to any outstanding L/C Obligations on any date,
the amount of such L/C Obligations on such date after giving effect to any
Issuances of Letters of Credit occurring on such date and any other changes in
the aggregate amount of the L/C Obligations as of such date, including as a
result of any reimbursements of outstanding unpaid drawings under any Letters
of Credit or any reductions in the maximum amount available for drawing under
Letters of Credit taking effect on such date.
"Eligible Assignee" means (a) a commercial bank organized
under the laws of the United States, or any state thereof, and having a
combined capital and surplus of at least $200,000,000; (b) a commercial bank
organized under the laws of any other country which is a member of the
Organization for Economic Cooperation and Development (the "OECD"), or a
political subdivision of any such country, and having a combined capital and
surplus of at least $200,000,000, provided that such bank is acting through a
branch or agency located in the United States; and (c) a Person that is
primarily engaged in the business of commercial banking and that is (i) a
Subsidiary of a Bank, (ii) a Subsidiary of a Person of which a Bank is a
Subsidiary, or (iii) a Person of which a Bank is a Subsidiary.
"Environmental Claims" means all claims, however asserted, by
any Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law, or for release or injury
to the environment.
"Environmental Laws" means all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes, together
with all administrative orders, directed duties, requests, licenses,
authorizations and permits of, and agreements with, any Governmental
Authorities, in each case relating to environmental, health, safety and land
use matters.
"ERISA" means the Employee Retirement Income Security Act of
1974, and regulations promulgated thereunder.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) under common control with the Company within the meaning of
Section 414(b) or (c) of the Code (and Sections 414(m) and (o) of the Code for
purposes of provisions relating to Section 412 of the Code).
"ERISA Event" means (a) a Reportable Event with respect to a
Pension Plan; (b) a withdrawal by the Company or any ERISA Affiliate from a
Pension Plan subject to Section 4063 of ERISA during a plan year in which it
was a substantial employer (as defined in Section 4001(a)(2) of ERISA) or a
cessation of operations which is treated as such a withdrawal under Section
4062(e) of ERISA; (c) a complete or partial withdrawal by the Company or any
ERISA Affiliate from a Multiemployer Plan or notification that a Multiemployer
Plan is in reorganization; (d) the filing of a notice of intent to terminate,
the treatment of a Plan amendment as a termination under Section 4041 or 4041A
of ERISA, or the commencement of proceedings by the PBGC to terminate a Pension
Plan or Multiemployer Plan; (e) an event or condition which might reasonably be
expected to constitute grounds under Section 4042 of ERISA for the termination
of, or the appointment of a trustee to administer, any Pension Plan or
Multiemployer Plan; or (f) the imposition of any liability under Title IV of
ERISA, other than PBGC premiums due
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<PAGE> 13
but not delinquent under Section 4007 of ERISA, upon the Company or any ERISA
Affiliate.
"Event of Default" means any of the events or circumstances
specified in Section 9.01.
"Exchange Act" means the Securities Exchange Act of 1934, and
regulations promulgated thereunder.
"Existing HKB Secured Creditor" means The Hongkong and
Shanghai Banking Corporation Limited ("HKB") as lender under the Credit
Agreement dated March 24, 1995, as amended, between Nabors Drilling USA, Inc.
and HKB.
"FDIC" means the Federal Deposit Insurance Corporation, and
any Governmental Authority succeeding to any of its principal functions.
"Federal Funds Rate" means, for any day, the rate set forth in
the weekly statistical release designated as H.15(519), or any successor
publication, published by the Federal Reserve Bank of New York (including any
such successor, "H.15(519)") on the preceding Business Day opposite the caption
"Federal Funds (Effective)"; or, if for any relevant day such rate is not so
published on any such preceding Business Day, the rate for such day will be the
arithmetic mean as determined by the Agent of the rates for the last
transaction in overnight Federal funds arranged prior to 9:00 a.m. (New York
City time) on that day by each of three leading brokers of Federal funds
transactions in New York City selected by the Agent.
"Fee Letter" has the meaning specified in subsection 2.10(a).
"Foreign Subsidiary" means, as of any date of determination, a
Subsidiary which is incorporated or organized under the laws of any
jurisdiction other than the District of Columbia or the United States of
America or any state thereof.
"FRB" means the Board of Governors of the Federal Reserve
System, and any Governmental Authority succeeding to any of its principal
functions.
"Fronting Fee" has the meaning set forth in Section 3.08(b)
hereof.
"Further Taxes" means any and all present or future taxes,
levies, assessments, imposts, duties, deductions, fees, withholdings or similar
charges (including, without limitation, net income taxes and franchise taxes),
and all liabilities with respect thereto, imposed by any jurisdiction on
account of amounts payable or paid pursuant to Section 4.01.
"GAAP" means generally accepted accounting principles set
forth from time to time in the opinions and pronouncements of the Accounting
Principles Board and the American Institute of Certified Public Accountants and
statements and pronouncements of the Financial Accounting Standards Board (or
agencies with similar functions of comparable stature and authority within the
U.S. accounting profession), which are applicable to the circumstances as of
the date of determination.
"Governmental Authority" means any nation or government, any
state or other political subdivision thereof, any central bank (or similar
monetary or regulatory authority) thereof, any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
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<PAGE> 14
"Guaranties" means, collectively, the Parent Guaranty and the
Subsidiary Guaranties.
"Guarantors" means the Company and each of the Subsidiary
Guarantors.
"Guaranty Obligation" has the meaning specified in the
definition of "Contingent Obligation."
"Honor Date" has the meaning specified in subsection 3.03(b).
"IBOR Rate" means, for any Interest Period, with respect to
IBOR Rate Loans comprising part of the same Borrowing, the rate of interest per
annum (rounded upward to the next 1/16th of 1%), determined by the Agent to be,
the rate at which dollar deposits in the approximate amount of BofA's Offshore
Rate Loan for such Interest Period would be offered by BofA's Grand Cayman
Branch, Grand Cayman B.W.I. (or such other office as may be designated for such
purpose by BofA), to major banks in the offshore dollar interbank market at
their request at approximately 11:00 a.m. (New York City time) two Business
Days prior to the commencement of such Interest Period.
"IBOR Rate Loan" means a Swing Loan that bears interest based
on the IBOR Rate.
"Indebtedness" of any Person means, without duplication, (a)
all indebtedness for borrowed money; (b) all obligations issued, undertaken or
assumed as the deferred purchase price of property or services (other than
trade payables entered into in the ordinary course of business on ordinary
terms); (c) all reimbursement or payment obligations, whether matured or not
matured, with respect to outstanding Surety Instruments; (d) all obligations
evidenced by notes, bonds, debentures or similar instruments, including
obligations so evidenced incurred in connection with the acquisition of
property, assets or businesses; (e) all indebtedness created or arising under
any conditional sale or other title retention agreement, or incurred as
financing, in either case with respect to property acquired by the Person (even
though the rights and remedies of the seller or bank under such agreement in
the event of default are limited to repossession or sale of such property); (f)
all obligations with respect to Capital Leases; (g) all indebtedness referred
to in clauses (a) through (f) above secured by (or for which the holder of such
Indebtedness has an existing right, contingent or otherwise, to be secured by)
any Lien upon or in property (including accounts and contracts rights) owned by
such Person, even though such Person has not assumed or become liable for the
payment of such Indebtedness; and (h) all Guaranty Obligations in respect of
indebtedness or obligations of others of the kinds referred to in clauses (a)
through (g) above; provided, however, Indebtedness shall not include
Non-Recourse Debt. For all purposes of this Agreement, the Indebtedness of any
Person shall include all recourse Indebtedness of any partnership in which such
Person is a general partner except to the extent recourse against such Person
is limited by the instruments governing such Indebtedness.
"Indemnified Liabilities" has the meaning specified in Section
11.05.
"Indemnified Person" has the meaning specified in Section
11.05.
"Independent Auditor" has the meaning specified in subsection
7.01(a).
"Insolvency Proceeding" means, with respect to any Person, (a)
any case, action or proceeding with respect to such Person before any court or
other Governmental Authority relating to bankruptcy, reorganization,
insolvency, liquidation, receivership, dissolution, winding-up or relief of
debtors, or (b) any general assignment for the benefit
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<PAGE> 15
of creditors, composition, marshalling of assets for creditors, or other,
similar arrangement in respect of its creditors generally or any substantial
portion of its creditors undertaken under U.S. Federal, state or foreign law,
including the Bankruptcy Code.
"Interest Coverage Ratio" means, for any period, the ratio of
Consolidated EBITDA to Consolidated Interest Expense.
"Interest Payment Date" means, as to any Loan other than a
Base Rate Loan, the last day of each Interest Period applicable to such Loan
and, as to any Base Rate Loan, the last Business Day of each calendar quarter
and each date such Loan is converted into another Type of Loan or is paid or
payable pursuant to the terms hereof (whether by maturity, optional prepayment,
mandatory prepayment or acceleration); provided, however, that if any Interest
Period for an Offshore Rate Loan exceeds three months, the date that falls
three months after the beginning of such Interest Period and after each
Interest Payment Date thereafter is also an Interest Payment Date.
"Interest Period" means, as to any Offshore Rate Loan, the
period commencing on the Borrowing Date of such Loan or on the
Conversion/Continuation Date on which the Loan is converted into or continued
as an Offshore Rate Loan, and ending on the date one, two, three or six months
thereafter, in the case of LIBOR Rate Loans, or one to seven days thereafter,
in the case of IBOR Rate Loans, as selected by the Company in its Notice of
Borrowing or Notice of Conversion/Continuation;
provided that:
(i) if any Interest Period would otherwise end on
a day that is not a Business Day, that Interest Period shall be
extended to the following Business Day unless, in the case of a LIBOR
Rate Loan, the result of such extension would be to carry such
Interest Period into another calendar month, in which event such
Interest Period shall end on the preceding Business Day;
(ii) any Interest Period pertaining to a LIBOR
Rate Loan that begins on the last Business Day of a calendar month (or
on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall end on the
last Business Day of the calendar month at the end of such Interest
Period; and
(iii) no Interest Period for any Loan shall extend
beyond the Maturity Date.
"Investment Grade" means a rating of BBB-/Baa3 or higher.
"Investments" has the meaning set forth in Section 8.04.
"IRS" means the Internal Revenue Service, and any Governmental
Authority succeeding to any of its principal functions under the Code.
"Issuance Date" has the meaning specified in subsection
3.01(a).
"Issue" means, with respect to any Letter of Credit, to issue
or to extend the expiry of, or to renew or increase the amount of, such Letter
of Credit; and the terms "Issued," "Issuing" and "Issuance" have corresponding
meanings.
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<PAGE> 16
"Issuing Bank" means BofA in its capacity as issuer of one or
more Letters of Credit hereunder, together with any replacement letter of
credit issuer arising under subsection 10.01(b) or Section 10.09.
"Joint Venture" means a single-purpose corporation,
partnership, limited liability company, joint venture or other legal
arrangement (whether created by contract or conducted through a separate legal
entity) now or hereafter formed by the Company or any of its Subsidiaries with
another Person in order to conduct a common venture or enterprise with such
Person.
"L/C Advance" means each Bank's participation in any L/C
Borrowing in accordance with its Pro Rata Share.
"L/C Amendment Application" means an application form for
amendment of outstanding standby letters of credit as shall at any time be in
use at the Issuing Bank, as the Issuing Bank may request.
"L/C Application" means an application form for issuances of
standby letters of credit as shall at any time be in use at the Issuing Bank,
as the Issuing Bank may request.
"L/C Borrowing" means an extension of credit resulting from a
drawing under any Letter of Credit which shall not have been reimbursed on the
date when made in accordance with Section 3.03(b) nor converted into a
Borrowing of Revolving Loans in accordance with subsection 3.03(c).
"L/C Commitment" means the commitment of the Issuing Bank to
Issue, and the commitment of the Banks severally to participate in, Letters of
Credit from time to time Issued or outstanding under Article III, in an
aggregate amount not to exceed on any date the amount of $25,000,000, as the
same shall be reduced as a result of a reduction in the L/C Commitment pursuant
to Section 2.05; provided that the L/C Commitment is a part of the combined
Commitments, rather than a separate, independent commitment, and, therefore, in
no event may at any time exceed the combined Commitments.
"L/C Obligations" means at any time the sum of (a) the
aggregate undrawn amount of all Letters of Credit then outstanding, plus (b)
the amount of all unreimbursed drawings under all Letters of Credit, including
all outstanding L/C Borrowings.
"L/C-Related Documents" means the Letters of Credit, the L/C
Applications, the L/C Amendment Applications and any other document relating to
any Letter of Credit, including any of the Issuing Bank's standard form
documents for letter of credit issuances.
"Lending Office" means, as to any Bank, the office or offices
of such Bank specified as its "Lending Office" or "Domestic Lending Office" or
"Offshore Lending Office", as the case may be, on Schedule 11.02, or such other
office or offices as such Bank may from time to time notify the Company and the
Agent.
"Letters of Credit" means any letters of credit Issued by the
Issuing Bank pursuant to Article III.
"LIBOR Rate" means, for any Interest Period, with respect to
LIBOR Rate Loans comprising part of the same Borrowing, the rate of interest
per annum determined by the Agent to be the rate of interest at which dollar
deposits in the approximate amount of the amount of the Loan to be made or
continued as, or converted into, a LIBOR Rate Loan by the Agent (in its
capacity as a Bank) or any Agent-Related Person and having a
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<PAGE> 17
maturity comparable to such Interest Period would be offered by BofA to major
banks in the London interbank market at their request at approximately 11:00
a.m. (London time) two Business Days prior to the commencement of such Interest
Period.
"LIBOR Rate Loan" means a Revolving Loan that bears interest
based on the LIBOR Rate.
"Lien" means any security interest, mortgage, deed of trust,
pledge, hypothecation, assignment, charge or deposit arrangement, encumbrance,
lien (statutory or other) or preferential arrangement of any kind or nature
whatsoever in respect of any property (including those created by, arising
under or evidenced by any conditional sale or other title retention agreement,
the interest of a lessor under a capital lease, any financing lease having
substantially the same economic effect as any of the foregoing, or the filing
of any financing statement naming the owner of the asset to which such lien
relates as debtor, under the Uniform Commercial Code or any comparable law) and
any contingent or other agreement to provide any of the foregoing, but not
including the interest of a lessor under an operating lease.
"Loan" means an extension of credit by a Bank to the Company
under Article II in the form of a Revolving Loan or a Swing Loan.
"Loan Documents" means this Agreement, the Notes, the
Guaranties, the Fee Letter, the L/C-Related Documents, and all other documents
delivered to the Agent or any Bank in connection herewith.
"Majority Banks" means at any time Banks then holding at least
66-2/3% of the then aggregate unpaid principal amount of the Loans, or, if no
such principal amount is then outstanding, Banks then having at least 66-2/3%
of the Commitments.
"Margin Stock" means "margin stock" as such term is defined in
Regulation G, T, U or X of the FRB.
"Material Adverse Effect" means (a) a material adverse change
in, or a material adverse effect upon, the operations, business, properties,
condition (financial or otherwise) of the Company and its Subsidiaries taken as
a whole; (b) a material impairment of the ability of the Company, the
Subsidiary Borrowers and the Subsidiary Guarantors, taken as a whole, to
perform under the Loan Documents and to avoid any Event of Default; or (c) a
material adverse effect upon the legality, validity, binding effect or
enforceability against the Company, the Subsidiary Borrowers and the Subsidiary
Guarantors of the Loan Documents, taken as a whole.
"Material Subsidiary" means a Subsidiary of the Company with
total assets with a book value equal to five percent (5%) or more of
Consolidated Total Assets.
"Maturity Date" means September 5, 2002.
"Moody's" means Moody's Investors Service, Inc.
"Multiemployer Plan" means a "multiemployer plan", within the
meaning of Section 4001(a)(3) of ERISA, to which the Company or any ERISA
Affiliate makes, is making, or is obligated to make contributions or, during
the preceding three calendar years, has made, or been obligated to make,
contributions.
"Non-Investment Grade" means a rating of BB+/Ba1 or lower.
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<PAGE> 18
"Non-Recourse Debt" means, with respect to any Person,
Indebtedness of such Person incurred after the date of this Agreement for the
purpose of financing the cost of acquiring or constructing assets after the
date of this Agreement, if the obligee has no recourse to such Person except as
to certain named or described assets acquired with the proceeds of such
Indebtedness, and Capital Leases entered into by a Person after the date of
this Agreement (with respect to property hereafter acquired) if there is no
recourse to such Person under such Capital Lease.
"Notes" means the Revolving Notes and the Swing Loan Notes.
"Notice of Borrowing" means a notice in substantially the form
of Exhibit A.
"Notice of Conversion/Continuation" means a notice in
substantially the form of Exhibit B.
"Obligations" of a Borrower means all advances, debts,
liabilities, obligations, covenants and duties arising under any Loan Document
owing by such Borrower to any Bank, the Agent, or any Indemnified Person,
whether direct or indirect (including those acquired by assignment), absolute
or contingent, due or to become due, now existing or hereafter arising. Unless
otherwise specified, "Obligations" shall refer to all of the Obligations of the
Company and the other Borrowers under the Loan Documents.
"Offshore Rate Loan" means an IBOR Rate Loan or a LIBOR Rate
Loan.
"Organization Documents" means, for any corporation, the
certificate or articles of incorporation, the bylaws, any certificate of
determination or instrument relating to the rights of preferred shareholders of
such corporation, any shareholder rights agreement, and all resolutions of the
board of directors (or any committee thereof) of such corporation applicable to
this Agreement or the transactions contemplated hereby.
"Other Taxes" means any present or future stamp, court or
documentary taxes or any other excise or property taxes, charges or similar
levies which arise from any payment made hereunder or from the execution,
delivery, performance, enforcement or registration of, or otherwise with
respect to, this Agreement or any other Loan Documents.
"Parent Guaranty" means the Guaranty substantially in the form
of Exhibit "H" hereto executed by the Company, in favor of the Agent and the
Banks, as the same may be amended, supplemented or otherwise modified from time
to time.
"Participant" has the meaning specified in subsection
11.08(d).
"PBGC" means the Pension Benefit Guaranty Corporation, or any
Governmental Authority succeeding to any of its principal functions under
ERISA.
"Pension Plan" means a pension plan (as defined in Section
3(2) of ERISA) subject to Title IV of ERISA which the Company or any Subsidiary
of the Company sponsors, maintains, or to which it makes, is making, or is
obligated to make contributions, or in the case of a multiple employer plan (as
described in Section 4064(a) of ERISA) has made contributions at any time
during the immediately preceding five (5) plan years.
"Permitted Liens" has the meaning specified in Section 8.01.
"Permitted Lines of Business" has the meaning set forth in
Section 8.10.
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<PAGE> 19
"Person" means an individual, partnership, corporation,
limited liability company, business trust, joint stock company, trust,
unincorporated association, joint venture or other entity or Governmental
Authority.
"Plan" means an employee benefit plan (as defined in Section
3(3) of ERISA) which the Company or any Subsidiary of the Company sponsors or
maintains or to which the Company or any Subsidiary of the Company makes, is
making, or is obligated to make contributions and includes any Pension Plan.
"Pricing Level" means Pricing Level I, II, III, IV, V or VI,
as applicable, as set forth in Schedule 2.02 attached hereto.
"Pro Rata Share" means, as to any Bank at any time, the
percentage equivalent (expressed as a decimal, rounded to the ninth decimal
place) at such time of such Bank's Commitment divided by the combined
Commitments of all Banks.
"Rating" means the rating assigned by the applicable Rating
Agency to senior unsecured (non-credit enhanced) long-term debt of the Company.
"Rating Agencies" means S&P and Moody's, respectively.
"Redeemable Preferred Stock" means preferred stock that has,
or is convertible into any security that has, mandatory redemption or
repurchase requirements (other than those exercisable solely at the option of
the issuer of said stock) on or prior to the Revolving Termination Date.
"Reportable Event" means, any of the events set forth in
Section 4043(c) of ERISA or the regulations thereunder, other than any such
event for which the 30-day notice requirement under ERISA has been waived in
regulations issued by the PBGC.
"Requirement of Law" means, as to any Person, any law
(statutory or common), treaty, rule or regulation or determination of an
arbitrator or of a Governmental Authority, in each case applicable to or
binding upon the Person or any of its property or to which the Person or any of
its property is subject.
"Responsible Officer" means the chief executive officer or the
president of the Company, or any other officer having substantially the same
authority and responsibility; or, with respect to compliance with financial
covenants, the Vice President of Finance or the treasurer of the Company, or
any other officer having substantially the same authority and responsibility.
"Revolving Loan" has the meaning specified in Section 2.01(a),
and may be a Base Rate Loan or a LIBOR Rate Loan.
"Revolving Note" means a promissory note in substantially the
form of Exhibit "F" hereto, duly executed and delivered to the Agent by a
Borrower and payable to the order of a Bank in the amount of such Bank's
Commitment, including any amendment, modification, renewal or replacement of
such promissory note.
"Revolving Termination Date" means the earlier to occur of:
(a) the Maturity Date; and
(b) the date on which the Commitments terminate
in accordance with the provisions of this Agreement.
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<PAGE> 20
"Risk Participation Fee" means the fee payable pursuant to
subsection 3.08(a) hereof, calculated in accordance with Section 2.02 of this
Agreement.
"S&P" means Standard & Poor's Corporation.
"SEC" means the Securities and Exchange Commission, or any
Governmental Authority succeeding to any of its principal functions.
"SPV" or "Special Purpose Vehicle" means any Person in which
the Company and/or one or more of its Subsidiaries has an equity interest that
is not a Borrower or a Guarantor and that is designated by the Company as an
SPV, provided, that the requirements of Section 8.17 are satisfied. The Company
may elect to treat any Subsidiary, including a consolidated Subsidiary, as an
SPV (provided such Subsidiary would otherwise qualify as such under Section
8.17), and thereafter such entity shall be considered an "SPV" for purposes of
this Agreement and shall no longer be considered a "Subsidiary" for purposes of
this Agreement. The Company may rescind any such prior election, by giving
written notice thereof to the Agent specifying the name of such SPV, and the
effective date of such election, which shall be a date within sixty (60) days
after the date such notice is given. The election to treat a particular Person
as an SPV may only be made once.
"Subsidiary" of a Person means any corporation, association,
partnership, limited liability company, Joint Venture or other business entity
(other than an SPV) of which more than 50% (or 50%, in the case of entities
that are consolidated for financial reporting purposes with the Company
pursuant to GAAP) of the voting stock, membership interests or other equity
interests (in the case of Persons other than corporations), is owned or
controlled directly or indirectly by the Person, or one or more of the
Subsidiaries of the Person, or a combination thereof. Unless the context
otherwise clearly requires, references herein to a "Subsidiary" refer to a
Subsidiary of the Company.
"Subsidiary Borrower" means each Subsidiary that has executed
and delivered this Agreement (including by means of execution and delivery of a
Subsidiary Borrower Counterpart) and has satisfied the requirements of Section
5.02 of this Agreement, and its permitted successors and assigns.
"Subsidiary Borrower Counterpart" means a counterpart in
substantially the form of Exhibit "J" hereto.
"Subsidiary Guaranties" means each of the Guaranties
substantially in the form of Exhibit "I" hereto executed by each of the
Subsidiary Guarantors, each in favor of the Agent and the Banks, as they may be
amended, supplemented or otherwise modified from time to time.
"Subsidiary Guarantors" means the Subsidiary Borrowers, each
of whom have executed a Subsidiary Guaranty, and any other Subsidiaries who
execute a Guaranty in favor of the Agent and the Banks, and "Subsidiary
Guarantor" means a single such Subsidiary Guarantor.
"Surety Instruments" means all letters of credit (including
standby and commercial), banker's acceptances, bank guaranties, shipside bonds,
surety bonds and similar instruments.
"Swap Contract" means any agreement, whether or not in
writing, relating to any transaction that is a rate swap, basis swap, forward
rate transaction, commodity swap, commodity option, equity or equity index swap
or option, bond, note or bill option,
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interest rate option, forward foreign exchange transaction, cap, collar or
floor transaction, currency swap, cross- currency rate swap, swaption, currency
option or any other, similar transaction (including any option to enter into
any of the foregoing) or any combination of the foregoing, and, unless the
context otherwise clearly requires, any master agreement relating to or
governing any or all of the foregoing.
"Swap Termination Value" means, in respect of any one or more
Swap Contracts, after taking into account the effect of any legally enforceable
netting agreement relating to such Swap Contracts, (a) for any date on or after
the date such Swap Contracts have been closed out and termination value(s)
determined in accordance therewith, such termination value(s), and (b) for any
date prior to the date referenced in clause (a) the amount(s) determined as the
mark-to-market value(s) for such Swap Contracts, as determined based upon one
or more mid-market or other readily available quotations provided by any
recognized dealer in such Swap Contracts (which may include any Bank).
"Swing Loan" has the meaning set forth in Section 2.01(b), and
may be a Base Rate Loan or an IBOR Rate Loan.
"Swing Loan Bank" means BofA, its successors and assigns.
"Swing Loan Commitment" means the commitment of the Swing Loan
Bank to make loans from time to time pursuant to subsection 2.01(b) in an
aggregate amount not to exceed on any date the amount of $10,000,000 (in
integral multiples of $500,000), as the same shall be reduced as a result of a
reduction in the Swing Loan Commitment pursuant to Section 2.05; provided that
the Swing Loan Commitment is a part of the combined Commitments, rather than a
separate, independent commitment, and, therefore, in no event may at any time
exceed the combined Commitments.
"Swing Loan Note" means a promissory note in substantially the
form of Exhibit "G" hereto, duly executed and delivered to the Agent by a
Borrower and payable to the order of the Swing Loan Bank in the amount of its
Swing Loan Commitment, including any amendment, modification, renewal or
replacement of such promissory note.
"Swing Loan Participation Certificate" means a participation
certificate substantially in the form of Exhibit "K".
"Taxes" means any and all present or future taxes, levies,
assessments, imposts, duties, deductions, fees, withholdings or similar
charges, and all liabilities with respect thereto, excluding, in the case of
each Bank and the Agent, respectively, taxes imposed on or measured by its net
income by the jurisdiction (or any political subdivision thereof) under the
laws of which such Bank or the Agent, as the case may be, is organized or
maintains a Lending Office.
"Type" means a Base Rate Loan, a LIBOR Rate Loan or an IBOR
Rate Loan.
"Unfunded Pension Liability" means the excess of a Plan's
benefit liabilities under Section 4001(a)(16) of ERISA, over the current value
of that Plan's assets, determined in accordance with the assumptions used for
funding the Pension Plan pursuant to Section 412 of the Code for the applicable
plan year.
"United States" and "U.S." each means the United States of
America.
"Wholly-Owned Subsidiary" means any corporation in which
(other than directors' qualifying shares required by law) 100% of the capital
stock of each class having ordinary voting power, and 100% of the capital stock
of every other class, in each
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<PAGE> 22
case, at the time as of which any determination is being made, is owned,
beneficially and of record, by the Company, or by one or more of the other
Wholly-Owned Subsidiaries, or both.
1.02 Other Interpretive Provisions. (a) The meanings of defined
terms are equally applicable to the singular and plural forms of the defined
terms.
(b) The words "hereof", "herein", "hereunder" and similar
words refer to this Agreement as a whole and not to any particular provision of
this Agreement; and subsection, Section, Schedule and Exhibit references are to
this Agreement unless otherwise specified.
(c) (i) The term "documents" includes any and all
instruments, documents, agreements, certificates, indentures, notices
and other writings, however evidenced.
(ii) The term "including" is not limiting and
means "including without limitation."
(iii) In the computation of periods of time from a
specified date to a later specified date, the word "from" means "from
and including"; the words "to" and "until" each mean "to but
excluding", and the word "through" means "to and including."
(d) Unless otherwise expressly provided herein, (i)
references to agreements (including this Agreement) and other contractual
instruments shall be deemed to include all subsequent amendments and other
modifications thereto, but only to the extent such amendments and other
modifications are not prohibited by the terms of any Loan Document, and (ii)
references to any statute or regulation are to be construed as including all
statutory and regulatory provisions consolidating, amending, replacing,
supplementing or interpreting the statute or regulation.
(e) The captions and headings of this Agreement are for
convenience of reference only and shall not affect the interpretation of this
Agreement.
(f) This Agreement and other Loan Documents may use
several different limitations, tests or measurements to regulate the same or
similar matters. All such limitations, tests and measurements are cumulative
and shall each be performed in accordance with their terms. Unless otherwise
expressly provided, any reference to any action of the Agent or the Banks by
way of consent, approval or waiver shall be deemed modified by the phrase "in
its/their sole discretion."
(g) This Agreement and the other Loan Documents are the
result of negotiations among and have been reviewed by counsel to the Agent,
the Company and the other parties, and are the products of all parties.
Accordingly, they shall not be construed against the Banks or the Agent merely
because of the Agent's or Banks' involvement in their preparation.
1.03 Accounting Principles. (a) Unless the context otherwise
clearly requires, all accounting terms not expressly defined herein shall be
construed, and all financial computations required under this Agreement shall
be made, in accordance with GAAP, consistently applied.
(b) References herein to "fiscal year" and "fiscal
quarter" refer to such fiscal periods of the Company.
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<PAGE> 23
ARTICLE II
THE CREDITS
2.01 Amounts and Terms of Commitments; Loan Accounts.
(a) The Revolving Credit. Each Bank severally agrees, on
the terms and conditions set forth herein, to make loans to the Borrowers (each
such loan, a "Revolving Loan") from time to time on any Business Day during the
period from the Closing Date to the Revolving Termination Date, in an aggregate
amount not to exceed at any time outstanding the amount set forth on Schedule
2.01 (such amount, as the same may be reduced under Section 2.05 or as a result
of one or more assignments under Section 11.08, the Bank's "Commitment");
provided, however, that, after giving effect to any Borrowing of Revolving
Loans, the Effective Amount of all outstanding Revolving Loans and Swing Loans,
together with the Effective Amount of all L/C Obligations, shall not at any
time exceed the combined Commitments; and provided further, that (i) the
Effective Amount of the Revolving Loans of any Bank, plus (ii) the aggregate
principal amount of such Bank's participation in the Swing Loans, plus (iii) if
such Bank is the Swing Loan Bank, the principal amount of Swing Loans in which
other Banks have not participated, plus (iv) the participation of such Bank in
the Effective Amount of all L/C Obligations, shall not at any time exceed such
Bank's Commitment. Within the limits of each Bank's Commitment, and subject to
the other terms and conditions hereof, the Borrowers may borrow under this
subsection 2.01(a), prepay under Section 2.06 and reborrow under this
subsection 2.01(a).
(b) Swing Loan Commitment. Subject to the terms and
conditions of this Agreement, the Swing Loan Bank agrees to make one or more
loans to the Borrowers (each such loan, a "Swing Loan") from time to time on
any Business Day during the period from the Closing Date to the Revolving
Termination Date, in an aggregate amount not to exceed the Swing Loan
Commitment; provided, however, that, after giving effect to any Borrowing of
Swing Loans, the Effective Amount of all outstanding Revolving Loans and all
outstanding Swing Loans, together with the Effective Amount of all L/C
Obligations, shall not at any time exceed the combined Commitments. Within the
limits of the Swing Loan Bank's Swing Loan Commitment, and subject to the other
terms and conditions hereof, the Borrowers may borrow Swing Loans under this
subsection 2.01(b), prepay Swing Loans under Section 2.06 and reborrow Swing
Loans under this subsection 2.01(b).
(c) Loan Accounts. The Loans made by each Bank and the
Letters of Credit Issued by the Issuing Bank shall be evidenced by one or more
accounts or records maintained by such Bank or Issuing Bank, as the case may
be, in the ordinary course of business. The accounts or records maintained by
the Agent, the Issuing Bank and each Bank shall be conclusive absent manifest
error of the amount of the Loans made by the Banks to each Borrower and the
Letters of Credit Issued hereunder, and the interest and payments thereon. Any
failure so to record or any error in doing so shall not, however, limit or
otherwise affect the obligation of any Borrower hereunder to pay any amount
owing by such Borrower with respect to the Loans made to such Borrower or any
Letter of Credit issued for the account of such Borrower.
(d) Notes. Upon the request of any Bank made through the
Agent, the Revolving Loans made by such Bank may be evidenced by one or more
Revolving Notes, instead of or in addition to loan accounts, and upon the
request of the Swing Loan Bank made through the Agent, the Swing Loans may be
evidenced by one or more Swing Notes, instead of or in addition to loan
accounts. Each Bank may endorse on the schedules annexed to its Note(s) the
date, amount and maturity of each Loan made by it and the amount of each
payment of principal made by or on behalf of the relevant Borrower with
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<PAGE> 24
respect thereto. Each such Bank is irrevocably authorized by the Borrowers to
endorse its Note(s) and each Bank's record shall be conclusive absent manifest
error; provided, however, that the failure of a Bank to make, or an error in
making, a notation thereon with respect to any Loan shall not limit or
otherwise affect the obligations of the Borrowers hereunder or under any such
Note to such Bank.
2.02 Certain Pricing Terms. The Applicable Margin, Commitment Fee
and Risk Participation Fee applicable under this Agreement at any time shall be
calculated as the respective number of Basis Points per annum specified in
Schedule 2.02 attached hereto in the column identified by the Pricing Level
corresponding to the then applicable Rating assigned by the Rating Agencies;
provided, however, that (a) if different Ratings are assigned by S&P and
Moody's and both ratings are Investment Grade or both ratings are
Non-Investment Grade, then the higher of the two Ratings shall control, and (b)
if different Ratings are assigned by S&P and Moody's and one Rating is
Investment Grade and one Rating is Non-Investment Grade, then the lower of the
two Ratings shall control. If any Rating established by any of the Rating
Agencies shall be changed, such change shall be effective for purposes of the
determination of the Applicable Margin, Commitment Fee and Risk Participation
Fee hereunder, respectively, as of the date on which it is first announced by
the applicable Rating Agency; provided, however, that the Agent shall not be
deemed to have notice of any change in any Rating unless it receives notice
thereof from the Company or any Bank, together with a copy of the announcement
from the applicable Rating Agency. The Company shall give written notice to the
Agent and the Banks of any Ratings issued by the Rating Agencies, and of any
changes to such Ratings, within three (3) Business Days thereof.
2.03 Procedure for Borrowing.
(a) Notice of Borrowing.
(i) Revolving Loans. Each Borrowing of Revolving
Loans shall be made upon the irrevocable written notice by any
Borrower delivered to the Agent in the form of a Notice of Borrowing,
which notice must be received by the Agent prior to (x) 11:30 a.m.
(Houston time) three (3) Business Days prior to the requested
Borrowing Date, in the case of LIBOR Rate Loans, and (y) 1:00 p.m.
(Houston time) one Business Day prior to the requested Borrowing Date,
in the case of Base Rate Loans, specifying: (A) the name of the
Borrower; (B) the amount of the Borrowing, which shall be in an
aggregate minimum amount of $1,000,000 or any multiple of $1,000,000
in excess thereof; (C) the requested Borrowing Date, which shall be a
Business Day; (D) the Type of Loans comprising the Borrowing; and (E)
the duration of the Interest Period applicable to any LIBOR Rate Loans
included in such notice. If the Notice of Borrowing fails to specify
the duration of the Interest Period for any Borrowing comprised of
LIBOR Rate Loans, such Interest Period shall be one month.
(ii) Swing Loans. Each Borrowing of Swing Loans
shall be made upon the irrevocable written notice by any Borrower
delivered to the Agent (with a copy to the Swing Loan Bank) in the
form of a Notice of Borrowing, which notice must be received by the
Agent and the Swing Loan Bank at or prior to (x) 11:30 a.m. (Houston
time) on the requested Borrowing Date, in the case of IBOR Rate Loans,
and (y) 2:00 p.m. (Houston time) on the requested Borrowing Date, in
the case of Base Rate Loans, specifying: (A) the name of the Borrower;
(B) the amount of the Borrowing, which shall be in an aggregate
minimum amount of $500,000 or any integral multiple of $500,000 in
excess thereof; (C) the requested Borrowing Date, which shall be a
Business Day; (D) the Type of Loans
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<PAGE> 25
comprising the Borrowing; and (E) the duration of the Interest Period
applicable to any IBOR Rate Loans included in such notice. If the
Notice of Borrowing fails to specify the duration of the Interest
Period for any Borrowing, such Interest Period shall be one day.
(b) Funding Mechanics.
(i) Revolving Loans. (A) The Agent will promptly
notify each Bank of its receipt of any Notice of Borrowing of
Revolving Loans and of the amount of such Bank's Pro Rata Share of
that Borrowing (in the case of Base Rate Loans, if a Borrower gives a
Notice of Borrowing on a Business Day by the time required by clause
(y) of subsection 2.03(a)(i), the Agent shall give notice pursuant to
this subsection by 4:00 p.m. Houston, Texas time on the same Business
Day) and (B) each Bank will make the amount of its Pro Rata Share of
each Borrowing of Revolving Loans available to the Agent for the
account of the applicable Borrower, at the Agent's Payment Office by
1:00 p.m. (Houston time) on the Borrowing Date requested in the Notice
of Borrowing in funds immediately available to the Agent. The proceeds
of all such Loans will then be made available by the Agent to the
Borrower specified in the Notice of Borrowing by the Agent's
initiating a wire transfer on the Borrowing Date to any Bank located
in the United States in accordance with written instructions provided
to the Agent by such Borrower.
(ii) Swing Loans. The Swing Loan Bank will make
available proceeds of Swing Loans to the applicable Borrower by
initiating a wire transfer on the Borrowing Date to any Bank located
in the United States in accordance with written instructions provided
by such Borrower.
(c) Interest Rate Periods. After giving effect to any
Borrowing, there may not be more than 6 different Interest Periods in effect.
2.04 Conversion and Continuation Elections Regarding Loans. (a) Any
Borrower may, upon irrevocable written notice to the Agent in accordance with
subsection 2.04(b):
(i) elect, as of any Business Day, in the case of
Base Rate Loans, or as of the last day of the applicable Interest
Period, in the case of LIBOR Rate Loans, to convert any such Loans (or
any part thereof in an amount not less than $1,000,000, or that is in
an integral multiple of $1,000,000 in excess thereof) into Revolving
Loans of the other Type; or
(ii) elect as of the last day of the applicable
Interest Period, to continue any Revolving Loans having Interest
Periods expiring on such day (or any part thereof in an amount not
less than $1,000,000, or that is in an integral multiple of $1,000,000
in excess thereof);
provided, that if at any time the aggregate amount of LIBOR Rate Loans in
respect of any Borrowing is reduced, by payment, prepayment, or conversion of
part thereof to be less than $1,000,000, such LIBOR Rate Loans shall
automatically convert into Base Rate Loans, and on and after such date the
right of the Company to continue such Loans as, and convert such Loans into,
LIBOR Rate Loans shall terminate.
(b) A Borrower shall deliver a Notice of
Conversion/Continuation to be received by the Agent not later than 11:30 a.m.
(Houston time) (i) three Business Days in advance of the
Conversion/Continuation Date, if the Loans are to be converted into or
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continued as LIBOR Rate Loans; and (ii) on the Conversion/Continuation Date, if
the applicable Revolving Loans are to be converted into Base Rate Loans,
specifying:
(A) the proposed Conversion/Continuation Date;
(B) the aggregate amount of Loans to be converted
or continued;
(C) the Type of Loans resulting from the proposed
conversion or continuation; and
(D) other than in the case of conversions into
Base Rate Loans, the duration of the requested Interest
Period.
(c) If upon the expiration of any Interest Period
applicable to LIBOR Rate Loans, a Borrower has failed to select timely a new
Interest Period to be applicable to such LIBOR Rate Loans, or if any Default or
Event of Default then exists, such Borrower shall be deemed to have elected to
convert such LIBOR Rate Loans into Base Rate Loans effective as of the
expiration date of such Interest Period.
(d) The Agent will promptly notify each Bank of its
receipt of a Notice of Conversion/Continuation, or, if no timely notice is
provided by any Borrower, the Agent will promptly notify each Bank of the
details of any automatic conversion. All conversions and continuations shall be
made ratably according to the respective outstanding principal amounts of the
Loans with respect to which the notice was given held by each Bank.
(e) Unless the Majority Banks otherwise consent, during
the existence of a Default or Event of Default, no Borrower may elect to have a
Loan converted into or continued as a LIBOR Rate Loan.
(f) After giving effect to any conversion or continuation
of Loans, there may not be more than 6 different Interest Periods in effect.
(g) No Swing Loan of any Type may be converted to a Loan
of another Type.
2.05 Voluntary Termination or Reduction of Commitments. The
Borrowers may, upon not less than five Business Days' prior notice to the
Agent, terminate the Commitments, or permanently reduce the Commitments by an
aggregate minimum amount of $5,000,000 or any integral multiple of $1,000,000
in excess thereof; unless, after giving effect thereto and to any prepayments
of Loans made on the effective date thereof, (a) the Effective Amount of all
Revolving Loans, Swing Loans and L/C Obligations together would exceed the
amount of the combined Commitments then in effect, or (b) the Effective Amount
of all L/C Obligations then outstanding would exceed the L/C Commitment or (c)
the Effective Amount of all Swing Loans would exceed the Swing Loan Commitment.
Once reduced in accordance with this Section, the Commitments may not be
increased. Any reduction of the Commitments shall be applied to each Bank
according to its Pro Rata Share. If and to the extent specified by the
Borrowers in the notice to the Agent, some or all of the reduction in the
combined Commitments shall be applied to reduce the Swing Loan Commitment
and/or the L/C Commitment (which in no event may exceed in either case the
combined Commitments). All accrued Commitment Fees to, but not including, the
effective date of any reduction or termination of Commitments, shall be paid on
the effective date of such reduction or termination.
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<PAGE> 27
2.06 Optional Prepayments. Subject to Section 4.04, each Borrower
may, at any time or from time to time, on any Business Day, upon irrevocable
notice given not later than 11:30 a.m. (Houston time) such day to the Agent, in
the case of Base Rate Loans, and three Business Days' irrevocable notice to the
Agent, in the case of LIBOR Rate Loans, ratably prepay Revolving Loans in whole
or in part, in minimum amounts of $1,000,000 or any multiple of $1,000,000 in
excess thereof. Such notice of prepayment shall specify the date and amount of
such prepayment and the Type(s) of Loans to be prepaid. The Agent will promptly
notify each Bank of its receipt of any such notice, and of such Bank's Pro Rata
Share of such prepayment. If such notice is given by a Borrower, such Borrower
shall make such prepayment and the payment amount specified in such notice
shall be due and payable on the date specified therein, together with accrued
interest to each such date on the amount prepaid and any amounts required
pursuant to Section 4.04.
2.07 Mandatory Prepayments of Loans. If on any date the Effective
Amount of L/C Obligations exceeds the L/C Commitment, the Company shall Cash
Collateralize on such date the Obligations in an amount equal to the excess of
the maximum amount then available to be drawn under the Letters of Credit over
the aggregate L/C Commitment. Subject to Section 4.04, if on any date after
giving effect to any Cash Collateralization made on such date pursuant to the
preceding sentence, the Effective Amount of all Revolving Loans and Swing Loans
then outstanding plus the Effective Amount of all L/C Obligations exceeds the
combined Commitments, each Borrower shall immediately, and without notice or
demand, prepay the outstanding principal amount of the Revolving Loans, Swing
Loans and L/C Advances by an aggregate amount equal to such excess.
2.08 Repayment.
(a) The Revolving Credit. Each Borrower shall repay to
the Banks on the Maturity Date the aggregate principal amount of Revolving
Loans made to such Borrower outstanding on such date.
(b) Swing Loans. Each Borrower shall repay to the Swing
Loan Bank each Swing Loan made to such Borrower, (i) on the last day of the
applicable Interest Period, in the case of any Swing Loan which is an IBOR Rate
Loan, and (ii) no later than the earlier of (A) the seventh (7th) day after the
date such Swing Loan is made and (B) the Maturity Date, in the case of any
Swing Loan which is a Base Rate Loan.
2.09 Interest. (a) Each Revolving Loan and Swing Loan shall bear
interest on the outstanding principal amount thereof from the applicable
Borrowing Date at a rate per annum equal to the LIBOR Rate, the IBOR Rate or
the Base Rate, as the case may be (and subject to the Borrower's right to
convert to other Types of Loans under Section 2.04), plus the Applicable
Margin.
(b) Interest on each Revolving Loan and Swing Loan shall
be paid in arrears on each Interest Payment Date. Interest shall also be paid
on the date of any prepayment of Loans under Section 2.06 or 2.07 for the
portion of the Loans so prepaid and upon payment (including prepayment) in full
thereof and, during the existence of any Event of Default, interest shall be
paid on demand of the Agent at the request or with the consent of the Majority
Banks.
(c) Notwithstanding subsection (a) of this Section, while
any Event of Default exists or after acceleration of all or any portion of the
Loans, each Borrower shall pay interest (after as well as before entry of
judgment thereon to the extent permitted by law) on the principal amount of all
outstanding Obligations of such Borrower at a rate per annum equal to the Base
Rate plus 2% (the "Default Rate").
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(d) Anything herein to the contrary notwithstanding, the
obligations of the Borrowers to any Bank hereunder shall be subject to the
limitation that payments of interest shall not be required for any period for
which interest is computed hereunder to the extent (but only to the extent)
that contracting for, charging or receiving such payment by such Bank would be
contrary to the provisions of any law applicable to such Bank limiting the
highest nonusurious rate of interest that may be contracted for, charged or
received by such Bank, and in such event the Borrowers shall pay such Bank
interest at the highest nonusurious rate permitted by applicable law.
2.10 Fees. In addition to certain fees described in Section 3.08:
(a) Arrangement, Agency Fees. The Company shall pay an
arrangement fee to the Arranger for the Arranger's own account, and shall pay
an agency fee to the Agent for the Agent's own account, as required by the
letter agreement ("Fee Letter") between the Company and the Arranger and Agent
dated July 1, 1997.
(b) Commitment Fees. The Borrowers, jointly and
severally, shall pay to the Agent for the account of each Bank a commitment fee
(the "Commitment Fee") on the average daily unused portion of such Bank's
Commitment, computed on a quarterly basis in arrears on the last Business Day
of each calendar quarter, as calculated by the Agent, equal to the rate per
annum determined in accordance with the provisions of Section 2.02 of this
Agreement. For purposes of calculating utilization under this subsection, the
Commitments shall be deemed used to the extent of the Effective Amount of
Revolving Loans and Swing Loans then outstanding, plus the Effective Amount of
L/C Obligations then outstanding. Such commitment fee shall accrue from the
date of this Agreement to the Maturity Date and shall be due and payable
quarterly in arrears on the last Business Day of each calendar quarter,
commencing on September 30, 1997, through the Maturity Date, with the final
payment to be made on the Maturity Date; provided that, in connection with any
reduction or termination of Commitments under Section 2.05, the accrued
Commitment Fee calculated for the period ending on such date shall also be paid
on the date of such reduction or termination, with the following quarterly
payment being calculated on the basis of the period from such reduction or
termination date to such quarterly payment date. The Commitment Fee provided in
this subsection shall accrue at all times after the above-mentioned
commencement date, including at any time during which one or more conditions in
Article V are not met.
2.11 Computation of Fees and Interest. (a) All computations of
interest for Base Rate Loans when the Base Rate is determined by BofA's
"reference rate", and computation of the Commitment Fee, the Risk Participation
Fee and the Fronting Fee, shall be made on the basis of a year of 365 or 366
days, as the case may be, and actual days elapsed. All other computations of
interest shall be made on the basis of a 360-day year and actual days elapsed
(which results in more interest being paid than if computed on the basis of a
365-day year). Interest and fees shall accrue during each period during which
interest or such fees are computed from the first day thereof to the last day
thereof.
(b) Each determination of an interest rate by the Agent
shall be conclusive and binding on the Borrowers and the Banks in the absence
of manifest error.
2.12 Payments by the Borrowers. (a) All payments to be made by the
Borrowers shall be made without set-off, recoupment or counterclaim. Except as
otherwise expressly provided herein, all payments by the Borrowers shall be
made to the Agent for the account of the Banks at the Agent's Payment Office,
and shall be made in dollars and in immediately available funds. The Company or
the applicable Borrower shall make such payment by initiating a wire transfer
to the Agent no later than 11:30 a.m. (Houston time) on the date such payment
is due pursuant to the terms hereof. The Agent will promptly distribute to each
Bank its Pro Rata Share (or other applicable share as expressly provided
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<PAGE> 29
herein) of such payment in like funds as received. If the Company initiates a
wire transfer after 11:30 a.m. (Houston time) to make a payment, such payment
shall be deemed to have been received on the following Business Day and any
applicable interest or fee shall continue to accrue. If the Agent receives any
such payment by 2:00 p.m. (Houston time) on a Business Day and fails to send to
any Bank its portion of such payment by the close of business on such day, the
Agent shall pay to such Bank interest on its portion of such payment from such
day until the date such Bank's portion of such payment is sent to such Bank, at
the Federal Funds Rate. If the Agent receives any such payment after 2:00 p.m.
(Houston time) and the Agent fails to send to any Bank its portion of such
payment by the close of business on the following day, the Agent shall pay to
such Bank interest on its portion of such payment from such following day until
the date such Bank's portion of such payment is sent to such Bank, at the
Federal Funds Rate.
(b) Subject to the provisions set forth in the definition
of "Interest Period" herein, whenever any payment is due on a day other than a
Business Day, such payment shall be made on the following Business Day, and
such extension of time shall in such case be included in the computation of
interest or fees, as the case may be.
(c) Unless the Agent receives notice from a Borrower
prior to the date on which any payment is due to the Banks that such Borrower
will not make such payment in full as and when required, the Agent may assume
that such Borrower has made such payment in full to the Agent on such date in
immediately available funds and the Agent may (but shall not be so required),
in reliance upon such assumption, distribute to each Bank on such due date an
amount equal to the amount then due such Bank. If and to the extent a Borrower
has not made such payment in full to the Agent, each Bank shall repay to the
Agent on demand such amount distributed to such Bank, together with interest
thereon at the Federal Funds Rate for each day from the date such amount is
distributed to such Bank until the date repaid.
2.13 Payments by the Banks to the Agent. (a) Unless the Agent
receives notice from a Bank on or prior to the Closing Date or, with respect to
any Borrowing after the Closing Date, at least one Business Day prior to the
date of such Borrowing, that such Bank will not make available as and when
required hereunder to the Agent for the account of a Borrower the amount of
that Bank's Pro Rata Share of the Borrowing, the Agent may assume that each
Bank has made such amount available to the Agent in immediately available funds
on the Borrowing Date and the Agent may (but shall not be so required), in
reliance upon such assumption, make available to the applicable Borrower on
such date a corresponding amount. If and to the extent any Bank shall not have
made its full amount available to the Agent in immediately available funds and
the Agent in such circumstances has made available to the applicable Borrower
such amount, that Bank shall on the Business Day following such Borrowing Date
make such amount available to the Agent, together with interest at the Federal
Funds Rate for each day during such period. A notice of the Agent submitted to
any Bank with respect to amounts owing under this subsection (a) shall be
conclusive, absent manifest error. If such amount is so made available, such
payment to the Agent shall constitute such Bank's Loan on the date of Borrowing
for all purposes of this Agreement. If such amount is not made available to
the Agent on the Business Day following the Borrowing Date, the Agent will
notify the applicable Borrower of such failure to fund and, upon demand by the
Agent, the applicable Borrower shall pay such amount to the Agent for the
Agent's account, together with interest thereon for each day elapsed since the
date of such Borrowing, at a rate per annum equal to the interest rate
applicable at the time to the Loans comprising such Borrowing.
(b) The failure of any Bank to make any Loan on any
Borrowing Date shall not relieve any other Bank of any obligation hereunder to
make a Loan on such Borrowing Date, but no Bank shall be responsible for the
failure of any other Bank to make the Loan to be made by such other Bank on any
Borrowing Date.
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2.14 Sharing of Payments, Etc. If, other than as expressly provided
elsewhere herein, any Bank (or any Participant pursuant to subsection 11.08(d))
shall obtain on account of the Loans made by it any payment (whether voluntary,
involuntary, through the exercise of any right of set-off, or otherwise) in
excess of its Pro Rata Share, such Bank shall immediately (a) notify the Agent
of such fact, and (b) purchase from the other Banks such participations in the
Loans made by them as shall be necessary to cause such purchasing Bank to share
the excess payment pro rata with each of them; provided, however, that if all
or any portion of such excess payment is thereafter recovered from the
purchasing Bank, such purchase shall to that extent be rescinded and each other
Bank shall repay to the purchasing Bank the purchase price paid therefor,
together with an amount equal to such paying Bank's ratable share (according to
the proportion of (i) the amount of such paying Bank's required repayment to
(ii) the total amount so recovered from the purchasing Bank) of any interest or
other amount paid or payable by the purchasing Bank in respect of the total
amount so recovered. The Borrowers agree that any Bank so purchasing a
participation from another Bank may, to the fullest extent permitted by law,
exercise all its rights of payment (including the right of set-off, but subject
to Section 11.10) with respect to such participation as fully as if such Bank
were the direct creditor of the Company in the amount of such participation.
The Agent will keep records (which shall be conclusive and binding in the
absence of manifest error) of participations purchased under this Section and
will in each case notify the Banks following any such purchases or repayments.
2.15 Special Provisions for Swing Loans.
(a) Banks to Make Revolving Loans.
(i) The Swing Loan Bank, at any time in its
discretion after the occurrence of a Default or an Event of Default or
in order to repay Swing Loans that are to be repaid pursuant to
Section 2.08(b)(ii), upon written request to the Banks through the
Agent (with a copy to the applicable Borrower), may require each Bank
(including the Swing Loan Bank) to make a Revolving Loan, subject to
the provisions of subsection 2.01(a) hereof, in an amount equal to
such Bank's Pro Rata Share of any outstanding Swing Loan that is a
Base Rate Loan. The Swing Loan Bank shall deliver such request to the
Agent prior to 2:00 p.m. (Houston time) on the Business Day next
preceding the date (which shall be a Business Day) on which such
Revolving Loans are to be made. Promptly upon receipt of any such
request, the Agent shall give notice thereof to the Banks. The Agent
shall apply the proceeds of such Revolving Loans to repay the Swing
Loans of the Swing Loan Bank; provided, however, that the Agent shall
be obligated to make the proceeds of such Revolving Loans available
only to the extent received by it from the Banks. All Revolving Loans
made pursuant to this subsection 2.15(a) shall be Base Rate Loans.
(ii) In the event the Agent advances proceeds of
any Revolving Loan to the Swing Loan Bank and one or more of the Banks
(other than the Swing Loan Bank) fail to fund all or any portion of
such Revolving Loan immediately upon receipt of notice from the Agent,
then (A) such Bank shall pay directly to Agent the amount thereof
together with interest thereon (1) at the Federal Funds Rate, if
payment is received by the Agent on or before the third Business Day
following the date when due, and (2) at the Default Rate, if payment
is received after such third Business Day, and (B) if not paid by such
Bank, the Swing Loan Bank will repay directly to the Agent such amount
as will equal the amount such other Bank(s) failed to fund, together
with interest at a rate equal to the weighted average of the
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rates on Federal Funds transactions with members of the Federal
Reserve System arranged by Federal Funds brokers, as published by the
Federal Reserve Bank of New York (in Weekly Release 11.15) for the day
on which such Bank shall fail to make such payments, or, if such rate
is not so published for any such day, the average of the quotations
for such day on such transactions received by the Agent from three
Federal Funds brokers of recognized standing selected by the Agent,
whereupon the Swing Loans will be reinstated pro rata.
(b) Participations in Swing Loans.
(i) After the occurrence of a Default or an Event
of Default, the Swing Loan Bank may require each Bank to purchase,
subject to subsection 2.01(a) hereof, an undivided participation in
all outstanding Swing Loans, and at any time after the date that a
Swing Loan is required to be repaid pursuant to Section 2.08(b)(ii),
if such Swing Loan is not repaid on such date, the Swing Loan Bank may
require each Bank to purchase an undivided participation in such Swing
Loan. Each Bank, promptly upon such request by the Swing Loan Bank
delivered to the Agent, shall purchase an undivided participation
interest in all such Swing Loans in an amount equal to its Pro Rata
Share times the outstanding amount of such Swing Loans. Each Bank
(other than the Swing Loan Bank) will transfer immediately to the
Swing Loan Bank, in immediately available funds, the amount of its
participation and, upon receipt thereof, the Swing Loan Bank will
deliver to such other Bank a Swing Loan Participation Certificate,
dated the date of receipt of such funds and in the amount of such
Bank's participation.
(ii) Whenever, at any time after the Swing Loan
Bank has received from any other Bank such other Bank's participating
interest in a Swing Loan, the Swing Loan Bank receives any payment on
account thereof, the Swing Loan Bank will distribute to such other
Bank its participating interest in such amount (appropriately
adjusted, in the case of interest payments, to reflect the period of
time during which such Bank's participating interest was outstanding
and funded); provided, however, that in the event that any payment
received by the Swing Loan Bank is required to be returned, such other
Bank will return to the Swing Loan Bank any portion thereof previously
distributed to it.
(c) Acknowledged Privity. The Company expressly agrees
that, in respect of each Bank's funded participation interest in any Swing
Loan, such Bank shall be deemed to be in privity of contract with the
applicable Borrower and have the same rights and remedies against the
applicable Borrower under the Loan Documents as if such funded participation
interest in such Swing Loan were a Revolving Loan.
(d) Unconditional Obligation. Each Bank's obligation to
make the Revolving Loans or to purchase participation interests in the Swing
Loans as provided in this Section 2.15 shall be absolute and unconditional and
shall not be affected by any circumstance, including without limitation, (i)
any set-off, counterclaim, recoupment, defense or other right which such Bank
may have against the Swing Loan Bank, any Borrower or any other Person for any
reason whatsoever, (ii) the existence of any Default or Event of Default at any
time, (iii) the occurrence of any event or existence of any condition that
might have a Material Adverse Effect, or (iv) any other circumstance, happening
or event whatsoever, whether or not similar to any of the foregoing.
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ARTICLE III
THE LETTERS OF CREDIT
3.01 The Letter of Credit Subfacility. (a) On the terms and
conditions set forth herein (i) the Issuing Bank agrees, (A) from time to time
on any Business Day during the period from the Closing Date to the Maturity
Date to issue Letters of Credit for the account of any Borrower, and to amend
or renew Letters of Credit previously issued by it, in accordance with
subsections 3.02(c) and 3.02(d), and (B) to honor drafts under the Letters of
Credit; and (ii) the Banks severally agree to participate in Letters of Credit
Issued for the account of any Borrower; provided, that the Issuing Bank shall
not be obligated to Issue, and no Bank shall be obligated to participate in,
any Letter of Credit if as of the date of Issuance of such Letter of Credit
(the "Issuance Date"), and giving effect thereto (1) the Effective Amount of
all L/C Obligations plus the Effective Amount of all Revolving Loans and all
Swing Loans would exceed the combined Commitments, (2) the participation of any
Bank in the Effective Amount of all L/C Obligation, plus the Effective Amount
of the Revolving Loans of such Bank, plus (x) the aggregate principal amount of
such Bank's participation in Swing Loans and (y) if such Bank is the Swing Loan
Bank, the principal amount of all Swing Loans in which other Banks have not
participated, exceeds such Bank's Commitment, or (3) the Effective Amount of
L/C Obligations exceeds the L/C Commitment. Within the foregoing limits, and
subject to the other terms and conditions hereof, the Borrowers' ability to
obtain Letters of Credit shall be fully revolving, and, accordingly, any
Borrower may, during the foregoing period, obtain Letters of Credit to replace
Letters of Credit which have expired or which have been drawn upon and
reimbursed.
(b) Each Letter of Credit shall have an expiry date that
is not later than the Maturity Date, unless all of the Banks approve in writing
a later expiry date (provided, however, that this sentence shall not be deemed
to prohibit the issuance of a Letter of Credit of the type described in Section
3.02(d)). The Issuing Bank is under no obligation to Issue any Letter of Credit
if:
(i) any order, judgment or decree of any
Governmental Authority or arbitrator shall by its terms purport to
enjoin or restrain the Issuing Bank from Issuing such Letter of
Credit, or any Requirement of Law applicable to the Issuing Bank or
any request or directive (whether or not having the force of law) from
any Governmental Authority with jurisdiction over the Issuing Bank
shall prohibit, or request that the Issuing Bank refrain from, the
Issuance of letters of credit generally or such Letter of Credit in
particular or shall impose upon the Issuing Bank with respect to such
Letter of Credit any restriction, reserve or capital requirement (for
which the Issuing Bank is not otherwise compensated hereunder) not in
effect on the Closing Date, or shall impose upon the Issuing Bank any
unreimbursed loss, cost or expense which was not applicable on the
Closing Date and which the Issuing Bank in good faith deems material
to it;
(ii) the Issuing Bank has received written notice
from any Bank, the Agent or any Borrower, on or prior to the Business
Day prior to the requested date of Issuance of such Letter of Credit,
that one or more of the applicable conditions contained in Article V
is not then satisfied;
(iii) the expiry date of any requested Letter of
Credit is prior to the maturity date of any financial obligation to be
supported by the requested Letter of Credit (this limitation is not
intended to apply to Letters
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of Credit supporting performance or bid bonds or other non-payment
performance obligations of a Borrower);
(iv) any requested Letter of Credit does not
provide for drafts, or is not otherwise in form and substance
acceptable to the Issuing Bank, or the Issuance of a Letter of Credit
shall violate any applicable policies of the Issuing Bank; or
(v) any standby Letter of Credit is for the
purpose of supporting the issuance of any letter of credit by any
other Person.
3.02 Issuance, Amendment and Renewal of Letters of Credit. (a) Each
Letter of Credit shall be issued upon the irrevocable written request of a
Borrower received by the Issuing Bank (with a copy sent by such Borrower to the
Agent) at least three days (or such shorter time as the Issuing Bank may agree
in a particular instance in its sole discretion) prior to the proposed date of
issuance. Each such request for issuance of a Letter of Credit shall be by
facsimile, confirmed immediately in an original writing, in the form of an L/C
Application, and shall specify in form and detail satisfactory to the Issuing
Bank: (i) the proposed date of issuance of the Letter of Credit (which shall be
a Business Day); (ii) the face amount of the Letter of Credit; (iii) the expiry
date of the Letter of Credit; (iv) the name and address of the beneficiary
thereof; (v) the documents, if any, to be presented by the beneficiary of the
Letter of Credit in case of any drawing thereunder; (vi) the full text of any
certificate to be presented by the beneficiary in case of any drawing
thereunder; and (vii) such other matters as the Issuing Bank may require. Each
Letter of Credit (x) will be for the account of the requesting Borrower, (y)
will be a nontransferable standby letter of credit and (z) will contain such
terms and provisions as may be customarily required by the Issuing Bank.
(b) At least two Business Days prior to the Issuance of
any Letter of Credit, the Issuing Bank will confirm with the Agent (by
telephone or in writing) that the Agent has received a copy of the L/C
Application or L/C Amendment Application from a Borrower and, if not, the
Issuing Bank will provide the Agent with a copy thereof. Unless the Issuing
Bank has received notice on or before the Business Day immediately preceding
the date the Issuing Bank is to issue a requested Letter of Credit from the
Agent (A) directing the Issuing Bank not to issue such Letter of Credit because
such issuance is not then permitted under subsection 3.01(a) as a result of the
limitations set forth in clauses (1) through (3) thereof or subsection
3.01(b)(ii); or (B) that one or more conditions specified in Article V are not
then satisfied or waived; then, subject to the terms and conditions hereof, the
Issuing Bank shall, on the requested date, issue a Letter of Credit for the
account of such Borrower in accordance with the Issuing Bank's usual and
customary business practices.
(c) From time to time while a Letter of Credit is
outstanding and prior to the Maturity Date, the Issuing Bank will, upon the
written request of a Borrower received by the Issuing Bank (with a copy sent by
such Borrower to the Agent) at least three days (or such shorter time as the
Issuing Bank may agree in a particular instance in its sole discretion) prior
to the proposed date of amendment, amend any Letter of Credit issued by it.
Each such request for amendment of a Letter of Credit shall be made by
facsimile, confirmed immediately in an original writing, made in the form of an
L/C Amendment Application and shall specify in form and detail satisfactory to
the Issuing Bank: (i) the Letter of Credit to be amended; (ii) the proposed
date of amendment of the Letter of Credit (which shall be a Business Day);
(iii) the nature of the proposed amendment; and (iv) such other matters as the
Issuing Bank may require. The Issuing Bank shall be under no obligation to
amend any Letter of Credit if: (A) the Issuing Bank would have no obligation at
such time to issue such Letter of Credit in its amended form under the terms of
this Agreement; or (B) the beneficiary of any such Letter of Credit does not
accept the
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proposed amendment to the Letter of Credit. Upon receipt of notice from the
Issuing Bank, the Agent will promptly notify the Banks of the Issuance of a
Letter of Credit and any amendment thereto.
(d) If any outstanding Letter of Credit shall provide
that it shall be automatically renewed unless the beneficiary thereof receives
notice from the Issuing Bank that such Letter of Credit shall not be renewed,
the Issuing Bank shall be permitted to allow such Letter of Credit to renew,
subject to subsection 3.02(e) hereof. The Borrowers and the Banks hereby
authorize such renewal. The Issuing Bank shall not be obligated to allow such
Letter of Credit to renew if the Issuing Bank would have no obligation at such
time to issue or amend such Letter of Credit under the terms of this Agreement.
(e) The Issuing Bank will deliver such notices of
termination or other communications to any Letter of Credit beneficiary or
transferee, and take any other action as necessary or appropriate, as may be
permissible pursuant to the terms of the applicable Letter of Credit, in order
to cause the expiry date of any Letter of Credit to be a date not later than
the Maturity Date.
(f) This Agreement shall control in the event of any
conflict with any L/C-Related Document (other than any Letter of Credit).
(g) The Issuing Bank will also deliver to the Agent,
concurrently or promptly following its delivery of a Letter of Credit, or
amendment to or renewal of a Letter of Credit, to an advising bank or a
beneficiary, a true and complete copy of each such Letter of Credit or
amendment to a Letter of Credit.
3.03 Risk Participations, Drawings and Reimbursements.
(a) Immediately upon the Issuance of each Letter of
Credit, each Bank shall be deemed to, and hereby irrevocably and
unconditionally agrees to, purchase from the Issuing Bank a participation in
such Letter of Credit and each drawing thereunder in an amount equal to the
product of (i) the Pro Rata Share of such Bank, times (ii) the maximum amount
available to be drawn under such Letter of Credit and the amount of such
drawing, respectively. For purposes of subsection 2.01(a), each Issuance of a
Letter of Credit shall be deemed to utilize the Commitment of each Bank by an
amount equal to the amount of such participation.
(b) In the event of any request for a drawing under a
Letter of Credit by the beneficiary or transferee thereof, the Issuing Bank
will promptly notify the applicable Borrower. Such Borrower shall reimburse the
Issuing Bank prior to 11:30 a.m. (Houston time), on each date that any amount
is paid by the Issuing Bank under any Letter of Credit (each such date, an
"Honor Date"), in an amount equal to the amount so paid by the Issuing Bank. In
the event such Borrower fails to reimburse the Issuing Bank for the full amount
of any drawing under any Letter of Credit by 11:30 a.m. (Houston time) on the
Honor Date, the Issuing Bank will promptly notify the Agent and the Agent will
promptly notify each Bank thereof, and such Borrower shall be deemed to have
requested that Base Rate Loans be made by the Banks to be disbursed on the
Honor Date under such Letter of Credit, subject to the amount of the unutilized
portion of the Commitment and subject to the conditions set forth in Section
5.03. Any notice given by the Issuing Bank or the Agent pursuant to this
subsection 3.03(b) may be oral if immediately confirmed in writing (including
by facsimile); provided that the lack of such an immediate confirmation shall
not affect the conclusiveness or binding effect of such notice.
(c) Each Bank shall upon any notice pursuant to
subsection 3.03(b) make available to the Agent for the account of the relevant
Issuing Bank an amount in Dollars
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and in immediately available funds equal to its Pro Rata Share of the amount of
the drawing, whereupon the participating Banks shall (subject to subsection
3.03(d)) each be deemed to have made a Revolving Loan consisting of a Base Rate
Loan to the applicable Borrower in that amount. If any Bank so notified fails
to make available to the Agent for the account of the Issuing Bank the amount
of such Bank's Pro Rata Share of the amount of the drawing by no later than
1:30 p.m. (Houston time) on the Honor Date, then interest shall accrue on such
Bank's obligation to make such payment, from the Honor Date to the date such
Bank makes such payment, at a rate per annum equal to the Federal Funds Rate in
effect from time to time during such period. The Agent will promptly give
notice to each Bank of the occurrence of the Honor Date, but failure of the
Agent to give any such notice on the Honor Date or in sufficient time to enable
any Bank to effect such payment on such date shall not relieve such Bank from
its obligations under this Section 3.03.
(d) With respect to any unreimbursed drawing that is not
converted into Revolving Loans consisting of Base Rate Loans to the applicable
Borrower in whole or in part, because of the failure of the applicable Borrower
to satisfy the conditions set forth in Section 5.03 or for any other reason
permitted hereunder, the applicable Borrower shall be deemed to have incurred
from the Issuing Bank an L/C Borrowing in the amount of such drawing, which L/C
Borrowing shall be due and payable on demand (together with interest) and shall
bear interest at a rate per annum equal to the Base Rate plus 2% per annum, and
each Bank's payment to the Issuing Bank pursuant to subsection 3.03(c) shall be
deemed payment in respect of its participation in such L/C Borrowing and shall
constitute an L/C Advance from such Bank in satisfaction of its participation
obligation under this Section 3.03.
(e) Each Bank's obligation in accordance with this
Agreement to make the Revolving Loans or L/C Advances, as contemplated by this
Section 3.03, as a result of a drawing under a Letter of Credit, shall be
absolute and unconditional and without recourse to the Issuing Bank and shall
not be affected by any circumstance, including (i) any set-off, counterclaim,
recoupment, defense or other right which such Bank may have against the Issuing
Bank, the applicable Borrower or any other Person for any reason whatsoever;
(ii) the occurrence or continuance of a Default, an Event of Default or a
Material Adverse Effect; or (iii) any other circumstance, happening or event
whatsoever, whether or not similar to any of the foregoing; provided, however,
that each Bank's obligation to make Revolving Loans under this Section 3.03 is
subject to the conditions set forth in Section 5.03.
3.04 Repayment of Participations. (a) Upon (and only upon) receipt
by the Agent for the account of the Issuing Bank of immediately available funds
from a Borrower (i) in reimbursement of any payment made by the Issuing Bank
under the Letter of Credit with respect to which any Bank has paid the Agent
for the account of the Issuing Bank for such Bank's participation in the Letter
of Credit pursuant to Section 3.03 or (ii) in payment of interest thereon, the
Agent will pay to each Bank, in the same funds as those received by the Agent
for the account of the Issuing Bank, the amount of such Bank's Pro Rata Share
of such funds, and the Issuing Bank shall receive the amount of the Pro Rata
Share of such funds of any Bank that did not so pay the Agent for the account
of the Issuing Bank. If the Agent fails to send to any Bank its portion of any
payment timely received by the Agent hereunder by the close of business on the
day such payment is deemed received pursuant to subsection 2.12(a), the Agent
shall pay to such Bank interest on its portion of such payment from the day
such payment is deemed received by the Agent until the date such Bank's portion
of such payment is sent to such Bank, at the Federal Funds Rate.
(b) If the Agent or the Issuing Bank is required at any
time to return to a Borrower, or to a trustee, receiver, liquidator, custodian,
or any official in any Insolvency Proceeding, any portion of the payments made
by the Borrower to the Agent for the
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account of the Issuing Bank pursuant to subsection 3.04(a) in reimbursement of
a payment made under the Letter of Credit or interest or fee thereon, each Bank
shall, on demand of the Agent, forthwith return to the Agent or the Issuing
Bank the amount of its Pro Rata Share of any amounts so returned by the Agent
or the Issuing Bank plus interest thereon from the date such demand is made to
the date such amounts are returned by such Bank to the Agent or the Issuing
Bank, at a rate per annum equal to the Federal Funds Rate in effect from time
to time.
3.05 Role of the Issuing Bank. (a) Each Bank and each Borrower
agrees that, in paying any drawing under a Letter of Credit, the Issuing Bank
shall not have any responsibility to obtain any document (other than any sight
draft and certificates expressly required by the Letter of Credit) or to
ascertain or inquire as to the validity or accuracy of any such document or the
authority of the Person executing or delivering any such document.
(b) No Agent-Related Person nor any of the respective
correspondents, participants or assignees of the Issuing Bank shall be liable
to any Bank for: (i) any action taken or omitted in connection herewith at the
request or with the approval of the Banks (including the Majority Banks, as
applicable); (ii) any action taken or omitted in the absence of gross
negligence or willful misconduct; or (iii) the due execution, effectiveness,
validity or enforceability of any L/C-Related Document.
(c) The Borrowers hereby assume all risks of the acts or
omissions of any beneficiary or transferee with respect to its use of any
Letter of Credit; provided, however, that this assumption is not intended to,
and shall not, preclude a Borrower from pursuing such rights and remedies as it
may have against the beneficiary or transferee at law or under any other
agreement. No Agent-Related Person, nor any of the respective correspondents,
participants or assignees of the Issuing Bank, shall be liable or responsible
for any of the matters described in clauses (i) through (vii) of Section 3.06;
provided, however, anything in such clauses to the contrary notwithstanding,
that the Borrower for whose account the applicable Letter of Credit was Issued
may have a claim against the Issuing Bank, and the Issuing Bank may be liable
to such Borrower, to the extent, but only to the extent, of any direct, as
opposed to consequential or exemplary, damages suffered by such Borrower which
such Borrower proves were caused by the Issuing Bank's willful misconduct or
gross negligence or the Issuing Bank's willful failure to pay under any Letter
of Credit after the presentation to it by the beneficiary of a sight draft and
certificate(s) strictly complying with the terms and conditions of a Letter of
Credit. In furtherance and not in limitation of the foregoing: (i) the Issuing
Bank may accept documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary; and (ii) the Issuing Bank shall not be responsible
for the validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign a Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in whole or in part, which may prove to be
invalid or ineffective for any reason.
3.06 Obligations Absolute. The obligations of the Borrowers under
this Agreement and any L/C-Related Document to reimburse the Issuing Bank for a
drawing under a Letter of Credit, and to repay any L/C Borrowing and any
drawing under a Letter of Credit converted into Revolving Loans, shall be
unconditional and irrevocable, and shall be paid strictly in accordance with
the terms of this Agreement and each such other L/C-Related Document under all
circumstances, including the following:
(i) any lack of validity or enforceability of
this Agreement or any L/C-Related Document;
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(ii) any change in the time, manner or place of
payment of, or in any other term of, all or any of the obligations of
any Borrower in respect of any Letter of Credit or any other amendment
or waiver of or any consent to departure from all or any of the
L/C-Related Documents;
(iii) the existence of any claim, set-off, defense
or other right that any Borrower may have at any time against any
beneficiary or any transferee of any Letter of Credit (or any Person
for whom any such beneficiary or any such transferee may be acting),
the Issuing Bank or any other Person, whether in connection with this
Agreement, the transactions contemplated hereby or by the L/C- Related
Documents or any unrelated transaction;
(iv) any draft, demand, certificate or other
document presented under any Letter of Credit proving to be forged,
fraudulent, invalid or insufficient in any respect or any statement
therein being untrue or inaccurate in any respect; or any loss or
delay in the transmission or otherwise of any document required in
order to make a drawing under any Letter of Credit;
(v) any payment by the Issuing Bank under any
Letter of Credit against presentation of a draft or certificate that
does not strictly comply with the terms of any Letter of Credit; or
any payment made by the Issuing Bank under any Letter of Credit to any
Person purporting to be a trustee in bankruptcy, debtor-in-possession,
assignee for the benefit of creditors, liquidator, receiver or other
representative of or successor to any beneficiary or any transferee of
any Letter of Credit, including any arising in connection with any
Insolvency Proceeding;
(vi) any exchange, release or non-perfection of
any collateral, or any release or amendment or waiver of or consent to
departure from any other guarantee, for all or any of the obligations
of any Borrower in respect of any Letter of Credit; or
(vii) any other circumstance or happening
whatsoever, whether or not similar to any of the foregoing, including
any other circumstance that might otherwise constitute a defense
available to, or a discharge of a Borrower or a guarantor.
3.07 Cash Collateral Pledge. Upon (i) the request of the Agent, (A)
if the Issuing Bank has honored any full or partial drawing request on any
Letter of Credit and such drawing has resulted in an L/C Borrowing hereunder,
or (B) if, as of the Maturity Date, any Letters of Credit may for any reason
remain outstanding and partially or wholly undrawn, or (ii) the occurrence of
the circumstances described in Section 2.07 requiring the Company to Cash
Collateralize the Obligations of the Borrowers, then, the Company shall
immediately Cash Collateralize the Obligations of the Borrowers in an amount
equal to the L/C Obligations.
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3.08 Letter of Credit Fees.
(a) Risk Participation Fees. Each Borrower for whose
account a Letter of Credit is Issued shall pay to the Agent for the account of
each of the Banks a letter of credit fee ("Risk Participation Fee") with
respect to such Letters of Credit, calculated at the rate per annum determined
in accordance with the provisions of Section 2.02 of this Agreement multiplied
by the average daily maximum amount available to be drawn on such outstanding
Letters of Credit.
(b) Fronting Fees. In addition to the foregoing, each
Borrower for whose account a Letter of Credit is Issued shall pay to the Agent
for the account of the Issuing Bank a letter of credit fee (the "Fronting Fee")
for each Letter of Credit Issued by the Issuing Bank equal to 0.125% per annum
multiplied by the average daily maximum amount available to be drawn on such
outstanding Letters of Credit.
(c) Computation and Payment of Fees. The Risk
Participation Fee and the Fronting Fee each shall be computed on a quarterly
basis in arrears on the last Business Day of each calendar quarter based upon
Letters of Credit outstanding for that quarter as calculated by the Agent. Such
fees shall be due and payable quarterly in arrears on the last Business Day of
each calendar quarter during which Letters of Credit are outstanding,
commencing on the first such quarterly date to occur after the Closing Date,
through the Maturity Date (or such later date upon which the outstanding
Letters of Credit shall expire), with the final payment to be made on the
Maturity Date (or such later expiration date, as applicable).
(d) Other. Each Borrower for whose account a Letter of
Credit is issued also shall pay to the Issuing Bank from time to time on demand
the normal issuance, presentation, amendment and other processing fees, and
other standard costs and charges, of the Issuing Bank relating to letters of
credit as from time to time in effect.
3.09 Uniform Customs and Practice. The Uniform Customs and Practice
for Documentary Credits as published by the International Chamber of Commerce
most recently at the time of issuance of any Letter of Credit shall (unless
otherwise expressly provided in the Letters of Credit) apply to the Letters of
Credit.
ARTICLE IV
TAXES, YIELD PROTECTION AND ILLEGALITY
4.01 Taxes. (a) Any and all payments by the Borrowers to the Banks
or the Agent under this Agreement and any other Loan Document shall be made
free and clear of, and without deduction or withholding for, any Taxes. In
addition, the Borrowers shall pay all Other Taxes.
(b) If any Borrower shall be required by law to deduct or
withhold any Taxes, Other Taxes or Further Taxes from or in respect of any sum
payable hereunder to any Bank or the Agent, then:
(i) the sum payable shall be increased as
necessary so that, after making all required deductions and
withholdings (including deductions and withholdings applicable to
additional sums payable under this Section), such Bank or the Agent,
as the case may be, receives and retains an amount equal to the sum it
would have received and retained had no such deductions or
withholdings been made;
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(ii) the Borrower shall make such deductions and
withholdings;
(iii) the Borrower shall pay the full amount
deducted or withheld to the relevant taxing authority or other
authority in accordance with applicable law; and
(iv) the Borrower shall also pay to each Bank or
the Agent for the account of such Bank, at the time interest is paid,
Further Taxes in the amount that the respective Bank specifies as
necessary to preserve the after-tax yield the Bank would have received
if such Taxes, Other Taxes or Further Taxes had not been imposed.
(c) Each Borrower agrees to indemnify and hold harmless
each Bank and the Agent for the full amount of i) Taxes, ii) Other Taxes, and
iii) Further Taxes in the amount that the respective Bank specifies as
necessary to preserve the after-tax yield the Bank would have received if such
Taxes, Other Taxes or Further Taxes had not been imposed, and any liability
(including penalties, interest, additions to tax and expenses) arising
therefrom or with respect thereto, whether or not such Taxes, Other Taxes or
Further Taxes were correctly or legally asserted. Payment under this
indemnification shall be made within 30 days after the date the Bank or the
Agent makes written demand therefor.
(d) Within 30 days after the date of any payment by a
Borrower of Taxes, Other Taxes or Further Taxes, such Borrower shall furnish to
each Bank or the Agent the original or a certified copy of a receipt evidencing
payment thereof, or other evidence of payment satisfactory to such Bank or the
Agent.
(e) If any Borrower is required to pay any amount to any
Bank or the Agent pursuant to subsection (b) or (c) of this Section, then such
Bank shall use reasonable efforts (subject to and consistent with legal and
regulatory restrictions) to change the jurisdiction of its Lending Office so as
to eliminate any such additional payment by such Borrower which may thereafter
accrue, if such change in the sole judgment of such Bank is not otherwise
disadvantageous to such Bank.
4.02 Illegality. (a) If any Bank determines that the introduction
of any Requirement of Law, or any change in any Requirement of Law, or in the
interpretation or administration of any Requirement of Law, has made it
unlawful, or that any central bank or other Governmental Authority has asserted
that it is unlawful, for any Bank or its applicable Lending Office to make
Offshore Rate Loans, then, on notice thereof by the Bank to the Borrowers
through the Agent, any obligation of that Bank to make Offshore Rate Loans
shall be suspended until the Bank notifies the Agent and the Borrowers that the
circumstances giving rise to such determination no longer exist.
(b) If a Bank determines that it is unlawful to maintain
any Offshore Rate Loan, the Borrowers shall, upon receipt of notice of such
fact and demand from such Bank (with a copy to the Agent), prepay in full such
Offshore Rate Loans of that Bank then outstanding, together with interest
accrued thereon and amounts required under Section 4.04, either on the last day
of the Interest Period thereof, if the Bank may lawfully continue to maintain
such Offshore Rate Loans to such day, or immediately, if the Bank may not
lawfully continue to maintain such Offshore Rate Loan. If any Borrower is
required to so prepay any Offshore Rate Loan, then concurrently with such
prepayment, such Borrower may borrow from the affected Bank, in the amount of
such repayment, a Base Rate Loan.
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(c) If the obligation of any Bank to make or maintain
Offshore Rate Loans has been so terminated or suspended, the Borrowers may
elect, by giving notice to the Bank through the Agent that all Loans which
would otherwise be made by the Bank as Offshore Rate Loans shall be instead
Base Rate Loans.
(d) Before giving any notice to the Agent under this
Section, the affected Bank shall designate a different Lending Office with
respect to its Offshore Rate Loans if such designation will avoid the need for
giving such notice or making such demand and will not, in the judgment of the
Bank, be inconsistent with applicable legal or regulatory restrictions, illegal
or otherwise disadvantageous to the Bank.
4.03 Increased Costs and Reduction of Return. (a) If any Bank
determines that, due to either (i) the introduction of or any change (other
than any change by way of imposition of or increase in reserve requirements for
which the applicable Bank is compensated pursuant to Section 4.06, or in
respect of the assessment rate payable by any Bank to the FDIC for insuring
U.S. deposits) in or in the interpretation of any law or regulation or (ii) the
compliance by that Bank with any guideline or request from any central bank or
other Governmental Authority (whether or not having the force of law), there
shall be any increase in the cost to such Bank of agreeing to make or making,
funding or maintaining any Offshore Rate Loans or participating in Letters of
Credit, or, in the case of the Issuing Bank, any increase in the cost to the
Issuing Bank of agreeing to issue, issuing or maintaining any Letter of Credit
or of agreeing to make or making, funding or maintaining any unpaid drawing
under any Letter of Credit, then the Borrowers shall be liable for, and shall
from time to time, upon demand (with a copy of such demand to be sent to the
Agent), pay to the Agent for the account of such Bank, additional amounts as
are sufficient to compensate such Bank for such increased costs.
(b) If any Bank shall have determined that (i) the
introduction of any Capital Adequacy Regulation, (ii) any change in any Capital
Adequacy Regulation, (iii) any change in the interpretation or administration
of any Capital Adequacy Regulation by any central bank or other Governmental
Authority charged with the interpretation or administration thereof, or (iv)
compliance by the Bank (or its Lending Office) or any corporation controlling
the Bank with any Capital Adequacy Regulation, affects or would affect the
amount of capital required or expected to be maintained by the Bank or any
corporation controlling the Bank and (taking into consideration such Bank's or
such corporation's policies with respect to capital adequacy and such Bank's
desired return on capital) determines that the amount of such capital is
increased as a consequence of its Commitment, loans, credits or obligations
under this Agreement, then, upon demand of such Bank to the Borrowers through
the Agent, the Borrowers shall pay to the Bank, from time to time as specified
by the Bank, additional amounts sufficient to compensate the Bank for such
increase.
(c) Each Bank that determines to seek compensation under
this Section 4.03 shall give written notice to the Company (and, if applicable,
the other Borrowers), with a copy of such demand to be sent to the Agent, of
the amount demanded and the circumstances that entitle such Bank to such
compensation no later than ninety (90) days after such Bank receives actual
notice or obtains actual knowledge of any such law, regulation, guideline,
request, interpretation or occurrence of another event giving rise to a claim
hereunder. The Borrowers shall not be obligated to pay any amount with respect
to claims pursuant to this Section 4.03 accruing prior to the ninetieth day
preceding such written demand. Each Bank shall use reasonable efforts to avoid
the need for, or reduce the amount of, such compensation and any payment under
this Section 4.03, including, without limitation, the designation of a
different Lending Office, if such action or designation will not, in the sole
judgment of such Bank made in good faith, be inconsistent with applicable legal
or regulatory restrictions or otherwise disadvantageous to it; provided that
the foregoing shall not in any way affect the rights of any Bank or the
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obligations of the Borrowers under this Section 4.03. A certificate of the
Agent or any Bank, as applicable, claiming compensation under this Section 4.03
and setting forth the additional amount or amounts to be paid to it hereunder
and accompanied by a statement prepared by such Bank, describing in reasonable
detail the calculations thereof shall be rebuttable presumptive evidence
thereof in the absence of manifest error. In determining such amount, such Bank
may use any reasonable averaging and attribution methods.
4.04 Funding Losses. The Borrowers shall reimburse each Bank and
hold each Bank harmless from any loss or expense which the Bank may sustain or
incur as a consequence of:
(a) the failure of any Borrower to make on a timely basis
any payment of principal of any Offshore Rate Loan;
(b) the failure of any Borrower to borrow, continue or
convert a Loan after such Borrower has given (or is deemed to have given) a
Notice of Borrowing or a Notice of Conversion/Continuation (including by reason
of the failure of any condition precedent thereto);
(c) the failure of any Borrower to make any prepayment in
accordance with any notice delivered under Section 2.06;
(d) the prepayment (including pursuant to Section 2.06 or
2.07, but not including Section 4.02) or other payment (including after
acceleration thereof) of an Offshore Rate Loan on a day that is not the last
day of the relevant Interest Period; or
(e) the automatic conversion under Section 2.04 of any
Offshore Rate Loan to a Base Rate Loan on a day that is not the last day of the
relevant Interest Period;
including in each instance any such loss or expense arising from the
liquidation or reemployment of funds obtained by it to maintain its Offshore
Rate Loans or from fees payable to terminate the deposits from which such funds
were obtained. For purposes of calculating amounts payable by the Borrowers to
the Banks under this Section and under subsection 4.03(a), each Offshore Rate
Loan made by a Bank (and each related reserve, special deposit or similar
requirement) shall be conclusively deemed to have been funded at the LIBOR or
IBOR used in determining the interest rate for such Offshore Rate Loan by a
matching deposit or other borrowing in the interbank eurodollar market for a
comparable amount and for a comparable period, whether or not such Offshore
Rate Loan is in fact so funded.
4.05 Inability to Determine Rates. If the Agent determines that for
any reason adequate and reasonable means do not exist for determining the
Offshore Rate for any requested Interest Period with respect to a proposed
Offshore Rate Loan, or that the Offshore Rate applicable pursuant to subsection
2.09(a) for any requested Interest Period with respect to a proposed Offshore
Rate Loan does not adequately and fairly reflect the cost to the Banks of
funding such Loan, the Agent will promptly so notify the Borrowers and each
Bank. Thereafter, the obligation of the Banks to make or maintain Offshore Rate
Loans hereunder shall be suspended until the Agent upon the instruction of the
Majority Banks revokes such notice in writing. Upon receipt of such notice, any
Borrower may revoke any unfunded Notice of Borrowing or Notice of
Conversion/Continuation then submitted by it. If the Borrower does not revoke
such Notice, the Banks shall make, convert or continue the Loans, as proposed
by the Borrower, in the amount specified in the applicable notice submitted by
the Borrower, but such Loans shall be made, converted or continued as Base Rate
Loans instead of Offshore Rate Loans.
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4.06 Reserves on Offshore Rate Loans. The applicable Borrower shall
pay to each Bank, as long as such Bank shall be required under regulations of
the FRB to maintain reserves with respect to liabilities or assets consisting
of or including Eurocurrency funds or deposits (currently known as
"Eurocurrency Liabilities"), additional costs on the unpaid principal amount of
each Offshore Rate Loan equal to the actual costs of such reserves allocated to
such Loan by the Bank (as determined by the Bank in good faith, payable on each
date on which interest is payable on such Loan, provided that such Bank shall
give written notice to the Company (with a copy of such demand to be sent to
the Agent) no later than ninety (90) days after such Bank receives actual
notice or obtains actual knowledge of the imposition of such requirements. The
Borrowers shall not be obligated to pay any amount with respect to claims
pursuant to this Section 4.06 accruing prior to the ninetieth day preceding
such written demand. If a Bank fails to give notice 15 days prior to the
relevant Interest Payment Date, such additional interest shall be payable 15
days from receipt of such notice.
4.07 Survival. The agreements and obligations of the Borrowers in
this Article IV shall survive the payment of all other Obligations.
ARTICLE V
CONDITIONS PRECEDENT
5.01 Conditions of Initial Credit Extensions. The obligation of
each Bank to make its initial Credit Extension, and, correspondingly, the
obligation of the Issuing Bank to Issue the first Letter of Credit, hereunder
each is subject to the condition that the Agent shall have received on or
before the date of the initial Credit Extension all of the following, in form
and substance satisfactory to the Agent and each Bank, and in sufficient copies
for each Bank:
(a) Loan Documents. This Agreement, the Guaranties and
all other Loan Documents to be delivered to the Agent and the Banks in
connection therewith, duly executed by each party thereto;
(b) Resolutions; Incumbency.
(i) Copies of the resolutions of the board of
directors of the Company, each Subsidiary Borrower and each Subsidiary
Guarantor authorizing the transactions contemplated hereby, certified
as of the Closing Date by the Secretary or an Assistant Secretary of
such Person; and
(ii) A certificate of the Secretary or Assistant
Secretary of the Company, each Subsidiary Borrower and each Subsidiary
Guarantor certifying the names and true signatures of the officers of
the Company and each such Subsidiary, respectively, authorized to
execute, deliver and perform, as applicable, this Agreement, and all
other Loan Documents to be delivered by it hereunder;
(c) Organization Documents; Good Standing. Each of the
following documents:
(i) the articles or certificate of incorporation
and the bylaws of the Company and each Subsidiary party to any Loan
Document as in effect on the Closing Date, certified by the Secretary
or Assistant Secretary of the Company and each such Subsidiary,
respectively, as of the Closing Date; and
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(ii) a good standing and tax good standing
certificate for the Company and each Subsidiary party to any Loan
Document from the Secretary of State (or similar, applicable
Governmental Authority) of its state of incorporation as of a recent
date;
(d) Legal Opinions.
(i) an opinion of Baker & McKenzie, counsel to
the Company and its Subsidiaries and addressed to the Agent and the
Banks, substantially in the form of Exhibit D-1;
(ii) an opinion of internal counsel to the Company
and its Subsidiaries and addressed to the Agent and the Banks,
substantially in the form of Exhibit D-2; and
(iii) a favorable opinion of Butler & Binion,
L.L.P., special counsel to the Agent;
(e) Payment of Fees. Evidence of payment by the Borrowers
of all accrued and unpaid fees, costs and expenses to the extent then due and
payable on the Closing Date, together with Attorney Costs of BofA to the extent
invoiced prior to or on the Closing Date, plus such additional amounts of
Attorney Costs as shall constitute BofA's reasonable estimate of Attorney Costs
incurred or to be incurred by it through the closing proceedings (provided that
such estimate shall not thereafter preclude final settling of accounts between
the Borrowers and BofA); including any such costs, fees and expenses arising
under or referenced in Sections 2.10 and 11.04;
(f) Certificate. A certificate signed by a Responsible
Officer, dated as of the Closing Date, stating that:
(i) the representations and warranties contained
in Article V are true and correct on and as of such date, as though
made on and as of such date;
(ii) no Default or Event of Default exists or
would result from the Credit Extension; and
(iii) there has occurred since September 30, 1996,
no event or circumstance that has resulted or could reasonably be
expected to result in a Material Adverse Effect; and
(g) Other Documents. Such other approvals, opinions,
documents or materials as the Agent or the Majority Banks (acting through the
Agent) may reasonably request.
5.02 Conditions of Initial Advance to each Subsidiary Borrower.
After the Closing Date, any Wholly-Owned Subsidiary (other than a Foreign
Subsidiary) may become a Subsidiary Borrower. The Banks shall not be required
to make an initial Advance to a Subsidiary Borrower hereunder unless such
Subsidiary Borrower has furnished to the Agent with sufficient copies for the
Banks:
(a) A Subsidiary Borrower Counterpart executed by such
Subsidiary and acknowledged by each of the Company and the Subsidiary
Guarantors, together with a schedule of litigation as may be necessary in
connection with such Subsidiary making the representations and warranties set
forth in Section 6.05 of this Agreement, such schedule
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to be in form and substance reasonably satisfactory to the Agent and each of
the Banks in their sole discretion;
(b) A current certificate of existence and, for the
states where available, a certificate of good standing, both certified by the
appropriate governmental officer, in its jurisdiction of incorporation;
(c) Copies, certified by the Secretary or Assistant
Secretary of such Subsidiary Borrower, of its Certificate or Articles of
Incorporation, Bylaws and Board of Directors' resolutions authorizing the
execution of the Loan Documents to which it is a party;
(d) An incumbency certificate, executed by the Secretary
or Assistant Secretary of such Subsidiary Borrower, which shall identify by
name and title and bear the signature of the officers of the Subsidiary
Borrower authorized to sign the Loan Documents to which it is a party and to
make borrowings hereunder, upon which certificates the Agent and the Banks
shall be entitled to rely until informed of any change in writing by such
Subsidiary Borrower;
(e) A written opinion of counsel (which may be internal
counsel) to such Subsidiary Borrower in form and substance satisfactory to the
Agent and the Banks, substantially in the form set forth in Exhibit "D-1" and
Exhibit "D-2" hereto;
(f) If requested by Bank(s) through the Agent, Notes
executed by such Subsidiary Borrower and payable to the order of each of the
requesting Banks;
(g) A Guaranty executed by such Subsidiary Borrower; and
(h) Such other documents as the Majority Banks through
the Agent may have reasonably requested.
5.03 Conditions to All Credit Extensions. The obligation of each
Bank to make any Revolving Loan to be made by it (including its initial
Revolving Loan) or to continue or convert any Revolving Loan under Section
2.04, the obligation of the Swing Loan Bank to make any Swing Loan (including
its initial Swing Loan) and the obligation of the Issuing Bank to Issue any
Letter of Credit (including the initial Letter of Credit) is subject to the
satisfaction of the following conditions precedent on the relevant Borrowing
Date, Conversion/Continuation Date or Issuance Date, as applicable:
(a) Notice, Application. The Agent shall have received
(with, in the case of the initial Revolving Loan only, a copy for each Bank) a
Notice of Borrowing or a Notice of Conversion/Continuation, as applicable, or
in the case of any Issuance of any Letter of Credit, the Issuing Bank and the
Agent shall have received an L/C Application or L/C Amendment Application, as
applicable, as required under Section 3.02;
(b) Continuation of Representations and Warranties. The
representations and warranties in Article VI shall be true and correct on and
as of such Borrowing Date or Conversion/Continuation Date or Issuance Date, as
applicable, with the same effect as if made on and as of such Borrowing Date or
Conversion/Continuation Date or Issuance Date (except to the extent such
representations and warranties expressly refer to an earlier date, in which
case they shall be true and correct as of such earlier date);
(c) No Existing Default. No Default or Event of Default
shall exist or shall result from such Borrowing or continuation or conversion
or Issuance; and
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(d) Legality. The making of the Loans and the issuance of
Letters of Credit shall be permitted by the laws and regulations of each
applicable jurisdiction to which the Agent, the Banks, the Company and any of
its Subsidiaries are subject (including, without limitation, Regulations U and
X), and shall not subject any Bank or the Agent to any penalty.
Each Notice of Borrowing, Notice of Conversion/Continuation and L/C Application
or L/C Amendment Application submitted by a Borrower hereunder shall constitute
a representation and warranty by such Borrower hereunder, as of the date of
each such notice and as of each Borrowing Date, Conversion/Continuation Date,
or Issuance Date, as applicable, that the conditions in this Section 5.03 (and,
as applicable, Sections 5.01 and 5.02) are satisfied.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
Each of the Borrowers represents and warrants to the Agent and each
Bank that:
6.01 Corporate Existence and Power.
(a) the Company and each Subsidiary Borrower and each
Subsidiary Guarantor is a corporation duly organized and validly existing under
the laws of its jurisdiction of incorporation;
(b) (i) the Company, each Subsidiary Borrower is in good
standing under the laws of the jurisdiction of its incorporation, and (ii) each
Subsidiary Guarantor is in good standing under the laws of the jurisdiction of
its incorporation;
(c) the Company, each Subsidiary Borrower and each
Subsidiary Guarantor has the power and authority to execute, deliver, and
perform its obligations under the Loan Documents to which it is a party;
(d) the Company and each of its Subsidiaries has all
governmental licenses, authorizations, consents and approvals to own its assets
and carry on its business;
(e) the Company and each of its Subsidiaries is duly
qualified as a foreign corporation and is licensed and in good standing under
the laws of each jurisdiction where its ownership, lease or operation of
property or the conduct of its business requires such qualification or license;
and
(f) the Company and each of its Subsidiaries is in
compliance with all Requirements of Law;
except, in each case referred to in clause (b)(ii), (d), (e) or (f), to the
extent that the failure to do so could not reasonably be expected to have a
Material Adverse Effect.
6.02 Corporate Authorization; No Contravention. The execution,
delivery and performance by the Company, the Subsidiary Borrowers and the
Subsidiary Guarantors of this Agreement and each other Loan Document to which
each such Person is party, have been duly authorized by all necessary corporate
action, and do not and will not:
(a) contravene the terms of any of that Person's
Organization Documents;
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(b) conflict with or result in any breach or
contravention of, or the creation of any Lien under, any document evidencing
any Contractual Obligation to which such Person is a party or any order,
injunction, writ or decree of any Governmental Authority to which such Person
or its property is subject; or
(c) violate any Requirement of Law.
6.03 Governmental Authorization. No approval, consent, exemption,
authorization, or other action by, or notice to, or filing with, any
Governmental Authority is necessary or required in connection with the
execution, delivery or performance by, or enforcement against, the Company or
any of its Subsidiaries of the Agreement or any other Loan Document to which
such Person is a party.
6.04 Binding Effect. This Agreement and each other Loan Document to
which the Company or any of its Subsidiaries is a party constitute the legal,
valid and binding obligations of the Company and any of its Subsidiaries to the
extent each such Person is a party thereto, enforceable against such Person in
accordance with its respective terms, except as enforceability may be limited
by applicable bankruptcy, fraudulent conveyance, insolvency, or similar laws
affecting the enforcement of creditors' rights generally or by equitable
principles relating to enforceability.
6.05 Litigation. There are no actions, suits, proceedings, claims
or disputes pending, or to the best knowledge of the Company, threatened or
contemplated, at law, in equity, in arbitration or before any Governmental
Authority, against the Company, any of its Subsidiaries or any of their
respective properties which:
(a) purport to affect or pertain to this Agreement or any
other Loan Document, or any of the transactions contemplated hereby or thereby;
or
(b) if determined adversely to the Company or its
Subsidiaries, would reasonably be expected to have a Material Adverse Effect.
No injunction, writ, temporary restraining order or any order of any nature has
been issued by any court or other Governmental Authority purporting to enjoin
or restrain the execution, delivery or performance of this Agreement or any
other Loan Document, or directing that the transactions provided for herein or
therein not be consummated as herein or therein provided.
6.06 No Default. No Default or Event of Default exists or would
result from the incurring of any Obligations by the Borrowers. As of the
Closing Date, neither the Company nor any Subsidiary of the Company is in
default under or with respect to any Contractual Obligation in any respect
which, individually or together with all such defaults, could reasonably be
expected to have a Material Adverse Effect, or that would, if such default had
occurred after the Closing Date, create an Event of Default under subsection
9.01(e).
6.07 ERISA Compliance.
(a) Each Plan is in compliance in all material respects
with the applicable provisions of ERISA, the Code and other federal or state
law. Each Plan which is intended to qualify under Section 401(a) of the Code
has received a favorable determination letter from the IRS and to the best
knowledge of the Borrowers, nothing has occurred which would cause the loss of
such qualification. The Company and each ERISA Affiliate has made all required
contributions to any Plan subject to Section 412 of the Code, and no
application for a funding waiver or an extension of any amortization period
pursuant to Section 412 of the Code has been made with respect to any Plan.
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(b) There are no pending or, to the best knowledge of the
Borrowers, threatened claims, actions or lawsuits, or action by any
Governmental Authority, with respect to any Plan which has resulted or could
reasonably be expected to result in a Material Adverse Effect. There has been
no prohibited transaction or violation of the fiduciary responsibility rules
with respect to any Plan which has resulted or could reasonably be expected to
result in a Material Adverse Effect.
(c) (i) No ERISA Event has occurred or is reasonably
expected to occur; (ii) no Pension Plan has any Unfunded Pension Liability;
(iii) neither the Company nor any ERISA Affiliate has incurred, or reasonably
expects to incur, any liability under Title IV of ERISA with respect to any
Pension Plan (other than premiums due and not delinquent under Section 4007 of
ERISA); (iv) neither the Company nor any ERISA Affiliate has incurred, or
reasonably expects to incur, any liability (and no event has occurred which,
with the giving of notice under Section 4219 of ERISA, would result in such
liability) under Section 4201 or 4243 of ERISA with respect to a Multiemployer
Plan; and (v) neither the Company nor any ERISA Affiliate has engaged in a
transaction that could be subject to Section 4069 or 4212(c) of ERISA.
6.08 Use of Proceeds; Margin Regulations. The proceeds of the Loans
are to be used solely for the purposes set forth in and permitted by Section
7.12 and Section 8.06. Neither the Company nor any Subsidiary is generally
engaged in the business of purchasing or selling Margin Stock or extending
credit for the purpose of purchasing or carrying Margin Stock. Margin Stock
does not constitute more than 25% of the value of the consolidated assets of
the Company and its Subsidiaries, and the Company does not have any present
intention that Margin Stock will constitute more than 25% of the value of such
assets.
6.09 Title to Properties. The Company and each of its Subsidiaries
has good record and marketable title in fee simple to, or valid leasehold
interests in, all real property necessary or used in the ordinary conduct of
their respective businesses, except for such defects in title as could not,
individually or in the aggregate, have a Material Adverse Effect. As of the
Closing Date, the property of the Company and its Subsidiaries is subject to no
Liens, other than Permitted Liens.
6.10 Taxes. The Company and its Subsidiaries have filed all Federal
and other material tax returns and reports required to be filed, and have paid
all Federal and other material taxes, assessments, fees and other governmental
charges levied or imposed upon them or their properties, income or assets
otherwise due and payable, except those which are being contested in good faith
by appropriate proceedings and for which adequate reserves have been provided
in accordance with GAAP. There is no proposed tax assessment against the
Company or any Subsidiary that would, if made, have a Material Adverse Effect.
6.11 Financial Condition. (a) The unaudited consolidated financial
statements of the Company and its Subsidiaries dated June 30, 1997, and the
related consolidated statements of income or operations and cash flows for the
fiscal quarter ended on that date:
(i) were prepared in accordance with GAAP
consistently applied throughout the period covered thereby, except as
otherwise expressly noted therein, subject to ordinary, good faith
year end audit adjustments;
(ii) fairly present the financial condition of the
Company and its Subsidiaries as of the date thereof and results of
operations for the period covered thereby; and
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(iii) show all material indebtedness and other
liabilities, direct or contingent, of the Company and its Subsidiaries
as of the date thereof, including liabilities for taxes, material
commitments and Contingent Obligations.
(b) Since September 30, 1996, there has been no Material
Adverse Effect.
6.12 Environmental Matters. The Company conducts in the ordinary
course of business a review of the effect of existing Environmental Laws and
existing Environmental Claims on its and its Subsidiaries' business, operations
and properties, and as a result thereof the Company has reasonably concluded
that such Environmental Laws and Environmental Claims could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse Effect.
6.13 Regulated Entities. None of the Company, any Person
controlling the Company, or any Subsidiary of the Company, is an "Investment
Company" within the meaning of the Investment Company Act of 1940. None of the
Borrowers is subject to regulation under the Public Utility Holding Company Act
of 1935, the Federal Power Act, the Interstate Commerce Act, any state public
utilities code, or any other Federal or state statute or regulation limiting
its ability to incur Indebtedness or Contingent Obligations.
6.14 No Burdensome Restrictions. Neither the Company nor any
Subsidiary is a party to or bound by any Contractual Obligation, or subject to
any restriction in any Organization Document, or any Requirement of Law, which
could reasonably be expected to have a Material Adverse Effect.
6.15 Copyrights, Patents, Trademarks and Licenses, etc. The Company
and its Subsidiaries own or are licensed or otherwise have the right to use all
of the patents, trademarks, service marks, trade names, copyrights, contractual
franchises, authorizations and other rights that are reasonably necessary for
the operation of their respective businesses, without conflict with the rights
of any other Person. To the best knowledge of the Borrowers, no slogan or other
advertising device, product, process, method, substance, part or other material
now employed, or now contemplated to be employed, by the Company or any
Subsidiary infringes upon any rights held by any other Person. No claim or
litigation regarding any of the foregoing is pending or threatened, and no
patent, invention, device, application, principle or any statute, law, rule,
regulation, standard or code is pending or, to the knowledge of the Borrowers,
proposed, which, in either case, could reasonably be expected to have a
Material Adverse Effect.
6.16 Subsidiaries. As of the Closing Date, Schedule 6.16 sets
forth, with respect to each Subsidiary, the full legal name, type and
jurisdiction of organization of such Person, the percentage ownership of such
Person held by the Company and its Subsidiaries (and the respective percentages
held by each) and the aggregate book value of the assets of each such Person,
respectively, and, with respect to each Investment, the nature of each such
Investment by the Company and each of its Subsidiaries, the holder of each such
Investment, and the amount of each such Investment, respectively. As of the
Closing Date, the Company has no Subsidiaries other than those specifically
disclosed in part (a) of Schedule 6.16 hereto and has no Investments in any
other corporation or entity other than those specifically disclosed in part (b)
of Schedule 6.16. Other than the Subsidiary Guarantors, as of the Closing Date,
the Company has no Material Subsidiaries incorporated under the laws of any
state in the United States of America.
6.17 Insurance. The properties of the Company and its Subsidiaries
are insured with financially sound and reputable insurance companies not
Affiliates of the Company,
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in such amounts, with such deductibles and covering such risks as are
customarily carried by companies engaged in similar businesses and owning
similar properties in localities where the Company or such Subsidiary operates.
6.18 Labor Controversies. There are no labor controversies pending
or, to the best knowledge of the Company, threatened against the Company or any
of its Subsidiaries that are reasonably likely to have a Material Adverse
Effect.
6.19 Full Disclosure. None of the representations or warranties
made by the Company or any Subsidiary in the Loan Documents as of the date such
representations and warranties are made or deemed made, and none of the
statements contained in any exhibit, report, statement or certificate furnished
by or on behalf of the Company or any Subsidiary in connection with the Loan
Documents (including the offering and disclosure materials delivered by or on
behalf of the Company to the Banks prior to the Closing Date), contains any
untrue statement of a material fact or omits any material fact required to be
stated therein or necessary to make the statements made therein, in light of
the circumstances under which they are made, not misleading as of the time when
made or delivered.
ARTICLE VII
AFFIRMATIVE COVENANTS
So long as any Bank shall have any Commitment hereunder, or any Loan
or other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit
shall remain outstanding, unless the Majority Banks waive compliance in
writing:
7.01 Financial Statements. The Company shall deliver to the Agent,
in form and detail satisfactory to the Agent and the Majority Banks, with
sufficient copies for each Bank:
(a) as soon as available, but not later than one hundred
and twenty (120) days after the end of each fiscal year (commencing with the
fiscal year ended September 30, 1997), a copy of the audited consolidated
balance sheet of the Company and its Subsidiaries as at the end of such year
and the related consolidated statements of income or operations, shareholders'
equity and cash flows for such year, setting forth in each case in comparative
form the figures for the previous fiscal year, and accompanied by the opinion
of Coopers & Lybrand, L.L.P. or another nationally- recognized independent
public accounting firm ("Independent Auditor") which report shall state that
such consolidated financial statements present fairly the financial position
for the periods indicated in conformity with GAAP applied on a basis consistent
with prior years. Such opinion shall not be qualified or limited because of a
restricted or limited examination by the Independent Auditor of any material
portion of the Company's or any Subsidiary's records;
(b) as soon as available, but not later than sixty (60)
days after the end of each of the first three fiscal quarters of each fiscal
year (commencing with the fiscal quarter ended December 31, 1997), a copy of
the unaudited consolidated balance sheet of the Company and its Subsidiaries as
of the end of such quarter and the related consolidated statements of income
and cash flows for the period commencing on the first day and ending on the
last day of such quarter, and certified by a Responsible Officer as fairly
presenting, in accordance with GAAP (subject to ordinary, good faith year-end
audit adjustments), the financial position and the results of operations of the
Company and its Subsidiaries;
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(c) as soon as available, but not later than one hundred
and twenty (120) days after the end of each fiscal year (commencing with the
fiscal year ended September 30, 1997), a copy of an unaudited consolidating
balance sheet of the Company and its Subsidiaries (and any SPVs) as at the end
of such year and the related consolidating statements of income for such year,
certified by a Responsible Officer as having been developed and used in
connection with the preparation of the financial statements referred to in
subsection 7.01(a); and
(d) as soon as available, but not later than sixty (60)
days after the end of each of the first three fiscal quarters of each fiscal
year (commencing with the fiscal quarter ended December 31, 1997), a copy of
the unaudited consolidating balance sheets of the Company and its Subsidiaries
(and any SPVs), and the related consolidating statements of income for such
quarter, all certified by a Responsible Officer as having been developed and
used in connection with the preparation of the financial statements referred to
in subsection 7.01(b).
7.02 Certificates; Other Information. The Company shall furnish to
the Agent, with sufficient copies for each Bank:
(a) concurrently with the delivery of the financial
statements referred to in subsection 7.01(a), a certificate of the Independent
Auditor stating that in making the examination necessary therefor no knowledge
was obtained of any Default or Event of Default, except as specified in such
certificate;
(b) concurrently with the delivery of the financial
statements referred to in subsections 7.01(a) and (b), a Compliance Certificate
executed by a Responsible Officer, including information setting forth all
appropriate calculations excluding the effects of SPVs and the effects of
Non-Recourse Debt;
(c) promptly, copies of all financial statements and
reports that the Company or any of its Subsidiaries sends to its shareholders,
and copies of all financial statements and regular, periodical or special
reports (including Forms 10K, 10Q and 8K) that the Company or any Subsidiary
may make to, or file with, the SEC; and
(d) promptly, such additional information regarding the
business, financial or corporate affairs of the Company or any Subsidiary as
the Agent, at the request of any Bank, may request from time to time.
7.03 Notices. The Company shall promptly notify the Agent and each
Bank of the following, promptly upon obtaining knowledge thereof:
(a) of the occurrence of any Default or Event of Default,
and of the occurrence or existence of any event or circumstance that
foreseeably will become a Default or Event of Default;
(b) of any matter that has resulted or may result in a
Material Adverse Effect, including (i) breach or non-performance of, or any
default under, a Contractual Obligation of the Company or any Subsidiary or any
SPV; (ii) any dispute, litigation, investigation, proceeding or suspension
between the Company or any Subsidiary or any SPV and any Governmental
Authority; or (iii) the commencement of, or any material development in, any
litigation or proceeding affecting the Company or any Subsidiary or any SPV;
including pursuant to any applicable Environmental Laws;
(c) of the occurrence of any of the following events
affecting the Company or any ERISA Affiliate (but in no event more than 10 days
after such event), and deliver to the Agent and each Bank a copy of any notice
with respect to such event
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that is filed with a Governmental Authority and any notice delivered by a
Governmental Authority to the Company or any ERISA Affiliate with respect to
such event:
(i) an ERISA Event;
(ii) a material increase in the Unfunded Pension
Liability of any Pension Plan;
(iii) the adoption of, or the commencement of
contributions to, any Plan subject to Section 412 of the Code by the
Company or any ERISA Affiliate; or
(iv) the adoption of any amendment to a Plan
subject to Section 412 of the Code, if such amendment results in a
material increase in contributions or Unfunded Pension Liability; and
(d) of any material change in accounting policies or
financial reporting practices by the Company or any of its Subsidiaries.
Each notice under this Section shall be accompanied by a written statement by a
Responsible Officer setting forth details of the occurrence referred to
therein, and stating what action the Company or any affected Subsidiary
proposes to take with respect thereto and at what time. Each notice under
subsection 7.03(a) shall describe with particularity any and all clauses or
provisions of this Agreement or other Loan Document that have been (or
foreseeably will be) breached or violated.
7.04 Preservation of Corporate Existence, Etc.
(a) The Company shall, and shall cause each Subsidiary
Borrower and each Subsidiary Guarantor to, preserve and maintain in full force
and effect its corporate existence under the laws of its state or jurisdiction
of incorporation;
(b) the Company shall, and shall cause each Subsidiary
Borrower and each Subsidiary Guarantor to, preserve and maintain its good
standing under the laws of its state of incorporation;
(c) the Company shall, and shall cause each of its
Subsidiaries to, preserve and maintain in full force and effect all
governmental rights, privileges, qualifications, permits, licenses and
franchises necessary or desirable in the normal conduct of its business;
(d) the Company shall, and shall cause each of its
Subsidiaries to, use reasonable efforts, in the ordinary course of business, to
preserve its business organization and goodwill; and
(e) the Company shall, and shall cause each of its
Subsidiaries to, preserve or renew all of its registered patents, trademarks,
trade names and service marks;
except in each case referred to in clauses (c), (d) and (e) above, to the
extent failure to do so could not reasonably be expected to have a Material
Adverse Effect.
7.05 Maintenance of Property. The Company shall maintain, and shall
cause each Subsidiary to maintain, and preserve all its property which is used
or useful in its business in good working order and condition, ordinary wear
and tear excepted and make all necessary repairs thereto and renewals and
replacements thereof except where the failure to do so could not reasonably be
expected to have a Material Adverse Effect. The
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Company and each Subsidiary shall use the standard of care typical in the
industry in the operation and maintenance of its facilities.
7.06 Insurance. The Company shall maintain, and shall cause each
Subsidiary to maintain, with financially sound and reputable independent
insurers, insurance with respect to its properties and business against loss or
damage of the kinds customarily insured against by Persons engaged in the same
or similar business, of such types and in such amounts as are customarily
carried under similar circumstances by such other Persons.
7.07 Payment of Obligations. The Company shall, and shall cause
each Subsidiary to, pay and discharge as the same shall become due and payable,
all their respective obligations and liabilities, including:
(a) all tax liabilities, assessments and governmental
charges or levies upon it or its properties or assets, unless the same are
being contested in good faith by appropriate proceedings and adequate reserves
in accordance with GAAP are being maintained by the Company or such Subsidiary;
(b) all lawful claims which, if unpaid, would by law
become a Lien upon its property, except as may be contested in good faith or as
to which a bona fide dispute may exist; and
(c) all Indebtedness, as and when due and payable, except
as may be contested in good faith or as to which a bona fide dispute may exist
and subject to any subordination provisions contained in any instrument or
agreement evidencing such Indebtedness.
7.08 Compliance with Laws. The Company shall comply, and shall
cause each Subsidiary to comply, in all material respects with all Requirements
of Law of any Governmental Authority having jurisdiction over it or its
business (including the Federal Fair Labor Standards Act), except such as may
be contested in good faith or as to which a bona fide dispute may exist.
7.09 Compliance with ERISA. The Company shall, and shall cause each
of its ERISA Affiliates to: (a) maintain each Plan in compliance in all
material respects with the applicable provisions of ERISA, the Code and other
federal or state law; (b) cause each Plan which is qualified under Section
401(a) of the Code to maintain such qualification; and (c) make all required
contributions to any Plan subject to Section 412 of the Code.
7.10 Inspection of Property and Books and Records. The Company
shall maintain, and shall cause each Subsidiary and each SPV, if any, to
maintain, proper books of record and account, in which full, true and correct
entries in conformity with GAAP consistently applied shall be made of all
financial transactions and matters involving the assets and business of the
Company and such Subsidiary or SPV. The Company shall permit, and shall cause
each Subsidiary and each SPV, if any, to permit, representatives and
independent contractors of the Agent or any Bank to visit and inspect any of
their respective properties, to examine their respective corporate, financial
and operating records, and make copies thereof or abstracts therefrom, and to
discuss their respective affairs, finances and accounts with their respective
directors, officers, and independent public accountants, all at the expense of
the Company and at such reasonable times during normal business hours and as
often as may be reasonably desired, upon reasonable advance notice to the
Company; provided, however, when an Event of Default exists the Agent or any
Bank may do any of the foregoing at the expense of the Company at any time
during normal business hours and without advance notice.
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7.11 Environmental Laws. The Company shall, and shall cause each
Subsidiary to, conduct its operations and keep and maintain its property in
material compliance with all Environmental Laws.
7.12 Use of Proceeds. The initial Loans shall be made to the
Company and shall be used to repay outstanding loans made to Nabors Drilling
USA, Inc. by the Existing HKB Secured Creditor. The Borrowers shall use the
proceeds of the Loans (after the initial Loan) for liquidity for commercial
paper, working capital and other general corporate purposes and future
Acquisitions not in contravention of any Requirement of Law or of any Loan
Document.
7.13 New Subsidiary Guarantors. If, at any time after the date of
this Agreement, there exists any Material Subsidiary incorporated under the
laws of any state in the United States of America, then the Company shall cause
each such Subsidiary to do the following: (i) execute and deliver a Guaranty to
the Agent substantially in the form of Exhibit "I" hereto and (ii) furnish the
Agent with a written opinion of counsel (which may be internal counsel) for
each such Subsidiary Guarantor in substantially the form set forth in Exhibit
"D-1" and Exhibit "D-2".
7.14 Further Assurances.
(a) Each of the Company and the other Borrowers will
ensure and will cause each of their Subsidiaries to ensure, that all written
information, exhibits and reports furnished to the Agent and the Banks do not
and will not contain any untrue statement of a material fact and do not and
will not omit to state any material fact or any fact necessary to make the
statements contained therein not misleading in light of the circumstances in
which made, and will, and will cause each of their Subsidiaries to, promptly
disclose to the Agent and the Banks and correct any defect or error that may be
discovered therein or in any Loan Document or in the execution, acknowledgment
or recordation thereof.
(b) Promptly upon request by the Majority Banks or the
Agent, each of the Company and the other Borrowers will, and will cause each of
their Subsidiaries to, do, execute, acknowledge, deliver, record, re-record,
file, and re-file, any and all such further acts, certificates, assurances and
other instruments as the Agent or such Banks may reasonably require from time
to time in order (i) to carry out more effectively the purposes of this
Agreement or any other Loan Document, and (ii) to better assure, convey, grant,
assign, transfer, preserve, protect and confirm to the Agent and the Banks the
rights granted or now or hereafter intended to be granted to the Agent and the
Banks under any Loan Document or under any other instrument executed in
connection therewith.
7.15 Certain Terms Concerning Subordinated Debt. The Agent may, or
shall, if directed to do so by the Majority Banks, (a) issue a Payment Blockage
Notice as defined in the Subordinated Note Supplemental Indenture No. 1
(hereinafter defined in this Section 7.15) upon the occurrence of an Event of
Default hereunder, and (b) give any and all other notices permitted or required
to be given by holders of senior Indebtedness pursuant to the terms of any
agreements now or hereafter governing Indebtedness of the Company or its
Subsidiaries that is subordinated in right of payment to the Obligations
("Subordinated Debt Documents"). The Company agrees that all Subordinated Debt
Documents to which the Company or its Subsidiaries is or are parties shall be
worded so as to give the Agent and the Banks rights which are equal to the
rights given to all holders of other senior Indebtedness. As used herein,
"Subordinated Note Supplemental Indenture No. 1" means that certain
Supplemental Indenture No. 1 dated as of May 15, 1996, from the Company to
Marine Midland Bank, Trustee relating to 5% Convertible Subordinated Notes Due
2006 in the original principal amount of $172,500,000.
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ARTICLE VIII
NEGATIVE COVENANTS
So long as any Bank shall have any Commitment hereunder, or any Loan
or other Obligation shall remain unpaid or unsatisfied, or any Letter of Credit
shall remain outstanding, unless the Majority Banks waive compliance in
writing:
8.01 Limitation on Liens. (a) The Company shall not, and shall not
suffer or permit any Subsidiary to, directly or indirectly, make, create,
incur, assume or suffer to exist any Lien upon or with respect to any part of
its property, whether now owned or hereafter acquired, other than the following
("Permitted Liens"):
(i) any Lien existing on property of the Company
or any Subsidiary on the Closing Date and set forth in Schedule 8.01
securing Indebtedness outstanding on such date, as such Indebtedness
may be renewed, extended, refinanced and modified;
(ii) any Lien created under any Loan Document;
(iii) Liens for taxes, fees, assessments or other
governmental charges which are not delinquent or remain payable
without penalty, or to the extent that non-payment thereof is
permitted by Section 7.07, provided that no notice of lien has been
filed or recorded under the Code;
(iv) carriers', warehousemen's, mechanics',
landlords', materialmen's, repairmen's or other similar Liens arising
in the ordinary course of business which are not delinquent or remain
payable without penalty or which are being contested in good faith and
by appropriate proceedings, which proceedings have the effect of
preventing the forfeiture or sale of the property subject thereto;
(v) Liens (other than any Lien imposed by ERISA)
consisting of pledges or deposits required in the ordinary course of
business in connection with workers' compensation, unemployment
insurance and other social security legislation or public or statutory
obligations;
(vi) Liens on the property of the Company or its
Subsidiary securing (i) the non-delinquent performance of bids or
tenders, trade contracts (other than for borrowed money), leases and
statutory obligations, (ii) contingent obligations on surety and
appeal bonds, and (iii) other non-delinquent obligations of a like
nature, in each case, incurred in the ordinary course of business,
provided all such Liens in the aggregate would not (even if enforced)
cause a Material Adverse Effect;
(vii) Liens consisting of judgment or judicial
attachment liens, provided that the enforcement of such Liens is
effectively stayed and all such Liens in the aggregate at any time
outstanding for the Company and its Subsidiaries do not exceed
$15,000,000;
(viii) easements, rights-of-way, restrictions and
other similar encumbrances incurred in the ordinary course of business
which, in the aggregate, are not substantial in amount, and which do
not in any case materially detract from the value of the property
subject thereto or interfere
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with the ordinary conduct of the businesses of the Company and its
Subsidiaries;
(ix) Liens on assets of corporations which become
Subsidiaries after the date of this Agreement and Liens on property
acquired after the date of this Agreement, provided, however, that
such Liens existed at the time the respective corporations became
Subsidiaries (or the property was acquired) and were not created in
anticipation thereof;
(x) Liens arising solely by virtue of any
statutory or common law provision relating to banker's liens, rights
of set-off or similar rights and remedies as to deposit accounts or
other funds maintained with a creditor depository institution;
provided that (i) such deposit account is not a dedicated cash
collateral account and is not subject to restrictions against access
by the Company or its Subsidiaries, as applicable, in excess of those
set forth by regulations promulgated by the FRB, and (ii) such deposit
account is not intended by the Company or any Subsidiary to provide
collateral to the depository institution;
(xi) inchoate Liens arising under ERISA to secure
current service pension liabilities as they are incurred under the
provisions of Pension Plans from time to time in effect;
(xii) Liens arising by operation of law on vessels
owned or leased by the Company and any of its Subsidiaries (i) for
crew's wages accrued and unpaid for not more than 90 days or for
collision or salvage to the extent fully covered by valid and
collectible insurance, (ii) in favor of suppliers of necessaries for
vessels or other similar Liens arising in the ordinary course of the
business of the Company or its Subsidiaries which are not overdue for
a period of more than 90 days or which are being contested in good
faith and by appropriate proceedings and for which adequate reserves
have been made, (iii) for loss, damage or expense, which are fully
covered by valid and collectible insurance, in respect of which a bond
or other security has been posted by the Company or any Subsidiary
with the appropriate Governmental Authority to prevent the arrest or
secure the release of a vessel owned by the Company or a Subsidiary
from arrest on account of such claim; in each case which do not secure
the payment of Indebtedness and which do not in the aggregate impair
in any material respect the use of property or assets in the operation
of the business of the Company or any Subsidiary;
(xiii) rights of lessees or sublessees under leases
or subleases of property, whether real, personal or mixed, to other
Persons, if such leases or subleases are not prohibited by Article
VIII;
(xiv) Liens arising in respect of any sale and
lease-back transactions permitted within the dollar limits set forth
in subsection 8.02(d) of this Agreement;
(xv) contractual rights of set-off in general
depository accounts granted to financial institutions pursuant to
guarantees of Indebtedness (or other obligations) of the Company or
any Subsidiary otherwise permitted by this Agreement, provided that
(i) the aggregate dollar amount on deposit in depository accounts
subject to such rights of set-off does not at any time exceed
$10,000,000 in the aggregate, and (ii) the
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Company (or the applicable Subsidiary) maintains (subject to such
right of set-off) dominion and control over such account(s);
(xvi) (A) Liens on assets acquired or constructed
by the Company or its Subsidiaries after the date hereof, so long as
such liens secure only Non-Recourse Debt of the Company or a
Subsidiary and such liens are incurred for the purpose of financing or
constructing such property and Capital Leases that are within the
definition of Non-Recourse Debt, and (B) Liens on the capital stock of
an SPV so long as such Liens secure only Indebtedness or Non-Recourse
Debt incurred by such SPV after the date of this Agreement;
(xvii) subject to Section 8.01(b) hereof, purchase
money security interests on any property hereafter acquired by the
Company or its Subsidiaries in the ordinary course of business,
securing Indebtedness incurred for the purpose of financing all or any
part of the cost of acquiring or constructing such property; provided
that (A) any such Lien attaches to such property concurrently with or
within 20 days after the acquisition thereof, (B) such Lien attaches
solely to the property so acquired in such transaction, and (C) the
principal amount of the debt secured thereby does not exceed 100% of
the cost of such property;
(xviii) subject to Section 8.01(b) hereof, liens
securing obligations in respect of Capital Leases on assets hereafter
acquired by the Company or its Subsidiaries in the ordinary course of
business subject to such leases, provided that such Capital Leases are
otherwise permitted hereunder; and
(xix) subject to Section 8.01(b) hereof, Liens not
otherwise permitted pursuant to the foregoing securing Indebtedness;
provided, however that from and after the funding of the initial Loans
hereunder to repay certain outstanding secured Indebtedness in
accordance with Section 7.12, the outstanding amount of such
Indebtedness, together with the outstanding amount of Indebtedness
permitted pursuant to Section 8.01(a)(i), shall not exceed an
aggregate amount equal to fifteen percent (15%) of Consolidated Net
Worth.
(b) Indebtedness secured by Liens permitted by Section
8.01(a)(i), (xvii), (xviii) and (xix) shall not at any time exceed the
aggregate amount of twenty-five percent (25%) of Consolidated Net Worth.
8.02 Disposition of Assets. The Company shall not, and shall not
suffer or permit any Subsidiary to, directly or indirectly, sell, assign,
lease, convey, transfer or otherwise dispose of (whether in one or a series of
transactions) any property (including accounts and notes receivable, with or
without recourse, and including assets to be leased back pursuant to a
sale-leaseback transaction) or enter into any agreement to do any of the
foregoing, except:
(a) dispositions of inventory, or used, worn-out or
surplus equipment, all in the ordinary course of business, including without
limitation loss of or damage to equipment in the ordinary course of business
(e.g., equipment lost in hole);
(b) the sale of equipment to the extent that such
equipment is exchanged for credit against the purchase price of similar
replacement equipment, or the proceeds of such sale are reasonably promptly
applied to the purchase price of such replacement equipment;
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(c) dispositions of assets, properties or businesses by
the Company or any Subsidiary to the Company or any Subsidiary pursuant to
reasonable business requirements;
(d) arrangements with a Person ("sale and leaseback
transactions") providing for the leasing by the Company or any Subsidiary of
real or personal property which has been or is to be sold or transferred by the
Company or such Subsidiary to such Person, provided, that the aggregate book
value of all assets subject to such arrangements shall not at any time exceed
an amount equal to ten percent (10%) of Consolidated Net Worth; and
(e) dispositions not otherwise permitted hereunder which
are made for fair market value; provided, that (i) at the time of any
disposition, no Event of Default shall exist or shall result from such
disposition, (ii) the aggregate sales price from such disposition shall be paid
in cash or otherwise on payment terms satisfactory to the Company or applicable
Subsidiary, and (iii) unless otherwise consented to by the Majority Banks
(which consent shall not be unreasonably withheld), the aggregate sales of
assets by the Company and its Subsidiaries in any period of four consecutive
fiscal quarters shall not result in a reduction in the aggregate book value of
all assets of the Company and its Subsidiaries (determined in accordance with
GAAP) to an amount that is less than eighty percent (80%) of the aggregate book
value of all assets of the Company and its Subsidiaries (determined in
accordance with GAAP) as at the beginning of such period; provided, however,
that none of the foregoing is intended to or shall permit any disposition of
accounts receivable of the Company or any of its Subsidiaries, with or without
recourse, except in connection with the sale of the assets of a Subsidiary or
an operating unit or division thereof to whom such accounts receivable are
payable.
8.03 Consolidations and Mergers. The Company shall not, and shall
not suffer or permit any Subsidiary to, merge, consolidate with or into, or
convey, transfer, lease or otherwise dispose of (whether in one transaction or
in a series of transactions) all or substantially all of its assets (whether
now owned or hereafter acquired) to or in favor of any Person, except:
(a) any Subsidiary may merge with the Company, provided
that the Company shall be the continuing or surviving corporation, or with any
one or more Subsidiaries, provided that if any transaction shall be between a
Subsidiary and a Wholly-Owned Subsidiary, the Wholly-Owned Subsidiary shall be
the continuing or surviving corporation and, if any transaction shall be
between a Borrower and a non-Borrower, the Borrower shall be the continuing or
surviving corporation;
(b) the Company or any Subsidiary of the Company may
merge or consolidate with any other Person other than the Company or a
Subsidiary of the Company, provided that (i) the Company or such Subsidiary is
the survivor of such merger or consolidation and (ii) such merger or
consolidation is not otherwise prohibited by the terms of this Agreement; and
(c) any Subsidiary may sell all or substantially all of
its assets (upon voluntary liquidation, dissolution or otherwise), to the
Company or a Wholly-Owned Subsidiary.
8.04 Loans and Investments. The Company shall not purchase or
acquire, or suffer or permit any Subsidiary to purchase or acquire, or make any
commitment therefor, any capital stock, equity interest, or any obligations or
other securities of, or any interest in, any Person, or make or commit to make
any Acquisitions, or make or commit to make any advance, loan, extension of
credit (including the incurrence of a Guaranty Obligation)
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or capital contribution to or any other investment in, any Person including any
Affiliate of the Company (together, "Investments"), except for:
(a) Investments held by the Company or Subsidiary in the
form of cash equivalents;
(b) extensions of credit in the nature of accounts
receivable or notes receivable arising from the sale or lease of goods or
services in the ordinary course of business;
(c) Investments in Persons not engaged in lines of
business other than the Permitted Lines of Business; and
(d) Investments in Persons engaged in lines of business
other than Permitted Lines of Business, provided that such Investments in the
aggregate outstanding do not exceed at any time ten percent (10%) of
Consolidated Net Worth.
8.05 Transactions with Affiliates. The Company shall not, and shall
not suffer or permit any Subsidiary to, enter into any transaction (other than
executive compensation approved by the Compensation Committee of the Company's
Board of Directors) with any Affiliate of the Company, except upon fair and
reasonable terms no less favorable to the Company or such Subsidiary than would
obtain in a comparable arm's-length transaction with a Person not an Affiliate
of the Company or such Subsidiary.
8.06 Use of Proceeds. (a) The Company shall not, and shall not
suffer or permit any Subsidiary to, use any portion of the Loan proceeds or any
Letter of Credit, directly or indirectly, (i) to purchase or carry Margin
Stock, (ii) to repay or otherwise refinance indebtedness of the Company or
others incurred to purchase or carry Margin Stock, (iii) to extend credit for
the purpose of purchasing or carrying any Margin Stock, or (iv) to acquire any
security in any transaction that is subject to Section 13 or 14 of the Exchange
Act.
(b) The Company shall not, directly or indirectly, use
any portion of the Loan proceeds or any Letter of Credit (i) knowingly to
purchase Ineligible Securities from the Arranger during any period in which the
Arranger makes a market in such Ineligible Securities, (ii) knowingly to
purchase during the underwriting or placement period Ineligible Securities
being underwritten or privately placed by the Arranger, or (iii) to make
payments of principal or interest on Ineligible Securities underwritten or
privately placed by the Arranger and issued by or for the benefit of the
Company or any Affiliate of the Company. The Arranger is a registered
broker-dealer and permitted to underwrite and deal in certain Ineligible
Securities; and "Ineligible Securities" means securities which may not be
underwritten or dealt in by member banks of the Federal Reserve System under
Section 16 of the Banking Act of 1933 (12 U.S.C. Section 24, Seventh), as
amended.
8.07 Joint Ventures. The Company shall not, and shall not suffer or
permit any Subsidiary to, enter into any Joint Venture, other than in the
ordinary course of business.
8.08 Change in Structure; Subsidiary Borrowers. The Company shall
not, and shall not permit any Subsidiary to, make any changes in its capital
structure (including, without limitation, in the terms of its outstanding
capital stock) or amend its articles or certificate of incorporation or by-laws
in a manner that will adversely affect performance of the obligations under the
Loan Documents. For so long as a Subsidiary shall be a Subsidiary Borrower
hereunder, such Subsidiary shall be a Wholly-Owned Subsidiary of the Company.
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8.09 ERISA. The Company shall not, and shall not suffer or permit
any of its ERISA Affiliates to: (a) engage in a prohibited transaction or
violation of the fiduciary responsibility rules with respect to any Plan which
has resulted or could reasonably expected to result in a Material Adverse
Effect; or (b) engage in a transaction that could be subject to Section 4069 or
4212(c) of ERISA.
8.10 Change in Business. The Company shall not, and shall not
suffer or permit any Subsidiary or SPV to, engage in any material line of
business substantially different from the Permitted Lines of Business, except
as permitted by Section 8.04(d) of this Agreement. As used in this Agreement,
"Permitted Lines of Business" means those lines of business carried on by the
Company and its Subsidiaries on the date hereof, and includes any line of
business that is considered part of the oilfield services or energy and
petroleum industries.
8.11 Accounting Changes. The Company shall not, and shall not
suffer or permit any Subsidiary to, make any significant change in accounting
treatment or reporting practices, except as permitted by GAAP.
8.12 Foreign Subsidiary Indebtedness. The Company shall not permit
any Foreign Subsidiary to create, incur or suffer to exist any Indebtedness,
except (i) Indebtedness owed to the Company or to a Wholly-Owned Subsidiary of
the Company, and (ii) Indebtedness, other than Indebtedness owed to the Company
or to a Wholly-Owned Subsidiary of the Company, in an aggregate amount for all
such Foreign Subsidiaries not to exceed 10% of Consolidated Net Worth at any
time. For purposes of determining the amount of "Indebtedness" under this
Section 8.12, any guaranties issued by a Foreign Subsidiary with respect to
Indebtedness of a Borrower or Guarantor shall constitute "Indebtedness" of such
Foreign Subsidiary.
8.13 Capitalization Ratio.
(a) The Company shall not permit the Capitalization Ratio
to be greater than the amounts specified at any time during the periods
specified below, to-wit:
<TABLE>
<CAPTION>
Period Maximum Capitalization Ratio
------ ----------------------------
<S> <C>
From and including the Closing Date through and
including September 29, 1998 0.50 : 1.00
From and including September 30, 1998 through and
including September 29, 1999 0.45 : 1.00
From and including September 30, 1999 through and
including the Maturity Date 0.40 : 1.00
</TABLE>
8.14 Minimum Net Worth. The Company will not permit its
Consolidated Net Worth at any time to be less than the sum of (i) $530,514,000,
plus (ii) 50% of Consolidated Net Income for each fiscal quarter beginning with
the fiscal quarter ending September 30, 1997 (provided that no negative
adjustment will be made for any fiscal quarter in the event that Consolidated
Net Income is a deficit figure for such fiscal quarter).
8.15 Interest Coverage Ratio. The Company shall not permit (as of
the end of any fiscal quarter) the Interest Coverage Ratio for any period of
four consecutive fiscal quarters to be less than the 3.00 to 1.00.
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<PAGE> 60
8.16 Subsidiary Dividends. The Company will not, and it will not
permit any of its Subsidiaries to, be a party to or enter into any agreement,
instrument or other document which prohibits or restricts in any way, or to
otherwise, directly or indirectly, create or cause or suffer to exist or become
effective any encumbrance or restriction on the ability of any Subsidiary of
the Company to (i) pay dividends or make any other distributions in respect of
its capital stock or any other equity interest or participation in any
Subsidiary, or pay or repay any Indebtedness owed to the Company or any
Subsidiary, (ii) make loans or advances to the Company or (iii) transfer any of
its properties or assets to the Company or any Subsidiary (subject to the
rights of any holder of a Lien on any such properties or assets which Lien is a
Permitted Lien). Notwithstanding the foregoing, this Section 8.16 shall not
prohibit a Foreign Subsidiary from entering into or being a party to agreements
of the type customarily entered into by Persons engaged in the same or similar
business under similar circumstances in such countries.
8.17 Debt of SPVs; No Liens or Stock Held by SPVs. Neither the
Company nor any Subsidiary shall at any time (a) be directly or indirectly
liable, by virtue of the Company or such Subsidiary being the primary obligor
on, or a guarantor of (by way of Guaranty Obligation, statute, common law or
otherwise), or otherwise contractually liable in any respect on, any
Indebtedness of any SPV or (b) create or suffer to exist, upon or with respect
to any part of its property, any Liens to secure any obligations owed by an
SPV, except for Liens on the stock of an SPV permitted pursuant to Section
8.01(a)(xvi). The Company shall not permit any SPV to own or hold, directly or
indirectly, any capital stock of, or any interest in or Lien on any property
of, the Company or any Subsidiary.
ARTICLE IX
EVENTS OF DEFAULT
9.01 Event of Default. Any of the following shall constitute an
"Event of Default":
(a) Non-Payment. Any Borrower fails to pay (i) when and
as required to be paid herein, any amount of principal of any Loan or of any
L/C Obligation, or (ii) within five (5) Business Days after the same becomes
due, any interest, fee or other amount payable hereunder or under any other
Loan Document; or
(b) Representation or Warranty. Any representation or
warranty by the Company or any other Borrower or any Guarantor made or deemed
made herein, in any other Loan Document, or which is contained in any
certificate, document or financial or other statement by the Company, any
Subsidiary, or any Responsible Officer, furnished at any time under this
Agreement, or in or under any other Loan Document, is incorrect in any material
respect on or as of the date made or deemed made; or
(c) Specific Defaults. The Company fails to perform or
observe any term contained in Section 7.03(a) or Article VIII; or
(d) Other Defaults. The Company or any other Borrower or
Guarantor party thereto fails to perform or observe any other term or covenant
contained in this Agreement or any other Loan Document, and such default shall
continue unremedied for a period of 30 days after the date upon which written
notice thereof is given to the Company by Agent or any Bank;
(e) Cross-Default. The Company or any Subsidiary (A)
fails to make any payment in respect of any Indebtedness or Contingent
Obligation having an aggregate principal amount (including amounts owing to all
creditors under any combined or
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syndicated credit arrangement) of more than $10,000,000 when due (whether by
scheduled maturity, required prepayment, acceleration, demand, or otherwise)
and such failure continues after the applicable grace or notice period, if any,
specified in the relevant document on the date of such failure; or (B) fails to
perform or observe any other condition or covenant, or any other event shall
occur or condition exist, under any agreement or instrument relating to any
such Indebtedness or Contingent Obligation, if the effect of such failure,
event or condition is to cause, or to permit the holder or holders of such
Indebtedness or beneficiary or beneficiaries of such Indebtedness (or a trustee
or agent on behalf of such holder or holders or beneficiary or beneficiaries)
to cause such Indebtedness to be declared to be due and payable prior to its
stated maturity or such Contingent Obligation to become payable or cash
collateral in respect thereof to be demanded; or
(f) Insolvency; Voluntary Proceedings. The Company, any
Subsidiary Borrower, any Subsidiary Guarantor or any Material Subsidiary (i)
ceases or fails to be solvent, or generally fails to pay, or admits in writing
its inability to pay, its debts as they become due, subject to applicable grace
periods, if any, whether at stated maturity or otherwise; (ii) voluntarily
ceases to conduct its business in the ordinary course; (iii) commences any
Insolvency Proceeding with respect to itself; or (iv) takes any action to
effectuate or authorize any of the foregoing; or
(g) Involuntary Proceedings. (i) Any involuntary
Insolvency Proceeding is commenced or filed against the Company, any Subsidiary
Borrower, any Subsidiary Guarantor or any Material Subsidiary, or any writ,
judgment, warrant of attachment, execution or similar process, is issued or
levied against a substantial part of the Company's, any Subsidiary Borrower's,
any Subsidiary Guarantor's or any Material Subsidiary's properties, and any
such proceeding or petition shall not be dismissed, or such writ, judgment,
warrant of attachment, execution or similar process shall not be released,
vacated or fully bonded within 60 days after commencement, filing or levy; (ii)
the Company, any Subsidiary Borrower, any Subsidiary Guarantor or any Material
Subsidiary admits the material allegations of a petition against it in any
Insolvency Proceeding, or an order for relief (or similar order under non-U.S.
law) is ordered in any Insolvency Proceeding; or (iii) the Company, any
Subsidiary Borrower, any Subsidiary Guarantor or any Material Subsidiary
acquiesces in the appointment of a receiver, trustee, custodian, conservator,
liquidator, mortgagee in possession (or agent therefor), or other similar
Person for itself or a substantial portion of its property or business; or
(h) ERISA. (i) An ERISA Event shall occur with respect to
a Pension Plan or Multiemployer Plan which has resulted in an unsatisfied
liability of the Company or any Material Subsidiary under Title IV of ERISA to
the Pension Plan, Multiemployer Plan or the PBGC in an aggregate amount in
excess of $10,000,000; the aggregate amount of Unfunded Pension Liability among
all Pension Plans at any time exceeds $10,000,000; or (ii) the Company or any
ERISA Affiliate shall fail to pay when due, after the expiration of any
applicable grace period, any installment payment with respect to its withdrawal
liability under Section 4201 of ERISA under a Multiemployer Plan in an
aggregate amount in excess of $10,000,000; or
(i) Monetary Judgments. One or more non-interlocutory
judgments, non-interlocutory orders, decrees or arbitration awards is entered
against the Company or any Material Subsidiary involving in the aggregate a
liability (to the extent not covered by independent third-party insurance as to
which the insurer does not dispute coverage) as to any single or related series
of transactions, incidents or conditions, of $10,000,000 or more, and the same
shall remain unsatisfied, unvacated and unstayed pending appeal for a period of
30 days after the entry thereof; or
(j) Change of Control. There occurs any Change of Control; or
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<PAGE> 62
(k) Guarantor Defaults. Any Guaranty is for any reason
(other than sale of a Subsidiary Guarantor as is permitted by this Agreement)
partially (including with respect to future advances) or wholly revoked or
invalidated, or otherwise ceases to be in full force and effect, or any
Guarantor or any other Person contests in any material respect the validity or
enforceability thereof or denies that it has any further liability or
obligation thereunder.
9.02 Remedies. If any Event of Default occurs and is continuing,
the Agent shall, at the request of, or may, with the consent of, the Majority
Banks,
(a) declare the commitment of each Bank to make Loans and
any obligation of the Issuing Bank to Issue Letters of Credit to be terminated,
whereupon such commitments and obligation shall be terminated;
(b) declare an amount equal to the maximum aggregate
amount that is or at any time thereafter may become available for drawing under
any outstanding Letters of Credit (whether or not any beneficiary shall have
presented, or shall be entitled at such time to present, the drafts or other
documents required to draw under such Letters of Credit) to be immediately due
and payable, and declare the unpaid principal amount of all outstanding Loans,
all interest accrued and unpaid thereon, and all other amounts owing or payable
hereunder or under any other Loan Document to be immediately due and payable,
without presentment, demand, protest, notice of intent to accelerate, notice of
acceleration or other notice of any kind, all of which are hereby expressly
waived by the Company and the other Borrowers;
(c) require cash collateral as provided in Section 3.07;
and
(d) exercise on behalf of itself and the Banks all rights
and remedies available to it and the Banks under the Loan Documents or
applicable law;
provided, however, that upon the occurrence of any event specified in
subsection (f) or (g) of Section 9.01 (in the case of clause (i) of subsection
(g) upon the expiration of the 60-day period mentioned therein), the obligation
of each Bank to make Loans and any obligation of the Issuing Bank to Issue
Letters of Credit shall automatically terminate, the unpaid principal amount of
all outstanding Loans and all interest and other amounts as aforesaid shall
automatically become due and payable without further act of the Agent, the
Issuing Bank or any Bank cash collateral as set forth in Section 3.07 shall
automatically be due and payable, in each case without further act of the
Agent, the Issuing Bank or any Bank and without presentment, demand, protest,
notice of intention to accelerate, notice of acceleration or any other notice
of any kind, all of which are hereby expressly waived by the Company and each
other Borrower.
9.03 Rights Not Exclusive. The rights provided for in this
Agreement and the other Loan Documents are cumulative and are not exclusive of
any other rights, powers, privileges or remedies provided by law or in equity,
or under any other instrument, document or agreement now existing or hereafter
arising.
ARTICLE X
THE AGENT
10.01 Appointment and Authorization; Agent. (a) Each Bank hereby
irrevocably (subject to Section 10.09) appoints, designates and authorizes the
Agent to take such action on its behalf under the provisions of this Agreement
and each other Loan Document
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<PAGE> 63
and to exercise such powers and perform such duties as are expressly delegated
to it by the terms of this Agreement or any other Loan Document, together with
such powers as are reasonably incidental thereto. Notwithstanding any provision
to the contrary contained elsewhere in this Agreement or in any other Loan
Document, the Agent shall not have any duties or responsibilities, except those
expressly set forth herein, nor shall the Agent have or be deemed to have any
fiduciary relationship with any Bank, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the Agent.
Without limiting the generality of the foregoing sentence, the use of the term
"agent" in this Agreement with reference to the Agent is not intended to
connote any fiduciary or other implied (or express) obligations arising under
agency doctrine of any applicable law. Instead, such term is used merely as a
matter of market custom, and is intended to create or reflect only an
administrative relationship between independent contracting parties.
(b) The Issuing Bank shall act on behalf of the Banks
with respect to any Letters of Credit Issued by it and the documents associated
therewith until such time and except for so long as the Agent may agree at the
request of the Majority Banks to act for such Issuing Bank with respect
thereto; provided, however, that the Issuing Bank shall have all of the
benefits and immunities (i) provided to the Agent in this Article X with
respect to any acts taken or omissions suffered by the Issuing Bank in
connection with Letters of Credit Issued by it or proposed to be Issued by it
and the application and agreements for letters of credit pertaining to the
Letters of Credit as fully as if the term "Agent", as used in this Article X,
included the Issuing Bank with respect to such acts or omissions, and (ii) as
additionally provided in this Agreement with respect to the Issuing Bank.
10.02 Delegation of Duties. The Agent may execute any of its duties
under this Agreement or any other Loan Document by or through agents, employees
or attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agent or attorney-in-fact that it selects with
reasonable care.
10.03 Liability of Agent-Related Persons and Documentation Agent.
None of the Agent-Related Persons nor the Documentation Agent shall (i) be
liable for any action taken or omitted to be taken by any of them under or in
connection with this Agreement or any other Loan Document or the transactions
contemplated hereby (except for its own gross negligence or willful
misconduct), or (ii) be responsible in any manner to any of the Banks for any
recital, statement, representation or warranty made by the Company or any
Subsidiary or Affiliate of the Company, or any officer thereof, contained in
this Agreement or in any other Loan Document, or in any certificate, report,
statement or other document referred to or provided for in, or received by the
Agent or the Documentation Agent under or in connection with, this Agreement or
any other Loan Document, or the validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document, or
for any failure of the Company or any other party to any Loan Document to
perform its obligations hereunder or thereunder. None of the Agent-Related
Persons nor the Documentation Agent shall be under any obligation to any Bank
to ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of the Company or any
of the Company's Subsidiaries or Affiliates.
10.04 Reliance by Agent. (a) The Agent shall be entitled to rely,
and shall be fully protected in relying, upon any writing, resolution, notice,
consent, certificate, affidavit, letter, telegram, facsimile, telex or
telephone message, statement or other document or conversation believed by it
to be genuine and correct and to have been signed, sent or made by the proper
Person or Persons, and upon advice and statements of
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legal counsel (including counsel to the Company), independent accountants and
other experts selected by the Agent. The Agent shall be fully justified in
failing or refusing to take any action under this Agreement or any other Loan
Document unless it shall first receive such advice or concurrence of the
Majority Banks as it deems appropriate and, if it so requests, it shall first
be indemnified to its satisfaction by the Banks against any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action. The Agent shall in all cases be fully protected in
acting, or in refraining from acting, under this Agreement or any other Loan
Document in accordance with a request or consent of the Majority Banks and such
request and any action taken or failure to act pursuant thereto shall be
binding upon all of the Banks.
(b) For purposes of determining compliance with the
conditions specified in Section 5.01, each Bank that has executed this
Agreement shall be deemed to have consented to, approved or accepted or to be
satisfied with, each document or other matter either sent by the Agent to such
Bank for consent, approval, acceptance or satisfaction, or required thereunder
to be consented to or approved by or acceptable or satisfactory to the Bank.
10.05 Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default,
except with respect to defaults in the payment of principal, interest and fees
required to be paid to the Agent for the account of the Banks, unless the Agent
shall have received written notice from a Bank or a Borrower referring to this
Agreement, describing such Default or Event of Default and stating that such
notice is a "notice of default". The Agent will notify the Banks of its receipt
of any such notice. Subject to subsection 10.04(a), the Agent shall take such
action with respect to such Default or Event of Default as may be requested by
the Majority Banks in accordance with Article IX; provided, however, that
unless and until the Agent has received any such request, the Agent may (but
shall not be obligated to) take such action, or refrain from taking such
action, with respect to such Default or Event of Default as it shall deem
advisable or in the best interest of the Banks.
10.06 Credit Decision. Each Bank acknowledges that none of the
Agent-Related Persons nor the Documentation Agent has made any representation
or warranty to it, and that no act by any Agent-Related Person or the
Documentation Agent hereinafter taken, including any review of the affairs of
the Company and its Subsidiaries, shall be deemed to constitute any
representation or warranty by any Agent-Related Person or the Documentation
Agent to any Bank. Each Bank represents to the Agent and the Documentation
Agent that it has, independently and without reliance upon any Agent- Related
Person or the Documentation Agent and based on such documents and information
as it has deemed appropriate, made its own appraisal of and investigation into
the business, prospects, operations, property, financial and other condition
and creditworthiness of the Company and its Subsidiaries, and all applicable
bank regulatory laws relating to the transactions contemplated hereby, and made
its own decision to enter into this Agreement and to extend credit to the
Borrowers hereunder. Each Bank also represents that it will, independently and
without reliance upon any Agent-Related Person or the Documentation Agent and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit analysis, appraisals and decisions in
taking or not taking action under this Agreement and the other Loan Documents,
and to make such investigations as it deems necessary to inform itself as to
the business, prospects, operations, property, financial and other condition
and creditworthiness of the Borrowers. Except for notices, reports and other
documents expressly herein required to be furnished to the Banks by the Agent,
neither the Agent nor the Documentation Agent shall not have any duty or
responsibility to provide any Bank with any credit or other information
concerning the business, prospects, operations, property, financial and other
condition or creditworthiness of the Borrowers which may
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come into the possession of any of the Agent-Related Persons or the
Documentation Agent.
10.07 Indemnification of Agent-Related Persons and Documentation
Agent. Whether or not the transactions contemplated hereby are consummated, the
Banks shall indemnify upon demand each Agent-Related Person and the
Documentation Agent (to the extent not reimbursed by or on behalf of the
Borrowers and without limiting the obligation of the Borrowers to do so), pro
rata, from and against any and all Indemnified Liabilities; provided, however,
that no Bank shall be liable for the payment to any such indemnified Person of
any portion of such Indemnified Liabilities resulting solely from such Person's
gross negligence or willful misconduct. Without limitation of the foregoing,
each Bank shall reimburse the Agent upon demand for its ratable share of any
costs and out-of-pocket expenses (including Attorney Costs) incurred by the
Agent in connection with the preparation, execution, delivery, administration,
modification, amendment or enforcement (whether through negotiations, legal
proceedings or otherwise) of, or legal advice in respect of rights or
responsibilities under, this Agreement, any other Loan Document, or any
document contemplated by or referred to herein, to the extent that the Agent is
not reimbursed for such expenses by or on behalf of the Borrowers. The
undertaking in this Section shall survive the payment of all Obligations
hereunder and the resignation or replacement of the Agent or the Documentation
Agent.
10.08 Agent and Documentation Agent in Individual Capacity. Each of
BofA, Wells Fargo Bank (Texas), N.A. ("WFB") and their respective Affiliates
may make loans to, issue letters of credit for the account of, accept deposits
from, acquire equity interests in and generally engage in any kind of banking,
trust, financial advisory, underwriting or other business with the Company and
its Subsidiaries and Affiliates as though BofA were not the Agent or the
Issuing Bank hereunder, and as though WFB were not the Documentation Agent
hereunder, and without notice to or consent of the Banks. The Banks acknowledge
that, pursuant to such activities, BofA or its Affiliates and WFB or its
Affiliates may receive information regarding the Company or its Subsidiaries or
Affiliates (including information that may be subject to confidentiality
obligations in favor of the Company or such Subsidiary or Affiliate) and
acknowledge that neither the Agent-Related Persons nor WFB shall be under any
obligation to provide such information to them. With respect to their
respective Loans, each of BofA and WFB shall have the same rights and powers
under this Agreement as any other Bank and may exercise the same as though it
were not the Agent or the Issuing Bank, or the Documentation Agent,
respectively.
10.09 Successor Agent. The Agent may, and at the request of the
Majority Banks shall, resign as Agent upon 30 days' notice to the Banks. If the
Agent resigns under this Agreement, the Majority Banks shall appoint from among
the Banks a successor agent for the Banks. If no successor agent is appointed
prior to the effective date of the resignation of the Agent, the Agent may
appoint, after consulting with the Banks and the Company, a successor agent
from among the Banks. Upon the acceptance of its appointment as successor agent
hereunder, such successor agent shall succeed to all the rights, powers and
duties of the retiring Agent and the term "Agent" shall mean such successor
agent and the retiring Agent's appointment, powers and duties as Agent shall be
terminated. After any retiring Agent's resignation hereunder as Agent, the
provisions of this Article X and Sections 11.04 and 11.05 shall inure to its
benefit as to any actions taken or omitted to be taken by it while it was Agent
under this Agreement. If no successor agent has accepted appointment as Agent
by the date which is 30 days following a retiring Agent's notice of
resignation, the retiring Agent's resignation shall nevertheless thereupon
become effective and the Banks shall perform all of the duties of the Agent
hereunder until such time, if any, as the Majority Banks appoint a successor
agent as provided for above. Notwithstanding the foregoing, however, BofA may
not be removed as the Agent at the request of the Majority Banks unless BofA
shall also simultaneously be replaced as
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"Issuing Bank" hereunder pursuant to documentation in form and substance
reasonably satisfactory to BofA.
10.10 Withholding Tax. (a) If any Bank is a "foreign corporation,
partnership or trust" within the meaning of the Code and such Bank claims
exemption from, or a reduction of, U.S. withholding tax under Sections 1441 or
1442 of the Code, such Bank agrees with and in favor of the Agent and the
Borrowers, to deliver to the Agent:
(i) if such Bank claims an exemption from, or a
reduction of, withholding tax under a United States tax treaty, two
properly completed and executed copies of IRS Form 1001 before the
payment of any interest in the first calendar year and before the
payment of any interest in each third succeeding calendar year during
which interest may be paid under this Agreement;
(ii) if such Bank claims that interest paid under
this Agreement is exempt from United States withholding tax because it
is effectively connected with a United States trade or business of
such Bank, two properly completed and executed copies of IRS Form 4224
before the payment of any interest is due in the first taxable year of
such Bank and in each succeeding taxable year of such Bank during
which interest may be paid under this Agreement; and
(iii) such other form or forms as may be required
under the Code or other laws of the United States as a condition to
exemption from, or reduction of, United States withholding tax.
Such Bank agrees to promptly notify the Agent of any change in circumstances
which would modify or render invalid any claimed exemption or reduction.
(b) If any Bank claims exemption from, or reduction of,
withholding tax under a United States tax treaty by providing IRS Form 1001 and
such Bank sells, assigns, grants a participation in, or otherwise transfers all
or part of the Obligations of the Borrowers to such Bank, such Bank agrees to
notify the Agent of the percentage amount in which it is no longer the
beneficial owner of Obligations of the Borrowers to such Bank. To the extent of
such percentage amount, the Agent will treat such Bank's IRS Form 1001 as no
longer valid.
(c) If any Bank claiming exemption from United States
withholding tax by filing IRS Form 4224 with the Agent sells, assigns, grants a
participation in, or otherwise transfers all or part of the Obligations of the
Borrowers to such Bank, such Bank agrees to undertake sole responsibility for
complying with the withholding tax requirements imposed by Sections 1441 and
1442 of the Code.
(d) If any Bank is entitled to a reduction in the
applicable withholding tax, the Agent may withhold from any interest payment to
such Bank an amount equivalent to the applicable withholding tax after taking
into account such reduction. However, if the forms or other documentation
required by subsection (a) of this Section are not delivered to the Agent, then
the Agent may withhold from any interest payment to such Bank not providing
such forms or other documentation an amount equivalent to the applicable
withholding tax without reduction.
(e) If the IRS or any other Governmental Authority of the
United States or other jurisdiction asserts a claim that the Agent did not
properly withhold tax from amounts paid to or for the account of any Bank
(because the appropriate form was not delivered or was not properly executed,
or because such Bank failed to notify the Agent of
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a change in circumstances which rendered the exemption from, or reduction of,
withholding tax ineffective, or for any other reason, other than by reason of
the Agent's gross negligence or willful misconduct) such Bank shall indemnify
the Agent fully for all amounts paid, directly or indirectly, by the Agent as
tax or otherwise, including penalties and interest, and including any taxes
imposed by any jurisdiction on the amounts payable to the Agent under this
Section, together with all costs and expenses (including Attorney Costs). The
obligation of the Banks under this subsection shall survive the payment of all
Obligations and the resignation or replacement of the Agent.
10.11 Documentation Agent; Arranger. The Documentation Agent shall
not have any right, power, obligation, liability, responsibility or duty under
this Agreement other than those applicable to all Banks as such. The Arranger
shall not have any obligations, liabilities, responsibilities or duties under
this Agreement or the other Loan Documents. Without limiting the foregoing,
neither the Documentation Agent nor the Arranger, shall have or be deemed to
have any fiduciary relationship with any Bank. Each Bank acknowledges that it
has not relied, and will not rely, on the Documentation Agent or on the
Arranger in deciding to enter into this Agreement or in taking or not taking
action hereunder.
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ARTICLE XI
MISCELLANEOUS
11.01 Amendments and Waivers. No amendment or waiver of any
provision of this Agreement or any other Loan Document, and no consent with
respect to any departure by the Company or any applicable Subsidiary therefrom,
shall be effective unless the same shall be in writing and signed by the
Majority Banks (or by the Agent at the written request of the Majority Banks)
and the Company (or Subsidiary, as applicable) and acknowledged by the Agent,
and then any such amendment, waiver or consent shall be effective only in the
specific instance and for the specific purpose for which given; provided,
however, that no such waiver, amendment, or consent shall, unless in writing
and signed by all the Banks and the Company and acknowledged by the Agent, do
any of the following:
(a) increase or extend the Commitment of any Bank (or
reinstate any Commitment terminated pursuant to Section 9.02);
(b) postpone or delay any date fixed by this Agreement or
any other Loan Document for any payment of principal, interest, fees or other
amounts due to the Banks (or any of them) hereunder or under any other Loan
Document;
(c) reduce the principal of, or the rate of interest
specified herein on any Loan, or (subject to clause (iii) below) any fees or
other amounts payable hereunder or under any other Loan Document;
(d) change the percentage of the Commitments or of the
aggregate unpaid principal amount of the Loans which is required for the Banks
or any of them to take any action hereunder;
(e) amend this Section, or Section 2.14, or any provision
herein providing for consent or other action by all Banks; or
(f) discharge any Guarantor;
and, provided further, that (i) no amendment, waiver or consent shall, unless
in writing and signed by the Issuing Bank in addition to the Majority Banks or
all the Banks, as the case may be, affect the rights or duties of the Issuing
Bank under this Agreement or any L/C-Related Document relating to any Letter of
Credit Issued or to be Issued by it, (ii) no amendment, waiver or consent
shall, unless in writing and signed by the Agent in addition to the Majority
Banks or all the Banks, as the case may be, affect the rights or duties of the
Agent under this Agreement or any other Loan Document, and (iii) the Fee Letter
may be amended, or rights or privileges thereunder waived, only in a writing
executed by the parties thereto.
11.02 Notices. (a) All notices, requests, consents, approvals,
waivers and other communications shall be in writing (including, unless the
context expressly otherwise provides, by facsimile transmission, provided that
any matter transmitted by the Company or any other Borrower by facsimile (i)
shall be immediately confirmed by a telephone call to the recipient at the
number specified on Schedule 11.02, and (ii) shall be followed promptly by
delivery of a hard copy original thereof) and mailed, faxed or delivered, to
the address or facsimile number specified for notices on Schedule 11.02; or, as
directed to the Company or the Agent, to such other address as shall be
designated by such party in a written notice to the other parties, and as
directed to any other party, at such other address as shall be designated by
such party in a written notice to the Company and the Agent.
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(b) All such notices, requests and communications shall,
when transmitted by overnight delivery, or faxed, be effective when delivered
for overnight (next Business Day) delivery, or transmitted in legible form by
facsimile machine, respectively, or if mailed, upon the third Business Day
after the date deposited into the U.S. mail, or if delivered, upon delivery;
except that notices pursuant to Article II, III or X to the Agent shall not be
effective until actually received by the Agent, and notices pursuant to Article
III to the Issuing Bank shall not be effective until actually received by the
Issuing Bank at the address specified for the "Issuing Bank" on the applicable
signature page hereof.
(c) Any agreement of the Agent and the Banks herein to
receive certain notices by telephone or facsimile is solely for the convenience
and at the request of the Borrowers. Accordingly, the Agent and the Banks shall
be entitled to rely on the authority of any Person purporting to be a Person
authorized by the Company or any other Borrower to give such notice and the
Agent and the Banks shall not have any liability to the Company or any other
Borrower or other Person on account of any action taken or not taken by the
Agent or the Banks in reliance upon such telephonic or facsimile notice. The
obligation of the Borrowers to repay the Loans and L/C Obligations shall not be
affected in any way or to any extent by any failure by the Agent and the Banks
to receive written confirmation of any telephonic or facsimile notice or the
receipt by the Agent and the Banks of a confirmation which is at variance with
the terms understood by the Agent and the Banks to be contained in the
telephonic or facsimile notice.
11.03 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of the Agent or any Bank, any right, remedy,
power or privilege hereunder, shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, remedy, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege.
11.04 Costs and Expenses. Each of the Company and the other
Borrowers agree, jointly and severally, to:
(a) whether or not the transactions contemplated hereby
are consummated, pay or reimburse BofA (including in its capacity as Agent and
Issuing Bank) within fifteen Business Days after demand (subject to subsection
5.01(e)) for all costs and expenses incurred by BofA (including in its capacity
as Agent and Issuing Bank) in connection with the development, preparation,
delivery, administration and execution of, and any amendment, supplement,
waiver or modification to (in each case, whether or not consummated), this
Agreement, any Loan Document and any other documents prepared in connection
herewith or therewith, and the consummation of the transactions contemplated
hereby and thereby, including reasonable Attorney Costs incurred by BofA
(including in its capacity as Agent and Issuing Bank) with respect thereto; and
(b) pay or reimburse the Agent, the Arranger and each
Bank within five Business Days after demand (subject to subsection 5.01(e)) for
all costs and expenses (including Attorney Costs) incurred by them in
connection with the enforcement, attempted enforcement, or preservation of any
rights or remedies under this Agreement or any other Loan Document during the
existence of an Event of Default or after acceleration of the Loans (including
in connection with any "workout" or restructuring regarding the Loans, and
including in any Insolvency Proceeding or appellate proceeding).
11.05 Indemnification. Whether or not the transactions contemplated
hereby are consummated, each of the Borrowers, jointly and severally, shall
indemnify, defend and hold the Agent-Related Persons, the Documentation Agent,
and each Bank and each of their respective officers, directors, employees,
counsel, agents and attorneys-in-fact (each,
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an "Indemnified Person") harmless from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
charges, expenses and disbursements (including Attorney Costs) of any kind or
nature whatsoever which may at any time (including at any time following
repayment of the Loans, the termination of the Letters of Credit and the
termination, resignation or replacement of the Agent or the Documentation Agent
or replacement of any Bank) be imposed on, incurred by or asserted against any
such Indemnified Person in any way relating to or arising out of this Agreement
or any document contemplated by or referred to herein, or the transactions
contemplated hereby, or any action taken or omitted by any such Indemnified
Person under or in connection with any of the foregoing, including with respect
to any investigation, litigation or proceeding (including any Insolvency
Proceeding or appellate proceeding) related to or arising out of this Agreement
or the Loans or Letters of Credit or the use of the proceeds thereof, whether
or not any Indemnified Person is a party thereto (all the foregoing,
collectively, the "Indemnified Liabilities"); provided, that the Borrowers
shall have no obligation hereunder to any Indemnified Person with respect to
Indemnified Liabilities resulting solely from the gross negligence or willful
misconduct of such Indemnified Person. The agreements in this Section shall
survive payment of all other Obligations.
11.06 Payments Set Aside. To the extent that one or more of the
Borrowers makes a payment to the Agent or the Banks, or the Agent or the Banks
exercise their right of set-off, and such payment or the proceeds of such
set-off or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside or required (including pursuant to any
settlement entered into by the Agent or such Bank in its discretion) to be
repaid to a trustee, receiver or any other party, in connection with any
Insolvency Proceeding or otherwise, then (a) to the extent of such recovery the
obligation or part thereof originally intended to be satisfied shall be revived
and continued in full force and effect as if such payment had not been made or
such set-off had not occurred, and (b) each Bank severally agrees to pay to the
Agent upon demand its pro rata share of any amount so recovered from or repaid
by the Agent.
11.07 Successors and Assigns. The provisions of this Agreement shall
be binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, except that no Borrower may assign or
transfer any of its rights or obligations under this Agreement without the
prior written consent of the Agent and each Bank.
11.08 Assignments, Participations, etc. (a) Any Bank may, with the
written consent of the Company at all times other than during the existence of
an Event of Default and the Agent and the Issuing Bank, which consents shall
not be unreasonably withheld, at any time assign and delegate to one or more
Eligible Assignees (provided that no written consent of the Company, the Agent
or the Issuing Bank shall be required in connection with any assignment and
delegation by a Bank to an Eligible Assignee that is an Affiliate of such Bank)
(each an "Assignee") all, or any ratable part of all, of the Loans, the
Commitments, the L/C Obligations and the other rights and obligations of such
Bank hereunder, in a minimum amount of $10,000,000 (or such lesser amount as
may than be held by such Bank); provided, however, that in the event a Bank
assigns less than all of its interests hereunder, it shall retain a Commitment
of not less than $10,000,000 after the consummation of the assignment;
provided, further, that the Borrowers and the Agent may continue to deal solely
and directly with an assigning Bank in connection with the interest so assigned
to an Assignee until (i) written notice of such assignment, together with
payment instructions, addresses and related information with respect to the
Assignee, shall have been given to the Company and the Agent by such Bank and
the Assignee; (ii) such Bank and its Assignee shall have delivered to the
Company and the Agent an Assignment and Acceptance in the form of Exhibit E
("Assignment and Acceptance"), together with any Note or Notes subject to such
assignment, and (iii) the assignor Bank or Assignee has paid to the Agent a
processing fee in the amount of $3,500.
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(b) From and after the date that the Agent notifies the
assignor Bank that it has received (and provided its consent with respect to)
an executed Assignment and Acceptance and payment of the above-referenced
processing fee, (i) the Assignee thereunder shall be a party hereto and, to the
extent that rights and obligations hereunder have been assigned to it pursuant
to such Assignment and Acceptance, shall have the rights and obligations of a
Bank under the Loan Documents, and (ii) the assignor Bank shall, to the extent
that rights and obligations hereunder and under the other Loan Documents have
been assigned by it pursuant to such Assignment and Acceptance, relinquish its
rights and be released from its obligations under the Loan Documents.
(c) Within ten Business Days after its receipt of notice
by the Agent that it has received an executed Assignment and Acceptance and
payment of the processing fee, (and provided that they consent to such
assignment in accordance with, and to the extent such consent is required
under, subsection 11.08(a)), if requested by the Assignee named in such
Assignment and Acceptance, the Borrowers shall execute and deliver to the
Agent, new Notes evidencing such Assignee's assigned Loans and Commitment and,
if the assignor Bank has retained a portion of its Loans and its Commitment and
if Assignor so requests, replacement Notes in the principal amount of the
Commitment retained by the assignor Bank (such Notes to be in exchange for, but
not in payment of, the Notes held by such Bank). Immediately upon each
Assignee's making its processing fee payment under the Assignment and
Acceptance, this Agreement shall be deemed to be amended to the extent, but
only to the extent, necessary to reflect the addition of the Assignee and the
resulting adjustment of the Commitments arising therefrom. The Commitment
allocated to each Assignee shall reduce such Commitments of the assigning Bank
pro tanto.
(d) Any Bank may at any time sell to one or more
commercial banks or other Persons not Affiliates of the Company (a
"Participant") participating interests in any Loans, the Commitment of that
Bank and the other interests of that Bank (the "originating Bank") hereunder
and under the other Loan Documents; provided, however, that (i) the originating
Bank's obligations under this Agreement shall remain unchanged, (ii) the
originating Bank shall remain solely responsible for the performance of such
obligations, (iii) the Company, the Issuing Bank and the Agent shall continue
to deal solely and directly with the originating Bank in connection with the
originating Bank's rights and obligations under this Agreement and the other
Loan Documents, and (iv) no Bank shall transfer or grant any participating
interest under which the Participant has rights to approve any amendment to, or
any consent or waiver with respect to, this Agreement or any other Loan
Document, except to the extent such amendment, consent or waiver would require
unanimous consent of the Banks as described in the first proviso to Section
11.01. In the case of any such participation, the Participant shall be entitled
to the benefit of Sections 4.01, 4.03 and 11.05 as though it were also a Bank
hereunder, and if amounts outstanding under this Agreement are due and unpaid,
or shall have been declared or shall have become due and payable upon the
occurrence of an Event of Default, each Participant shall be deemed to have the
right of set-off in respect of its participating interest in amounts owing
under this Agreement to the same extent as if the amount of its participating
interest were owing directly to it as a Bank under this Agreement.
(e) Notwithstanding any other provision in this
Agreement, any Bank may at any time create a security interest in, or pledge,
all or any portion of its rights under and interest in this Agreement and the
Notes held by it in favor of any Federal Reserve Bank in accordance with
Regulation A of the FRB or U.S. Treasury Regulation 31 CFR Section 203.14, and
such Federal Reserve Bank may enforce such pledge or security interest in any
manner permitted under applicable law.
11.09 Confidentiality. Each Bank agrees to take and to cause its
Affiliates to take normal and reasonable precautions and exercise due care to
maintain the confidentiality of
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all information identified as "confidential" or "secret" by the Company and
provided to it by the Company or any Subsidiary, or by the Agent on the
Company's or such Subsidiary's behalf, under this Agreement or any other Loan
Document, and neither it nor any of its Affiliates shall use any such
information other than in connection with or in enforcement of this Agreement
and the other Loan Documents or in connection with other business now or
hereafter existing or contemplated with the Company or any Subsidiary; except
to the extent such information (i) was or becomes generally available to the
public other than as a result of disclosure by the Bank, or (ii) was or becomes
available on a non-confidential basis from a source other than the Company,
provided that such source is not bound by a confidentiality agreement with the
Company known to the Bank; provided, however, that any Bank may disclose such
information (A) at the request or pursuant to any requirement of any
Governmental Authority to which the Bank is subject or in connection with an
examination of such Bank by any such authority; (B) pursuant to subpoena or
other court process; (C) when required to do so in accordance with the
provisions of any applicable Requirement of Law; (D) to the extent reasonably
required in connection with any litigation or proceeding to which the Agent,
any Bank or their respective Affiliates may be party; (E) to the extent
reasonably required in connection with the exercise of any remedy hereunder or
under any other Loan Document; (F) to such Bank's independent auditors and
other professional advisors; (G) with the consent of the Company (which consent
shall not be unreasonably withheld and which consent shall not be necessary
during the existence of an Event of Default), to any Assignee, actual or
potential, provided that such Person agrees in writing to keep such information
confidential to the same extent required of the Banks hereunder; (H) to any
Participant, actual or potential, provided that such Person agrees in writing
to keep such information confidential to the same extent required of the Banks
hereunder; and (I) to its Affiliates for use in connection with administration
of this Agreement.
11.10 Set-off. In addition to any rights and remedies of the Banks
provided by law, if an Event of Default exists or the Loans have been
accelerated, each Bank is authorized at any time and from time to time, without
prior notice to the Borrowers, any such notice being waived by the Borrowers to
the fullest extent permitted by law, to set off and apply any and all deposits
(general or special, time or demand, provisional or final) at any time held by,
and other indebtedness at any time owing by, such Bank to or for the credit or
the account of any one or more of the Borrowers against any and all Obligations
owing to such Bank, now or hereafter existing, irrespective of whether or not
the Agent or such Bank shall have made demand under this Agreement or any Loan
Document and although such Obligations may be contingent or unmatured. Each
Bank agrees promptly to notify the Company and the Agent after any such set-off
and application made by such Bank; provided, however, that the failure to give
such notice shall not affect the validity of such set-off and application.
11.11 Company as Subsidiary Borrower Representative. Each Subsidiary
Borrower hereby irrevocably designates and appoints the Company as the agent of
such Subsidiary Borrower under this Agreement and the other Loan Documents for
the purpose of receiving or giving notices and taking other actions permitted
or required to be taken by a Borrower pursuant to the terms of this Agreement
and the other Loan Documents. In furtherance of the foregoing, each Subsidiary
Borrower hereby irrevocably grants to the Company such Subsidiary Borrower's
power-of-attorney, and hereby authorizes the Company, to act in place of such
Subsidiary Borrower with respect to such matters pursuant to the terms of this
Agreement and the other Loan Documents and to take such other actions as are
reasonably incidental thereto. The Company hereby agrees to provide prompt
notice to the relevant Subsidiary Borrower of any action taken by the Company
under this Agreement and the other Loan Documents in place of such Subsidiary
Borrower, provided that the failure to so provide such notice shall not affect
the obligations of such Subsidiary Borrower hereunder. The Agent is hereby
authorized to
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direct to the Company all invoices and similar statements showing amounts due
by the Borrowers hereunder.
11.12 Interest. It is the intention of the parties hereto to comply
strictly with applicable usury laws; accordingly, notwithstanding any provision
to the contrary in this Agreement, the Notes or in any of the other Loan
Documents securing the payment hereof or otherwise relating hereto, in no event
shall this Agreement, the Notes or such other Loan Documents require or permit
the payment, charging, taking, reserving, or receiving of any sums constituting
interest under applicable laws which exceed the maximum nonusurious amount
permitted by such laws. If any such excess interest is contracted for, charged,
taken, reserved, or received in connection with the Loans evidenced by the
Notes or in any of the Loan Documents securing the payment hereof or otherwise
relating hereto, or in any communication by Agent or the Banks or any other
person to any Borrower or any other person, or in the event all or part of the
principal or interest thereof shall be prepaid or accelerated, so that under
any of such circumstances or under any other circumstance whatsoever the amount
of interest contracted for, charged, taken, reserved, or received on the amount
of principal actually outstanding from time to time under the Notes shall
exceed the maximum nonusurious amount of interest permitted by applicable usury
laws, then in any such event it is agreed as follows: (i) the provisions of
this paragraph shall govern and control, (ii) any such excess shall be deemed
an accidental and bona fide error and canceled automatically to the extent of
such excess, and shall not be collected or collectible, (iii) any such excess
which is or has been paid or received notwithstanding this paragraph shall be
credited against the then unpaid principal balance of the Notes, or, if no
principal balance is then outstanding, refunded to the applicable Borrower, and
(iv) the effective rate of interest shall be automatically reduced to the
maximum nonusurious rate allowed under applicable laws as construed by courts
having jurisdiction thereof or hereof. Without limiting the foregoing, all
calculations of the rate of interest contracted for, charged, taken, reserved,
or received in connection with the Notes or this Agreement which are made for
the purpose of determining whether such rate exceeds the maximum nonusurious
rate shall be made to the extent permitted by applicable laws by amortizing,
prorating, allocating and spreading during the period of the full term of the
Loans, including all prior and subsequent renewals and extensions, all interest
at any time contracted for, charged, taken, reserved, or received. The terms of
this paragraph shall be deemed to be incorporated in every document and
communication relating to the Notes, the Loans or any other Loan Document.
11.13 Indemnity and Subrogation. In addition to all such rights of
indemnity and subrogation as the Guarantors may have under applicable law, each
Borrower agrees that in the event a payment shall be made by any Guarantor
under a Guaranty in respect of a Loan to such Borrower, such Borrower shall
indemnify such Guarantor for the full amount of such payment and such Guarantor
shall be subrogated to the rights of the person to whom such payment shall have
been made to the extent of such payment subject to the provisions of the
Guaranty executed by such Guarantor. Notwithstanding any provision of this
Agreement to the contrary, all rights of the Guarantors under this Section
11.13 and all other rights of indemnity, contribution or subrogation under
applicable law or otherwise shall be fully subordinated to the indefeasible
payment in full of the Obligations. No failure on the part of a Borrower to
make the payments required by this Section (or any other payments required
under applicable law or otherwise) shall in any respect limit the obligations
and liabilities of any Guarantor with respect to any Guaranty, and each
Guarantor shall remain liable for the full amount of the obligations of such
Guarantor under each such Guaranty in accordance therewith.
11.14 Notification of Addresses, Lending Offices, Etc. Each Bank
shall notify the Agent in writing of any changes in the address to which
notices to the Bank should be directed, of addresses of any Lending Office, of
payment instructions in respect of all
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payments to be made to it hereunder and of such other administrative
information as the Agent shall reasonably request.
11.15 Counterparts. This Agreement may be executed in any number of
separate counterparts, each of which, when so executed, shall be deemed an
original, and all of said counterparts taken together shall be deemed to
constitute but one and the same instrument.
11.16 Severability. The illegality or unenforceability of any
provision of this Agreement or any instrument or agreement required hereunder
shall not in any way affect or impair the legality or enforceability of the
remaining provisions of this Agreement or any instrument or agreement required
hereunder.
11.17 No Third Parties Benefited. This Agreement is made and entered
into for the sole protection and legal benefit of the Borrowers, the Banks, the
Agent and the Agent-Related Persons, and their permitted successors and
assigns, and no other Person shall be a direct or indirect legal beneficiary
of, or have any direct or indirect cause of action or claim in connection with,
this Agreement or any of the other Loan Documents.
11.18 GOVERNING LAW AND JURISDICTION. (a) THIS AGREEMENT AND THE
NOTES SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE
STATE OF NEW YORK (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAWS) AND
APPLICABLE FEDERAL LAW.
(b) ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS
AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE
OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND
BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH OF THE BORROWERS, THE AGENT
AND THE BANKS (OTHER THAN EDC) CONSENTS, FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS. EACH OF THE
BORROWERS, THE AGENT AND THE BANKS (OTHER THAN EDC) IRREVOCABLY WAIVES ANY
OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE
GROUNDS OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE
BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN RESPECT OF THIS
AGREEMENT OR ANY DOCUMENT RELATED HERETO. EACH BORROWER HEREBY IRREVOCABLY
DESIGNATES, APPOINTS AND EMPOWERS THE CORPORATION SERVICE COMPANY WITH OFFICES
ON THE DATE HEREOF AT 80 STATE STREET, ALBANY, NEW YORK 12207, AS ITS DESIGNEE,
APPOINTEE AND AGENT TO RECEIVE, ACCEPT AND ACKNOWLEDGE FOR AND ON ITS BEHALF,
AND IN RESPECT OF ITS PROPERTY, SERVICE OF ANY AND ALL LEGAL PROCESS, SUMMONS,
NOTICES AND DOCUMENTS WHICH MAY BE SERVED IN ANY SUCH ACTION OR PROCEEDING. IF
FOR ANY REASON SUCH DESIGNEE, APPOINTEE AND AGENT SHALL CEASE TO BE AVAILABLE TO
ACT AS SUCH, EACH BORROWER AGREES TO DESIGNATE A NEW DESIGNEE, APPOINTEE AND
AGENT IN NEW YORK ON THE TERMS AND FOR THE PURPOSES OF THIS PROVISION
SATISFACTORY TO THE AGENT. TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH
BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF
THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF
COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO IT AT ITS
ADDRESS SET FORTH IN SCHEDULE 11.02, SUCH SERVICE TO BECOME EFFECTIVE TEN DAYS
AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE AGENT OR ANY
BANK TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL
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PROCEEDINGS OR OTHERWISE PROCEED AGAINST ANY BORROWER IN ANY OTHER
JURISDICTION. THE BORROWERS, THE AGENT AND THE BANKS (OTHER THAN EDC) EACH
WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER PROCESS, WHICH MAY BE
MADE BY ANY OTHER MEANS PERMITTED BY NEW YORK LAW. As used in this subparagraph
11.18(b), "EDC" means Export Development Corporation but does not include
assignees of Export Development Corporation under Section 11.08.
11.19 WAIVER OF JURY TRIAL. THE BORROWERS, THE BANKS AND THE AGENT
EACH WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF
ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER
LOAN DOCUMENTS, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY
ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE
PARTIES AGAINST ANY OTHER PARTY OR ANY AGENT-RELATED PERSON, PARTICIPANT OR
ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE.
THE BORROWERS, THE BANKS AND THE AGENT EACH AGREE THAT ANY SUCH CLAIM OR CAUSE
OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE
FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY
JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR
OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION
HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS.
11.20 Entire Agreement. This Agreement, together with the other Loan
Documents, embodies the entire agreement and understanding among the Borrowers,
the Banks and the Agent, and supersedes all prior or contemporaneous agreements
and understandings of such Persons, verbal or written, relating to the subject
matter hereof and thereof.
THIS WRITTEN LOAN AGREEMENT, TOGETHER WITH THE OTHER WRITTEN LOAN
DOCUMENTS EXECUTED IN CONNECTION HEREWITH, REPRESENTS THE FINAL AGREEMENT
BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES.
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
- 69 -
<PAGE> 76
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
NABORS INDUSTRIES, INC.
By /s/ BRUCE P. KOCH
--------------------------------------
Name: Bruce P. Koch
-----------------------------------
Title: Vice President - Finance
----------------------------------
-The Company-
NABORS ALASKA DRILLING, INC.
By /s/ RICHARD A. STRATTON
--------------------------------------
Name: Richard A. Stratton
-----------------------------------
Title: Executive Vice President
----------------------------------
NABORS DRILLING USA, INC.
By /s/ RICHARD A. STRATTON
--------------------------------------
Name: Richard A. Stratton
-----------------------------------
Title: President
----------------------------------
NABORS INTERNATIONAL, INC.
By /s/ ELIZABETH A. LEDIG
--------------------------------------
Name: Elizabeth A. Ledig
-----------------------------------
Title: Vice President - Finance
----------------------------------
SUNDOWNER OFFSHORE SERVICES,
INC.
By /s/ JERRY C. SHANKLIN
--------------------------------------
Name: Jerry C. Shanklin
-----------------------------------
Title: President
----------------------------------
- 70 -
<PAGE> 77
NABORS OFFSHORE DRILLING, INC.
By /s/ JERRY C. SHANKLIN
--------------------------------------
Name: Jerry C. Shanklin
-----------------------------------
Title: President
----------------------------------
NABORS DRILLING INTERNATIONAL
LIMITED
By /s/ ELIZABETH A. LEDIG
--------------------------------------
Name: Elizabeth A. Ledig
-----------------------------------
Title: Vice President - Finance
----------------------------------
-The Subsidiary Borrowers-
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Administrative Agent
By /s/ CLAIRE LIU
--------------------------------------
Name: Claire Liu
-----------------------------------
Title: Vice President
----------------------------------
-The Agent-
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Issuing Bank, Swing Loan Bank and a Bank
By /s/ CLAIRE LIU
--------------------------------------
Name: Claire Liu
-----------------------------------
Title: Vice President
----------------------------------
- 71 -
<PAGE> 78
WELLS FARGO BANK (TEXAS),
NATIONAL ASSOCIATION, as
Documentation Agent and as a Bank
By /s/ FRANK W. SCHAGEMAN
--------------------------------------
Name: Frank W. Schageman
-----------------------------------
Title: Vice President
----------------------------------
THE BANK OF NOVA SCOTIA
By /s/ [ILLEGIBLE]
--------------------------------------
Name: [ILLEGIBLE]
-----------------------------------
Title: Senior Manager Loan Operations
----------------------------------
BANK ONE, TEXAS, NA
By /s/ STEPHEN SHATTO
--------------------------------------
Name: Stephen Shatto
-----------------------------------
Title: Vice President
----------------------------------
THE BANK OF TOKYO-MITSUBISHI,
LTD., HOUSTON AGENCY
By /s/ JOHN W. MCGHEE
--------------------------------------
Name: John W. McGhee
-----------------------------------
Title: Vice President & Manager
----------------------------------
THE DAI-ICHI KANGYO BANK, LIMITED
By /s/ SEIJI IMAJ
--------------------------------------
Name: Seiji Imaj
-----------------------------------
Title: Vice President
----------------------------------
- 72 -
<PAGE> 79
EXPORT DEVELOPMENT CORPORATION
By /s/ WILLIAM J. CLEMENTS
--------------------------------------
Name: William J. Clements
-----------------------------------
Title: Financial Services Manager
----------------------------------
By /s/ STEPHEN DEMPSEY
--------------------------------------
Name: Stephen Dempsey
-----------------------------------
Title: Vice President
----------------------------------
THE FUJI BANK, LIMITED -
HOUSTON AGENCY
By /s/ NATE ELLIS
--------------------------------------
Name: Nate Ellis
-----------------------------------
Title: Vice President & Manager
----------------------------------
ROYAL BANK OF CANADA
By /s/ J.D. FROST
--------------------------------------
Name: J. D. Frost
-----------------------------------
Title: Senior Manager
----------------------------------
- 73 -
<PAGE> 80
SCHEDULE 2.01
COMMITMENTS
AND PRO RATA SHARES
<TABLE>
<CAPTION>
Pro Rata
Bank Commitment Share
---- ---------- -----
<S> <C> <C>
Bank of America National
Trust and Savings $31,000,000 15.5%
Association
Wells Fargo Bank (Texas), $29,000,000 14.5%
National Association
Bank of Nova Scotia $20,000,000 10%
Bank One, Texas, NA $20,000,000 10%
The Bank of Tokyo-Mitsubishi, Ltd., $20,000,000 10%
Houston Agency
The Dai-Ichi Kangyo Bank, Limited $20,000,000 10%
Export Development Corporation $20,000,000 10%
The Fuji Bank, Limited - $20,000,000 10%
Houston Agency
Royal Bank of Canada $20,000,000 10%
TOTAL $200,000,000 100%
</TABLE>
<PAGE> 81
SCHEDULE 2.02
PRICING CHART
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Pricing Level I II III IV V VI
- -------------------------------------------------------------------------------------------------------------
Rating A/A2 A-/A3 BBB+/ BBB/ BBB-/ BB+/Bal
or better Baa1 Baa2 Baa3 or lower
=============================================================================================================
<S> <C> <C> <C> <C> <C> <C>
Applicable Margin-
LIBOR Rate Loans 20.00 25.00 30.00 35.00 42.50 70.00
- -------------------------------------------------------------------------------------------------------------
Applicable Margin-
IBOR Rate Loans 50.00 50.00 50.00 50.00 50.00 50.00
- -------------------------------------------------------------------------------------------------------------
Applicable Margin-
Base Rate Loans 0.00 0.00 0.00 0.00 0.00 0.00
- -------------------------------------------------------------------------------------------------------------
Commitment Fee 6.50 8.50 10.00 12.50 15.00 25.00
- -------------------------------------------------------------------------------------------------------------
Risk Participation Fee 20.00 25.00 30.00 35.00 42.50 70.00
- -------------------------------------------------------------------------------------------------------------
</TABLE>
