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UNITED STATES
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 DECEMBER 31, 1999 COMMISSION FILE NO. 1-9245
NABORS INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 93-0711613
(State 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 in this Form 10-K, 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 March 29, 2000 of voting stock held by
non-affiliates of the registrant was approximately $5,443.7 million.
The number of shares of common stock, par value $.10 per share, outstanding as
of March 29, 2000 was 145,394,818.
DOCUMENTS INCORPORATED BY REFERENCE
(TO THE EXTENT INDICATED HEREIN)
Specified portions of the 1999 Annual Report to Stockholders (Parts I, II
and IV)
Specified portions of the 2000 Notice of Annual Meeting of Stockholders and
Proxy Statement (Part III)
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FORWARD-LOOKING STATEMENTS
The statements in this document and the documents incorporated by reference that
relate to matters that are not historical facts are "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. When used in this document and the
documents incorporated by reference, words such as "anticipate," "believe,"
"expect," "plan," "intend," "estimate," "project," "will," "could," "may,"
"predict" and similar expressions are intended to identify forward-looking
statements. Further events and actual results may differ materially from the
results set forth in or implied in the forward-looking statements. Factors that
might cause such a difference include:
o fluctuations in world-wide prices and demand for oil and gas;
o fluctuations in level of oil and gas exploration and development
activities;
o fluctuations in the demand for contract drilling and workover
services;
o the existence of competitors, technological changes and developments
in the industry;
o the existence of operating risks inherent in the contract drilling
industry;
o the existence of regulatory uncertainties, the possibility of
political instability in any of the countries in which Nabors does
business; and
o year 2000 and general economic conditions, in addition to the other
matters discussed under "Part II -- Item 7 -- Management's Discussion
and Analysis of Financial Condition and Results of Operations."
PART I
ITEM 1. BUSINESS
Nabors is the largest land drilling contractor in the world, with over 500
actively marketed land drilling rigs as of December 31, 1999. Nabors conducts
oil, gas and geothermal land drilling operations in the US Lower 48 states,
Alaska and Canada, and internationally, primarily in South and Central America
and the Middle East. Nabors also is one of the largest land well-servicing and
workover contractors in the United States. We own and operate approximately 680
actively marketed land workover and well-servicing rigs, primarily in the
southwestern and western United States and in certain international markets.
Nabors also is a leading provider of offshore platform workover and drilling
rigs. Nabors markets 37 platform, 11 jackup and four barge rigs in the Gulf of
Mexico and international markets. These rigs provide well-servicing, workover
and drilling services. We own and operate 40 of these rigs through international
joint ventures. To further supplement our primary business, we offer 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. Our land
transportation and hauling fleet includes 160 rig and oilfield equipment hauling
tractor-trailers, over 300 fluid hauling trucks, approximately 970 fluid storage
tanks, 15 salt water disposal wells and other auxiliary equipment used in
domestic drilling and well-servicing operations. We also have a fleet of 31
marine transportation and support vessels in the Gulf of Mexico that provides
transportation of drilling materials, supplies and crews for offshore rig
operations and support for other offshore operations. In addition, we
manufacture and lease or sell top drives for a broad range of drilling rig
applications and we manufacture and lease or sell rig instrumentation and data
collection equipment and rig reporting software.
Nabors' principal executive offices are located at 515 West Greens Road, Suite
1200, Houston, Texas 77067. Our phone number is (281) 874-0035.
BUSINESS STRATEGY
Since 1987, with the installation of the current management team, Nabors has
adhered to a consistent strategy aimed at positioning our company to grow and
prosper in good times and to mitigate adverse effects during periods of poor
market conditions. We also have strived to attain a financial posture that would
allow us to capitalize on market weakness by adding to our business base,
thereby enhancing our upside potential at reasonable costs. The principal
elements of our strategy have been to:
o Establish and maintain a conservative and flexible balance sheet.
o Build a base of low-cost, premium assets.
o Build and maintain low operating costs through economies of scale.
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o Build a diverse business in long-term, sustainable and worthwhile
geographic markets.
o Recognize and seize opportunities as they arise.
o Continually improve safety, quality and efficiency.
o Implement leading edge technology where cost-effective to do so.
MAJOR DEVELOPMENTS IN 1999
Our business strategy is designed to allow us to grow and remain profitable in
any market environment. Once again, the major developments in our business in
the past year in the face of weak industry conditions illustrate our
implementation of this strategy and its continuing success.
INDUSTRY CONDITIONS
During the fourth quarter of 1997, an imbalance began to develop in the supply
and the demand for crude oil. Reduced demand was fueled by the Asian recession
and two consecutive, warmer than normal winters in North America. The supply of
crude oil increased as a result of increased production quotas by the
Organization of Petroleum Exporting Countries and renewed production by Iraq.
The resulting excess supply of crude oil caused significant declines in oil
prices during calendar 1998 that continued through the first quarter of 1999.
Following an OPEC agreement to restrict production, crude oil prices rose from a
low of $11.37 per barrel in February 1999 to an average of $24.52 per barrel in
the fourth quarter of 1999. Natural gas prices were relatively stable throughout
this period, but also have increased during 1999. Reduced prices for oil led to
a sharp decline in the demand for drilling and workover services, and related
equipment and services, as oil companies significantly reduced capital spending
for exploration, development and production activities. The Baker Hughes US land
drilling industry rig count reached a 50-year low of 380 rigs in April 1999.
Since then, it had improved to 633 working rigs at year-end. Despite the rise in
oil prices since March, customer spending for drilling and workover services has
continued to lag.
Most of Nabors' operations were adversely affected by the sustained decline in
oil prices and the delay in customer spending following the price rebound. Due
to the geographic diversity and variety of our operations, however, the units
experienced different rates of decline at different times, helping to offset the
overall impact of the downturn company-wide. In the face of falling oil prices,
each unit took immediate steps to reduce overhead and operating costs. We also
selectively curtailed capital expenditures. Nabors' US Lower 48 operation, which
had been the first and most severely impacted by the steadily weakening market,
began improving in the third and fourth quarters of 1999, fueled by an increase
in natural gas drilling. Our offshore workover platform rigs operating in the
Gulf of Mexico and our Canadian rigs also showed signs of improvement during
this time. These improvements were largely offset by further deterioration in
our international and offshore platform drilling operations, where a number of
higher cash flow, long-term contracts that had sustained these units during the
first half of the year ended. By the end of 1999, the market outlook was
brightening for the US Lower 48, Canadian and platform workover units, but was
lagging for our other units. Since then, conditions have continued to improve,
and the outlook for all units is improved.
The long-term decline in the number of available rigs in our industry continued
during 1999. 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 magnitude of capital needed
to upgrade and modernize rigs and the export of rigs to international markets.
Dayrates continue to be well below levels that would justify the construction of
new rigs.
Nabors' 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. See "Part II -- Item 7 -- Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Decreased oil and
gas prices could adversely affect drilling activity and Nabors' revenues, cash
flows and profitability."
ACQUISITIONS
During 1999, Nabors completed two major strategic acquisitions: (1) Bayard
Drilling Technologies, Inc., a land drilling contractor with operations located
primarily in Texas and Oklahoma, and (2) Pool Energy Services Co., a diversified
energy services company principally engaged in providing well-servicing,
workover and drilling services
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and related transportation services on land and offshore in the United States
and select international markets. The consideration in both acquisitions was
primarily Nabors common stock, and we were able to recognize immediate savings
in consolidating duplicate offices and operations. We also were able to replace
higher interest Bayard and Pool debt with lower cost Nabors obligations.
In April 1999, Bayard merged into a wholly-owned special purpose subsidiary of
Nabors. Each of the approximately 18.3 shares of Bayard common stock outstanding
on the acquisition date were exchanged for .3375 shares of Nabors common stock
and $.30 in cash (approximately 6.2 million Nabors shares and $5.5 million in
cash in the aggregate). The acquisition added 73 actively marketed drilling rigs
to the US Lower 48 fleet. In addition, Bayard owned 14 stacked drilling rigs, a
significant inventory of component equipment, including drill pipe, engines and
high horsepower mud pumps. Bayard also owned and operated a fleet of oilfield
hauling equipment.
In November 1999, Pool merged into a wholly-owned special purpose subsidiary of
Nabors. Each of the approximately 19.2 shares of Pool common stock outstanding
on the acquisition date were exchanged for 1.025 shares of Nabors common stock
(approximately 19.7 million Nabors shares in the aggregate). At the acquisition
date, Pool owned five drilling rigs in Alaska, 57 drilling, workover and
well-servicing rigs in international areas (including 39 rigs operated through
joint ventures), 22 offshore platform drilling rigs located in the Gulf of
Mexico and 650 active and 104 stacked workover and well-servicing rigs in the
United States. At the time of the acquisition, Pool also owned and operated 27
marine transportation and support vessels, more than 300 fluid hauling trucks
and a large quantity of fluid storage tanks.
DEBT CONSOLIDATION AND REDUCTION
In March 1999, we issued $325.0 million of 6.8% Senior Notes due 2004. Interest
on the 6.8% notes is payable semi-annually on April 15 and October 15,
commencing October 15, 1999. The 6.8% notes are redeemable in whole or in part,
at our option, at any time. The redemption price for the notes is the greater of
(1) 100% of their principal amount or (2) the sum of the present values of the
remaining scheduled payments of principal and interest discounted to the date of
redemption on a semi-annual basis using the comparable treasury security yield
plus 25 basis points, plus, in each case, accrued and unpaid interest. The 6.8%
notes restrict Nabors' ability to incur liens on its assets and to enter into
certain sale-and-leaseback transactions. The proceeds from the issuance of the
6.8% notes were used to repay certain short-term and long-term borrowings of
Nabors, Bayard and Pool, as discussed below.
In March 1999, following completion of the 6.8% note offering, Nabors repaid
approximately $40.0 million in short-term borrowings from commercial banks
incurred for working capital purposes. These borrowings bore interest at annual
rates ranging from 5.18% to 5.44%. Nabors also repaid approximately $6.4 million
in long-term borrowings from financial institutions incurred for rig and rig
equipment financing. These obligations bore interest at annual rates ranging
from 6.06% to 8.00%. In April 1999, in connection with the acquisition of
Bayard, Bayard repaid approximately $14.3 million in long-term borrowings from
financial institutions for rig and rig equipment financing. These borrowings
bore interest at annual rates from 9.19% to 9.75%.
In June 1999, Nabors called for redemption its $172.5 million principal amount
of 5% Convertible Subordinated Notes due May 15, 2006. Prior to the redemption
date, holders of $172.3 million converted their 5% notes into Nabors common
stock at a rate of 55.1724 shares per $1,000 note. Nabors redeemed the remaining
$.2 million in 5% notes on July 15, 1999. Also in July 1999, Nabors prepaid all
of its outstanding 9.18% Senior Secured Notes due July 31, 2006. The prepayment
included $40.0 million principal amount of the 9.18% notes, plus a make-whole
premium of approximately $4.5 million.
In August 1999, Nabors acquired all of Bayard's outstanding 11% Senior Notes
due 2005 for an aggregate of $111.5 million, pursuant to a tender offer. The
price offered was $1,100 per $1,000 note (inclusive of interest through July 1,
1999), plus interest from and including July 2, 1999, to but excluding the date
of payment, at a rate of 5% per annum.
In December 1999, Nabors Holding Company (the successor by merger to Pool)
repaid $50.0 million in long-term borrowings from financial institutions
incurred for working capital purposes. These obligations bore interest at annual
rates ranging from 7.16% to 9.00%. Nabors Holding also repaid an aggregate of
$3.2 million in senior secured notes
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issued to individuals in connection with prior acquisitions, plus a prepayment
penalty of $.1 million. These notes bore interest at an annual rate of 10.0%.
Following the Pool acquisition, Nabors Holding made a mandatory change of
control offer to holders of Pool's 8-5/8% Senior Subordinated Notes due 2008.
The offer price was $1,010 per $1,000 note tendered, plus accrued interest. In
February 2000, Nabors Holding acquired a total of $81.3 million of 8-5/8% notes
tendered in the change of control offer and purchased $4.8 million in 8-5/8%
notes in the open market, leaving $63.9 million in 8-5/8% notes outstanding.
Nabors Holding also solicited the consent of the remaining holders of 8-5/8%
notes to amend the terms of the indenture governing the notes to generally
conform to the covenants contained in Nabors' indenture governing the 6.8%
notes, and to include a guarantee from Nabors in place of certain guarantees
issued by the domestic subsidiaries of Nabors Holding. Holders of in excess of
75% of the outstanding 8-5/8% notes consented to the amendments, which took
effect on February 14, 2000.
BUSINESS
CONTRACT DRILLING OVERVIEW
Rigs. Our rigs 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 are classified by their depth capabilities and by whether their power
systems are mechanical or electric. They 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 into 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 more finite control of the primary rig components, including
the drawworks and mud pumps. We believe this electric capability enhances
operating efficiency and safety, reduces drilling time and saves the customer
money, particularly in deeper applications. Because of these advantages, diesel
electric rigs, known in the industry as silicon-controlled rectifier or SCR
rigs, generally are preferred by our customers, and often enjoy higher
utilization and dayrates than similarly sized mechanical rigs.
Nabors' various types of rigs may perform drilling, workovers (major overhaul or
remediation of an existing wellbore and/or plugging and redrilling the well) or
well-servicing (routine repair and maintenance of mechanical problems). A
drilling rig can perform drilling, workover and well-servicing services,
depending on its configuration. However, primarily due to cost and size
considerations, a land drilling rig is rarely used for well-servicing or
workover applications. Instead, smaller, mobile well-servicing and workover rigs
are used. Offshore, a drilling rig is occasionally used for workover and
well-servicing applications, particularly if it is on location, because it is
more cost-effective to use a rig in place rather than bringing in an
alternative, specialty purpose rig. Each rig is rated for operations up to a
specific depth. The basic types of rigs operated by Nabors are described below.
o Land Rigs. A land-based drilling rig generally consists of engines, a
drawworks (which hoists and lowers the drill string in and out of the
well), a mast (or derrick), pumps to circulate the drilling fluid (mud)
under various pressures, blowout preventers, drill string and related
equipment. The engines power the different pieces of equipment, including a
rotary table or top drive 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,
bore hole diameter and 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 workover or well-servicing rig consists of a
mobile carrier, engine, drawworks and a mast. The primary function of a
workover or well-servicing rig is to act as a hoist so that pipe, sucker
rods and down-hole equipment can be run into and out of a well. Typically,
land-based drilling, workover and well-servicing rigs can be readily moved
between well sites and between geographic areas of operations.
o Platform Rigs. Platform rigs provide offshore workover, drilling and
re-entry services. Our platform rigs have 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 either stand on the ocean floor or are moored floating
structures. The top portion, or platform, sits above the water level and
provides the foundation upon which the platform rig is placed. Our fleet of
platform rigs includes:
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o Minimum space, modular platform workover rigs with engines rated 750
horsepower or below, which include the Sundowner(R) series. These platform
workover rigs 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 are designed to fit the geometry of nearly any producing platform
without major modifications to either the rig or the platform.
o Minimum space, modular platform workover and re-drilling rigs with engines
rated at horsepowers greater than 750, which include the Super Sundowner(R)
rigs. These rigs, which are enhanced versions of the modular platform
workover rigs, and have more powerful mud pump systems and greater hook
load capacities. This enables the rigs to be used in more rigorous
workover, re-entry, side-tracking or horizontal drilling operations.
o Minimum Area, Self-Erecting, or MASE(TM), drilling rigs are our latest
generation of modular platform rigs. They represent a smaller and lighter,
full-scale drilling rig patterned after the Super Sundowner(R).
o API (American Petroleum Institute) drilling rigs have similar capabilities
to the MASE(TM) rigs, but generally come in larger modules. Unlike our
other platform rigs, API rigs are not self-erecting, and require a separate
barge crane to load onto, and off of, the platform.
o We also own several land rigs modified for offshore work for drilling on
mudslide and selected conventional offshore platforms. These rigs generally
are self-erecting and modular.
o Jackup Rigs. Jackup rigs are mobile, self-elevating drilling and 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 our jackup rigs are of 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 adjacent, fixed
platforms. Nabors' jackup rigs generally are subject to a maximum water
depth of approximately 125 feet, while some of our 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. Two of Nabors' barge rigs are full-size drilling units. Nabors
also owns two self-propelled barge rigs having a covered structure or
substructure and well service or workover equipment. These barges are
designed to perform plugging and abandonment, well service or workover
services in shallow inland, coastal or offshore waters. Our barge rigs can
operate at depths from three to eight feet.
Additional information on the number and location of our rigs can be found below
under the caption "Business -- Markets".
Drilling Contracts. Our 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 stated number of wells to a specified depth. On land in the US Lower 48
states and Canada, we typically contract 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, usually from one to five years. We generally are awarded drilling
contracts through competitive bidding, although we occasionally enter into
contracts by direct negotiation. Most of our well-to-well contracts are subject
to termination by the customer on short notice, but some 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.
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Drilling contracts provide for compensation on a daywork, footage or turnkey
basis. In each case, we provide the rig and crews. The principal differences
among the types of contract that are set forth below.
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 our control. In addition, daywork contracts may
provide for a lump sum fee for the mobilization and demobilization of the
rig, which in most cases approximates our incurred costs.
o Footage Contracts. Under footage contracts we typically run casing and
provide drill bits. We receive payment on the basis of a rate per foot
drilled. The customer continues to provide drilling mud, casing, cementing
and well design expertise. If we drill the well in less time than was
estimated, then we have the opportunity to improve our margins over those
that would be attainable under a daywork contract to the same depth. If,
however, we take longer to drill the well than we estimated, our margins
will be lower. In footage contracts we bear the cost of the services and
supplies that we provide until the well has been drilled to the agreed
depth. Such contracts therefore require us to make significant up-front
working capital commitments prior to receiving payment. Footage contracts
generally contain greater risks for the contractor than daywork contracts,
but fewer risks than turnkey contracts. Under footage contracts, the
contractor assumes certain risks associated with loss of hole from fire,
blowout and other drilling risks. However, footage contracts generally
protect the contractor from such risks when unexpected drilling conditions
such as abnormal pressure, impenetrable geologic formation or loss
circulation zones are present.
o Turnkey Contracts. In turnkey contracts, we drill a well to a specified
depth for a fixed price regardless of the time required or the problems
encountered in drilling the well. On a turnkey well, we provide technical
expertise and engineering services, as well as most of the equipment
required to complete the well, and we are compensated only when the agreed
scope of work has been satisfied. In addition, we often subcontract for
related services and we manage the drilling process. In turnkey contracts,
we bear the cost of performing the drilling services until the well has
been drilled, and accordingly, such contracts require us to make
significant working capital commitments. We also generally agree 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, we
may not receive the turnkey price. Turnkey contracts generally involve a
higher degree of risk to us than daywork and footage contracts because we
assume 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 bear the cost of unanticipated downhole problems and price
escalation. Generally, however, our agreements limit catastrophic risks
associated with blowout, redrill and pollution to a specific sum. The
customer assumes the risk of losses in excess of the agreed level. If the
well is successfully drilled without undue delay or complication, our
margins under these types of contracts are usually greater than under
daywork and footage contracts.
During fiscal 1999, substantially all of our drilling contracts were on a
daywork basis. Our preferred strategy is to operate drilling rigs under daywork
contracts, because of their lower risk. However, we continually analyze market
conditions, customer requirements, rig demand and the experience of our
personnel to determine how to contract our fleet most profitably. In periods of
low utilization, competitive pressures and customer demands may require us to
consider entering into a larger number of footage or turnkey drilling contracts.
In addition, we may seek alternative accommodations with certain customers, as a
means of ensuring long-term drilling commitments and healthy customer relations.
Because of this, there can be no assurance that we will not suffer a loss that
is not insured as a result of entering into such higher risk contracts, and any
such uninsured loss could have a material adverse effect on our financial
position and results of operations.
Well-Servicing and Workover Services. Industry sources estimate that there are
approximately 900,000 producing oil wells in the world today, of which
approximately 540,000 are in the United States. In addition, there are
approximately 330,000 producing natural gas wells in the United States and a
large number in the rest of the world (Penn Well; Spears and Associates). While
some wells in the United States flow oil to the surface without mechanical
assistance, most are in mature production areas that require pumping or some
other form of artificial lift. Pumping oil wells characteristically require more
maintenance than flowing wells due to the operation of the
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mechanical pumping equipment installed. The extent and type of services we
provide on producing wells is dependent upon many variables. The following is a
summary of our well-servicing and workover services.
o Well-Servicing/Maintenance Services. We provide maintenance services on the
mechanical apparatus used to pump or lift oil from producing wells. These
services include, among other things, repairing and replacing pumps, sucker
rods and tubing. We provide the rigs, equipment and crews for these tasks,
which are performed on both oil and natural gas wells, but which are more
commonly required on oil wells. Well-servicing rigs have the same basic
components as drilling rigs (i.e., a derrick, a hoisting mechanism and an
engine). Many of these rigs also have pumps and tanks that can be used for
circulating fluids into and out of the well. Maintenance jobs typically
take less than 48 hours to complete. In general, well-servicing rigs are
provided to customers on a call-out basis. We are paid an hourly rate and
work is generally performed five days a week during daylight hours.
o Workover Services. In addition to needing periodic maintenance, producing
oil and natural gas wells occasionally require major repairs or
modifications, called "workovers." Workovers may be done, for example, to
remedy equipment failures, deepen a well in order to reach a new producing
reservoir, plug back the bottom of a well to reduce the amount of water
being produced with the oil and natural gas, clean out and re-complete a
well if production has declined, repair leaks, or convert a producing well
to an injection well for secondary or enhanced recovery projects. These
extensive workover operations are normally carried out with a
well-servicing rig that includes additional specialized accessory
equipment, which may include rotary drilling equipment, mud pumps, mud
tanks and blowout preventers, depending upon the particular type of
workover operation. Most of Nabors' well-servicing rigs are designed and
can be equipped to handle the more complex workover operations. A workover
may last anywhere from a few days to several weeks.
o Completion Services. The kinds of activities necessary to carry out a
workover operation are essentially the same as those that are required to
"complete" a well when it is first drilled. The completion process may
involve selectively perforating the well casing at the depth of discrete
producing zones, stimulating and testing these zones and installing
down-hole equipment. Oil and gas production companies often find it more
efficient to move a larger and more expensive drilling rig off location
after an oil or natural gas well has been drilled and to move in a
specialized well-servicing rig to perform completion operations. Our rigs
are often used for this purpose. The completion process may require from a
few days to several weeks.
o Production And Other Specialized Services. We provide other specialized
services that are required, or can be used effectively, in conjunction with
the previously described basic services. The main additional services are
production services, consisting of the provision of onsite temporary
fluid-storage facilities, the provision, removal and disposal of
specialized fluids used during certain completion and workover operations,
and the removal and disposal of salt water that is often produced in
conjunction with the production of oil and natural gas. We also provide
plugging services for wells from which the oil and natural gas has been
depleted and further production has become uneconomical.
MANUFACTURING AND LOGISTICS OVERVIEW
Through various subsidiaries and joint ventures, Nabors provides additional
well-site services that comprise our manufacturing and logistics segment. These
services can be packaged with our contract drilling services or provided on a
stand alone basis to operators or other contractors. They include top drive
rentals and sales, mudlogging services, rig instrumentation equipment rentals
and sales, rig reporting software, construction and maintenance services and
transportation services. Sales by these ancillary service providers to other
Nabors companies reduce our costs for similar third-party products and services.
These units also provide revenues to Nabors through sales to third parties.
o Top Drives. Our Canrig Drilling Technologies subsidiary manufactures top
drives, which are installed on both onshore and offshore drilling rigs to
improve drilling efficiency. Rigs equipped with top drives enjoy more
finite control and directional orientation than rigs without, and can trip
drill string in and out of the well faster and more safely by handling
preassembled "doubles" and "triples" of pipe. Top drives also allow the
drill string to be simultaneously hoisted and rotated, which provides
better well control and reduces the incidence of stuck pipe, yielding time
and cost savings.
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<PAGE> 9
o Mudlogging, Rig Instrumentation and Software. Our EPOCH Well Services
subsidiary provides mud logging services. Mudlogging involves the analysis
of exhausted drill cuttings to discern certain information about the
presence of hydrocarbons, rates of penetration and the nature of the
formation. EPOCH also offers rig instrumentation equipment, including
sensors, proprietary RIGWATCH(TM) software and computerized equipment that
monitors the real-time performance of a rig. In addition, EPOCH's C.A.P.E.
International division specializes in daily reporting software for drilling
operations.
o Construction, Land Transportation and Related Services. Nabors has a 50%
interest in Peak Oilfield Services Company, a general partnership with Cook
Inlet Region, Inc., a leading Alaskan native corporation. Peak Oilfield
Services 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 Oilfield Services is a partner to an 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. Both arrangements are up for renewal in June 2000. We
also have an investment in a small arctic road and site construction
company. In mid-1999, we acquired the remaining third-party interests in
Peak USA Energy Services Ltd., a partnership that provides rig moving
equipment and other oilfield services in ten states in the US Lower 48
states.
o Offshore Support Services. Nabors' fleet of offshore support vessels
provides marine transportation of drilling materials, supplies and crews
for offshore rig operations and support for other offshore facilities. In
addition, we provide offshore logistical support to drilling and workover
operations, pipelaying and other construction, production platforms and
geophysical operations.
Service Contracts. We provide onshore transportation and support services
through long-term contracts or on a short-term demand basis. Long-term service
contracts may 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. Offshore support vessel operations are conducted throughout the year 24
hours a day, seven days a week, under vessel charters, which may range from
several days to several years. Some reduction in vessel utilization and charter
rates may be experienced during winter months due to seasonal declines in
offshore activities. We are paid on a daily rate basis for vessel charters.
Other. From time to time, we provide drilling engineering and integrated project
management services, ranging from well design and engineering expertise to site
preparation and road construction. We offer these services 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, we are seeking to expand in this area, both domestically and
internationally.
MARKETS
Nabors operates in two primary business segments within the oilfield services
industry -- contract drilling and manufacturing and logistics. Within these
segments, we conduct business in the following distinct markets or business
lines:
o Contract Drilling: We provide drilling, workover, well-servicing and
related services on land and offshore in the US Lower 48 states,
Canada and Alaska and in international markets.
o Manufacturing and Logistics: We manufacture and lease or sell top
drives, drilling instrumentation systems and rig reporting software
domestically and internationally; and provide construction, logistics
services and marine transportation and support services in Alaska and
the US Lower 48 states.
Additional information regarding the geographic markets in which we operate and
our business segments can be found in Note Thirteen of the Notes to Consolidated
Financial Statements on pages 67 and 68 of the Nabors Industries, Inc. 1999
Annual Report and is incorporated into this document by reference.
Contract drilling revenues totaled $605.3 million during 1999, representing a
31% decrease compared with 1998. Utilization rates for Nabors' rigs decreased
from 48% during 1998 to 31% during 1999. Equivalent rig years
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<PAGE> 10
decreased to 149.5 years during 1999 from an average of 204.1 years during 1998.
These declines resulted from the reduced demand for drilling and workover
services caused by reduced customer spending resulting from lower crude oil and
natural gas prices throughout 1998 and the first quarter of 1999.
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 as a measure of activity levels, because the calculation
of utilization does not reflect the impact of changes in the number of rigs
owned during the periods. Equivalent rig years (calculated as the number of days
rigs are in operation divided by the number of days in the period) measure the
operating volume of Nabors' rigs.
Manufacturing and logistics revenues were $49.2 million during 1999, as compared
to $111.2 million during 1998, a 56% decrease. This decrease was primarily
attributable to a change in the method of accounting for Nabors' investments in
several 50% owned joint ventures, including Peak Oilfield Services Company, our
Alaskan construction and logistics joint venture. Beginning January 1, 1999,
these joint ventures have been accounted for using the equity method of
accounting, with our equity in the net income of the joint ventures recorded as
a component of revenues in the consolidated statements of income. During 1998,
these investments were accounted for using the proportionate consolidation
method whereby our pro-rata share of the joint ventures' revenues and expenses
were recorded as corresponding revenues and expenses of Nabors. Revenues for
Canrig, our top drive manufacturing unit, were relatively unchanged during 1999.
Revenues for Epoch, our drilling operation software and instrumentation
provider, were lower as a result of decreased industry activity.
The portion of our revenues generated by our contract drilling segment has been
consistent for the last three full fiscal years, accounting for approximately
90% of total revenues, and the remainder of our revenues also has been
consistently accounted for by our manufacturing and logistics segment. Revenues
in the manufacturing and logistics segment include revenues from sales to other
Nabors companies.
Additional information regarding revenues can be found on pages 42 through 49 of
the 1999 Annual Report, under the caption "Management's Discussion and Analysis
of Financial Condition and Results of Operations -- Results of Operations".
Additional information regarding our rig fleet can be found on pages 38 and 39
of the 1999 Annual Report.
CONTRACT DRILLING
US Lower 48 States. Nabors currently markets approximately 375 drilling rigs in
the US Lower 48 market. Over 150 of our land drilling rigs in the US Lower 48
states are diesel electric rigs controlled by a computerized SCR system.
Approximately 230 are capable of drilling to 15,000 feet or deeper. In addition,
we own 36 portable top drives for use on our rigs, depending on customer
requirements.
Our domestic land well-servicing, workover and production services operation has
locations in many of the major oil and natural gas producing fields in the US
Lower 48 states. This operation currently provides services in eleven states and
is divided into two separate geographic divisions: (i) the Central division
(principally Texas and Oklahoma) and (ii) the California division. We market
approximately 650 well-servicing rigs (including one land rig drilling on a
platform offshore California), in Texas, California, Oklahoma, New Mexico, North
Dakota, Montana, Arkansas, Utah and Louisiana. In addition, we own 50
drilling rigs, four workover rigs and approximately 100 well-servicing rigs that
are stacked in the US Lower 48 states. These rigs could be refurbished or used
for parts on working rigs, depending on market conditions.
Canada. We have a fleet of 35 rigs in Canada. Fourteen rigs in the fleet are
diesel electric SCR rigs, 15 are equipped with top drives and 13 are capable of
drilling to 15,000 feet or deeper. Many of the rigs in our Canadian fleet are
capable of performing exploratory and development drilling under arctic and
sub-arctic conditions.
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<PAGE> 11
Alaska. Nabors owns 18 arctic land drilling, workover and well-servicing rigs on
the North Slope and the Cook Inlet area of South Central Alaska. Fifteen of
these rigs are SCR rigs, and seven are equipped with top drive units. Thirteen
are capable of performing drilling or workover operations to depths of 18,000
feet or deeper. Nabors also owns a 50% interest in a joint venture that owns and
operates a coiled tubing drilling rig on the North Slope.
All of the North Slope rigs are designed to operate in severe arctic conditions
and most employ wheel mounted systems engineered 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. Several of the 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 generally incorporate
environmental protection features such as dry mud and fluid containment systems.
Rig operations are normally conducted 24 hours a day, seven days a week, under a
term contract that is for a specific period of time or until a program is
completed. Generally we are paid on a daily rate basis for these services.
International. We conduct our international operations primarily through Nabors
Drilling International Limited, Pool International, Ltd. and their subsidiaries.
Internationally, we provide drilling, workover and well-servicing services, both
onshore and offshore, with specialized rigs designed and fabricated to meet
various types of operating conditions. The International group actively markets
approximately 75 land drilling rigs, 31 workover/well-servicing rigs, two
slim-hole rigs and two jackup drilling rigs. Of these, over 50 are SCR rigs, 14
are equipped with top drives and 39 are capable of drilling to depths of 15,000
feet or deeper. We operate 40 of these rigs through joint ventures in Saudi
Arabia, Oman and Argentina (12 drilling, including one jackup, and 28
workover/well-servicing rigs).
In the international markets in which we operate, we are subject to various laws
and regulations with respect to the operation and taxation of our business and
the import and export of our equipment from country to country, the imposition,
application and interpretation of which can be uncertain. Our 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 "Part II -- Item 7 -- Management's Discussion and Analysis of
Financial Condition and Results of Operations -- The nature of Nabors'
operations presents inherent risks of loss that, if not insured or indemnified
against, could adversely affect its results of operations" and "--The
profitability of Nabors' international operations could be adversely affected by
war, civil disturbance or economic turmoil." Additional information on Nabors'
foreign currency transactions can be found under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
Financial Instruments and Market Risk" on page 49 of the 1999 Annual Report, and
in Note One of the Notes to Consolidated Financial Statements under the caption
"Foreign Currency Risk " on page 58 of the 1999 Annual Report, each of which is
incorporated into this document by reference.
Offshore Drilling, Workover and Well-Servicing. Nabors currently performs
offshore drilling and offshore workover and well-servicing through its Nabors
Offshore and various Pool subsidiaries. The Offshore group actively markets a
fleet of 48 rigs, including 37 platform rigs (eight Sundowner(R) rigs, two 750
hp or below rigs, seven Super Sundowner(R) rigs, three concentric tubing rigs,
five greater than 750 hp rigs, three MASE(TM) platform drilling rigs, five API
platform drilling rigs and four land rigs converted to self-elevating offshore
platform drilling rigs), nine jackup workover rigs and two inland barge rigs
that offer plugging and abandonment services. Six of the Super Sundowner(R)
rigs, two of the Sundowner(R) rigs and eight 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 our platform rigs are capable of operating at well depths of 20,000 feet.
Twenty-two of our platform rigs are specifically designed for workover drilling.
Most of our offshore fleet (38 rigs) operates in the US Gulf of Mexico. We also
have three offshore rigs operating in Mexican waters, and one each in Australia,
New Zealand, Italy, Brazil, Malaysia, the Caspian Sea and Trinidad. In addition,
other subsidiaries own five offshore rigs, of which two are jackup drilling rigs
located in the Middle East (discussed under "-- International" above), one is a
platform rig in California and two are barges that were chartered to a third
party during 1999. These barges come off charter in March 2000. One is expected
to be retired
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and one will be moved to the Offshore group. We also provide plugging and
abandonment services on the US Gulf Coast.
MANUFACTURING AND LOGISTICS - ADDITIONAL WELL-SITE SERVICES
We manufacture top drives at our Magnolia, Texas facility. We market our top
drives throughout the United States and Canada, and to various international
markets, to customers serving the oil and gas industry. A substantial portion of
our top drive sales are made to other Nabors companies. We also rent top drives
and provide top drive installation, repair and maintenance services to our
customers.
We manufacture our rig instrumentation systems at our Magnolia, Texas facility.
We develop our software out of our Houston, Texas office. We sell or lease
products to customers within the oil and gas industry, domestically and abroad.
We provide mudlogging services within the US Lower 48 states and Alaska.
We also provide site and road construction, rig transportation, fluid hauling
and related oilfield services in Alaska, through our Peak Oilfield Services
joint venture. In the US Lower 48 states, we provide rig transportation and
related services through our Peak USA Energy Services subsidiary.
Our offshore support vessels, which operate primarily in the Gulf of Mexico,
provide marine transportation of drilling materials, supplies and crews for
offshore rig operations and support for other offshore facilities. We also
provide offshore logistical support to drilling and workover operations,
pipe-laying and other construction, production platforms and geophysical
operations. At December 31, 1999, Nabors had 30 support vessels, including one
anchor handling tug supply vessel, 20 supply vessels, seven mini-supply vessels
and two research vessels. In addition, one newly-constructed supply vessel was
delivered to Nabors in January 2000. Our anchor handling tug supply vessel is
used to tow rigs to offshore locations and position anchors of floating drilling
rigs and pipe-laying vessels. The vessel is 200 feet long with 6,140 horsepower
and could be converted to a larger supply vessel if market conditions warranted.
Our supply vessels are used as freight-carrying vessels for drill pipe, tubing,
casing, drilling mud and other equipment to drilling rigs and production
platforms. Lengths for our supply vessels range from 166 to 220 feet. Our
mini-supply vessels are used primarily in support of well service and production
operations, such as moving offshore pipe, fluids and equipment for offshore
workovers. Mini-supply vessel lengths range from 130 to 150 feet. Our two
research vessels are used to carry equipment and personnel necessary to perform
offshore seismic surveys. Lengths range from 150 to 175 feet, with the larger of
the two vessels being a dedicated remotely operated vehicle support vessel. This
vessel can be used for subsea construction and inspection.
Nabors' domestic onshore well-servicing and workover operation also provides
production services consisting chiefly of fluid hauling and fluid storage tank
rental. The production services assets, located primarily in Texas, consist of
over 300 fluid hauling trucks and 15 salt water disposal wells, which are
utilized for the transportation and disposal of drilling and used completion
fluids and salt water produced from operating wells, and approximately 970 fluid
storage tanks, which are utilized for the storage of fluids used in the
fracturing of producing zones during the completion or workover of wells.
ENGINEERING DEVELOPMENTS
In recent years, Nabors has been increasingly involved in engineering research
and development with respect to the commercialization of new drilling
technology. We own the rights to several proprietary designs and innovations
which, when applied to our 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.
Our 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. We also developed an automated slant
rig, capable of drilling shallow or slim hole wells.
In 1998, Nabors obtained certain license rights to build and operate drilling
rigs using coiled tubing technology developed by Transocean Offshore. We operate
one rig on the North Slope of Alaska that employs this technology in a joint
venture with Transocean.
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Nabors' engineers have obtained new patents during the past year and have patent
applications pending for new technology associated with drilling activities. Our
patents generally cover designs for various types of oilfield equipment and
methods for conducting certain oilfield activities. We use some of these designs
and methods in the conduct of our business. The patents expire at various times
through the year 2017. We also have several trademarks and service marks that we
use in various aspects of our business. These include Sundowner(R), MASETM and
RIGWATCH TM. While management believes Nabors' patent and trademark rights are
valuable, their expiration or loss would not have a material adverse
effect on our financial statements or results of operations. The costs
associated with our research and development are not material to Nabors.
CUSTOMERS
Our customers include major oil and gas companies, foreign national oil and gas
companies and independent oil and gas companies. During 1998, one customer (BP
Exploration (Alaska), Inc.) provided approximately 11% of consolidated revenues.
No customer provided in excess of 10% of consolidated revenues in 1999.
COMPETITIVE CONDITIONS
Although the number of available rigs decreased materially over the past 15
years, the drilling, workover and well-servicing industry remains very
competitive. The number of rigs continues to exceed demand in many of our
markets, resulting in strong price competition. Many rigs can be readily moved
from one region to another in response to changes in levels of activity, which
may result in an over supply of rigs in such areas. Many of the total available
contracts are currently awarded on a bid basis, which further increases
competition based on price. The land drilling, workover and well-servicing
market is generally more competitive than the offshore market due to the larger
number of rigs and companies. As an enhancement to its competitive position,
Nabors has been able to establish strategic alliances with major customers in
its domestic onshore, international and Alaska operations. Many smaller
competitors may not be able to allocate the resources necessary to enter into
such alliances.
In all of our geographic market areas, price and availability and condition of
equipment are the most significant factors in determining which drilling
contractor is awarded a job. Other factors include the availability of trained
personnel possessing the required specialized skills; the overall quality of
service and safety record; and domestically, the ability to offer ancillary
services. In international markets, experience in operating in certain
environments and customer alliances also have been factors in the selection of
Nabors.
Certain competitors are present in more than one of Nabors' operating regions,
although no one competitor operates in all of these areas. In the US Lower 48
states, there are several hundred competitors with smaller national, regional or
local rig operations. In domestic land workover/well-servicing, we compete with
Key Energy Services, Inc., which has approximately 1,370 well-servicing rigs,
and with numerous other competitors having smaller regional or local rig
operations. In the Alaska market, Nabors has four major competitors. In Canada
and offshore, Nabors competes with several firms of varying size many of which
have more significant operations in those areas than Nabors. Internationally,
Nabors competes directly with various contractors at each location where it
operates. Nabors believes that the market for land drilling, workover and
well-servicing contracts will continue to be competitive for the foreseeable
future. Although Nabors believes it has a strong competitive position in the
domestic land drilling, workover and well-servicing sector, certain of our
competitors internationally and offshore may be better positioned and have newer
and more desirable equipment, allowing them to compete more effectively.
Seasonality is not a significant factor with respect to our operations. However,
the contract drilling, workover and well-servicing 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 improved in 1997, the rapid, severe downturn in 1998 that
continued into 1999, illustrates the dependence of the industry on oil and gas
prices. See "Business--Major Developments in 1999--Industry Conditions."
Our manufacturing and logistics segment represents a relatively small part of
our business, and there are numerous competitors in each area in which we
operate who may have greater resources and may be better positioned than
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Nabors. Canrig is one of the six major manufacturers of top drives. Its largest
competitors are Varco, Tesco and National Oilwell. EPOCH's largest competitor in
the manufacture of rig instrumentation systems is Varco's Totco subsidiary.
Mudlogging services are provided by a number of entities that serve the oil and
gas industry on a regional basis. EPOCH competes for mudlogging customers with
Sperry Sun and Baker Hughes in the Gulf Coast region, California and Alaska. In
the US Lower 48 states, there are hundreds of rig transportation companies, and
there are at least three or four that compete with Nabors in each of its
operating regions. In Alaska, Peak Oilfield Services principally competes with
Alaska Petroleum Contractors for road, pad and pipeline maintenance, and is one
of many drill site and road construction companies, the largest of which is VECO
Corporation. We also compete with numerous offshore support vessel operators in
the Gulf of Mexico on the basis of quality of service, price, vessel suitability
and availability and reputation.
ACQUISITIONS AND DIVESTITURES
ACQUISITIONS
We have 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, our
fleet consisted of 44 land drilling rigs in Canada, Alaska and in various
international markets. Today, Nabors' active worldwide fleet consists of over
500 land drilling rigs, approximately 680 land workover and well-servicing rigs,
37 offshore platform rigs, 11 jackups, four barge rigs, 31 marine transportation
and support vessels, and a large component of trucks and fluid hauling vehicles.
Much of this growth was fueled by strategic acquisitions, as summarized in the
following chart:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
DATE ACQUIRED OR SELLING ENTITY ASSETS ACQUIRED(1) LOCATIONS
- ---------------------------------------------------------------------------------------------------------------------
<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
financial assets Mexico, Venezuela
- ---------------------------------------------------------------------------------------------------------------------
11/1990 Henley Drilling Co. 11 rigs US Lower 48, Yemen
- ---------------------------------------------------------------------------------------------------------------------
6/1993 Grace Drilling Co. 110 rigs; yards; US Lower 48
miscellaneous equipment
and inventory
- ---------------------------------------------------------------------------------------------------------------------
4/1994 MND Drilling 16 land rigs US Lower 48
- ---------------------------------------------------------------------------------------------------------------------
10/1994 Sundowner Offshore Services, Inc. 15 platform rigs, 1 platform Gulf of Mexico, International
rig under construction, 5
jackup workover rigs, 3
workover and plug and
abandonment barges
- ---------------------------------------------------------------------------------------------------------------------
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 rigs United States (47),
International (2)
- ---------------------------------------------------------------------------------------------------------------------
4/1996 J.W. Gibson Well Servicing 78 workover and well-servicing Rocky Mountains, Mid-continent
Company(2) rigs (10 leased from third Region
parties)
- ---------------------------------------------------------------------------------------------------------------------
11/1996 EPOCH Well Logging, Inc. Mud logging units Not applicable
- ---------------------------------------------------------------------------------------------------------------------
12/1996 Noble Drilling 47 land rigs (19 operating and United States (38),
Company 28 stacked); yards; equipment Canada (9)
and inventory
- ---------------------------------------------------------------------------------------------------------------------
1/1997 Adcor-Nicklos Drilling 36 land rigs (30 active, 6 US Lower 48
Company stacked, including 14 SCR),
equipment, drill pipe, yards,
vehicles and support equipment
- ---------------------------------------------------------------------------------------------------------------------
4/1997 Chesley Pruet Drilling Company 12 land rigs (10 active, 2 Alabama, Louisiana, Mississippi
stacked, including 9 SCR)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
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<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
DATE ACQUIRED OR SELLING ENTITY ASSETS ACQUIRED(1) LOCATIONS
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
4/1997 Samson Rig Company 25 stacked SCR land rigs and Oklahoma
large component of equipment
- ---------------------------------------------------------------------------------------------------------------------
8/1997 Cleveland Drilling Company, Inc. 7 land rigs (6 active, 1 California, Nevada
stacked, including 6 SCR rigs)
- ---------------------------------------------------------------------------------------------------------------------
11/1997 VECO Drilling, Inc.; 6 land rigs (5 active, 1 California, Texas
Diamond L stacked, including 3 SCR) and
two offshore labor contracts; 3
active mechanical rigs
- ---------------------------------------------------------------------------------------------------------------------
12/1997 C.A.P.E. International, Inc. Rig reporting software Not applicable
- ---------------------------------------------------------------------------------------------------------------------
5/1998 New Prospect Drilling Company 6 land rigs Arkansas, Oklahoma
- ---------------------------------------------------------------------------------------------------------------------
5/1998 Can-Tex Drilling & Exploration, 7 land rigs Alberta, Canada
Ltd.
- ---------------------------------------------------------------------------------------------------------------------
6/1998 Transocean-Nabors Drilling Joint interest in a coiled Alaska
Technology LLC tubing drilling rig; certain
technology rights
- ---------------------------------------------------------------------------------------------------------------------
4/1999 Bayard Drilling Technologies, 87 rigs (73 actively marketed); Oklahoma, Texas, Louisiana,
Inc. significant inventories of new Arkansas
component equipment (e.g.,
drill pipe, engines and mud
pumps); oilfield hauling
equipment fleet
- ---------------------------------------------------------------------------------------------------------------------
11/1999 Pool Energy Services Co. 790 land well US Lower 48, Gulf of
servicing/workover rigs; 34 Mexico, Alaska,
land rigs; 25 offshore rigs; International
300+ fluid handling trucks;
1,060 storage tanks and 15
self-water disposal wells; 27
offshore supply vessels
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) With the exception of the MND Drilling and Samson Rig Company
transactions, all acquisitions of rigs also included substantial
quantities of drill collars and drill pipe.
(2) Sold in January 1998.
While Nabors continues to examine opportunities, there can be no assurance that
attractive rigs or other acquisition targets will continue to be available, that
the pricing will be economical or that we will be successful in making such
acquisitions in the future.
DIVESTITURES
From time to time, we may sell a subsidiary or group of assets outside of our
core markets or business, if it is economically advantageous for us to do so. In
January 1998, Nabors sold its J.W. Gibson Well Service Company subsidiary to Key
Energy Group, Inc. We acquired Gibson as part of the Exeter Drilling Company
acquisition in 1996. Gibson represented Nabors' entry into the domestic well
servicing business. However, at the time, Nabors' management did not believe it
could establish a dominant position in that business, and determined to sell the
subsidiary. On completing the sale, we received $20 million plus the value of
Gibson's working capital in cash, 100,000 shares of Key Energy common stock and
warrants to acquire 265,000 shares of Key Energy common stock at an exercise
price of $18 per share, subject to adjustment. We recorded a pre-tax gain on the
sale of approximately $16.0 million during 1998. (Nabors exercised the warrants,
as adjusted, in January 2000, and acquired 1,673,684 shares of Key Energy stock
at an adjusted exercise price of $2.85 per share. Nabors has since sold 206,000
of such shares in market transactions.)
In November 1996, Nabors sold substantially all of its North Sea labor contract
operation, which was viewed as having slower growth potential and weaker margins
than our other operations, to a subsidiary of Abbot Group plc, a diversified
holding company listed on the London Stock Exchange. We received approximately
$36 million plus
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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 $29.9 million during
1997. We exercised the warrants at various times during 1997 and recorded a gain
of $8.8 million from the sale of the underlying shares.
EMPLOYEES
As of December 31, 1999, Nabors employed approximately 12,250 persons, of whom
approximately 1,500 were employed by unconsolidated affiliates. Certain rig
employees in Argentina, Venezuela and Australia are represented by collective
bargaining units. We believe our relationship with our employees generally
is good.
NABORS' YEAR 2000 COMPLIANCE PROGRAM
A discussion of Nabors' Year 2000 compliance program can be found under the
caption "Management's Discussion and Analysis of Financial Condition and Results
of Operations -- Year 2000 Issue and Compliance Program" on pages 48 and 49 of
the 1999 Annual Report, and is incorporated into this document by reference.
ITEM 2. PROPERTIES
Information regarding Nabors' rig fleet can be found on pages 38 and 39 of the
1999 Annual Report and is incorporated into this document by reference.
Many of the international drilling rigs and certain of the Alaska rigs in our
fleet are supported by mobile camps which house the drilling crews and a
significant inventory of spare parts and supplies. In addition, we own various
trucks, forklifts, cranes, earth moving and other construction and
transportation equipment which are used to support the drilling and logistics
operations.
Nabors and its subsidiaries own or lease executive and administrative office
space in Houston, Texas (headquarters); Anchorage, Alaska; Harvey, Houma,
Arcadia, New Iberia and Lafayette, Louisiana; Bakersfield, California; Magnolia,
Texas; Calgary and Nisku, Alberta, Canada; Sana'a, Yemen; Dubai, U.A.E.;
Dhahran, Saudi Arabia; and Anaco, Venezuela. We own or lease a number of
facilities and storage yards used in support of operations in each of its
geographic markets. We also lease from an unrelated party a 65-acre former rig
and equipment manufacturing and storage facility in San Angelo, Texas, which
includes approximately 245,000 square feet of buildings and other structural
facilities. The annual lease payments are $4.4 million through March 2003.
Additional information about our properties can be found in Notes One (under the
caption "Property, Plant and Equipment"), Four and Ten (under the caption
"Operating Leases") of the Notes to Consolidated Financial Statements on pages
56, 60 and 65, respectively, of the 1999 Annual Report and is incorporated into
this document by reference. The revenues and property, plant and equipment by
geographic area for the fiscal year ended September 30, 1997, the three month
transition period from October 1, 1997 to December 31, 1997 and the fiscal years
ended December 31, 1998 and 1999, can be found in Note Thirteen of the Notes to
Consolidated Financial Statements in the table on page 68 of the 1999 Annual
Report, and are incorporated into this document by reference.
Nabors' management believes that our equipment and facilities are adequate to
support our current level of operations as well as an expansion of drilling
operations in those geographical areas where we may expand.
ITEM 3. LEGAL PROCEEDINGS
Information with respect to legal proceedings can be found in Note Ten of the
Notes to Consolidated Financial Statements under the caption " Contingencies" on
pages 65 and 66 of the 1999 Annual Report and is incorporated into this document
by reference.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of Nabors' security holders during the
quarter ended December 31, 1999.
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<PAGE> 17
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET AND STOCK PRICES
The information called for by this item can be found under the caption "Price of
Common Stock" on the inside back cover of the 1999 Annual Report and is
incorporated into this document by reference.
DIVIDEND POLICY
Nabors has not declared or paid any cash dividends on its common stock since
1982. We do not intend to pay any cash dividends on our common stock for 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 41 of the 1999 Annual Report and is incorporated into
this document 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 42 through 49 of the 1999 Annual Report and is incorporated
into this document by reference. In addition, the principal risks associated
with Nabors' business are noted below.
DECREASED OIL AND GAS PRICES COULD ADVERSELY AFFECT DRILLING ACTIVITY AND
NABORS' REVENUES, CASH FLOWS AND PROFITABILITY
Nabors' operations are materially dependent upon the level of activity in oil
and gas exploration and production. Both short-term and long-term trends in oil
and gas prices affect the level of such activity. Oil and gas prices and,
therefore, the level of drilling, exploration and production activity can be
volatile. Worldwide military, political and economic events, including
initiatives by the Organization of Petroleum Exporting Countries, affect both
the demand for, and the supply of, oil and gas. Fluctuations during the last
year in the demand and supply of oil and gas have contributed to, and are likely
to continue to contribute to, price volatility. Nabors believes that any
prolonged reduction in oil and gas prices would depress the level of exploration
and production activity. This would likely result in a corresponding decline in
the demand for Nabors' services and could have a material adverse effect on
Nabors' revenues, cash flows and profitability. There can be no assurances as to
the future level of demand for Nabors' services or future conditions in the
drilling industry. Beginning in early 1998, domestic land drillers, including
Nabors, experienced a significant downturn in demand for their drilling rigs.
The downturn has since impacted offshore and international drilling and workover
activity. Nabors believes the downturn is attributable in large part to sharp
drops in oil prices that began in late 1997 and continued through 1998 and into
1999. The decline in crude oil prices negatively impacted the revenues of oil
companies, who responded by reducing exploration and development activity.
Decreased demand adversely affected Nabors by lowering utilization of Nabors'
rigs and reducing the day rates Nabors can charge for its rigs. There can be no
assurance as to when rig use will increase or when dayrates for rigs will
improve, or that oil or prices will sustain their current levels.
NABORS OPERATES IN A HIGHLY COMPETITIVE INDUSTRY WITH EXCESS DRILLING CAPACITY,
WHICH MAY ADVERSELY AFFECT NABORS' RESULTS OF OPERATIONS
The drilling and workover industry in which Nabors operates is very competitive.
Contract drilling companies compete primarily on a regional basis, and
competition may vary significantly from region to region at any particular time.
Many drilling, workover and well-servicing rigs can be readily moved from one
region to another in response to changes in levels of activity, which may result
in an oversupply of rigs in such area. In many markets
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<PAGE> 18
in which Nabors operates, the number of rigs available for use exceeds the
demand for rigs, resulting in price competition. Most drilling and workover
contracts are awarded on the basis of competitive bids, which also results in
price competition. The land drilling market generally is more competitive than
the offshore drilling market because there are larger numbers of rigs and
competitors.
Certain competitors are present in more than one of Nabors' regions, although no
one competitor operates in all of these areas. In the US Lower 48 states, there
are several hundred competitors with smaller national, regional or local rig
operations. In the Alaska market, Nabors has four major competitors. In Canada
and offshore, Nabors competes with several firms of varying size many of which
have more significant operations in those areas than Nabors. Internationally,
Nabors competes directly with various competitors at each location where it
operates. Nabors believes that the market for land drilling and workover
contracts will continue to be competitive for the foreseeable future. Although
Nabors believes it has a strong competitive position in the domestic land
market, certain of the our competitors internationally and offshore may be
better positioned and have newer and more desirable equipment, allowing them to
compete more effectively.
See also "Part I -- Item1--Business -- Competitive Conditions."
THE NATURE OF NABORS' OPERATIONS PRESENTS INHERENT RISKS OF LOSS THAT, IF NOT
INSURED OR INDEMNIFIED AGAINST, COULD ADVERSELY AFFECT ITS RESULTS OF OPERATIONS
Nabors' operations are subject to many hazards inherent in the drilling,
workover and well-servicing industries, including blowouts, cratering,
explosions, fires, loss of well control, loss of hole, damaged or lost drilling
equipment and damage or loss from inclement weather. Any of these hazards could
result in personal injury or death, damage to or destruction of equipment and
facilities, suspension of operations, environmental damage and damage to the
property of others. Nabors' 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,
Nabors' international operations are subject to risks of war, civil disturbances
or other political events. Generally, drilling contracts provide for the
division of responsibilities between a drilling company and its customer, and
Nabors seeks to obtain indemnification from its customers by contract for
certain of these risks. To the extent that Nabors is unable to transfer such
risks to customers by contract or indemnification agreements, Nabors seeks
protection through insurance which its management considers to be adequate.
However, there is no assurance that such insurance or indemnification agreements
will adequately protect Nabors 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 Nabors. 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.
THE PROFITABILITY OF NABORS' INTERNATIONAL OPERATIONS COULD BE ADVERSELY
AFFECTED BY WAR, CIVIL DISTURBANCE OR ECONOMIC TURMOIL
Nabors derives a significant portion of its business from international markets,
including major operations in Canada, the Middle East, Asia and South and
Central America. These operations are subject to various risks, including the
risk of war, 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, Nabors' operations may be subject to the additional risk of
fluctuating currency values and exchange controls. In the international markets
in which Nabors operates, it is subject to various laws and regulations that
govern 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 prove to be uncertain.
NONCOMPLIANCE WITH GOVERNMENTAL REGULATION OR EXPOSURE TO AND ENVIRONMENTAL
LIABILITIES COULD ADVERSELY AFFECT NABORS' RESULTS OF OPERATIONS
The drilling of oil and gas wells is subject to various federal, state, local
and foreign laws, rules and regulations. The cost to Nabors of compliance with
these laws and regulations may be substantial. For example, federal law imposes
specific design and operational standards on rigs and platforms. Failure to
comply with these requirements could subject Nabors to substantial civil and
criminal penalties as well as potential court injunctions. In addition,
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<PAGE> 19
federal law imposes a variety of regulations on "responsible parties" related to
the prevention of oil spills and liability for damages from such spills. Nabors,
as an owner and operator of onshore and offshore rigs, may be deemed to be a
responsible party under federal law. Federal law assigns liability to a
responsible party of oil removal costs and subjects a responsible party to a
variety of public and private damages. In some circumstances, federal law
imposes liability without regard to negligence or fault, resulting in
substantial costs to the party upon whom such liability is imposed. Nabors
generally tries to require its customers to contractually assume responsibility
for compliance with environmental regulations. However, Nabors is not always
successful in shifting all of these risks.
Our well-servicing, workover and production services operations routinely
involve the handling of significant amounts of waste materials, some of which
are classified as hazardous substances. Our operations and facilities are
subject to numerous state and federal environmental laws, rules and regulations,
including, without limitation, laws concerning the containment and disposal of
hazardous substances, oilfield waste and other waste materials, the use of
underground storage tanks and the use of underground injection wells. In
addition, our offshore support vessel operations also are subject to federal,
state and local laws and regulations which control the discharge of pollutants
into the environment and which otherwise relate to environmental protection.
Other laws regulate the activities of offshore service vessels, require vessel
owners and operators to demonstrate financial and operational responsibility and
provide for certain limitations on the liability of vessel owners and operators.
Failure to comply with these laws, rules and regulations could result in civil
and even criminal actions against Nabors.
We employ personnel responsible for monitoring environmental compliance and
arranging for remedial actions that may be required from time to time and also
uses outside experts to advise on and assist with our environmental compliance
efforts. Costs we incur to investigate and remediate contaminated sites are
expensed unless the remediation extends the useful lives of the assets employed
at the site. Remediation costs that extend the useful lives of the assets are
capitalized and amortized over the remaining useful lives of such assets.
Liabilities are recorded when the need for environmental assessments and/or
remedial efforts become known or probable and the cost can be reasonably
estimated.
Laws protecting the environment generally have become more stringent than in the
past and are expected to continue to do so. Environmental laws and regulations
typically impose "strict liability," which means that in some situations Nabors
could be exposed to liability for cleanup costs, natural resource damages and
other damages as a result of conduct of Nabors that was lawful at the time it
occurred or conduct of, or conditions caused by, prior operators or other third
parties. Cleanup costs and other damages arising as a result of environmental
laws, and costs associated with changes in environmental laws and regulations
could be substantial and could have a material adverse effect on our financial
condition. From time to time, claims have been made and litigation has been
brought against Nabors under such laws. However, the costs incurred in
connection with such claims and other costs of environmental compliance have not
had any material adverse effect on our operations or financial statements in the
past, and management is not currently aware of any situation or condition that
it believes is likely to have any such material adverse effect in the future.
Under the Comprehensive Environmental Response, Compensation and Liability Act,
also known as CERCLA or Superfund, and related state laws and regulations, joint
and several liability can be imposed without regard to fault or the legality of
the original conduct on certain classes of persons that contributed to the
release of a "hazardous substance" into the environment. Under CERCLA, such
persons may be liable for the costs of cleaning up the hazardous substances that
have been released into the environment and for damages to natural resources,
and it is not uncommon for the neighboring land owners and other third parties
to file claims for personal injury, property damage and recovery of response
costs allegedly caused by the hazardous substances released into the
environment. We have been notified of our possible responsibility with respect
to the cleanup of a federal national priority list site and a state abandoned
site, which were formerly operated by parties unrelated to Nabors as oilfield
waste disposal facilities. In addition, we have been named as a potentially
responsible party with respect to the cleanup of three other sites which were
formerly operated by various parties unrelated to Nabors. Nabors believes that
its cost to clean up each of these sites will be less than $100,000. Although at
this time information regarding our possible responsibility with respect to
cleanup of the federal national priority list site and the state abandoned site
has not been fully developed and it is not feasible to predict such outcome with
certainty, management is of the opinion that their ultimate resolution should
not have a material adverse effect on our financial statements or results of
operations.
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<PAGE> 20
Changes in federal and state environmental regulations may also negatively
impact oil and natural gas exploration and production companies, which in turn
could have a material adverse effect on Nabors. For example, while we currently
do not handle large amounts of hazardous wastes (which are subject to regulation
under the federal Resource Conservation and Recovery Act) in connection with its
operations, legislation has been proposed from time to time in Congress which
would reclassify oil and natural gas production wastes as hazardous wastes. If
enacted, such legislation could dramatically increase operating costs for
domestic oil and natural gas companies and this could reduce the market for our
services by making many wells and/or oilfields uneconomical to operate.
With respect to our offshore support vessel operations, we are affected by
additional governmental regulations. Under the Merchant Marine Act of 1920, as
amended, if persons other than U.S. citizens own in the aggregate in excess of
25% of Nabors' outstanding stock, our U.S. flagged vessels would lose the
privilege of engaging in the transportation of merchandise in the U.S. coastwise
trade. In addition, our offshore support vessel operations are materially
affected by federal, state and local regulation as well as certain
international conventions and private industry organizations. These regulations
govern worker health and safety and the manning, construction and operation of
vessels. Private industry organizations establish safety criteria and are
authorized to investigate vessel accidents and recommend approved safety
standards. The failure to comply with the requirements of any of these laws or
the rules or regulations of these agencies and organizations could have a
material adverse effect on the Company's offshore support vessel operations.
The Oil Pollution Act of 1990, as amended, contains provisions specifying
responsibility for removal costs and damages resulting from discharges of oil
into navigable waters or onto the adjoining shorelines. Among other
requirements, this law requires owners and operators of vessels over 300 gross
tons to provide the U.S. Coast Guard with evidence of financial responsibility
to cover the costs of cleaning up oil spills from such vessels. We believe we
have provided satisfactory evidence of financial responsibility to the U.S.
Coast Guard for all vessels over 300 tons. In addition, the Outer Continental
Shelf Lands Act provides the federal government with broad discretion in
regulating the leasing of offshore oil and gas production sites. Because our
offshore support vessel operations rely on offshore oil and gas exploration and
production, if the government were to exercise its authority under this law to
restrict the availability of offshore oil and gas leases, such an action could
have a material adverse effect on our financial statements and results of
operations.
NABORS, AS A HOLDING COMPANY, DEPENDS ON ITS SUBSIDIARIES TO MEET ITS FINANCIAL
OBLIGATIONS
Nabors is a holding company with no significant assets other than the stock of
our subsidiaries. In order to meet its financial needs, Nabors relies
exclusively on repayments of interest and principal on intercompany loans made
by Nabors to its operating subsidiaries and income from dividends and other cash
flow from such subsidiaries. There can be no assurance that Nabors' operating
subsidiaries will generate sufficient net income to pay upstream dividends or
cash flow to make payments of interest and principal to Nabors in respect of its
intercompany loans.
UNDER EXISTING DIVIDEND POLICY, NABORS DOES NOT PAY DIVIDENDS
As part of Nabors' policy, Nabors has not paid any dividends on its common stock
since 1982. Nabors does not anticipate that it will pay any dividends on its
common stock in the foreseeable future.
AS NABORS AND ITS STOCKHOLDERS HAVE A CONSIDERABLE NUMBER OF SHARES OF COMMON
STOCK AVAILABLE FOR ISSUANCE AND RESALE, SIGNIFICANT ISSUANCES OR RESALES IN THE
FUTURE MAY ADVERSELY AFFECT THE MARKET PRICE OF NABORS COMMON STOCK
As of March 29, 2000, there were 145,394,818 shares of Nabors common stock
outstanding, 22,718,622 shares of Nabors common stock were reserved for issuance
pursuant to option and employee benefit plans and 333,998 shares of Nabors
common stock were reserved for issuance upon the exercise of outstanding
warrants. The exercise price of these options is substantially lower than the
trading prices of Nabors common stock on that date. Certain of the shares to be
issued pursuant to the exercise of options may be "restricted securities," as
that term is defined in Rule 144 promulgated under the Securities Act. The sale,
or availability for sale, of substantial amounts of Nabors common stock in the
public market due to the exercise of options (and, where applicable, sales
pursuant to Rule 144) could adversely affect the prevailing market price of
Nabors common stock and could impair our ability to raise additional capital
through the sale of equity securities.
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PROVISIONS OF NABORS' ORGANIZATIONAL DOCUMENTS MAY DETER A CHANGE OF CONTROL
TRANSACTION AND DECREASE THE LIKELIHOOD OF A STOCKHOLDER RECEIVING A CHANGE OF
CONTROL PREMIUM
Nabors' board of directors is divided into three classes of directors, with each
class serving a staggered three-year term. In addition, our board of directors
has the authority to issue up to 10,000,000 shares of preferred stock and to
determine the price, rights (including voting rights), conversion ratios,
preferences and privileges of that stock without further vote or action by the
holders of the common stock. Although Nabors has no present plans to issue
shares of preferred stock, the classified board and the Nabors Board's ability
to issue additional shares of preferred stock may discourage, delay or prevent
changes in control of Nabors that are not approved by the Nabors Board, thereby
possibly preventing certain Nabors' stockholders from realizing a possible
premium on their shares.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
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 -- Financial Instruments and Market Risk" on page 49 of the 1999
Annual Report and is incorporated into this document by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements, together with the report thereon of
PricewaterhouseCoopers LLP dated February 9, 2000, appear on pages 50 through 68
of the 1999 Annual Report and are incorporated herein by reference. With the
exception of the specific information expressly incorporated into Items 1, 2, 3,
5, 6, 7, 7A, 8 and 14 of this document, the 1999 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 2000 annual meeting of stockholders under the captions "Election of
Directors" and "Executive Officers" and is incorporated into this document by
reference. Section 16(a) of the Securities Exchange Act of 1934 requires Nabors'
directors and executive officers, and persons who own more than 10% of a
registered class of Nabors' equity securities, to file with the Securities and
Exchange Commission and the American Stock Exchange initial reports of ownership
and reports of changes in ownership of common stock and other equity securities
of Nabors. Officers, directors and greater than 10% shareholders are required by
Commission regulation to furnish Nabors with copies of all Section 16(a) forms
which they file.
To our knowledge, based solely on review of the copies of such reports furnished
to us and written representations that no other reports were required, with
regard to the period from January 1, 1997 to December 31, 1999, all Section
16(a) filings required to be made by Nabors' officers, directors and greater
than 10% beneficial owners were timely filed.
ITEM 11. EXECUTIVE COMPENSATION
Except as specified in the following sentence, the information called for by
this item will be contained in the 2000 proxy statement under the caption
"Remuneration of Management" and is incorporated into this document by
reference. Information in Nabors' 2000 proxy statement not deemed to be
"soliciting material" or "filed" with the Commission under its rules, including
the Report of the Compensation Committee on Executive Compensation, the Report
of the Audit Committee and the Five Year Stock Performance Graph, is not deemed
to be incorporated by reference.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information called for by this item will be contained in Nabors' 2000 proxy
statement under the caption "Share Ownership of Management and Principal
Shareholders" and is incorporated into this document by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this item will be contained in Nabors' 2000 proxy
statement under the captions "Business Relationships" and "Compensation
Committee Interlocks and Insider Participation" and is incorporated into this
document 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 1999 Annual Report
from the respective page numbers indicated:
<TABLE>
<CAPTION>
Page No.
<S> <C>
Report of Independent Accountants..................................................... 50
Consolidated Balance Sheets........................................................... 51
Consolidated Statements of Income..................................................... 52
Consolidated Statements of Changes in Stockholders' Equity............................ 53
Consolidated Statements of Cash Flows................................................. 54
Notes to Consolidated Financial Statements............................................ 55
</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 related notes.
(b) Exhibits
Exhibit No. Description
----------- ------------
3.1 Restated Certificate of Incorporation of Nabors
Industries, Inc. dated March 4, 1997 (Incorporated by
reference to the exhibits to Form 10-Q, File No.
1-9245, filed on May 16, 1997)
3.2 Restated By-Laws of the Nabors Industries, Inc. adopted
December 4, 1997 (Incorporated by reference to the
exhibits to Form 10-K, File No. 1-9245, filed on
December 29, 1997)
4.1 Registration Rights Agreement dated as of April 30,
1996 between Nabors Industries, Inc. and Occidental Oil
and Gas Corporation (Incorporated by reference to the
exhibits to Form 10-K, File No. 1-9245, filed on
December 29, 1996)
4.2 Indenture dated as of March 1, 1999 between Nabors
Industries, Inc., as Issuer, and Norwest Bank
Minnesota, National Association, as Trustee, in
connection with $325,000,000 aggregate principal amount
of 6.80% Notes due 2004 (Incorporated by reference to
Post-Effective Amendment No. 1 to Registration
Statement on Form S-3, Registration No. 333-25233,
filed on March 5, 1999)
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4.3 Supplemental Indenture No. 1 dated as of March 1, 1999
between Nabors Industries, Inc., as Issuer, and Norwest
Bank Minnesota, National Association, as Trustee, in
connection with the 6.80% Notes (Incorporated by
reference to Post-Effective Amendment No. 1 to
Registration Statement on Form S-3, Registration No.
333-25233, filed with the Commission on March 5, 1999)
4.4 Indenture dated as of March 31, 1998 among Pool Energy
Services Co., the guarantors named therein and Marine
Midland Bank, as trustee, with respect to $150,000,000
aggregate principal amount of 8-5/8% Senior
Subordinated Notes due 2008, Series A and B
4.5 Supplemental Indenture dated as of March 31, 1998 among
Pool Energy Services Co., the guarantors named therein
and Marine Midland Bank, as trustee
4.6 Second Supplemental Indenture dated as of December 1,
1999 among Nabors Holding Company (formerly Pool Energy
Services Co.), the guarantors named therein and HSBC
Bank USA (formerly Marine Midland Bank), as trustee
4.7 Third Supplemental Indenture dated as of February 14,
2000 among Nabors Holding Company, the guarantors named
therein and HSBC Bank USA (Incorporated by reference to
the exhibits to Form 8-K dated February 2, 2000, File
No. 1-9245, filed February 23, 2000)
10.1(+) 1993 Stock Option Plan for Non-Employee Directors
(Incorporated by reference to Registration Statement on
Form S-8, Registration No. 33-87322, filed December 29,
1994)
10.2(+) 1994 Executive Officers Stock Plan (Incorporated by
reference to Registration Statement on Form S-8,
Registration No. 333-11313, filed September 3, 1996)
10.3(+) 1996 Employee Stock Plan (Incorporated by reference to
Registration Statement on Form S-8, Registration No.
333-11313, filed September 3, 1996)
10.4(+) 1994 Executive Stock Option Agreement effective
December 28, 1994 between Nabors Industries, Inc. and
Eugene M. Isenberg (Incorporated by reference to the
exhibits to Form 10-K, File No. 1-9245, filed December
29, 1996)
10.5(+) 1994 Executive Stock Option Agreement effective
December 28, 1994 between Nabors Industries, Inc. and
Anthony G. Petrello (Incorporated by reference to the
exhibits to Form 10-K, File No. 1-9245, filed December
29, 1996)
10.6(+) 1994 Executive Stock Option Agreement effective
December 28, 1994 between Nabors Industries, Inc. and
Richard A. Stratton (Incorporated by reference to the
exhibits to Form 10-K, File No. 1-9245, filed December
29, 1996)
10.7(+) Employment Agreement effective October 1, 1996 between
Nabors Industries, Inc. and Eugene M. Isenberg
(Incorporated by reference to the exhibits to Form
10-Q, File No. 1-9245, filed May 16, 1997)
10.8(+) Employment Agreement effective October 1, 1996 between
Nabors Industries, Inc. and Anthony G. Petrello
(Incorporated by reference to the exhibits to Form
10-Q, File No. 1-9245, filed May 16, 1997)
10.9(+) Employment Agreement effective October 1, 1996 between
Nabors Industries, Inc. and Richard A. Stratton
(Incorporated by reference to the exhibits to Form
10-K, File No. 1-9245, filed December 29, 1997)
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<PAGE> 24
10.10(+) Nabors Industries, Inc. 1996 Chairman's Executive Stock
Plan (Incorporated by reference to the exhibits to Form
10-K, File No. 1-9245, filed December 29, 1997)
10.11(+) Nabors Industries, Inc. 1996 Executive Officers Stock
Plan (Incorporated by reference to the exhibits to Form
10-K, File No. 1-9245, filed December 29, 1997)
10.12(+) Nabors Industries, Inc. 1996 Executive Officers
Incentive Stock Plan (Incorporated by reference to the
exhibits to Form 10-K, File No. 1-9245, filed December
29, 1997)
10.13(+) Nabors Industries, Inc. 1997 Executive Officers
Incentive Stock Plan (Incorporated by reference to the
exhibits to Form 10-K, File No. 1-9245, filed December
29, 1997)
10.14 Form of Indemnification Agreement entered into between
Nabors Industries, Inc. and the directors and executive
officers identified in the schedule thereto
(Incorporated by reference to the exhibits to Form
10-K, File No. 1-9245, filed December 29, 1997)
10.15 Agreement and Plan of Merger by and among Nabors
Industries, Inc., Nabors Acquisition Corp. VII and
Bayard Drilling Technologies, Inc., dated October 19,
1999, as amended (Incorporated by reference to
Registration Statement on Form S-4, Registration No.
333-72397, filed February 16, 1999)
10.16 Agreement and Plan of Merger by and among Nabors
Industries, Inc., Starry Acquisition Corp. and Pool
Energy Services Co. dated as of January 10, 1999
(Incorporated by reference to the exhibits to Form 8-K,
File No. 1-9245, filed January 11, 1999)
10.17 Underwriting Agreement dated March 4, 1999 between
Nabors and the underwriters named therein (Incorporated
by reference to the exhibits to Post-Effective
Amendment No. 1 to Registration Statement on Form S-3,
Registration No. 333-25233, filed March 5, 1999)
10.18(+) Nabors Industries, Inc. 1998 Employee Stock Plan
(Incorporated by reference to the exhibits to Form 10-K
dated December 31, 1998, File No. 1-9245, filed March
31, 1999)
10.19(+) Nabors Industries, Inc. 1998 Chairman's Executive
Stock Plan (Incorporated by reference to the exhibits
to Form 10-K dated December 31, 1998, File No. 1-9245,
filed March 31, 1999)
10.20(+) Nabors Industries, Inc. 1999 Stock Option Plan for
Non-Employee Directors (Incorporated by reference to
the exhibits to Form 10-K dated December 31, 1998, File
No. 1-9245, filed March 31, 1999)
11 Computation of Per Share Earnings
12 Computation of Ratios of Earnings to Fixed Charges
13(1) 1999 Annual Report
21 Significant Subsidiaries of Nabors Industries, Inc.
23 Consent of Independent Accountants
27 Financial Data Schedule
24
<PAGE> 25
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
(Incorporated by reference to the Exhibits to Form
10-K, File No. 1-9245, filed December 29, 1997)
---------------
(1) With the exception of the specific information expressly
incorporated into Items 1, 2, 3, 5, 6, 7, 7A, 8 and 14 of this
document, the 1999 Annual Report is not deemed to be filed as
part of this report.
(+) Management contract or compensatory plan or arrangement
(c) Reports on Form 8-K:
o Report on Form 8-K filed with the Commission on November 24, 1999 with
regard to completion of the acquisition of Pool Energy Services Co.
o Report on Form 8-K/A filed with the Commission on December 1, 1999,
amending the description of the Pool merger contained in the Form 8-K
described above.
o Report on Form 8-K/A filed with the Commission on February 7, 2000,
amending the Form 8-K described above to include required pro forma
financial information with respect to Pool.
o Report on From 8-K filed with the Commission on February 23, 2000 with
regard to Nabors Industries' guarantee under Nabors Holding Company's
Indenture, as supplemented, with regard to the 8-5/8% Senior Subordinated
Notes due 2006, and the amendments to such indenture approved by the note
holders.
<PAGE> 26
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, as of March 30, 2000.
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 March 30, 2000
- ------------------------------------ Chief Executive Officer
Eugene M. Isenberg
/s/ Anthony G. Petrello President and March 30, 2000
- ------------------------------------ Chief Operating Officer
Anthony G. Petrello
/s/ Richard A. Stratton Vice Chairman March 30, 2000
- ------------------------------------
Richard A. Stratton
/s/ James L. Payne Director March 30, 2000
- ------------------------------------
James L Payne
/s/ Hans Schmidt Director March 30, 2000
- ------------------------------------
Hans Schmidt
/s/ Myron M. Sheinfeld Director March 30, 2000
- ------------------------------------
Myron M. Sheinfeld
/s/ Jack Wexler Director March 30, 2000
- ------------------------------------
Jack Wexler
/s/ Martin J. Whitman Director March 30, 2000
- ------------------------------------
Martin J. Whitman
</TABLE>
<PAGE> 27
Exhibit No. Description
----------- ------------
3.1 Restated Certificate of Incorporation of Nabors
Industries, Inc. dated March 4, 1997 (Incorporated by
reference to the exhibits to Form 10-Q, File No.
1-9245, filed on May 16, 1997)
3.2 Restated By-Laws of the Nabors Industries, Inc. adopted
December 4, 1997 (Incorporated by reference to the
exhibits to Form 10-K, File No. 1-9245, filed on
December 29, 1997)
4.1 Registration Rights Agreement dated as of April 30,
1996 between Nabors Industries, Inc. and Occidental Oil
and Gas Corporation (Incorporated by reference to the
exhibits to Form 10-K, File No. 1-9245, filed on
December 29, 1996)
4.2 Indenture dated as of March 1, 1999 between Nabors
Industries, Inc., as Issuer, and Norwest Bank
Minnesota, National Association, as Trustee, in
connection with $325,000,000 aggregate principal amount
of 6.80% Notes due 2004 (Incorporated by reference to
Post-Effective Amendment No. 1 to Registration
Statement on Form S-3, Registration No. 333-25233,
filed on March 5, 1999)
4.3 Supplemental Indenture No. 1 dated as of March 1, 1999
between Nabors Industries, Inc., as Issuer, and Norwest
Bank Minnesota, National Association, as Trustee, in
connection with the 6.80% Notes (Incorporated by
reference to Post-Effective Amendment No. 1 to
Registration Statement on Form S-3, Registration No.
333-25233, filed with the Commission on March 5, 1999)
4.4 Indenture dated as of March 31, 1998 among Pool Energy
Services Co., the guarantors named therein and Marine
Midland Bank, as trustee, with respect to $150,000,000
aggregate principal amount of 8-5/8% Senior
Subordinated Notes due 2008, Series A and B
4.5 Supplemental Indenture dated as of March 31, 1998 among
Pool Energy Services Co., the guarantors named therein
and Marine Midland Bank, as trustee
4.6 Second Supplemental Indenture dated as of December 1,
1999 among Nabors Holding Company (formerly Pool Energy
Services Co.), the guarantors named therein and HSBC
Bank USA (formerly Marine Midland Bank), as trustee
4.7 Third Supplemental Indenture dated as of February 14,
2000 among Nabors Holding Company, the guarantors named
therein and HSBC Bank USA (Incorporated by reference to
the exhibits to Form 8-K dated February 2, 2000, File
No. 1-9245, filed February 23, 2000)
10.1(+) 1993 Stock Option Plan for Non-Employee Directors
(Incorporated by reference to Registration Statement on
Form S-8, Registration No. 33-87322, filed December 29,
1994)
10.2(+) 1994 Executive Officers Stock Plan (Incorporated by
reference to Registration Statement on Form S-8,
Registration No. 333-11313, filed September 3, 1996)
10.3(+) 1996 Employee Stock Plan (Incorporated by reference to
Registration Statement on Form S-8, Registration No.
333-11313, filed September 3, 1996)
10.4(+) 1994 Executive Stock Option Agreement effective
December 28, 1994 between Nabors Industries, Inc. and
Eugene M. Isenberg (Incorporated by reference to the
exhibits to Form 10-K, File No. 1-9245, filed December
29, 1996)
<PAGE> 28
10.5(+) 1994 Executive Stock Option Agreement effective
December 28, 1994 between Nabors Industries, Inc. and
Anthony G. Petrello (Incorporated by reference to the
exhibits to Form 10-K, File No. 1-9245, filed December
29, 1996)
10.6(+) 1994 Executive Stock Option Agreement effective
December 28, 1994 between Nabors Industries, Inc. and
Richard A. Stratton (Incorporated by reference to the
exhibits to Form 10-K, File No. 1-9245, filed December
29, 1996)
10.7(+) Employment Agreement effective October 1, 1996 between
Nabors Industries, Inc. and Eugene M. Isenberg
(Incorporated by reference to the exhibits to Form
10-Q, File No. 1-9245, filed May 16, 1997)
10.8(+) Employment Agreement effective October 1, 1996 between
Nabors Industries, Inc. and Anthony G. Petrello
(Incorporated by reference to the exhibits to Form
10-Q, File No. 1-9245, filed May 16, 1997)
10.9(+) Employment Agreement effective October 1, 1996 between
Nabors Industries, Inc. and Richard A. Stratton
(Incorporated by reference to the exhibits to Form
10-K, File No. 1-9245, filed December 29, 1997)
10.10(+) Nabors Industries, Inc. 1996 Chairman's Executive Stock
Plan (Incorporated by reference to the exhibits to Form
10-K, File No. 1-9245, filed December 29, 1997)
10.11(+) Nabors Industries, Inc. 1996 Executive Officers Stock
Plan (Incorporated by reference to the exhibits to Form
10-K, File No. 1-9245, filed December 29, 1997)
10.12 (+) Nabors Industries, Inc. 1996 Executive Officers
Incentive Stock Plan (Incorporated by reference to the
exhibits to Form 10-K, File No. 1-9245, filed December
29, 1997)
10.13 (+) Nabors Industries, Inc. 1997 Executive Officers
Incentive Stock Plan (Incorporated by reference to the
exhibits to Form 10-K, File No. 1-9245, filed December
29, 1997)
10.14 Form of Indemnification Agreement entered into between
Nabors Industries, Inc. and the directors and executive
officers identified in the schedule thereto
(Incorporated by reference to the exhibits to Form
10-K, File No. 1-9245, filed December 29, 1997)
10.15 Agreement and Plan of Merger by and among Nabors
Industries, Inc., Nabors Acquisition Corp. VII and
Bayard Drilling Technologies, Inc., dated October 19,
1999, as amended (Incorporated by reference to
Registration Statement on Form S-4, Registration No.
333-72397, filed February 16, 1999)
10.16 Agreement and Plan of Merger by and among Nabors
Industries, Inc., Starry Acquisition Corp. and Pool
Energy Services Co. dated as of January 10, 1999
(Incorporated by reference to the exhibits to Form 8-K,
File No. 1-9245, filed January 11, 1999)
<PAGE> 29
10.17 Underwriting Agreement dated March 4, 1999 between
Nabors and the underwriters named therein (Incorporated
by reference to the exhibits to Post-Effective
Amendment No. 1 to Registration Statement on Form S-3,
Registration No. 333-25233, filed March 5, 1999)
10.18 (+) Nabors Industries, Inc. 1998 Employee Stock Plan
(Incorporated by reference to the exhibits to Form 10-K
dated December 31, 1998, File No. 1-9245, filed March
31, 1999)
10.19 (+) Nabors Industries, Inc. 1998 Chairman's Executive
Stock Plan (Incorporated by reference to the exhibits
to Form 10-K dated December 31, 1998, File No. 1-9245,
filed March 31, 1999)
10.20 (+) Nabors Industries, Inc. 1999 Stock Option Plan for
Non-Employee Directors (Incorporated by reference to
the exhibits to Form 10-K dated December 31, 1998, File
No. 1-9245, filed March 31, 1999)
11 Computation of Per Share Earnings
12 Computation of Ratios of Earnings to Fixed Charges
13(1) 1999 Annual Report
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
(Incorporated by reference to the Exhibits to Form
10-K, File No. 1-9245, filed December 29, 1997)
---------------
(1) With the exception of the specific information expressly
incorporated into Items 1, 2, 3, 5, 6, 7, 7A, 8 and 14 of this
document, the 1999 Annual Report is not deemed to be filed as
part of this report.
(+) Management contract or compensatory plan or arrangement
<PAGE> 1
EXHIBIT 4.4
================================================================================
____________________________________
POOL ENERGY SERVICES CO.
AS ISSUER
THE GUARANTORS
NAMED HEREIN
AND
MARINE MIDLAND BANK,
AS TRUSTEE
$150,000,000
SERIES A and SERIES B
8 5/8% SENIOR SUBORDINATED NOTES DUE 2008
____________________________________
____________________
INDENTURE
Dated as of March 31, 1998
____________________
================================================================================
<PAGE> 2
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1
Definitions and Incorporation by Reference
Section 1.01. Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.02. Other Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 1.03. Incorporation by Reference of TIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 1.04. Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 2
The Notes
Section 2.01. Form and Dating . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 2.02. Execution and Authentication; Authentication Agent . . . . . . . . . . . . . . . . . . . . 26
Section 2.03. Registrar and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 2.04. Paying Agent to Hold Money in Trust . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 2.05. Holder Lists . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Section 2.06 Transfer and Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Section 2.07. Book-entry Provisions for Global Notes . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 2.08. Special Transfer Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Section 2.09. Replacement Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 2.10. Outstanding Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 2.11 Treasury Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Section 2.12. Temporary Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 2.13. Cancellation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 2.14. Defaulted Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 2.15. Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
Section 2.16. CUSIP and CINS Numbers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
ARTICLE 3
Redemptions and Offers to Purchase
Section 3.01. Notices to Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 3.02. Selection of Notes to Be Redeemed or Purchased . . . . . . . . . . . . . . . . . . . . . . 35
Section 3.03. Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Section 3.04. Effect of Notice of Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 3.05. Deposit of Redemption Price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 3.06 Notes Redeemed in Part . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 3.07 Redemption Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Section 3.08. Mandatory Offers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
ARTICLE 4
Covenants
Section 4.01 Payment of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
Section 4.02. Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
</TABLE>
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<TABLE>
<S> <C>
Section 4.03. Compliance Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 4.04. Stay, Extension and Usury Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 4.05 Limitation on Restricted Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
Section 4.06 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 4.07. Limitations on Additional Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Section 4.08. Limitation on the Issuance of Capital Stock of Restricted
Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 4.09. Limitations on Layering Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 4.10. Limitation on Transactions with Affiliates . . . . . . . . . . . . . . . . . . . . . . . . 44
Section 4.11. Limitations on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 4.12. Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 4.13. Limitations on Restrictions on Distributions from
Restricted Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Section 4.14. [Intentionally Omitted.] . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 4.15. Change of Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Section 4.16. Limitations on Asset Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Section 4.17. Additional Note Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
ARTICLE 5
Successors
Section 5.01. Limitations on Mergers and Certain Other Transactions . . . . . . . . . . . . . . . . . . 49
ARTICLE 6
Defaults and Remedies
Section 6.01. Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Section 6.02. Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 6.03. Other Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Section 6.04. Waiver of Past Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 6.05. Control by Majority of Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 6.06. Limitations on Suits by Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 6.07. Rights of Holders to Receive Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 6.08. Collection Suit by Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Section 6.09. Trustee May File Proofs of Claim . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 6.10. Priorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Section 6.11. Undertaking for Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 6.12. Willful Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
ARTICLE 7
Trustee
Section 7.01. Duties of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Section 7.02. Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Section 7.03. Individual Rights of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 7.04. Trustee's Disclaimer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 7.05. Notice to Holders of Defaults and Events of Default . . . . . . . . . . . . . . . . . . . 56
Section 7.06. Reports by Trustee to Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Section 7.07. Compensation and Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
</TABLE>
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<TABLE>
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Section 7.08. Replacement of Trustee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
Section 7.09. Successor Trustee by Merger, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 7.10. Eligibility; Disqualification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Section 7.11. Preferential Collection of Claims Against Company . . . . . . . . . . . . . . . . . . . . 58
ARTICLE 8
Discharge of Indenture
Section 8.01. Discharge of Liability on Notes; Defeasance . . . . . . . . . . . . . . . . . . . . . . . 59
Section 8.02. Conditions to Defeasance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Section 8.03. Application of Trust Money . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 8.04. Repayment to Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 8.05. Indemnity for Government Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Section 8.06. Reinstatement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
ARTICLE 9
Amendments
Section 9.01. Amendments and Supplements Permitted without Consent of
Holders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62
Section 9.02. Amendments and Supplements Requiring Consent of Holders . . . . . . . . . . . . . . . . . 62
Section 9.03. Compliance with TIA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 9.04. Revocation and Effect of Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 9.05. Notation or Exchange of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Section 9.06. Trustee Protected . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
ARTICLE 10
Subordination
Section 10.01. Agreement to Subordinate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 10.02. Liquidation; Dissolution; Bankruptcy . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Section 10.03. No Payment on Notes in Certain Circumstances . . . . . . . . . . . . . . . . . . . . . . . 65
Section 10.04. Acceleration of Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 10.05. When Distributions Must Be Paid Over . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Section 10.06. Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 10.07. Subrogation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 10.08. Relative Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Section 10.09. The Company, Guarantors and Holders May Not Impair
Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Section 10.10. Distribution or Notice to Representative . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 10.11. Rights of Trustee and Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Section 10.12. Authorization to Effect Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . 69
ARTICLE 11
Guarantee
Section 11.01. Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70
Section 11.02. Trustee to Include Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 11.03. Subordination of Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 11.04. Senior Subordinated Debt of Guarantor . . . . . . . . . . . . . . . . . . . . . . . . . . 71
</TABLE>
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Section 11.05. Limits of Guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71
Section 11.06. Subsidiary Guarantors May Consolidate, etc., on Certain Terms . . . . . . . . . . . . . . 71
Section 11.07. Releases of Guarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
ARTICLE 12
Miscellaneous
Section 12.01. Trust Indenture Act Controls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 12.02. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Section 12.03. Communication by Holders with Other Holders . . . . . . . . . . . . . . . . . . . . . . . 74
Section 12.04. Certificate and Opinion As to Conditions Precedent . . . . . . . . . . . . . . . . . . . . 74
Section 12.05. Statements Required in Certificate or Opinion . . . . . . . . . . . . . . . . . . . . . . 74
Section 12.06. Rules by Trustee and Agents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
Section 12.07. Legal Holidays . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 12.08. No Recourse Against Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 12.09. Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 12.10. Table of Contents, Headings, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 12.11. Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 12.12. No Adverse Interpretation of Other Agreements . . . . . . . . . . . . . . . . . . . . . . 75
Section 12.13. Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 12.14. Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Section 12.15. Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
</TABLE>
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<PAGE> 6
INDENTURE, dated as of March 31, 1998, is by and among Pool Energy
Services Co. (as further defined below, the "Company"), the Guarantors and
Marine Midland Bank, a New York banking corporation and trust company, as
trustee (the "TRUSTEE").
The Company, the Guarantors and the Trustee agree as follows for the
benefit of each other and for the equal and ratable benefit of the Holders of
the 8_% Series A Senior Subordinated Notes due 2008 (the "OLD NOTES") and the
8_% Series B Senior Subordinated Notes due 2008 (the "NEW NOTES" and, together
with the Old Notes, the "NOTES"), without preference of one series of Notes
over the other:
ARTICLE 1
Definitions and Incorporation by Reference
Section 1.01. Definitions
"ACQUIRED INDEBTEDNESS" means (a) with respect to any Person that becomes
a Restricted Subsidiary after the date of this Indenture, Indebtedness of such
Person and its Subsidiaries existing at the time such Person becomes a
Restricted Subsidiary that was not incurred in connection with, or in
contemplation of, such Person becoming a Restricted Subsidiary and (b) with
respect to the Company or any of its Restricted Subsidiaries, any Indebtedness
of a Person (other than the Company or a Restricted Subsidiary) existing at the
time such Person is merged with or into the Company or a Restricted Subsidiary,
or Indebtedness assumed by the Company or any of its Restricted Subsidiaries in
connection with the acquisition of an asset or assets from another Person,
which Indebtedness was not, in any case, incurred by such other Person in
connection with, or in contemplation of, such merger or acquisition.
"AFFILIATE" of any Person means any Person (i) which directly or
indirectly controls or is controlled by, or is under direct or indirect common
control with, the referent Person, (ii) which beneficially owns or holds,
directly or indirectly, 10% or more of any class of the Voting Stock, or more
than 20% of all classes of Capital Stock (other than Disqualified Capital
Stock) in the aggregate, of the referent Person, (iii) of which 10% or more of
the Voting Stock, or more than 20% of all classes of Capital Stock (other than
Disqualified Capital Stock) in the aggregate, is beneficially owned or held,
directly or indirectly, by the referent Person or (iv) with respect to an
individual, any immediate family member of such Person. For purposes of this
definition, control of a Person shall mean the power to direct the management
and policies of such Person, directly or indirectly, whether through the
ownership of voting securities, by contract or otherwise.
"AGENT" means any Registrar, Paying Agent, or co-registrar appointed
pursuant to Section 2.03.
"ASSET SALE" means any sale, issuance, conveyance, transfer, lease,
assignment or other disposition to any Person other than the Company or any of
its Restricted Subsidiaries (including, without limitation, by means of a Sale
and Leaseback Transaction or a merger or consolidation)
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<PAGE> 7
(collectively, for purposes of this definition, a "transfer"), directly or
indirectly, in one transaction or a series of related transactions, of (a) any
Capital Stock of any Subsidiary or (b) any other properties or assets of the
Company or any of its Restricted Subsidiaries other than transfers of cash,
Cash Equivalents, accounts receivable, inventory or other properties or assets
in the ordinary course of business. For the purposes of this definition, the
term "Asset Sale" shall not include any of the following: (i) any transfer of
properties or assets (including Capital Stock) that is governed by, and made in
accordance with, the provisions of Article 5; (ii) any transfer of properties
or assets constituting a Restricted Investment, if permitted under Section
4.05; (iii) sales of damaged, worn-out or obsolete equipment or assets that, in
the Company's reasonable judgment, are either no longer used or useful in the
business of the Company or its Subsidiaries, provided that the proceeds thereof
are used to purchase replacement or similar assets for use in the business of
the Company and its Subsidiaries; (iv) any trade or exchange by the Company or
any Restricted Subsidiary of equipment or assets for other equipment or assets
owned or held by another Person, provided that (A) the Fair Market Value of the
equipment or assets traded or exchanged by the Company or such Restricted
Subsidiary (including any cash or Cash Equivalents, not to exceed 15% of such
Fair Market Value, to be delivered by the Company or such Restricted
Subsidiary) is reasonably equivalent to the Fair Market Value of the equipment
or assets (together with any cash or Cash Equivalents, not to exceed 15% of
such Fair Market Value) to be received by the Company or such Restricted
Subsidiary, (B) the Fair Market Value of the equipment or assets traded or
exchanged in such trade or exchange or any such series of related trades or
exchanges does not exceed $2.5 million and (C) such trade or exchange is
approved by a majority of the Independent Directors of the Company; and (v) any
transfers that, but for this clause (v), would be Asset Sales, if after giving
effect to such transfers, the aggregate Fair Market Value of the properties or
assets transferred in such transaction or any such series of related
transactions does not exceed $500,000.
"ATTRIBUTABLE INDEBTEDNESS," when used with respect to any Sale and
Leaseback Transaction, means, as at the time of determination, the present
value (discounted at a rate equivalent to the Company's then-current weighted
average cost of funds for borrowed money as at the time of determination,
compounded on a semi-annual basis) of the total obligations of the lessee for
rental payments during the remaining term of the lease included in any such
Sale and Leaseback Transaction.
"BANKRUPTCY CODE" means Title 11 of the United States Code, as amended.
"BANKRUPTCY LAW" means the Bankruptcy Code or any similar federal or
state law for the relief of debtors.
"BOARD OF DIRECTORS" means, with respect to any Person, the Board of
Directors of such Person, or any authorized committee of the Board of Directors
of such Person.
"BOARD RESOLUTION" means a copy of a resolution certified by the Secretary
of the Company to have been duly adopted by the Board of Directors and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
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<PAGE> 8
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a day on
which banking institutions in the City of New York, the State of Texas or at a
place of payment are authorized by law, regulation or executive order to remain
closed.
"CAPITAL STOCK" of any Person means (i) any and all shares or other equity
interests (including without limitation common stock, preferred stock and
partnership interests) in such Person and (ii) all rights to purchase, warrants
or options (whether or not currently exercisable), participations or other
equivalents of or interests in (however designated) such shares or other
interests in such Person.
"CAPITALIZED LEASE OBLIGATIONS" of any Person means the obligations of
such Person to pay rent or other amounts under a lease that is required to be
capitalized for financial reporting purposes in accordance with GAAP, and the
amount of such obligation shall be the capitalized amount thereof determined in
accordance with GAAP.
"CASH EQUIVALENTS" means (i) marketable obligations with a maturity of 180
days or less issued or directly and fully guaranteed or insured by the United
States of America or any agency or instrumentality thereof (provided that the
full faith and credit of the United States of America is pledged in support
thereof); (ii) U.S. dollar denominated time deposits and certificates of
deposit of any financial institution (a) that is a member of the Federal
Reserve System having combined capital and surplus and undivided profits of not
less than $100 million or (b) whose short-term commercial paper rating or that
of its parent company is at least A-1 or the equivalent thereof from S&P or P-1
or the equivalent thereof from Moody's (any such bank, an "APPROVED BANK"), in
each case with a maturity of 180 days or less from the date of acquisition;
(iii) commercial paper issued by any Approved Bank or by the parent company of
any Approved Bank and commercial paper issued by, or guaranteed by, any
industrial or financial company with a short-term commercial paper rating of at
least A-1 or the equivalent thereof by S&P or at least P-1 or the equivalent
thereof by Moody's, or guaranteed by any industrial company with a long term
unsecured debt rating of at least A or Baa1, or the equivalent of each thereof,
from S&P or Moody's, as the case may be, and in each case maturing no more than
180 days from the date of acquisition; (iv) repurchase obligations with a term
of not more than seven days for underlying securities of the types described
in clause (i) above entered into with any commercial bank meeting the
specifications of clause (ii)(a) above; (v) investments in money market or
other mutual funds substantially all of whose assets comprise securities of the
types described in clauses (i) through (iv) above; and (vi) time deposits and
certificates of deposit of any commercial bank of recognized standing having
capital and surplus in excess of the local currency equivalent of $100,000,000
incorporated in a country where the Company has one or more locally operating
Foreign Subsidiaries, and that is, as of the Issue Date, providing banking
services to the Company or any of its Foreign Subsidiaries.
"CHANGE OF CONTROL" means the occurrence of any of the following events
(whether or not approved by the Board of Directors of the Company): (i) any
other Person or group (as such term is used in Section 13(d)(3) of the Exchange
Act) is or becomes the beneficial owner (as defined in Rule 13d-3 of the
Exchange Act), directly or indirectly, of more than 50% of the Voting Stock of
the
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<PAGE> 9
Company, (ii) the Company sells, assigns, conveys, transfers, leases or
otherwise disposes of all or substantially all of the assets of the Company and
its Subsidiaries, in either case taken as a whole, to any Person, (iii) the
Company or any of its Subsidiaries consolidates with, or merges with or into,
any Person, and as a result of such consolidation or merger the Voting Stock of
the Company outstanding prior to such consolidation or merger does not
represent (either by remaining outstanding or by being converted into Voting
Stock of the surviving Person or any parent thereof) at least a majority of the
Voting Stock of the Company or the surviving Person or any parent thereof
outstanding immediately after such consolidation or merger, or (iv) during any
consecutive two-year period, individuals who at the beginning of such period
constituted the Board of Directors of the Company (together with any new
directors whose election by such Board of Directors or whose nomination for
election by the stockholders of the Company was approved by a vote of a
majority of the directors then still in office who were either directors at the
beginning of such period or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
Board of Directors of the Company then in office.
"CLOSING DATE" means the Issue Date.
"COMPANY" means Pool Energy Services Co., a Texas corporation, unless and
until a subsequent successor replaces it in accordance with Article 5 and
thereafter means such successor.
"CONSOLIDATED AMORTIZATION EXPENSE" for any period means the amortization
expense of the Company and its Restricted Subsidiaries for such period (to the
extent included in the computation of Consolidated Net Income), determined on a
consolidated basis in accordance with GAAP.
"CONSOLIDATED DEPRECIATION EXPENSE" for any period means the depreciation
expense of the Company and its Restricted Subsidiaries for such period (to the
extent included in the computation of Consolidated Net Income), determined on a
consolidated basis in accordance with GAAP.
"CONSOLIDATED INCOME TAX EXPENSE" for any period means the provision for
taxes based on income and profits of the Company and its Restricted
Subsidiaries to the extent such income or profits were included in computing
Consolidated Net Income for such period.
"CONSOLIDATED INTEREST COVERAGE RATIO" means, with respect to any
determination date, the ratio of (a) EBITDA for the four full fiscal quarters
immediately preceding the determination date (for any determination, the
"Reference Period"), to (b) Consolidated Interest Expense for such Reference
Period. In making such computations, (i) EBITDA and Consolidated Interest
Expense shall be calculated on a pro forma basis assuming that (A) the
Indebtedness to be incurred or the Disqualified Capital Stock to be issued (and
all other Indebtedness incurred or Disqualified Capital Stock issued after the
first day of such Reference Period referred to in Section 4.07, through and
including the date of determination), and (if applicable) the application of
the net proceeds therefrom (and from any other such Indebtedness or
Disqualified Capital Stock), including the refinancing of
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<PAGE> 10
other Indebtedness, had been incurred on the first day of such Reference Period
and, in the case of Acquired Indebtedness, on the assumption that the related
transaction (whether by means of purchase, merger or otherwise) also had
occurred on such date with the appropriate adjustments with respect to such
acquisition being included in such pro forma calculation and (B) any
acquisition or disposition by the Company or any Restricted Subsidiary of any
properties or assets outside the ordinary course of business or any repayment
of any principal amount of any Indebtedness of the Company or any Restricted
Subsidiary prior to the stated maturity thereof, in either case since the first
day of such Reference Period through and including the date of determination,
had been consummated on such first day of such Reference Period; (ii) the
Consolidated Interest Expense attributable to interest on any Indebtedness
required to be computed on a pro forma basis in accordance with Section 4.07
and (A) bearing a floating interest rate shall be computed as if the rate in
effect on the date of computation had been the applicable rate for the entire
period and (B) which was not outstanding during the period for which the
computation is being made but which bears, at the option of the Company, a
fixed or floating rate of interest, shall be computed by applying, at the
option of the Company, either the fixed or floating rate; (iii) the
Consolidated Interest Expense attributable to interest on any Indebtedness
under a revolving credit facility required to be computed on a pro forma basis
in accordance with Section 4.07 shall be computed based upon the average daily
balance of such Indebtedness during the applicable period, provided that such
average daily balance shall be reduced by the amount of any repayment of
Indebtedness under a revolving credit facility during the applicable period;
(iv) notwithstanding the foregoing clauses (ii) and (iii), interest on
Indebtedness determined on a floating rate basis, to the extent such interest
is covered by agreements relating to Hedging Obligations, shall be deemed to
have accrued at the rate per annum resulting after giving effect to the
operation of such agreements; and (v) if after the first day of the applicable
Reference Period and before the date of determination, the Company has
permanently retired any Indebtedness out of the net proceeds of the issuance
and sale of shares of Capital Stock (other than Disqualified Capital Stock) of
the Company within 60 days of such issuance and sale, Consolidated Interest
Expense shall be calculated on a pro forma basis as if such Indebtedness had
been retired on the first day of such period.
"CONSOLIDATED INTEREST EXPENSE" for any period means the sum, without
duplication, of the total interest expense of the Company and its Consolidated
Restricted Subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP and including, without limitation (i) imputed interest on
Capitalized Lease Obligations and Attributable Indebtedness, (ii) commissions,
discounts and other fees and charges owed with respect to letters of credit
securing financial obligations and bankers' acceptance financing, (iii) the net
costs associated with Hedging Obligations, (iv) amortization of other financing
fees and expenses, (v) the interest portion of any deferred payment
obligations, (vi) amortization of debt discount or premium, if any, (vii) all
other non-cash interest expense, (viii) capitalized interest, (ix) all cash
dividend payments (and non-cash dividend payments in the case of a Restricted
Subsidiary) on any series of preferred stock of the Company or any Restricted
Subsidiary, (x) all interest payable with respect to discontinued operations,
and (xi) all interest on any Indebtedness of any other Person guaranteed by the
Company or any Restricted Subsidiary.
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<PAGE> 11
"CONSOLIDATED NET INCOME" for any period means the net income (or loss) of
the Company and its consolidated Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP; provided that there
shall be excluded from such net income (to the extent otherwise included
therein), without duplication (i) the net income (or loss) of any Person (other
than a Restricted Subsidiary) in which any Person other than the Company and
its Restricted Subsidiaries has an ownership interest, except to the extent
that any such income has actually been received by the Company and its
Restricted Subsidiaries in the form of cash dividends during such period; (ii)
except to the extent includible in the consolidated net income of the Company
pursuant to the foregoing clause (i), the net income (or loss) of any Person
that accrued prior to the date that (a) such Person becomes a Restricted
Subsidiary or is merged into or consolidated with the Company or any Restricted
Subsidiary or (b) the assets of such Person are acquired by the Company or any
Restricted Subsidiary; (iii) the net income of any Restricted Subsidiary
during such period to the extent that the declaration or payment of dividends
or similar distributions by such Restricted Subsidiary of that income (a) is
not permitted by operation of the terms of its charter or any agreement,
instrument, judgment, decree, order, statute, rule or governmental regulation
applicable to that Subsidiary during such period or (b) would be subject to any
taxes payable on such dividend or distribution; (iv) any gain (or, only in the
case of a determination of Consolidated Net Income as used in EBITDA, any
loss), together with any related provisions for taxes on any such gain (or, if
applicable, the tax effects of such loss), realized during such period by the
Company or any Restricted Subsidiary upon (a) the acquisition of any
securities, or the extinguishment of any Indebtedness, of the Company or any
Restricted Subsidiary or (b) any Asset Sale by the Company or any of its
Restricted Subsidiaries; (v) any extraordinary gain (or, only in the case of a
determination of Consolidated Net Income as used in EBITDA, any extraordinary
loss), together with any related provision for taxes on any such extraordinary
gain (or, if applicable, the tax effects of such extraordinary loss), realized
by the Company or any Restricted Subsidiary during such period; and (vi) in the
case of a successor to the Company by consolidation, merger or transfer of its
assets, any earnings of the successor prior to such merger, consolidation or
transfer of assets; and provided, further, that any gain referred to in clauses
(iv) and (v) above that relates to a Restricted Investment and which is
received in cash by the Company or a Restricted Subsidiary during such period
shall be included in the consolidated net income of the Company.
"CONSOLIDATED NET WORTH" means, with respect to any Person as of any date,
the consolidated equity of the common stockholders of such Person and its
consolidated Subsidiaries as of such date, less all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of
tangible assets of a going concern business made within twelve months after the
acquisition of such business) subsequent to the date of this Indenture in the
book value of any asset owned by such Person or a Subsidiary of such Person.
"CORPORATE TRUST OFFICE" shall be at the address of the Trustee specified
in Section 12.02 or such other address as the Trustee may give notice to the
Company.
"COVERAGE RATIO INCURRENCE CONDITION" would be met at any specified time
only if the Company (or its Successor, as the case may be) would be able to
incur $1.00 of additional
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<PAGE> 12
Indebtedness at such specified time pursuant to the Consolidated Interest
Coverage Ratio test set forth in Section 4.07.
"CREDIT AGREEMENT" means the Amended and Restated Credit Agreement dated
as of September 30, 1997, as amended on March 26, 1998 by and among SBC Warburg
Dillon Read Inc., as arranger, Credit Lyonnais New York Branch, as
administrative agent, Swiss Bank Corporation, as documentation agent, the banks
party thereto, the Company and the Guarantors, together with any additional
guarantees by the Guarantors and security agreements, as any of the foregoing
may be subsequently amended, restated, refinanced, or replaced from time to
time, and shall include agreements in respect of Hedging Obligations designed
to protect against fluctuations in interest rates and entered into with respect
to loans thereunder.
"CUSTODIAN" means any custodian, receiver, trustee, assignee, liquidator
or similar official under any Bankruptcy Law.
"DEFAULT" means any event, act or condition that is, or after notice or
the passage of time or both would be, an Event of Default.
"DEPOSITARY" means, with respect to the Notes issuable or issued in whole
or in part in global form, The Depository Trust Company, until a successor
shall have been appointed and becomes such Depositary, and, thereafter,
"Depositary" shall mean or include such successor.
"DESIGNATED SENIOR INDEBTEDNESS" means (i) Indebtedness under the Credit
Agreement (whether incurred pursuant to the definition of Permitted
Indebtedness or pursuant to the provisions of Section 4.07) and (ii) any other
Indebtedness constituting Senior Indebtedness that at the date of
determination, has an aggregate principal amount outstanding of at least $25.0
million and that is specifically designated by the Company, in the instrument
creating or evidencing such Senior Indebtedness or in an Officers' Certificate
delivered to the Trustee, as "Designated Senior Indebtedness."
"DISQUALIFIED CAPITAL STOCK" means any Capital Stock of such Person or any
of its Subsidiaries that, by its terms, by the terms of any agreement related
thereto or by the terms of any security into which it is convertible, puttable
or exchangeable, is, or upon the happening of any event or the passage of time
would be, required to be redeemed or repurchased by such Person or any to its
Subsidiaries, whether or not at the option of the holder thereof, or matures or
is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise,
in whole or in part, on or prior to the final maturity date of the Notes;
provided, however, that any class of Capital Stock of such Person that, by its
terms, authorizes such Person to satisfy in full its obligations with respect
to the payment of dividends or upon maturity, redemption (pursuant to a sinking
fund or otherwise) or repurchase thereof or otherwise by the delivery of
Capital Stock that is not Disqualified Capital Stock, and that is not
convertible, puttable or exchangeable for Disqualified Capital Stock or other
Indebtedness, shall not be deemed to be Disqualified Capital Stock so long as
such Person satisfies its obligations with respect thereto solely by the
delivery of Capital Stock that is not Disqualified Capital Stock.
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<PAGE> 13
"DOLLARS" and "$" means lawful money of the United States of America.
"EBITDA" for any period means without duplication, the sum of the amounts
for such period of (i) Consolidated Net Income plus (ii) in each case to the
extent deducted in determining Consolidated Net Income for such period (and
without duplication), (A) Consolidated Income Tax Expense, (B) Consolidated
Amortization Expense (but only to the extent not included in Consolidated
Interest Expense), (C) Consolidated Depreciation Expense, (D) Consolidated
Interest Expense and (E) all other non-cash items reducing the Consolidated Net
Income (excluding any such non-cash charge that results in an accrual of a
reserve for cash charges in any future period) for such period, in each case
determined on a consolidated basis in accordance with GAAP and minus (iii) the
aggregate amount of all non-cash items, determined on a consolidated basis, to
the extent such items increased Consolidated Net Income for such Period.
"EQUITY OFFERING" means an underwritten primary offering of Capital Stock
of the Company pursuant to a registration statement filed with the Commission
in accordance with the Securities Act, or pursuant to a private placement
pursuant to an available exemption from registration and, in the case of any
such private placement, a majority of such placement of which is sold to
Persons that are not then and were not at the Issue Date Affiliates of the
Company.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE OFFER" means the offer that may be made by the Company pursuant
to the Registration Rights Agreement and the Exchange Offer Registration
Statement to exchange New Notes for the Old Notes.
"EXCHANGE OFFER REGISTRATION STATEMENT" shall mean a registration
statement relating to an Exchange Offer on an appropriate form and all
amendments and supplements to such registration statement, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference therein.
"EXISTING INDEBTEDNESS" means all of the Indebtedness of the Company and
its Subsidiaries that is outstanding on the Issue Date.
"FAIR MARKET VALUE" of any asset or items means the fair market value of
such asset or items as determined in good faith by the Board of Directors and
evidenced by a Board Resolution.
"FOREIGN SUBSIDIARY" means any Subsidiary of the Company that is not
incorporated or organized in the United States or in any State thereof.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or
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<PAGE> 14
in such other statements by such other entity as may be approved by a
significant segment of the accounting profession of the United States, as in
effect on the Issue Date.
"GLOBAL NOTE" means a global note, without coupons, representing all or a
portion of the Notes deposited with, or on behalf of, the Depositary
substantially in the form of Exhibit A attached hereto.
"GOVERNMENT SECURITIES" means direct obligations of, or obligations
guaranteed by, the United States of America for the payment of which guarantee
or obligations the full faith and credit of the United States of America is
pledged.
The term "GUARANTEE" means a guarantee (other than by endorsement of
negotiable instruments for collection in the ordinary course of business),
direct or indirect, in any manner (including, without limitation, letters of
credit and reimbursement agreements in respect thereof), of all or any part of
any Indebtedness.
"GUARANTOR" or any "SUBSIDIARY GUARANTOR" means each Restricted Subsidiary
of the Company other than Foreign Subsidiaries and each other Person who is
required to become (or whom the Company otherwise causes to become) a
Subsidiary Guarantor by the terms of the Indenture.
"HEDGING OBLIGATIONS" of any Person means the obligations of such Person
pursuant to (i) any interest rate swap agreement, interest rate collar
agreement or other similar agreement or arrangement designed to protect such
Person against fluctuations in interest rates, (ii) agreements or arrangements
designed to protect such Person against fluctuations in foreign currency
exchange rates in the conduct of its operations, or (iii) any forward contract,
commodity swap agreement, commodity option agreement or other similar agreement
or arrangement designed to protect such Person against fluctuations in
commodity prices, in each case, entered into in the ordinary course of business
for bona fide hedging purposes and not for the purpose of speculation.
"HOLDER" means a Person in whose name a Note is registered on the
Registrar's books.
The term "INCUR" means, with respect to any Indebtedness or Obligation,
incur, create, issue, assume, guarantee or otherwise become directly or
indirectly liable, contingently or otherwise, with respect to such Indebtedness
or Obligation; provided that (i) the Indebtedness of a Person existing at the
time such Person became a Restricted Subsidiary shall be deemed to have been
incurred by such Restricted Subsidiary and (ii) neither the accrual of interest
nor the accretion of accreted value shall be deemed to be an incurrence of
Indebtedness.
"INDEBTEDNESS" of any Person at any date means, without duplication: (i)
all liabilities, contingent or otherwise, of such Person for borrowed money
(whether or not the recourse of the lender is to the whole of the assets of
such Person or only to a portion thereof); (ii) all obligations of such Person
evidenced by bonds, debentures, notes or other similar instruments; (iii) all
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<PAGE> 15
obligations of such Person in respect of letters of credit or other similar
instruments (or reimbursement obligations with respect thereto); (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services, except trade payables and accrued expenses incurred by
such Person in the ordinary course of business in connection with obtaining
goods, materials or services, which payable is not overdue by more than 60 days
according to the original terms of sale unless such payable is being contested
in good faith; (v) the maximum fixed redemption or repurchase price of all
Disqualified Capital Stock of such Person; (vi) all Capitalized Lease
Obligations of such Person; (vii) all Indebtedness of others secured by a Lien
on any asset of such Person, whether or not such Indebtedness is assumed by
such Person; (viii) all Indebtedness of others guaranteed by such Person to the
extent of such guarantee; provided that Indebtedness of the Company or its
Subsidiaries that is guaranteed by the Company or the Company's Subsidiaries
shall only be counted once in the calculation of the amount of Indebtedness of
the Company and its Subsidiaries on a consolidated basis; (ix) all Attributable
Indebtedness of such Person; and (x) to the extent not otherwise included in
this definition, Hedging Obligations of such Person. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above, the maximum liability
of such Person for any such contingent obligations at such date and, in the
case of clause (vii), the lesser of (A) the Fair Market Value of any asset
subject to a Lien securing the Indebtedness of others on the date that the Lien
attaches and (B) the amount of the Indebtedness secured. For purposes of the
preceding sentence, the "maximum fixed redemption or repurchase price" of any
Disqualified Capital Stock that does not have a fixed redemption or repurchase
price shall be calculated in accordance with the terms of such Disqualified
Capital Stock as if such Disqualified Capital Stock were purchased or redeemed
on any date on which Indebtedness shall be required to be determined pursuant
to this Indenture, and if such price is based upon, or measured by, the fair
market value of such Disqualified Capital Stock (or any equity security for
which it may be exchanged or converted), such fair market value shall be
determined in good faith by the Board of Directors of such Person, which
determination shall be evidenced by a Board Resolution.
"INDENTURE" means this Indenture as amended or supplemented from time to
time.
"INDEPENDENT DIRECTOR" means a director of the Company who has not and
whose Affiliates have not, at any time during the twelve months prior to the
taking of any action hereunder, directly or indirectly, received, or entered
into any understanding or agreement to receive, any compensation, payment or
other benefit, of any type or form, from the Company or any of its Affiliates,
other than customary directors fees for serving on the Board of Directors of
the Company or any Affiliate and reimbursement of out-of-pocket expenses for
attendance at the Company's or Affiliate's board and board committee meetings.
"INDEPENDENT FINANCIAL ADVISOR" means an accounting, appraisal or
investment banking firm of nationally recognized standing that is, in the
reasonable judgment of the Company's Board of Directors, qualified to perform
the task for which it has been engaged and disinterested and independent with
respect to the Company and its Affiliates.
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<PAGE> 16
"INTEREST PAYMENT DATE" shall have the meaning set forth in the Notes.
"INVESTMENTS" of any Person means (i) all investments by such Person in
any other Person in the form of loans, advances or capital contributions
(excluding (A) commission, travel and similar advances to officers and
employees made in the ordinary course of business and (B) loans and advances to
officers and employees made in the ordinary course of business not to exceed
$1.0 million at any time outstanding) or similar credit extensions constituting
Indebtedness of such Person, and any guarantee of Indebtedness of any other
Person, (ii) all purchases (or other acquisitions for consideration) by such
Person of Indebtedness, Capital Stock or other securities of any other Person
and (iii) all other items that would be classified as investments (including
without limitation purchases of assets outside the ordinary course of business)
on a balance sheet of such Person prepared in accordance with GAAP.
"ISSUE DATE" means the date the Notes are initially issued.
"LIEN" means, with respect to any asset or property, any mortgage, deed of
trust, lien (statutory or other), pledge, lease, easement, restriction,
covenant, charge, security interest or other encumbrance of any kind or nature
in respect of such asset or property, whether or not filed, recorded or
otherwise perfected under applicable law, including without limitation any
conditional sale or other title retention agreement, and any lease in the
nature thereof, any option or other agreement to sell, and any filing of, or
agreement to give, any financing statement under the Uniform Commercial Code
(or equivalent statutes) of any jurisdiction (other than cautionary filings in
respect of operating leases).
"MOODY'S" means Moody's Investors Service, Inc., and its successors.
"NET AVAILABLE PROCEEDS" means, with respect to any Asset Sale, the
proceeds thereof in the form of cash or Cash Equivalents including payments in
respect of deferred payment obligations when received in the form of cash or
Cash Equivalents (except to the extent that such obligations are financed or
sold with recourse to the Company or any Restricted Subsidiary), net of (i)
brokerage commissions and other fees and expenses (including fees and expenses
of legal counsel, accountants and investment banks) related to such Asset Sale,
(ii) provisions for all taxes payable as a result of such Asset Sale (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), (iii) amounts required to be paid to any Person (other than the
Company or any Restricted Subsidiary) owning a beneficial interest in the
properties or assets subject to the Asset Sale or having a Lien therein and
(iv) appropriate amounts to be provided by the Company or any Restricted
Subsidiary, as the case may be, as a reserve required in accordance with GAAP
against any liabilities associated with such Asset Sale and retained by the
Company or any Restricted Subsidiary, as the case may be, after such Asset
Sale, including, without limitation, pensions and other postemployment benefit
liabilities, liabilities related to environmental matters and liabilities under
any indemnification obligations associated with such Asset Sale, all as
reflected in an Officers' Certificate delivered to the Trustee; provided,
however, that any amounts remaining after adjustments, revaluations or
liquidations of such reserves shall constitute Net Available Proceeds.
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<PAGE> 17
"NON-RECOURSE PURCHASE MONEY INDEBTEDNESS" means Indebtedness of the
Company or any of its Subsidiaries incurred (a) to finance the purchase of any
assets of the Company or any of its Subsidiaries within 90 days of such
purchase, (b) to the extent the amount of Indebtedness thereunder does not
exceed 100% of the purchase cost of such assets, (c) to the extent the purchase
cost of such assets is or should be included in "additions to property, plant
and equipment" in accordance with GAAP, and (d) to the extent that such
Indebtedness is non-recourse to the Company or any of its Subsidiaries or any
of their respective assets other than the assets so purchased.
"NON-U.S. PERSON" means a Person that is not a U.S. Person, as defined in
Regulation S.
"OBLIGATION" means any principal, interest (including, in the case of
Senior Indebtedness, interest accruing subsequent to the filing of a petition
in bankruptcy or insolvency at the rate specified in the document relating to
such Indebtedness, whether or not such interest is an allowed claim permitted
to be enforced against the obligor under applicable law), penalties, fees,
indemnification, reimbursements, costs, expenses, damages and other liabilities
payable under the documentation governing any Indebtedness.
"OFFER" means a Change of Control Offer or an Net Proceeds Offer, as the
context requires.
"OFFER PERIOD" means a Change of Control Offer Period as an Net Proceeds
Offer Period, as the context requires.
"OFFERING MEMORANDUM" means the Offering Memorandum dated March 26, 1998,
in the form used in connection with the original sale of the Notes.
"OFFICER" means any of the following of the Company: the Chairman of the
Board, the Chief Executive Officer, the Chief Financial Officer, the President,
any Vice President, the Treasurer or the Secretary.
"OFFICERS' CERTIFICATE" means a certificate signed by any two Officers.
"OPINION OF COUNSEL" means a written opinion from legal counsel (such
counsel may be an employee of or counsel to the Company or the Trustee) that
complies with the requirements of this Indenture.
"PAYMENT RESTRICTION" with respect to a Subsidiary of any Person, means
any encumbrance, restriction of limitation, whether by operation of the terms
of its charter or by reason of any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation, on the ability of (i) such
Subsidiary to (a) pay dividends or make other distributions on its Capital
Stock or make payments on any obligation, liability or Indebtedness owed to
such Person or any other Subsidiary of such Person, (b) make loans or advances
to such Person or any other Subsidiary of such Person, (c) guarantee any
Indebtedness of the Company or any Restricted Subsidiary or (d)
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<PAGE> 18
transfer any of its properties or assets to such Person or any other Subsidiary
of such Person (other than customary restrictions on transfers of property
subject to a Lien permitted under this Indenture) or (ii) such Person or any
other Subsidiary of such Person to receive or retain any such dividends,
distributions or payments, loans or advances, guarantee, or transfer of
properties or assets.
"PERMITTED INDEBTEDNESS" means any of the following:
(i) Indebtedness of the Company and any Subsidiary
Guarantor under the Credit Agreement in an aggregate principal amount at
any time outstanding not to exceed the greater of (a) $180 million, or (b)
the sum of 80% of the consolidated accounts receivable of the Company plus
30% of the consolidated net property, plant and equipment of the Company,
calculated as of the end of the most recent fiscal quarter for which
financial statements are available, as determined in accordance with GAAP;
(ii) Indebtedness under the Notes, the Note Guarantees
and this Indenture;
(iii) Existing Indebtedness;
(iv) Indebtedness under Hedging Obligations, provided
that (1) such Hedging Obligations are related to payment obligations on
Permitted Indebtedness or Indebtedness otherwise permitted by Section
4.07, and (2) the notional principal amount of such Hedging Obligations at
the time incurred does not exceed the principal amount of such
Indebtedness to which such Hedging Obligations relate;
(v) Indebtedness of the Company to a Subsidiary
Guarantor and Indebtedness of any Subsidiary Guarantor to the Company or
any other Subsidiary Guarantor; provided, however, that upon either (1)
the subsequent issuance (other than directors' qualifying shares), sale,
transfer or other disposition of any Capital Stock or any other event
which results in any such Subsidiary Guarantor ceasing to be a Subsidiary
Guarantor or (2) the transfer or other disposition of any such
Indebtedness (except to the Company or a Subsidiary Guarantor), the
provisions of this clause (v) shall no longer be applicable to such
Indebtedness and such Indebtedness shall be deemed, in each case, to be
incurred and shall be treated as an incurrence for purposes of Section
4.07 at the time the Subsidiary Guarantor in question ceased to be a
Subsidiary Guarantor or the time such transfer or other disposition
occurred;
(vi) Indebtedness in respect of bid, performance or
surety bonds issued for the account of the Company or any Restricted
Subsidiary in the ordinary course of business, including guarantees or
obligations of the Company or any Restricted Subsidiary with respect to
letters of credit supporting such bid, performance or surety obligations
(in each case other than for an obligation for money borrowed);
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<PAGE> 19
(vii) Indebtedness in respect of Non-Recourse Purchase
Money Indebtedness incurred by the Company or any Restricted Subsidiary;
(viii) Refinancing Indebtedness;
(ix) Indebtedness, in addition to Indebtedness incurred
pursuant to the other clauses of this definition, with an aggregate
principal face or stated amount (as applicable) at any time outstanding
for all such Indebtedness incurred pursuant to this clause not in excess
of $20.0 million; provided, however, that the aggregate principal amount
at any time outstanding for all other Indebtedness incurred by all Foreign
Subsidiaries pursuant to this clause may not exceed $10.0 million in the
aggregate; and
(x) Acquired Indebtedness that is repaid by the
Company or any Restricted Subsidiary within 45 days after the time of the
merger or acquisition resulting in such Acquired Indebtedness if, but only
if, the Company could incur such amount of additional Indebtedness under
clause (i) above, at the time of such merger or acquisition and at the
time the Company or any Restricted Subsidiary repays such Indebtedness,
after giving effect to such repayment.
"PERMITTED JUNIOR SECURITIES" means any securities of the Company provided
for by a plan of reorganization or readjustment that are subordinated in right
of payment to all Senior Indebtedness that may at the time be outstanding to
substantially the same extent as, or to a greater extent than, the Notes are
subordinated to Senior Indebtedness of the Company.
"PERMITTED LIENS" means the following types of Liens:
(i) Liens existing as of the Issue Date;
(ii) Liens securing the Notes;
(iii) Liens in favor of the Company or, with respect to a
Restricted Subsidiary, Liens in favor of another Restricted Subsidiary;
(iv) Liens securing Permitted Indebtedness of the Company
and the Restricted Subsidiaries of the type described in clauses (i) and
(x) of the definition of Permitted Indebtedness;
(v) Liens securing Indebtedness that constitutes
Permitted Indebtedness of the type described in clause (viii) of the
definition of "Permitted Indebtedness" incurred as a refinancing of any
Indebtedness secured by Liens described in clauses (i), (iv), (xi), (xii)
and (xiii) of this definition;
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<PAGE> 20
(vi) Liens for taxes, assessments or governmental charges
or claims either (a) not delinquent or (b) contested in good faith by
appropriate proceedings and as to which the Company or a Restricted
Subsidiary, as the case may be, has set aside on its books such reserves,
or has made such other appropriate provision, if any, as is required by
GAAP;
(vii) Liens of landlords, carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other similar Liens
incurred in the ordinary course of business for sums not delinquent or
being contested in good faith, and as to which the Company or a Restricted
Subsidiary, as the case may be, has set aside on its books such reserves,
or has made such other appropriate provision, if any, as is required by
GAAP;
(viii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security, or to secure the payment or
performance of tenders, statutory or regulatory obligations, surety and
appeal bonds, bids, government contracts and leases, performance and
return of money bonds and other similar obligations (exclusive of
obligations for the payment of borrowed money);
(ix) Liens securing any judgment not giving rise to a
Default or Event of Default and so long as any appropriate legal
proceedings that may have been duly initiated for the review of the
judgment has not been finally terminated or the period within which those
proceedings may be initiated has not expired;
(x) easements, rights-of-way, reservations, zoning and
other restrictions and other similar encumbrances not interfering in any
material respect with the ordinary conduct of business of the Company or
any Restricted Subsidiary;
(xi) any interest or title of a lessor under any
Capitalized Lease Obligation or operating lease; provided that (a) the
Attributable Indebtedness related thereto constitutes Indebtedness
permitted to be incurred under the terms of this Indenture and (b) with
respect to any Capitalized Lease Obligation, such Liens do not extend to
any property or assets that is not leased property subject to such
Capitalized Lease Obligation;
(xii) Liens securing Non-Recourse Purchase Money
Indebtedness; provided, however, that (a) the Non-Recourse Purchase Money
Indebtedness shall not be secured by any property or assets of the Company
or any Restricted Subsidiary other than the property or assets so acquired
and any proceeds therefrom and (b) the Lien securing such Non-Recourse
Purchase Money Indebtedness shall be created within 90 days of such
acquisition;
(xiii) Liens securing Acquired Indebtedness incurred in
accordance with the Consolidated Interest Coverage Ratio test described in
Section 4.07; provided that (a) such Liens secured such Acquired
Indebtedness at the time of and prior to the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary and were not
granted in
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<PAGE> 21
connection with, or in anticipation of, the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary and (b) such Liens
do not extend to or cover any property or assets of the Company or of any
Restricted Subsidiary other than the property or assets that secured the
Acquired Indebtedness prior to the time such Indebtedness became Acquired
Indebtedness of the Company or a Restricted Subsidiary and are no more
favorable to the lienholder than those securing the Acquired Indebtedness
prior to the incurrence of such Acquired Indebtedness by the Company or a
Restricted Subsidiary;
(xiv) leases or subleases granted to others that do not
interfere with the ordinary conduct of business of the Company or any
Restricted Subsidiary;
(xv) rights of a common owner of any interest in
property held by the Company or any Restricted Subsidiary and that common
owner as tenants in common or through other common ownership; and
(xvi) Liens or equitable encumbrances deemed to exist by
reason of (a) fraudulent conveyance or transfer laws or (b) negative
pledge or other agreements to refrain from giving Liens.
"PERSON" means any individual, corporation, partnership, limited liability
company, joint venture, incorporated or unincorporated association, joint-stock
company, trust, unincorporated organization or government or other agency or
political subdivision thereof or other entity of any kind.
"PLAN OF LIQUIDATION" with respect to any Person, means a plan that
provides for, contemplates or the effectuation of which is preceded or
accompanied by (whether or not substantially contemporaneously, in phases or
otherwise): (i) the sale, lease, conveyance or other disposition of all or
substantially all of the assets of such Person otherwise than as an entirety or
substantially as an entirety; and (ii) the distribution of all or substantially
all of the proceeds of such sale, lease, conveyance or other disposition and
all or substantially all of the remaining assets of such Person to holders of
Capital Stock of such Person.
"PURCHASE DATE" means the Change of Control Purchase Date or the Net
Proceeds Purchase Date, as the context requires.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"RECORD DATE" has the meaning set forth in the Notes.
"REFINANCING INDEBTEDNESS" means Indebtedness of the Company or a
Restricted Subsidiary issued in exchange for, or the proceeds from the issuance
and sale or disbursement of which are used substantially concurrently to repay,
redeem, refund, refinance, discharge or otherwise retire for value, in whole or
in part (collectively, "repay"), or constituting an amendment, modification or
supplement
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<PAGE> 22
to or a deferral or renewal of (collectively, an "amendment"), any Indebtedness
of the Company or any Restricted Subsidiary (the "Refinanced Indebtedness") in
a principal amount not in excess of the principal amount of the Refinanced
Indebtedness (or, if such Refinancing Indebtedness refinances Indebtedness
under a revolving credit facility or other agreement providing a commitment for
subsequent borrowings, with a maximum commitment not to exceed the maximum
commitment under such revolving credit facility or other agreement), plus the
amount of any premium required to be paid in connection with such refinancing
pursuant to the terms of the Refinanced Indebtedness or the amount of any
premium reasonably determined by the Company or such Restricted Subsidiary as
necessary to accomplish such refinancing, plus the amount of expenses of the
Company or such Restricted Subsidiary incurred in connection with such
refinancing; provided that: (i) the Refinancing Indebtedness is the obligation
of the same Person as that of the Refinanced Indebtedness, (ii) if the
Refinanced Indebtedness was subordinated to or pari passu with the Note
Indebtedness, then such Refinancing Indebtedness, by its terms, is expressly
pari passu with (in the case of Refinanced Indebtedness that was pari passu
with) the Note Indebtedness, or subordinate in right of payment to (in the case
of Refinanced Indebtedness that was subordinated to) the Note Indebtedness at
least to the same extent as the Refinanced Indebtedness; (iii) the portion, if
any, of the Refinancing Indebtedness that is scheduled to mature on or prior to
the maturity date of the Notes has a Weighted Average Life to Maturity at the
time such Refinancing Indebtedness is incurred that is equal to or greater than
the Weighted Average Life to Maturity of the portion of the Refinanced
Indebtedness being repaid that is scheduled to mature on or prior to the
maturity date of the Notes; and (iv) the Refinancing Indebtedness is secured
only to the extent, if at all, and by the assets (which may include
after-acquired assets), that the Refinanced Indebtedness is secured.
"REGISTRATION" means a registered exchange offer for the Notes by the
Company or other registration of the Notes under the Securities Act pursuant to
and in accordance with the terms of the Registration Rights Agreement.
"REGISTRATION RIGHTS AGREEMENT" means the Registration Rights Agreement,
dated as of the Closing Date, by and among the Company, SBC Warburg Dillon Read
Inc., Morgan Stanley & Co. Incorporated and Johnson Rice & Company L.L.C., as
such agreement may be amended, modified or supplemented from time to time.
"REGISTRATION STATEMENT" means the Registration Statement pursuant to and
as defined in the Registration Rights Agreement.
"REGULATION S" means Regulation S under the Securities Act.
"RELATED BUSINESS" means any business in which the Company and its
Subsidiaries operate on the Issue Date, or that is closely related to or
complements the business of the Company and its Subsidiaries, as such business
exists on the Issue Date.
"RELATED BUSINESS INVESTMENT" means any Investment directly by the Company
or its Subsidiaries in any Related Business.
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<PAGE> 23
"RELATED PARTY AGREEMENT" means any management or advisory agreement or
other arrangements with any Affiliate of the Company or with any other direct
or indirect holder of more than 10% of any class of the Company's Capital Stock
(except, in any such case, the Company or any Restricted Subsidiary).
"REPRESENTATIVE" means, with respect to any Senior Indebtedness, the
indenture trustee or other trustee, agent or other representative(s), if any,
of holders of such Senior Indebtedness.
"RESTRICTED DEBT PAYMENT" means any purchase, redemption, defeasance
(including without limitation in substance or legal defeasance) or other
acquisition or retirement for value, directly or indirectly, by the Company or
a Restricted Subsidiary, prior to the scheduled maturity or prior to any
scheduled repayment of principal or sinking fund payment, as the case may be,
in respect of Subordinated Indebtedness.
"RESTRICTED INVESTMENT" means any Investment by the Company or any
Restricted Subsidiary (other than investments in Cash Equivalents) in any
Person that is not the Company or a Restricted Subsidiary, including in any
Unrestricted Subsidiary.
"RESTRICTED PAYMENT" means with respect to any Person: (i) the declaration
or payment of any dividend (other than a dividend declared and paid (x) by a
Wholly-Owned Restricted Subsidiary to holders of its Capital Stock, or (y) by a
Subsidiary (other than a Wholly-Owned Restricted Subsidiary) to its
shareholders on a pro rata basis, but only to the extent of the dividends
actually received by the Company or a Restricted Subsidiary) or the making of
any other payment or distribution of cash, securities or other property or
assets in respect of such Person's Capital Stock (except that a dividend
payable solely in Capital Stock (other than Disqualified Capital Stock) of such
Person shall not constitute a Restricted Payment); (ii) any payment on account
of the purchase, redemption, retirement or other acquisition for value of (A)
the Capital Stock of the Company or (B) the Capital Stock of any Restricted
Subsidiary, or any other payment or distribution made in respect thereof,
either directly or indirectly (other than a payment solely in Capital Stock
that is not Disqualified Capital Stock, and excluding any such payment to the
extent actually received by the Company or a Restricted Subsidiary); or (iii)
any Restricted Investment; or (iv) any Restricted Debt Payment.
"RESTRICTED SUBSIDIARY" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"RULE 144A" means Rule 144A under the Securities Act.
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., and its successors.
"SALE AND LEASEBACK TRANSACTIONS" means with respect to any Person an
arrangement with any bank, insurance company or other lender or investor or to
which such lender or investor is a
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<PAGE> 24
party, providing for the leasing by such Person of any property or asset of
such Person which has been or is being sold or transferred by such Person to
such lender or investor or to any Person to whom funds have been or are to be
advanced by such lender or investor on the security of such property or asset.
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the U.S. Securities Act of 1933, as amended.
"SENIOR INDEBTEDNESS" means all Indebtedness and other Obligations
specified below payable directly or indirectly by the Company or any Guarantor,
as the case may be, whether outstanding on the Issue Date or thereafter
created, incurred or assumed by the Company or such Guarantor: (i) the
principal of and interest on and all other Indebtedness and Obligations related
to the Credit Agreement (including, without limitation, all loans, letters of
credit and unpaid drawings with respect thereto and other extensions of credit
under the Credit Agreement, and all expenses, fees, reimbursements, indemnities
and other amounts owing pursuant to the Credit Agreement), (ii) amounts payable
in respect of any Hedging Obligations, (iii) in addition to the amounts
described in (i) and (ii), all Indebtedness not prohibited by Section 4.07 that
is not expressly pari passu with, or subordinated to, the Notes or the Note
Guarantees, as the case may be, (iv) all Capitalized Lease Obligations, and (v)
all Refinancing Indebtedness permitted under this Indenture. Notwithstanding
anything to the contrary in the foregoing, Senior Indebtedness will not include
(a) any Indebtedness which by the express terms of the agreement or instrument
creating, evidencing or governing the same is junior or subordinate in right of
payment to any item of Senior Indebtedness, (b) any trade payable arising from
the purchase of goods or materials or for services obtained in the ordinary
course of business, (c) Indebtedness incurred (but only to the extent incurred)
in violation of this Indenture as in effect at the time of the respective
incurrence, (d) any Indebtedness of the Company or any of its Subsidiaries
that, when incurred, was without recourse to the Company or any of its
Subsidiaries, (e) any Indebtedness to any employee of the Company or any of its
Subsidiaries or (f) any liability for taxes owned or owing by the Company or
any of its Subsidiaries.
"SENIOR SUBORDINATED INDEBTEDNESS" of the Company means the Notes and any
other Indebtedness of the Company that specifically provides that such
Indebtedness is to rank pari passu with the Notes in right of payment and is
not subordinated by its terms in right of payment to any Indebtedness or other
obligation of the Company which is not Senior Indebtedness. "Senior
Subordinated Indebtedness" of any Guarantor has a correlative meaning.
"SHELF REGISTRATION STATEMENT" shall mean a Shelf Registration Statement
of the Company pursuant to the Registration Rights Agreement.
"SIGNIFICANT SUBSIDIARY" means any Subsidiary of the Company that would be
a "Significant Subsidiary" as defined in Article 1, Rule 1-02 of Regulation
S-X, promulgated pursuant to the Securities Act, as such Regulation is in
effect on the Issue Date, except all references to "10 percent" in such
definition shall be changed to "2 percent".
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<PAGE> 25
"SPECIAL INTEREST" has the meaning set forth in the Notes.
"SUBORDINATED INDEBTEDNESS" means Indebtedness of the Company or any
Restricted Subsidiary that is subordinated in right of payment to the Notes or
the Note Guarantee of such Restricted Subsidiary, respectively.
"SUBSIDIARY" of any Person means (i) any corporation of which at least a
majority of the aggregate voting power of all classes of the Voting Stock is
owned by such Person directly or through one or more other Subsidiaries of such
Person and (ii) any entity other than a corporation in which such Person,
directly or indirectly, owns at least a majority of the Voting Stock of such
entity entitling the holder thereof to vote or otherwise participate in the
selection of the governing body, partners, managers or others that control the
management and policies of such entity; provided, however that Pool Arabia,
Ltd. shall not be deemed a Subsidiary as long as the Company uses the equity
method to account for its interest in Pool Arabia, Ltd. and the consolidated
financial statements of the Company do not include the financial statements of
Pool Arabia, Ltd. in accordance with GAAP. Unless otherwise specified,
"Subsidiary" means a Subsidiary of the Company.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the Closing Date (except as otherwise provided in
Section 1.03 hereof); provided, however, that, in the event the Trust Indenture
Act of 1939 is amended after such date, "Trust Indenture Act" means, to the
extent required by any such amendments, the Trust Indenture Act of 1939 as so
amended.
"TRUSTEE" means Marine Midland Bank until a successor replaces it in
accordance with the applicable provisions of this Indenture and thereafter
means such successor.
"TRUST OFFICER" when used with respect to the Trustee means any officer or
assistant officer of the Trustee assigned by the Trustee to administer this
Indenture; and also means, with respect to a particular corporate trust matter,
any other officer to whom such matter is referred because of his knowledge of
and familiarity with the particular subject.
"UNRESTRICTED SUBSIDIARY" means (i) any Subsidiary that at the time of
determination shall be designated an Unrestricted Subsidiary by the Board of
Directors of the Company in the manner provided below and (ii) any Subsidiary
of an Unrestricted Subsidiary. The Board of Directors of the Company may
designate any Restricted Subsidiary to be an Unrestricted Subsidiary, and any
such designation shall be deemed to be a Restricted Investment at the time of
and immediately upon such designation by the Company and its Restricted
Subsidiaries in the amount of the Consolidated Net Worth of such designated
Subsidiary and its consolidated Subsidiaries at such time, provided that such
designation shall be permitted only if (A) the Company and its Restricted
Subsidiaries would be able to make the Restricted Investment deemed made
pursuant to such designation at such time, (B) no portion of the Indebtedness
or any other obligation (contingent or otherwise) of such Subsidiary (x) is
Guaranteed by the Company or any Restricted Subsidiary, (y) is recourse to the
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Company or any Restricted Subsidiary or (z) subjects any property or asset of
the Company or any Restricted Subsidiary, directly or indirectly, contingently
or otherwise, to the satisfaction thereof and (C) no default or event of
default with respect to any Indebtedness of such Subsidiary would permit any
holder of any Indebtedness of the Company or any Restricted Subsidiary to
declare such Indebtedness of the Company or any restricted Subsidiary due and
payable prior to its maturity. The Board of Directors of the Company may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary, and any
such designation shall be deemed to be an incurrence by the Company and its
Subsidiaries of the Indebtedness (if any) of such Subsidiary so designated for
purposes of Section 4.07 as of the date of such designation, provided that such
designation shall be permitted only if immediately after giving effect to such
designation and the incurrence of any such additional Indebtedness deemed to
have been incurred thereby (x) the Company would meet the Coverage Ratio
Incurrence Condition and (y) no Default or Event of Default shall be
continuing. Any such designation by the Board of Directors described in the
two preceding sentences shall be evidenced to the Trustee by the filing with
the Trustee of a certified copy of the Board Resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions and setting forth the underlying
calculations of such certificate.
"U.S. PERSON" has the meaning ascribed to it in Regulation S.
"VOTING STOCK" with respect to any Person, means securities of any class
of Capital Stock of such Person entitling the holders thereof (whether at all
times or only so long as no senior class of stock or other relevant equity
interest has voting power by reason of any contingency) to vote in the election
of members of the board of directors of such Person.
"WEIGHTED AVERAGE LIFE TO MATURITY", when applied to any Indebtedness at
any date, means the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment by (ii) the then outstanding
principal amount of such Indebtedness.
"WHOLLY-OWNED RESTRICTED SUBSIDIARY" means a Restricted Subsidiary of
which 100% of the Capital Stock (except for directors' qualifying shares or
certain minority interests owned by other Persons solely due to local law
requirements that there be more than one stockholder, but which interest is not
in excess of what is required for such purpose) is owned directly by the
Company or through one or more Wholly-Owned Restricted Subsidiaries.
Section 1.02. Other Definitions.
<TABLE>
<CAPTION>
DEFINED IN
TERM SECTION
<S> <C>
"AFFILIATE TRANSACTION"..................................................... 4.08
"AGENT MEMBERS"............................................................. 2.07
</TABLE>
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<PAGE> 27
<TABLE>
<CAPTION>
DEFINED IN
TERM SECTION
<S> <C>
"ASSET SALE OFFER".......................................................... 4.14
"ASSET SALE OFFER AMOUNT"................................................... 4.14
"ASSET SALE OFFER PERIOD"................................................... 4.14
"ASSET SALE PAYMENT"........................................................ 4.14
"AFFILIATE TRANSACTION"..................................................... 4.10
"AGENT MEMBERS"......................................................... 2.07(a)(iii)
"ASSET SALE TRIGGER DATE"................................................. 4.16(c)
"CEDEL BANK".............................................................. 2.01(a)
"CERTIFICATED NOTE"....................................................... 2.01(a)
"CHANGE OF CONTROL OFFER"............................................... 4.15(b)(ii)
"CHANGE OF CONTROL OFFER PERIOD".......................................... 4.15(c)
"CHANGE OF CONTROL PURCHASE DATE"......................................... 4.15(c)
"CHANGE OF CONTROL PURCHASE PRICE"........................................ 4.15(a)
"CHANGE OF CONTROL TRIGGER DATE".......................................... 4.15(a)
"COMMISSION"................................................................ 4.02
"COVENANT DEFEASANCE"................................................... 8.01(b)(ii)
"EVENT OF DEFAULT"........................................................ 6.01(a)
"EUROCLEAR"............................................................... 2.01(a)
"EXCESS PROCEEDS"....................................................... 4.16(b)(ii)
"GLOBAL NOTE HOLDER"...................................................... 2.01(a)
"INSOLVENCY OR LIQUIDATION PROCEEDING".................................... 10.02(a)
"LEGAL DEFEASANCE"....................................................... 8.01(b)(i)
"NET PROCEEDS DEFICIENCY"............................................... 4.16(c)(ii)
"NET PROCEEDS OFFER"..................................................... 4.16(c)(i)
"NET PROCEEDS OFFER PERIOD ............................................. 4.16(c)(iii)
"NET PROCEEDS PURCHASE DATE"............................................ 4.16(c)(iii)
"NON-PAYMENT DEFAULT"..................................................... 10.03(b)
"NOTE GUARANTEE"........................................................ 11.01(a)(a)
"NOTE INDEBTEDNESS"........................................................ 10.01
"NOTICE OF DEFAULT"....................................................... 6.01(a)
"OFFERED PRICE"......................................................... 4.16(c)(ii)
"OFFSHORE CERTIFICATED NOTE".............................................. 2.01(a)
"PAYING AGENT".............................................................. 2.03
"PAYMENT AMOUNT"......................................................... 4.16(c)(i)
"PAYMENT BLOCKAGE NOTICE"................................................. 10.03(b)
"PAYMENT BLOCKAGE PERIOD"................................................. 10.03(b)
"PAYMENT DEFAULT"......................................................... 10.03(a)
"REGULATION S GLOBAL NOTE"................................................ 2.02(a)
"REGULATION S NOTES"...................................................... 2.01(a)
"REGULATION S PERMANENT GLOBAL NOTE"...................................... 2.01(a)
"REGULATION S TEMPORARY GLOBAL NOTE"...................................... 2.01(a)
</TABLE>
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<PAGE> 28
<TABLE>
<CAPTION>
DEFINED IN
TERM SECTION
<S> <C>
"REPLACEMENT FACILITY".................................................... 4.13(b)
"RESTRICTED GLOBAL NOTE".................................................. 2.01(a)
"REGISTRAR"................................................................. 2.03
"RULE 144A NOTES"......................................................... 2.01(a)
"SECURITIES ACT LEGEND"................................................... 2.01(a)
"SUCCESSOR"............................................................. 5.01(a)(ii)
"TRUSTEE EXPENSES".......................................................... 6.08
</TABLE>
Section 1.03. Incorporation by Reference of TIA. Whenever this
Indenture refers to a provision of the TIA, the portion of the provision
required to be incorporated herein in order for this Indenture to be qualified
under the TIA is incorporated by reference in, and made a part of, this
Indenture. Any terms incorporated by reference in this Indenture that are
defined by the TIA, defined by the TIA by reference to another statute or
defined by the SEC in a rule under the TIA have the meanings so assigned to
them therein.
Section 1.04. Rules of Construction. Unless the context otherwise
requires: (1) a term has the meaning assigned to it in this Indenture; (2) an
accounting term not otherwise defined herein has the meaning assigned to it
under GAAP; (3) "OR" is not exclusive; (4) words in the singular include the
plural, and in the plural include the singular; (5) provisions apply to
successive events and transactions; and (6) any reference to a Section or
Article refers to such Section or Article of this Indenture.
ARTICLE 2
The Notes
Section 2.01. Form and Dating. (a) The Notes and the certificate of
authentication of the Trustee or an authenticating agent appointed on its
behalf pursuant to Section 2.02 shall be substantially in the form of Exhibit A
hereto, bearing such legends as are required pursuant to this Section 2.01.
The Notes may have notations, legends or endorsements required by this
Indenture, law, stock exchange rule or usage. Each Note shall be dated the
date of its authentication. The Notes shall be in denominations of $1,000
principal amount and integral multiples thereof.
The Old Notes and the New Notes shall be considered collectively to be a
single class for all purposes of this Indenture, including, without limitation,
waivers, amendments, redemptions and offers to purchase. Any Old Notes that
remain outstanding after the Exchange Offer will be aggregated with the New
Notes, and the Holders of such Old Notes and the New Notes will vote together
as a single series for all such purposes. Accordingly, all references herein
shall be deemed to mean, at any time after the Exchange Offer is consummated,
such percentages in aggregate principal amount of the Old Notes and the New
Notes then outstanding.
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The terms and provisions contained in the Notes shall constitute, and are
hereby expressly made, a part of this Indenture and to the extent applicable,
the Company, the Guarantors and the Trustee, by their execution and delivery of
this Indenture, expressly agree to such terms and provisions and to be bound
thereby.
Old Notes offered and sold to QIBs in reliance on Rule 144A ("RULE 144A
NOTES") shall be issued initially in the form of one or more Global Notes in
definitive, fully registered form, without interest coupons, substantially in
the form of Exhibit A hereto, bearing such legends as are required pursuant to
this Section 2.01 (the "RESTRICTED GLOBAL NOTES"), will be deposited on the
Issue Date with, or on behalf of, the Depositary and registered in the name of
Cede & Co., as nominee of the Depositary (such nominee being referred to herein
as the "GLOBAL NOTE HOLDER"), duly executed by the Company and authenticated by
the Trustee as herein provided. The aggregate principal amount of the
Restricted Global Notes may from time to time be increased or decreased by
adjustments made on the records of the Trustee, as custodian for the Depositary
or its nominee, as hereinafter provided.
Old Notes sold in offshore transactions in reliance on Regulation S under
the Securities Act ("REGULATION S NOTES") will initially be represented by one
or more temporary Global Notes in definitive, fully registered form without
interest coupons (each a "REGULATION S TEMPORARY GLOBAL NOTE") and will be
deposited with the Trustee as custodian for, and registered in the name of Cede
& Co., as nominee of the Depositary for the accounts of Morgan Guaranty Trust
Company of New York, Brussels office, as operator of the Euroclear System
("EUROCLEAR"), and Cedel Bank, societe anonyme ("CEDEL BANK"). Each Regulation
S Temporary Global Note will be exchangeable for one or more permanent global
Notes (each a "REGULATION S PERMANENT GLOBAL NOTE" and together with the
Regulation S Temporary Global Notes, the "REGULATION S GLOBAL NOTES") on or
after the 40th day following the latest of the commencement of the offering of
the Old Notes and the Issue Date upon delivery to the Company of certificates
of compliance with the transfer restrictions applicable to the Old Notes and
pursuant to Regulation S under the Securities Act. Prior to such 40th day,
beneficial interests in a Regulation S Temporary Global Note may be held only
through Euroclear or Cedel Bank. The aggregate principal amount of the
Regulation S Global Notes may from time to time be increased or decreased by
adjustments made on the records of the Trustee, as custodian for the nominee of
the Depositary for the Regulation S Global Notes, for the accounts of Euroclear
and Cedel Bank, as hereinafter provided.
Any Person having a beneficial interest in the Global Notes may, upon
request to the Trustee, exchange such beneficial interest for Notes in
definitive form (each a "CERTIFICATED NOTE"). Certificated Notes issued in
exchange for interests in any Regulation S Global Note are sometimes referred
to as the "OFFSHORE CERTIFICATED NOTES." Upon any such issuance, the Trustee
is required to register such Notes in the name of, and cause the same to be
delivered to, such Persons or Persons (or the nominee of any thereof). Such
Notes will be issued in fully registered form and will be subject to transfer
restrictions. In addition, if (i) the Company notifies the Trustee in writing
that the Depositary is no longer willing or able to act as a depositary and the
Company is unable to locate a qualified successor within 90 days or (ii) the
Company, at its option, notifies the Trustee in writing that it elects to cause
the issuance of Certificated Notes, then, upon surrender by the relevant Global
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<PAGE> 30
Note Holder of its Global Note in accordance with Section 2.07(e), Notes in
such form will be issued to each Person that such Global Note Holder and the
Depositary identify as being the beneficial owner of the related Notes.
Except as otherwise provided in Section 2.08(e), each Restricted Global
Note, each Regulation S Global Note and each Certificated Note shall bear the
legend (the "SECURITIES ACT LEGEND") set forth below on the face thereof:
"THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED
IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE
SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY (1) BY ITS
ACQUISITION HEREOF REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT
A U.S. PERSON AND IS ACQUIRING THE SECURITY EVIDENCED HEREBY IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES
ACT AND (2) IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE
EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED
BY RULE 144A THEREUNDER OR ANOTHER EXEMPTION UNDER THE SECURITIES ACT.
THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE
ISSUER THAT (X) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED ONLY (i) (a) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS
A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A,
(b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A PERSON THAT IS NOT A
U.S. PERSON (AS DEFINED IN RULE 902 UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT
OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL
IF THE COMPANY SO REQUESTS), (ii) TO THE COMPANY OR (iii) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (Y) THE HOLDER WILL, AND EACH SUBSEQUENT
HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE
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<PAGE> 31
SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (X) ABOVE."
(b) Each Global Note, whether or not a New Note, shall also bear the
following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC
(AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE
OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTIONS 2.06, 2.07 AND 2.08 OF THE INDENTURE.
Section 2.02. Execution and Authentication; Authentication Agent. The
President or any Vice President and the Treasurer or any Assistant Treasurer of
the Company shall sign each Note for the Company by manual or facsimile
signature. If an Officer whose signature is on a Note no longer holds that
office at the time the Note is authenticated, the Note shall nevertheless be
valid.
A Note shall not be valid until authenticated by the manual signature of
the Trustee, and the Trustee's signature shall be conclusive evidence that the
Note has been authenticated under this Indenture. The form of Trustee's
certificate of authentication to be borne by the Notes shall be substantially
as set forth in Exhibit A. The Trustee may appoint an authenticating agent
acceptable to the Company to authenticate the Notes. Unless limited by the
terms of such appointment, an authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company
or any of its Affiliates. If an appointment of an authenticating agent is made
pursuant to this Section 2.02, the Notes may have endorsed thereon, in lieu of
the Trustee's certificate of authentication, an alternative certificate of
authentication substantially in the form set forth in Exhibit A.
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<PAGE> 32
The Trustee shall, upon receipt of a written order signed by an Officer of
the Company, authenticate (i) Old Notes for issuance on the Issue Date in the
aggregate principal amount of $150,000,000 and (ii) New Notes for issuance only
in exchange for a like principal amount of Old Notes. Notwithstanding anything
to the contrary contained in this Indenture, the Notes or otherwise, the
aggregate principal amount of outstanding Notes may not exceed $150,000,000 at
any time, except as provided in Section 2.10.
Section 2.03. Registrar and Paying Agent. The Company shall maintain
an office or agency (the "REGISTRAR") where Notes may be presented for
registration of transfer or for exchange (subject to Sections 2.06, 2.07 and
2.08) and an office or agency within the City and State of New York (the
"PAYING AGENT") where Notes may be presented for payment and an office or
agency where notices to or upon the Company in respect of the Notes or this
Indenture may be served. The Registrar shall keep a register of the Notes and
of their transfer and exchange. The Company may appoint one or more
co-registrars and one or more additional paying agents. The term "Paying
Agent" includes any additional paying agent. The Company may change the Paying
Agent, Registrar or co-registrar without prior notice to any Holder. The
Company shall notify the Trustee and the Trustee shall notify the Holders of
the name and address of any Agent not a party to this Indenture. The Company
shall enter into an appropriate agency agreement with any Agent not a party to
this Indenture, and such agreement shall incorporate the provisions of the TIA
and implement the provisions of this Indenture that relate to such Agent. The
Company initially appoints the Trustee as Registrar (subject to Section 2.06),
Paying Agent and agent for service of notices and demands in connection with
the Notes. The Company or any of its Affiliates may act as Paying Agent,
Registrar or co-registrar. If the Company fails to appoint or maintain a
Registrar and/or Paying Agent, subject to Section 2.06, the Trustee shall act
as such, and shall be entitled to appropriate compensation in accordance with
Section 7.07.
Section 2.04. Paying Agent to Hold Money in Trust. The Company shall
require each Paying Agent other than the Trustee to agree in writing that the
Paying Agent will hold in trust for the Holders' benefit or the Trustee all
money the Paying Agent holds for the redemption or purchase of the Notes or for
the payment of principal of, or premium, if any, or interest (including Special
Interest, if any) on the Notes, and will notify the Trustee of any default by
the Company in providing the Paying Agent with sufficient funds to redeem or
purchase Notes or make any payment on the Notes as and to the extent required
to be redeemed, purchased or paid under the terms of this Indenture. While any
such default continues, the Trustee may require the Paying Agent to pay all
money it holds to the Trustee and account for any funds disbursed. The Company
at any time may require the Paying Agent to pay all money it holds to the
Trustee. Upon payment over to the Trustee, the Paying Agent (if other than the
Company or any of its Affiliates) shall have no further liability for the money
it delivered to the Trustee. If the Company or any of its Subsidiaries acts as
Paying Agent, it shall segregate and hold in a separate trust fund for the
Holders' benefit all money it holds as Paying Agent.
Section 2.05. Holder Lists. The Trustee shall preserve in as current a
form as is reasonably practicable the most recent list available to it of the
names and addresses of Holders and shall
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<PAGE> 33
otherwise comply with section 312(a) of the TIA. If the Trustee is not the
Registrar, the Company shall furnish to the Trustee, at least 7 Business Days
before each interest payment date and at such other times as the Trustee may
request in writing, a list in such form and as of such date as the Trustee may
reasonably require that sets forth the names and addresses of, and the
aggregate principal amount of Notes held by, each Holder, and the Company shall
otherwise comply with section 312(a) of the TIA.
Section 2.06 Transfer and Exchange. (a) The Company appoints the
Trustee as transfer and exchange agent for the purpose of any transfer or
exchange of the Notes.
(b) Without the prior consent of the Company, neither the
Trustee nor the Registrar shall be required (i) to register the transfer of or
exchange any Note selected for redemption, (ii) to register the transfer of or
exchange any Note for a period of 15 days before the mailing of a notice of
redemption ending on the date of such mailing, (iii) to register the transfer
or exchange of a Note between a record date and the next succeeding interest
payment date.
(c) No service charge shall be made for any registration of
transfer or exchange (except as otherwise expressly permitted herein), but the
Registrar may require a Holder to furnish appropriate endorsements and
transfer documents and payment of a sum sufficient to cover any transfer tax or
similar governmental charge payable in connection therewith (other than any
such transfer tax or similar governmental charge payable upon exchanges
pursuant to Section 2.12, 3.06 or 9.05, which the Company shall pay).
(d) Prior to due presentment for registration of transfer of
any Note to the Trustee, the Trustee, any Agent and the Company shall deem and
treat the Person in whose name any Note is registered as the absolute owner of
such Note (whether or not such Note shall be overdue and notwithstanding any
notation of ownership or other writing on such Note made by anyone other than
the Company, the Registrar, or any co-registrar) for the purpose of receiving
payment of principal of, premium, if any, interest (including Special Interest,
if any) on such Note and for all other purposes, and notice to the contrary
shall not affect the Trustee, any Agent or the Company.
(e) A Holder may transfer a Note only by written application
to the Registrar stating the name of the proposed transferee and otherwise
complying with the terms of this Indenture. No such transfer shall be effected
until, and such transferee shall succeed to the rights of a Holder only upon,
final acceptance and registration of the transfer by the Registrar.
Furthermore, any Holder of a Global Note shall, by acceptance of such Global
Note, be deemed to agree that transfers of beneficial interests in such Global
Note may be effected through a book entry system maintained by the Holder of
such Global Note (or its agent) and that ownership of a beneficial interest in
the Note shall be required to be reflected in a book entry. When Notes are
presented to the Registrar or a co-registrar with a request to register the
transfer or to exchange them for an equal principal amount of Notes of other
authorized denominations (including an exchange of Old Notes for New Notes),
the Registrar or co-registrar, as relevant, shall register the transfer or make
the exchange as requested if the requirements for such transactions set forth
herein are met; provided, however, that no exchanges
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<PAGE> 34
of Old Notes for New Notes shall occur except pursuant to the Exchange Offer or
otherwise pursuant to a Registration of Notes and provided further that any Old
Notes that are so exchanged for New Notes shall be cancelled by the Trustee.
To permit registrations of transfers and exchanges, the Company shall execute
and the Trustee shall authenticate Notes at the Registrar's request.
All Notes issued upon any registration of transfer or exchange of Notes
shall be valid obligations of the Company, evidencing the same debt, and
entitled to the same benefits under this Indenture, as the Notes surrendered
upon such registration of transfer or exchange.
Section 2.07. Book-entry Provisions for Global Notes. (a) The
Restricted Global Notes and Regulation S Global Notes initially shall (i) be
registered in the name of the Depositary for such Global Notes or the nominee
of such Depositary, (ii) be delivered to the Trustee as custodian for such
Depositary and (iii) bear legends as set forth in Section 2.01.
Members of, or participants in, the Depositary ("AGENT MEMBERS") shall
have no rights under this Indenture with respect to any Restricted Global Note
or Regulation S Global Note held on their behalf by the Depositary, or the
Trustee as its custodian, or under such Restricted Global Note or Regulation S
Global Note, and the Depositary may be treated by the Company, the Trustee and
any agent of the Company or the Trustee as the absolute owner of such Global
Note for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or
the Trustee, from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or shall impair, as between the
Depositary and its Agent Members, the operation of customary practices
governing the exercise of the rights of a Holder of any Note.
(b) Transfers of a Restricted Global Note or Regulation S
Global Note shall be limited to transfers of such Global Note in whole, but not
in part, to the Depositary, its successors or their respective nominees.
Interests of beneficial owners in a Restricted Global Note or Regulation S
Global Note may be transferred in accordance with the rules and procedures of
the Depositary and the provisions of Section 2.08.
(c) Any beneficial interest in one of the Global Notes that
is transferred to a Person who takes delivery in the form of an interest in the
other Global Note will, upon transfer, cease to be an interest in such Global
Note and become an interest in the other Global Note and, accordingly, will
thereafter be subject to all transfer restrictions, if any, and other
procedures applicable to beneficial interests in such other Global Note for as
long as it remains such an interest.
(d) In connection with any exchange of a portion of the
beneficial interests in the Global Notes for Certificated Notes by the
beneficial owners pursuant to Section 2.01(a), the Registrar shall reflect on
its books and records the date and a decrease in the principal amount of the
Global Notes in an amount equal to the principal amount of the beneficial
interest in the Global Notes to be transferred, and the Company shall execute,
and the Trustee shall authenticate and deliver, one or more Certificated Notes
of like tenor and amount.
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<PAGE> 35
(e) In connection with the transfer of all of the Restricted
Global Notes or Regulation S Global Notes to beneficial owners pursuant to
Section 2.01(a), the Restricted Global Notes or Regulation S Global Notes, as
the case may be, shall be deemed to be surrendered to the Trustee for
cancellation, and the Company shall execute, and the Trustee shall authenticate
and deliver, to each beneficial owner identified by the relevant Global Note
Holder and the Depositary in exchange for its beneficial interest in the
Restricted Global Notes or Regulation S Global Notes, as the case may be, an
equal aggregate principal amount of Certificated Notes or Offshore Certificated
Notes, as the case may be, of authorized denominations.
(f) Any Certificated Notes delivered in exchange for an
interest in a Restricted Global Note pursuant to Section 2.01(a) or paragraph
(d) of this Section shall, except as otherwise provided by paragraph (e) of
Section 2.08, bear the legend regarding transfer restrictions applicable to the
Certificated Notes set forth in Section 2.01(a).
(g) Any Offshore Certificated Note delivered in exchange for
an interest in a Regulation S Global Note pursuant to Section 2.01(a) or
paragraph (d) of this Section shall, except as otherwise provided by paragraph
(e) of Section 2.08, bear the legend regarding transfer restrictions applicable
to the Offshore Certificated Note set forth in Section 2.01(a).
(h) The registered holder of a Global Note may grant proxies
and otherwise authorize any Person, including Agent Members and Persons that
may hold interests through Agent Members, to take any action which a Holder is
entitled to take under this Indenture or the Notes.
Section 2.08. Special Transfer Provisions. Unless and until a Note is
exchanged for a New Note in connection with an effective Registration pursuant
to the Registration Rights Agreement or the Note is no longer required by
Section 2.08(e) to bear a Securities Act Legend, the following provisions shall
apply:
(a) TRANSFERS TO QIBs. The following provisions shall apply
with respect to the registration of any proposed transfer of a Certificated
Note or an interest in a Restricted Global Note to a QIB (excluding Non-U.S.
Persons):
(i) If the Note to be transferred consists of (x)
Certificated Notes, the Registrar shall register the transfer, if such
transfer is being made by a proposed transferor who has checked the box
provided for on the form of Note stating, or has otherwise advised the
Company and the Registrar in writing, that the sale has been made in
compliance with the provisions of Rule 144A to a transferee who has signed
the certification provided for on the form of Note stating, or has
otherwise advised the Company and the Registrar, that it is purchasing the
Note for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a QIB
within the meaning of Rule 144A, and is aware that the sale to it is being
made in reliance on Rule 144A and acknowledges that it has received such
information regarding the Company as it has requested pursuant to Rule
144A or has determined not to request such information and that
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it is aware that the transferor is relying upon its foregoing
representation in order to claim the exemption from registration provided
for by Rule 144A or (y) an interest in the Restricted Global Note, the
transfer of such interest may be effected only through the book entry
system maintained by the Depositary.
(ii) If the proposed transferee is an Agent Member, and
the Note to be transferred consists of Certificated Notes, upon receipt by
the Registrar of the documents referred to in clause (i) and instructions
given in accordance with the Depositary's and the Registrar's procedures,
the Registrar shall reflect on its books and records the date and an
increase in the principal amount of the Restricted Global Notes in an
amount equal to the principal amount of the Certificated Notes to be
transferred and the Trustee shall cancel the Certificated Notes so
transferred.
(b) TRANSFERS OF INTERESTS IN THE REGULATION S TEMPORARY
GLOBAL NOTES. The following provisions shall apply with respect to
registration of any proposed transfer of interests in any Regulation S
Temporary Global Note:
(i) The Registrar shall register the transfer of any
Note (x) if the proposed transferee is a Non-U.S. Person and the proposed
transferor has delivered to the Registrar a certificate substantially in
the form of Exhibit B hereto or (y) if the proposed transferee is a QIB
and the proposed transferor has checked the box provided for on the form
of Note stating, or has otherwise advised the Company and the Registrar in
writing, that the sale has been made in compliance with provisions of Rule
144A to a transferee who has signed the certification provided for on the
form of Note stating, or has otherwise advised the Company and the
Registrar in writing, that it is purchasing the Note for its own account
or an account with respect to which it exercises sole investment
discretion and that it and any such account is a QIB within the meaning of
Rule 144A, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding
the Company as it has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor
is relying upon its foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
(ii) If the proposed transferee is an Agent Member,
upon receipt by the Registrar of the documents referred to in clause
(i)(y) above and instructions given in accordance with the Depositary's
and the Registrar's procedures, the Registrar shall reflect on its books
and records the date and an increase in the principal amount of the
Restricted Global Notes, in an amount equal to the principal amount of the
Regulation S Temporary Global Notes to be transferred, and the Trustee
shall decrease the amount of the Regulation S Temporary Global Note.
(c) TRANSFERS OF INTERESTS IN THE REGULATION S PERMANENT
GLOBAL NOTES OR OFFSHORE CERTIFICATED NOTES TO U.S. PERSONS. The following
provisions shall apply with respect to any transfer of interests in any
Regulation S Global Note or Offshore Certificated Notes to U.S. Persons:
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(i) prior to the removal of the Securities Act Legend
from any Regulation S Global Note or Offshore Certificated Notes in
accordance with Section 2.01(e), the Registrar shall refuse to register
such transfer; and
(ii) after such removal, the Registrar shall register
the transfer of any such Note without requiring any additional
certification.
(d) TRANSFERS TO NON-U.S. PERSONS AT ANY TIME. The following
provisions shall apply with respect to any transfer of a Note to a Non-U.S.
Person:
(i) Prior to 40 days after the Issue Date, the
Registrar shall register any proposed transfer of a Note to a Non-U.S.
Person upon receipt of a certificate substantially in the form of Exhibit
B hereto from the proposed transferor.
(ii) On and after 40 days after the Issue Date, the
Registrar shall register any proposed transfer to any Non-U.S. Person if
the Note to be transferred is a Certificated Note or an interest in the
Global Note, upon receipt of a certificate substantially in the form of
Exhibit B from the proposed transferor.
(iii) (A) If the proposed transferor is an Agent Member
holding a beneficial interest in a Restricted Global Note, upon receipt by
the Registrar of (x) the documents, if any, required by paragraph (ii) and
(y) instructions in accordance with the Depositary's and the Registrar's
procedures, the Registrar shall reflect on its books and records the date
and a decrease in the principal amount of the Restricted Global Notes in
an amount equal to the principal amount of the beneficial interest in the
Restricted Global Notes to be transferred, and (B) if the proposed
transferee is an Agent Member, upon receipt by the Registrar of
instructions given in accordance with the Depositary's and the Registrar's
procedures, the Registrar shall reflect on its books and records the date
and an increase in the principal amount of the Regulation S Global Notes
in an amount equal to the principal amount of the Certificated Notes or
the Restricted Global Notes, as the case may be, to be transferred, and
the Trustee shall cancel the Certificated Notes, if any, so transferred or
decrease the amount of the Restricted Global Notes, as the case may be.
(e) SECURITIES ACT LEGEND. Upon the registration of
transfer, exchange or replacement of Notes not bearing the Securities Act
Legend, the Registrar shall deliver Notes that do not bear the Securities Act
Legend. Upon the registration of transfer, exchange or replacement of Notes
bearing the Securities Act Legend, the Registrar shall deliver only Notes that
bear the Securities Act Legend unless (i) the Note being delivered is a New
Note issued in the Exchange Offer pursuant to the Exchange Offer Registration
Statement or (ii) there is delivered to the Registrar an Opinion of Counsel
reasonably satisfactory to the Company and the Trustee to the effect that
neither such legend nor the related restrictions on transfer are required in
order to maintain compliance with the provisions of the Securities Act.
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(f) GENERAL. By its acceptance of any Note bearing the
Securities Act Legend, each Holder of such a Note acknowledges the restrictions
on transfer of such Note set forth in this Indenture and in the Securities Act
Legend and agrees that it will transfer such Note only as provided in this
Indenture. The Registrar shall not register a transfer of any Note unless such
transfer complies with the restrictions on transfer of such Note set forth in
this Indenture. In connection with any transfer of Notes, each Holder agrees
by its acceptance of the Notes to furnish the Registrar or the Company such
certifications, legal opinions or other information as either of them may
reasonably require to confirm that such transfer is being made pursuant to an
exemption from, or a transaction not subject to, the registration requirements
of the Securities Act; provided that the Registrar shall not be required to
determine (but may rely on a determination made by the Company with respect to)
the sufficiency of any such certifications, legal opinions or other
information.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.07 or this Section 2.08.
The Company shall have the right to inspect and make copies of all such
letters, notices or other written communications at any reasonable time upon
the giving of reasonable written notice to the Registrar.
Section 2.09. Replacement Notes. Holders shall surrender mutilated
Notes to the Trustee. If any mutilated Note is surrendered to the Trustee, or
if the Company and the Trustee receive evidence to their satisfaction of the
destruction, loss or theft of any Note, the Company shall issue and the Trustee
shall authenticate, a replacement Note if the Trustee's requirements are met,
and each such replacement Note shall be an additional obligation of the
Company. If the Trustee or the Company requires, the Holder must supply an
indemnity bond that is sufficient, in the reasonable judgment of the Trustee
and the Company, to protect the Company, the Trustee, any Agent or any
authenticating agent from any loss that any of them may suffer if a Note is
replaced. The Company and the Trustee may charge for its reasonable expenses
in replacing a Note.
Section 2.10. Outstanding Notes. The Notes outstanding at any time are
all the Notes the Trustee has authenticated except for those it has cancelled,
those delivered to it for cancellation, and those described in this Section
2.10 as not outstanding. If a Note is replaced pursuant to Section 2.09, it
ceases to be outstanding unless the Trustee receives proof satisfactory to it
that a protected purchaser holds the replaced Note. If the entire principal
of, premium, if any, and accrued interest (including Special Interest, if any)
on any Note is considered paid under Section 2.04, it ceases to be outstanding
and interest on it ceases to accrue. Subject to Section 2.11, a Note does not
cease to be outstanding because the Company or any Affiliate of the Company
holds such Note.
Section 2.11 Treasury Notes. In determining whether the Holders of
the required principal amount of Notes have concurred in any direction, waiver
or consent, Notes owned by the Company or any Affiliate of the Company shall be
considered as though they are not outstanding; provided, however, that for the
purposes of determining whether the Trustee shall be protected in relying on
any such direction, waiver or consent, only Notes that the Trustee knows are so
owned shall be so disregarded. Notwithstanding the foregoing, Notes that the
Company or any Affiliate of the Company offers to purchase or acquires pursuant
to an exchange offer, tender offer or otherwise shall
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not be deemed to be owned by the Company or any Affiliate of the Company until
legal title to such Notes passes to the Company or such Affiliate, as the case
may be.
Section 2.12. Temporary Notes. Until definitive Notes are ready for
delivery, the Company may prepare and the Trustee on its behalf shall
authenticate temporary Notes. Temporary Notes shall be substantially in the
form of definitive Notes but may have variations that the Company considers
appropriate for temporary Notes. Without unreasonable delay, the Company shall
prepare and the Trustee on its behalf, upon receipt of a written order signed
by two Officers of the Company, shall authenticate definitive Notes in exchange
for temporary Notes. Until such exchange, temporary Notes shall be entitled to
the same rights, benefits and privileges as definitive Notes.
Section 2.13. Cancellation. Holders shall surrender Notes for
cancellation to the Trustee. The Company at any time may deliver Notes to the
Trustee for cancellation. The Registrar, any co-registrar, the Paying Agent,
the Company and its Subsidiaries shall forward to the Trustee any Notes
surrendered to them for registration of transfer, exchange, replacement,
payment (including all Notes called for redemption and all Notes accepted for
payment pursuant to an Offer) or cancellation, and the Trustee shall cancel all
such Notes and shall return all cancelled Notes to the Company. The Company
may not issue new Notes to replace any Notes that have been cancelled by the
Trustee or that have been delivered to the Trustee for cancellation. If the
Company or any Affiliate of the Company acquires any Notes (other than by
redemption pursuant to Section 3.07 or an Offer pursuant to Section 4.15 or
4.16), such acquisition shall not operate as a redemption or satisfaction of
the Indebtedness represented by such Notes unless and until such Notes are
delivered to the Trustee for cancellation.
Section 2.14. Defaulted Interest. If the Company defaults in a payment
of interest on the Notes, it shall pay the defaulted interest in any lawful
manner plus, to the extent lawful, interest payable on the defaulted interest,
to Holders on a subsequent special record date, in each case at the rate
provided in the Notes and Section 4.01. The Company shall, with the Trustee's
consent, fix or cause to be fixed each such special record date and payment
date. At least 15 days before the special record date, the Company (or, at the
request of the Company, the Trustee in the name of, and at the expense of, the
Company) shall mail a notice that states the special record date, the related
payment date and the amount of interest to be paid.
Section 2.15. Record Date. The record date for purposes of determining
the identity of Holders of Notes entitled to vote or consent to any action by
vote or consent authorized or permitted under this Indenture shall be
determined as provided for in section 316(c) of the TIA.
Section 2.16. CUSIP and CINS Numbers. A "CUSIP" or "CINS" number will
be printed on the Notes and the Trustee shall use CUSIP or CINS numbers, as the
case may be, in notices of redemption, purchase or exchange as a convenience to
Holders, provided that any such notice may state that no representation is made
as to the correctness or accuracy of such numbers printed in the notice or on
the Notes and that reliance may be placed only on the other identification
numbers
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printed on the Notes. The Company will promptly notify the Trustee of any
change in the CUSIP or CINS number, as the case may be.
ARTICLE 3
Redemptions and Offers to Purchase
Section 3.01. Notices to Trustee. If the Company elects to redeem
Notes pursuant to Section 3.07, it shall furnish to the Trustee, at least 45
but not more than 60 days before notice of any redemption is to be mailed to
Holders (or such shorter time as may be satisfactory to the Trustee), (x) an
Officers' Certificate stating (i) that the Company has elected to redeem Notes
pursuant to Section 3.07(a) or (b), as the case may be, (ii) the date notice of
redemption is to be mailed to Holders, (iii) the redemption date, (iv) the
aggregate principal amount of Notes to be redeemed, (v) the redemption price
for such Notes and, (vi) the amount, if any, of accrued and unpaid interest
(including Special Interest, if any) on such Notes as of the redemption date
and (y) in the case of any redemption pursuant to Section 3.07(b), an Opinion
of Counsel that the Company is entitled to redeem the Notes. If the Trustee is
not the Registrar, the Company shall, concurrently with delivery of its notice
to the Trustee of a redemption, cause the Registrar to deliver to the Trustee
a certificate (upon which the Trustee may rely) setting forth the name of, and
the aggregate principal amount of the Notes held by, each Holder.
If the Company is required to offer to purchase Notes pursuant to Section
4.15 or 4.16, it shall furnish to the Trustee, at least two Business Days
before notice of the Offer is to be mailed to Holders, an Officers' Certificate
setting forth (i) that the Offer is being made pursuant to Section 4.15 or
4.16, as the case may be, (ii) the Purchase Date, (iii) the maximum principal
amount of Notes the Company is offering to purchase pursuant to the Offer, (iv)
the purchase price for such Notes and (v) the amount, if any, of accrued and
unpaid interest (including Special Interest, if any) on such Notes as of the
Purchase Date.
The Company will also provide the Trustee with any additional information
that the Trustee reasonably requests in connection with any redemption or
Offer.
Section 3.02. Selection of Notes to Be Redeemed or Purchased. If less
than all outstanding Notes are to be redeemed or if less than all Notes
tendered pursuant to an Offer are to be accepted for payment, the Trustee shall
select the outstanding Notes to be redeemed or accepted for payment on a pro
rata basis, by lot or by any other method that the Trustee deems fair and
appropriate. If the Company elects to mail notice of a redemption to Holders,
the Trustee shall at least 15 days prior to the date notice of redemption is to
be mailed (i) select the Notes to be redeemed from Notes outstanding not
previously called for redemption in the manner specified by the Trustee and
(ii) notify the Company of the names of each Holder of Notes selected for
redemption, the principal amount of Notes held by each such Holder and the
principal amount of such Holder's Notes that are to be redeemed. If less than
all Notes tendered pursuant to an Offer are to be accepted for payment, the
Trustee shall select on or prior to the Purchase Date for such Offer the Notes
to be accepted for payment. The Trustee shall select for redemption or
purchase Notes or portions of Notes in principal
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amounts at maturity of $1,000 or integral multiples thereof; except that if all
of the Notes of a Holder are selected for redemption or purchase, the aggregate
principal amount of the Notes held by such Holder, even if not an integral
multiple of $1,000, may be redeemed or purchased. Except as provided in the
preceding sentence, provisions of this Indenture that apply to Notes called for
redemption or tendered pursuant to an Offer also apply to portions of Notes
called for redemption or tendered pursuant to an Offer. The Trustee shall
notify the Company promptly of the Notes or portions of Notes to be called for
redemption or selected for purchase.
Section 3.03. Notice of Redemption. (a) At least 30 days but not more
than 60 days before any redemption date the Company shall mail by first class
mail a notice of redemption to the Holders and the Trustee. With respect to
any redemption of Notes, the notice shall identify the Notes or portions
thereof to be redeemed, including CUSIP or CINS numbers, and shall state: (1)
the redemption date; (2) the redemption price for the Notes and the amount, if
any, of unpaid and accrued interest on such Notes as of the date of redemption
and the premium, if any, and Special Interest, if any, on the Notes as of the
date of redemption; (3) the section of this Indenture pursuant to which the
Notes called for redemption are being redeemed; (4) if any Note is being
redeemed in part, the portion of the principal amount of such Note to be
redeemed and that, after the redemption date, upon surrender of such Note, a
new Note or Notes in principal amount equal to the unredeemed portion will be
issued; (5) the name and address of the Paying Agent; (6) that Notes called for
redemption must be surrendered to the Paying Agent to collect the redemption
price for, and any accrued and unpaid interest (including Special Interest, if
any) on such Notes as of the date of redemption; (7) that, unless the Company
defaults in making such redemption payment, interest on Notes called for
redemption ceases to accrete or accrue, as the case may be, on, and after the
redemption date; and (8) that no representation is made as to the correctness
or accuracy of the CUSIP or CINS number (as applicable) listed in such notice
and printed on the Notes. If any of the Notes to be redeemed is in the form of
a Global Note, then the Company shall modify such notice to the extent
necessary to accord with the procedures of the Depositary applicable to
redemptions.
(b) At the request of the Company, the Trustee shall (at the
Company's expense and in the Company's name) give the notice of any redemption
to Holders; provided, however, that the Company shall deliver to the Trustee,
at least 45 days prior to the date of redemption and at least 15 days prior to
the date that notice of the redemption is to be mailed to Holders, an Officers'
Certificate that (i) requests the Trustee to give notice of the redemption to
Holders, (ii) sets forth the information to be provided to Holders in the
notice of redemption, as set forth in the preceding paragraph, and (iii) sets
forth the aggregate principal amount of Notes to be redeemed and the amount, if
any, of accrued and unpaid interest (including Special Interest, if any)
thereon as of the date of redemption. If the Trustee is not the Registrar, the
Company shall, concurrently with any such request, cause the Registrar to
deliver to the Trustee a certificate (upon which the Trustee may rely) setting
forth the name of, the address of, and the aggregate principal amount of Notes
held by, each Holder; provided further that any such Officers' Certificate may
be delivered to the Trustee on a date later than permitted under this Section
3.03(b) if such later date is acceptable to the Trustee.
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Section 3.04. Effect of Notice of Redemption. Once notice of
redemption is mailed, Notes called for redemption become due and payable on the
redemption date at the price set forth in the Note.
Section 3.05. Deposit of Redemption Price. (a) Prior to 10:00 a.m.,
New York City time, on any redemption date, the Company shall deposit with the
Paying Agent money sufficient to pay the redemption price of, and the amount,
if any, of accrued interest and unpaid interest (including Special Interest, if
any) on all Notes to be redeemed in immediately available funds as of the date
of redemption. After any redemption date, the Paying Agent shall promptly
return to the Company any money that the Company deposited with the Paying
Agent in excess of the amounts necessary to pay the redemption price of, and
any accrued interest (including Special Interest, if any) on all Notes to be
redeemed.
(b) If the Company complies with the preceding paragraph,
interest on the Notes to be redeemed will cease to accrue on such Notes on the
applicable redemption date, whether or not such Notes are presented for
payment. If a Note is redeemed on an interest payment date, then any accrued
and unpaid interest shall be paid to the Person in whose name such Note was
registered at the close of business on the related interest record date, but,
in all other circumstances, such interest shall be paid to the Holder of such
Note. If any Note called for redemption shall not be so paid upon surrender
for redemption because of the failure of the Company to comply with the
preceding paragraph, interest will be paid on the unpaid principal, premium, if
any, and unpaid interest (including Special Interest, if any) which has accrued
to the redemption date, from the redemption date until such amounts are paid,
at the rate of interest provided in the Notes and Section 4.01.
Section 3.06 Notes Redeemed in Part. Upon surrender of a Note that is
redeemed in part, the Company shall issue and the Trustee shall authenticate
for the Holder at the Company's expense a new Note equal in principal amount to
the unredeemed portion of the Note surrendered.
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Section 3.07 Redemption Provisions. (a) The Notes will not be
redeemable at the Company's option prior to April 1, 2003 except as described
below, with the proceeds of an Equity Offering. Thereafter, the Notes will be
subject to redemption at the option of the Company, in whole or in part, upon
not less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of principal amount) set forth below plus accrued and
unpaid interest (including Special Interest, if any) thereon, if any, to the
applicable redemption date, if redeemed during the twelve-month period
beginning on April 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
------------------------------------------- ----------
<S> <C>
2003....................................... 104.313%
2004....................................... 102.875%
2005....................................... 101.438%
2006 and thereafter........................ 100.000%
</TABLE>
(b) In addition to the Company's right to redeem the Notes as
set forth in subsection (a), above, from time to time prior to April 1, 2001,
the Company may (but will not have the obligation to) redeem up to 35% of the
aggregate principal amount of the Notes outstanding on the Issue Date at a
redemption price of 108.625% of the principal amount thereof, in each case plus
accrued and unpaid interest (including Special Interest, if any) thereon, if
any, to the redemption date, with the net cash proceeds of one or more Equity
Offerings; provided that at least $97.5 million of the aggregate principal
amount of the Notes remain outstanding immediately after the occurrence of any
such redemption; and provided, further that each such redemption will occur
within 60 days of the date of the closing of any such Equity Offering.
Section 3.08. Mandatory Offers. (a) Within 30 days after any Change of
Control Trigger Date or Asset Sale Trigger Date, the Company shall mail to the
Trustee (who shall mail to each Holder at the Company's expense) a notice
stating: (1) that an Offer is being made pursuant to Section 4.15 or 4.16, as
the case may be, and describing the transaction or transactions that constitute
the change of control or Asset Sale, as the case may be, and the length of time
the Offer shall remain open and the maximum aggregate principal amount of Notes
that the Company is offering to purchase pursuant to such Offer; (2) the
purchase price for the Notes (as set forth in Section 4.15 or 4.16, as the case
may be), the amount (if any) of accrued and unpaid interest on such Notes as of
the Purchase Date, and the Purchase Date; (3) that any Note not accepted for
payment will continue to accrue interest; (4) that, unless the Company defaults
in making such payment, any Note accepted for payment pursuant to the Offer
will cease to accrue interest after the relevant Purchase Date; (5) that
Holders may tender all or any portion of the Notes registered in the name of
such Holder and that any portion of a Note tendered must be tendered in a
principal amount of $1,000 or an integral multiple thereof; (6) that Holders
electing to tender any Note or portion thereof will be required to surrender
their Note, with the form therein entitled "Option of Holder to Elect Purchase"
completed, or transfer by book-entry transfer, to the Company, a Depositary, if
appointed by the Company, or a Paying Agent at the address specified in the
notice at least three days prior to the Purchase Date; (7) that Holders will be
entitled to withdraw their election to tender Notes if the Company, the
Depositary or the Paying Agent, as the case may be, receives, not later than
the close of business on
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the last day of the relevant Offer Period, a facsimile transmission or letter
setting forth the name of the Holder, the principal amount of Notes delivered
for purchase, and a statement that such Holder is withdrawing his election to
have such Note purchased; and (8) that Holders whose Notes are accepted for
payment in part will be issued new Notes equal in principal amount to the
unpurchased portion of Notes surrendered, provided that only Notes in a
principal amount of $1,000 or integral multiples thereof will be accepted for
payment in part.
(b) On the Purchase Date for any Offer, the Company will (i)
to the extent lawful, (x) in the case of an Offer resulting from a Change of
Control, accept for payment all Notes or portions thereof properly tendered
pursuant to such Offer and (y) in the case of an Offer resulting from one or
more Asset Sales, accept for payment, on a pro rata basis to the extent
necessary, the Payment Amount of Notes or portions thereof pursuant to the Net
Proceeds Offer, or if less than the Payment Amount has been tendered, all Notes
tendered, and will deliver to the Trustee an Officers' Certificate stating that
such Notes or portions thereof were accepted for payment by the Company in
accordance with the terms of Sections 3.08 and 4.16, (ii) deposit with the
Paying Agent in immediately available funds the aggregate purchase price of all
Notes or portions thereof accepted for payment any accrued and unpaid interest
(including Special Interest, if any) on such Notes as of the Purchase Date, and
(iii) deliver, or cause to be delivered, to the Trustee all Notes or portions
thereof so accepted together with an Officers' Certificate setting forth the
name of each Holder that tendered Notes and the principal amount of the Notes,
as the case may be, or portions thereof tendered by each such Holder.
(c) With respect to any Offer, (i) if less than all of the
Notes tendered pursuant to an Offer are to be accepted for payment by the
Company for any reason, the Trustee shall select on or prior to the Purchase
Date the Notes or portions thereof to be accepted for payment pursuant to
Section 3.02, and (ii) if the Company deposits with the Paying Agent on the
Purchase Date an amount sufficient to purchase all Notes accepted for payment,
interest shall cease to accrue on such Notes on the Purchase Date; provided,
however, that if the Company fails to deposit an amount sufficient to purchase
all Notes accepted for payment, the deposited funds shall be used to purchase
on a pro rata basis all Notes accepted for payment and interest shall continue
to accrue, as the case may be, on all Notes not purchased.
(d) Promptly after consummation of an Offer, (i) the Paying
Agent shall mail to each Holder of Notes or portions thereof accepted for
payment an amount equal to the Change of Control Purchase Price or Offered
Price, as the case may be, (ii) with respect to any tendered Note not accepted
for payment in whole or in part, the Trustee shall return such Note to the
Holder thereof, and (iii) with respect to any Note accepted for payment in
part, the Company shall issue and the Trustee shall authenticate and mail to
each such Holder a new Note equal in principal amount to the unpurchased
portion of the tendered Note.
(e) The Company will (i) publicly announce the results of the
Offer to Holders on or as soon as practicable after the Purchase Date, and (ii)
comply with Rule 14e-1 under the Exchange Act and any other securities laws and
regulations to the extent such laws and regulations are applicable to any
Offer.
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(f) If any of this Section 3.08, Section 4.15 or Section 4.16
conflict with duties imposed upon the Company or the Guarantors by virtue of
any applicable United States securities laws or regulations, the Company or
such Guarantor, as the case may be, shall comply with such securities laws or
regulations and will not be deemed to have breached its obligations under this
Indenture.
ARTICLE 4
Covenants
Section 4.01 Payment of Notes. Subject to the provisions of Article
10, the Company shall pay the principal of, and premium, if any, and interest
(including Special Interest, if any) on the Notes on the dates and in the
manner provided in the Notes. Holders must surrender their Notes to the Paying
Agent to collect principal payments. The Notes will be payable as to
principal, premium, if any, and interest (including Special Interest, if any)
at the office or agency of the Company maintained for such purpose within the
City and State of New York or, at the option of the Company, by wire transfer
of immediately available funds or, in the case of Certificated Notes or
Offshore Certificated Notes only, by mailing a check to the registered address
of the Holder.
Principal, premium or interest (including Special Interest, if any) shall
be considered paid on the date due if, by 10:00 a.m., New York City time, on
such date, the Company has deposited with the Paying Agent money in immediately
available funds designated for and sufficient to pay such principal, premium or
interest (including Special Interest, if any); provided, however, that
principal, premium or interest (including Special Interest, if any) shall not
be considered paid within the meaning of this Section 4.01 if money intended to
pay such principal, premium or interest (including Special Interest, if any) is
held by the Paying Agent for the benefit of holders of Senior Indebtedness of
the Company pursuant to the provisions of Article 10. The Paying Agent shall
return to the Company, no later than five days following the date of payment,
any money that exceeds the amount then due and payable on the Notes.
Section 4.02. Reports. Whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "COMMISSION"), so
long as any Notes are outstanding, the Company and the Subsidiary Guarantors
will file with the Commission, to the extent such filings are accepted by the
Commission, and will furnish (within 15 days after such filing) to the Trustee
and the Holders of Notes all quarterly and annual reports and other
information, documents and reports that would be required to be filed with the
Commission pursuant to Section 13 of the Exchange Act if the Company and the
Subsidiary Guarantors were required to file under such section. In addition,
the Company and the Subsidiary Guarantors will make such information available
to prospective purchasers of the Notes, securities analysts and broker-dealers
who request it in writing. The Company and the Guarantors have agreed that,
for so long as any Notes remain outstanding, they will furnish to the Holders
and beneficial Holders of Notes and to prospective purchasers of Notes
designated by the Holders and to broker dealers, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
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Section 4.03. Compliance Certificate. The Company and each Subsidiary
Guarantor shall deliver to the Trustee, within 120 days after the end of each
fiscal year of the Company, beginning with the fiscal year ending December 31,
1998, an Officers' Certificate stating that (i) a review of the activities of
the Company and its Subsidiaries during the preceding fiscal year without
regard to any Grace Period has been made to determine whether the Company and
each Subsidiary Guarantor has kept, observed, performed and fulfilled all of
its obligations under this Indenture and the Notes, (ii) such review was
supervised by the Officers of the Company and each Subsidiary Guarantor signing
such certificate, and (iii) that to the best knowledge of each Officer signing
such certificate, (a) the Company has kept, observed, performed and fulfilled
each and every covenant contained in this Indenture and is not in default in
the performance or observance of any of the terms, provisions and conditions of
this Indenture (or, if a Default or Event of Default occurred, describing all
such Defaults or Events of Default of which each such Officer may have
knowledge and what action the Company and each Subsidiary Guarantor has taken
or proposes to take with respect thereto), and (b) no event has occurred and
remains in existence by reason of which payments on account of the principal
of, or premium, if any, or interest (including Special Interest, if any) on the
Notes are prohibited or if such event has occurred, a description of the event
and what action the Company and each Subsidiary Guarantor is taking or proposes
to take with respect thereto.
The Company will, so long as any of the Notes are outstanding, deliver to
the Trustee, promptly after any Officer of the Company becomes aware of any
Default or Event of Default, an Officers' Certificate specifying such Default
or Event of Default and what action the Company is taking or proposes to take
with respect thereto.
Section 4.04. Stay, Extension and Usury Laws. Each of the Company and
the Subsidiary Guarantors covenant (to the extent that they may lawfully do so)
that they will not at any time insist upon, plead, or in any manner whatsoever
claim or take the benefit or advantage of, any stay, extension or usury law
wherever enacted, now or at any time hereafter in force, that might affect the
covenants or the performance of their obligations under this Indenture and
Notes; and each of the Company and the Guarantors (to the extent they may
lawfully do so) hereby expressly waive all benefit or advantage of any such
law, and covenant that they will not, by resort to any such law, hinder, delay
or impede the execution of any power granted to the Trustee pursuant to this
Indenture, but will suffer and permit the execution of every such power as
though no such law has been enacted.
Section 4.05 Limitation on Restricted Payments. The Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, make any Restricted Payment (except as permitted below) if at the
time of such Restricted Payment:
(i) a Default or Event of Default shall have occurred
and be continuing or shall occur as a consequence thereof;
(ii) the Company would be unable to meet the Coverage
Ratio Incurrence Condition; or
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(iii) the amount of such Restricted Payment, when added
to the aggregate amount of all other Restricted Payments (except as
expressly provided in the second following paragraph) made after the Issue
Date, exceeds the sum of (A) 50% of the Company's Consolidated Net Income
(taken as one accounting period) from the beginning of the first fiscal
quarter commencing after the Issue Date to the end of the Company's most
recently ended fiscal quarter for which financial statements are available
at the time of such Restricted Payment (or, if such aggregate Consolidated
Net Income shall be a deficit, minus 100% of such aggregate deficit) plus
(B) the net cash proceeds from the issuance and sale (other than to a
Subsidiary of the Company) after the Issue Date of (1) the Company's
Capital Stock that is not Disqualified Capital Stock or (2) debt
securities of the Company that have been converted into the Company's
Capital Stock that is not Disqualified Capital Stock (and is not then held
by a Subsidiary of the Company), plus (C) to the extent that any
Restricted Investment that was made after the Issue Date is sold for cash
or otherwise liquidated or repaid for cash, the lesser of (x) the cash
return of capital with respect to such Restricted Investment (less the
cost of disposition, if any) and (y) the initial amount of such Restricted
Investment plus (D) the amount of Restricted Investment outstanding in an
Unrestricted Subsidiary at the time such Unrestricted Subsidiary is
designated a Restricted Subsidiary of the Company in accordance with the
definition of "Unrestricted Subsidiary" plus (E) $5.0 million.
The foregoing provisions will not prohibit (1) the payment of any dividend
by the Company or any Restricted Subsidiary within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of this Indenture; (2) the redemption, repurchase,
retirement or other acquisition of any Capital Stock of the Company in exchange
for, or out of the proceeds of, the substantially concurrent sale (other than
to a Subsidiary of the Company) of other Capital Stock of the Company (other
than any Disqualified Capital Stock); (3) the defeasance, redemption,
repurchase or other retirement of Subordinated Indebtedness in exchange for, or
out of the proceeds of, the substantially concurrent issue and sale of Capital
Stock of the Company (other than (x) Disqualified Capital Stock, (y) Capital
Stock sold to a Subsidiary of the Company and (z) Capital Stock purchased with
the proceeds of loans from the Company or any of its Subsidiaries); (4) the
making of a Related Business Investment in joint ventures or Unrestricted
Subsidiaries out of the proceeds of the substantially concurrent issue and sale
of Capital Stock of the Company (other than (x) Disqualified Capital Stock,
(y) Capital Stock sold to a Subsidiary of the Company and (z) Capital Stock
purchased with the proceeds of loans from the Company or any of its
Subsidiaries); (5) the repurchase, redemption or other acquisition or
retirement for value of any Capital Stock held by any member of the Company's
management pursuant to any management equity subscription agreement, employment
agreement, stock option agreement or other compensation agreement in an amount
not to exceed $500,000 in the aggregate in any fiscal year of the Company; or
(6) Restricted Investments the amount of which, together with the amount of all
other Restricted Investments made pursuant to this clause (6) after the Issue
Date, does not exceed $20.0 million, provided that, in the case of clause (6),
no Default or Event of Default shall have occurred and be continuing or occur
as a consequence of the actions or payments set forth therein.
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Each Restricted Payment permitted pursuant to clause (1) of the preceding
paragraph shall be included once in calculating whether the conditions of
clause (iii) of the second preceding paragraph have been met with respect to
any subsequent Restricted Payments. For purposes of determining compliance
with this Section 4.05, in the event that a transaction meets the criteria of
more than one of the types of Restricted Payments described in the clauses of
the immediately preceding paragraph or of the clauses of the definition of
"Restricted Payment," the Company, in its sole discretion, shall classify such
transaction and only be required to include the amount and type of such
transaction in one of such clauses. If an issuance of Capital Stock of the
Company is applied to make a Restricted Payment pursuant to clause (2), (3) or
(4) above, then, in calculating whether the conditions of clause (iii) of the
second preceding paragraph have been met with respect to any subsequent
Restricted Payments, the proceeds of any such issuance shall be included under
such clause (iii) only to the extent such proceeds are not applied as so
described in this sentence. In addition, Restricted Investments made pursuant
to clause (6) of the preceding paragraph shall not be treated as a Restricted
Payment or Restricted Investment for purposes of calculating whether the
conditions of clause (iii) of the second preceding paragraph have been met with
respect to any subsequent Restricted Payments.
Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment is permitted and setting forth the basis upon which the
calculations required by this Section 4.05 were computed, which calculations
shall be based upon the Company's latest available financial statements,
provided that the Company shall not be required to deliver individually such an
Officers' Certificate with respect to Restricted Payments that are otherwise
permitted under this Section 4.05 by Kuukpik/Pool Arctic Alaska, an Alaskan
partnership ("KPAA"), and are made in the ordinary course of business; and
thereafter, shall deliver the basis upon which the calculations required by
this Section 4.05 were computed with respect to KPAA permitted Restricted
Payments in the next required Officers' Certificate pursuant to this
paragraph.
Section 4.06 Corporate Existence. Subject to Article 5, the Company
will do or cause to be done all things necessary to preserve and keep in full
force and effect its corporate existence and the corporate, partnership or
other existence of each of its Subsidiaries in accordance with the respective
organizational documents of each of its Subsidiaries and the rights (charter
and statutory), licenses and franchises of the Company and each of its
Subsidiaries; provided, however, that the Company shall not be required to
preserve any such right, license or franchise, or the corporate, partnership or
other existence of any Subsidiary, if the Board of Directors of the Company
shall determine that the preservation thereof is no longer desirable in the
conduct of the business of the Company and its Subsidiaries taken as a whole,
and that the loss thereof is not adverse in any material respect to the
Holders.
Section 4.07. Limitations on Additional Indebtedness. The Company will
not, and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, incur any Indebtedness (including without limitation Acquired
Indebtedness), provided that the Company and its Restricted Subsidiaries may
incur Permitted Indebtedness and may incur additional Indebtedness if, after
giving
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effect thereto, the Company's Consolidated Interest Coverage Ratio on the date
thereof would be at least 2.5 to 1, determined on a pro forma basis as if the
incurrence of such additional Indebtedness, and the application of the net
proceeds therefrom, had occurred at the beginning of the four-quarter period
used to calculate the Company's Consolidated Interest Coverage Ratio.
Section 4.08. Limitation on the Issuance of Capital Stock of Restricted
Subsidiaries. The Company will not permit any Restricted Subsidiary, directly
or indirectly, to issue or sell any shares of its Capital Stock (including
options, warrants or other rights to purchase shares of such Capital Stock)
except (i) to the Company or a Wholly-Owned Restricted Subsidiary, (ii) if,
immediately after giving effect to such issuance or sale, such Restricted
Subsidiary would no longer constitute a Restricted Subsidiary or (iii) to the
extent such shares represent directors' qualifying shares or shares required by
applicable law to be held by a Person other than the Company or a Wholly-Owned
Restricted Subsidiary. The proceeds of any sale of Capital Stock permitted
hereunder and referred to in clauses (ii) and (iii) above will be treated as
Net Available Proceeds and must be applied in a manner consistent with the
provisions of Section 4.16.
Section 4.09. Limitations on Layering Debt. The Company will not, and
will not permit any Subsidiary Guarantor to, incur any Indebtedness that is
subordinate or junior in right of payment to any Senior Indebtedness of the
Company or such Subsidiary Guarantor unless such Indebtedness by its terms is
pari passu with, or subordinated to, the Notes or the Note Guarantee of such
Subsidiary Guarantor, as the case may be.
Section 4.10. Limitation on Transactions with Affiliates. The Company
will not, and will not permit any of its Restricted Subsidiaries to, directly
or indirectly, in one transaction or a series of related transactions, sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from or enter into any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "AFFILIATE TRANSACTION"), unless (i) such
Affiliate Transaction is on terms that are no less favorable to the Company or
the relevant Restricted Subsidiary than those that would have been obtained in
a comparable transaction by the Company or such Restricted Subsidiary with an
unrelated Person and (ii) the Company delivers to the Trustee (a) with respect
to any Affiliate Transaction (or series of related transactions) involving
aggregate payments in excess of $5.0 million, an Officers' Certificate
certifying that such Affiliate Transaction complies with clause (i) above and a
Board Resolution that has been adopted by a vote of a majority of the
Independent Directors approving such Affiliate Transaction or, if at the time
fewer than three Independent Directors are then in office, a Board Resolution
that has been adopted unanimously by the Company's Board of Directors and (b)
with respect to any Affiliate Transaction (or series of related transactions)
involving aggregate payments of $15.0 million or more, the certificates
described in the preceding clause (a) and an opinion as to the fairness to the
Company or such Subsidiary from a financial point of view issued by an
Independent Financial Advisor; provided, however, that the following shall not
be deemed to be Affiliate Transactions: (i) transactions exclusively between
or among (1) the Company and one or more Restricted Subsidiaries or (2)
Restricted Subsidiaries, provided, in each case, that no Affiliate of the
Company (other than another Restricted Subsidiary) owns Capital Stock of any
such
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Restricted Subsidiary; (ii) transactions between the Company or any Restricted
Subsidiary and any qualified employee stock ownership plan established for the
benefit of the Company's employees, or the establishment or maintenance of any
such plan; (iii) reasonable director, officer and employee compensation and
other benefits, and indemnification arrangements approved by a majority of the
Independent Directors on the Board of Directors; (iv) transactions permitted
under Section 4.05; (v) the pledge of Capital Stock of Unrestricted
Subsidiaries to support the Indebtedness thereof; (vi) transactions between the
Company and any Restricted Subsidiary and KPAA, so long as no direct or
indirect holder of an equity interest in KPAA (other than the Company or a
Restricted Subsidiary) is an Affiliate of the Company or a Restricted
Subsidiary and provided that at the time of such transaction the Company and
its Restricted Subsidiary have no less economic benefit in KPAA than the
Company and its Restricted Subsidiaries had as of the Issue Date; (vii)
transactions between the Company or any Restricted Subsidiary and any Affiliate
of the Company or such Restricted Subsidiary that is a joint venture, provided
that no direct or indirect holder of an equity interest in such joint venture
(other than the Company or a Restricted Subsidiary) is an Affiliate of the
Company or such Restricted Subsidiary; and (viii) sale of inventory in the
ordinary course of business from the Company or any Restricted Subsidiary to
any Affiliate of the Company.
Section 4.11. Limitations on Liens. The Company shall not, and shall
not permit any Restricted Subsidiary to, directly or indirectly, incur or
permit to exist any Lien of any nature whatsoever on any property of the
Company or any Restricted Subsidiary (including Capital Stock of a Restricted
Subsidiary), whether owned at the Issue Date or thereafter acquired, which
secures Indebtedness that is not Senior Indebtedness, except Permitted Liens,
unless contemporaneously therewith effective provision is made to secure the
Notes or its Note Guarantee, as the case may be, equally and ratably with (or
if such Lien secures Subordinated Indebtedness, prior to) such Indebtedness.
Section 4.12. Taxes. The Company shall, and shall cause each of its
Subsidiaries to, pay prior to delinquency all taxes, assessments and
governmental levies the failure of which to pay could reasonably be expected to
result in a material adverse effect on the condition (financial or otherwise),
business or results of operations of the Company and its Subsidiaries taken as
a whole, except for those taxes contested in good faith by appropriate
proceedings.
Section 4.13. Limitations on Restrictions on Distributions from
Restricted Subsidiaries. The Company will not, and will not permit any of its
Restricted Subsidiaries to, create or otherwise cause or suffer to exist or
become effective any consensual Payment Restriction with respect to any of its
Restricted Subsidiaries, except for (a) any such Payment Restriction in effect
on the Issue Date under the Credit Agreement or any similar Payment Restriction
under any similar credit facility, or any amendment, restatement, renewal,
replacement or refinancing of any of the foregoing, provided that such similar
Payment Restrictions are not, taken as a whole, materially more restrictive
than the Payment Restrictions in effect on the Issue Date under the Credit
Agreement, (b) any such Payment Restriction in effect on the Issue Date
consisting of customary net worth or leverage tests in effect on the Issue Date
under any credit facility of any Foreign Subsidiary, or any amendment,
restatement, renewal, replacement or refinancing of any of the foregoing
(including for purposes of this clause
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(b), any increase in the principal amount available thereunder) (a "REPLACEMENT
FACILITY"), provided that any such Payment Restrictions in any such Replacement
Facility are not, taken as a whole, materially more restrictive than the
Payment Restrictions in effect on the Issue Date under the facility amended,
restated, renewed, replaced or refinanced, (c) any such Payment Restriction
under any agreement evidencing any Acquired Indebtedness that was permitted to
be incurred pursuant to this Indenture in effect at the time of such incurrence
and not created in contemplation of such event, provided that such Payment
Restriction is not extended to apply to any of the assets of the entities not
previously subject thereto, (d) any such Payment Restriction arising in
connection with Refinancing Indebtedness, provided that any such Payment
Restrictions that arise under such Refinancing Indebtedness are not, taken as a
whole, materially more restrictive than those under the agreement creating or
evidencing the Indebtedness being refunded or refinanced and (e) any such
restriction by reason of customary provisions restricting assignments,
subletting or other transfers contained in leases, licenses and similar
agreements entered into in the ordinary course of business.
Section 4.14. [Intentionally Omitted.]
Section 4.15. Change of Control. (a) Upon the occurrence of a Change
of Control (the "CHANGE OF CONTROL TRIGGER DATE"), each Holder of Notes may
require the Company to repurchase all or any part (equal to $1,000 or an
integral multiple thereof) of such Holder's Notes pursuant to the offer
described below at an offer price in cash equal to 101% of the aggregate
principal amount of the Notes thereof plus accrued and unpaid interest
(including Special Interest, if any), if any, to the date of repurchase (the
"CHANGE OF CONTROL PURCHASE PRICE").
(b) Within 30 days following any Change of Control, the
Company will mail to the Trustee (who shall mail to each Holder at the
Company's expense) a notice (i) describing the transaction or transactions that
constitute the Change of Control, (ii) offering to repurchase, pursuant to the
procedures required by Section 3.08 of this Indenture and described in such
notice (a "CHANGE OF CONTROL OFFER"), on a date specified in such notice (which
shall be a Business Day not earlier than 30 days or later than 60 days from the
date such notice is mailed) and for the Change of Control Purchase Price, all
Notes properly tendered by such Holder pursuant to such offer to purchase for
the Change of Control Purchase Price and (iii) describing the procedures that
Holders must follow to accept the Change of Control Offer.
(c) The Change of Control Offer will remain open for a period
of at least 20 Business Days following its commencement (the "CHANGE OF CONTROL
OFFER PERIOD"). No later than five Business Days after the termination of the
Change of Control Offer Period (the "CHANGE OF CONTROL PURCHASE DATE"), the
Company will purchase all Notes tendered in response to the Change of Control
Offer. Payment for any Notes so purchased will be made in the same manner as
interest payments are made.
(d) Prior to complying with the provisions of this Section
4.15, but in any event within 30 days following a Change of Control, the
Company will either repay all outstanding Senior Indebtedness or obtain the
requisite consents, if any, under all agreements governing outstanding
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Senior Indebtedness to permit the repurchase of Notes required by this
covenant. The Company's obligation to make a Change of Control Offer will be
satisfied if a third party makes the Change of Control Offer in the manner and
at the times and otherwise in compliance with the requirements applicable to a
Change of Control Offer made by the Company and purchases all Notes properly
tendered and not withdrawn under such Change of Control Offer.
(e) The Company will comply with the applicable tender offer
rules, including the requirements of Rule 14e-1 under the Exchange Act and any
other applicable laws and regulations in connection with the purchase of Notes
pursuant to a Change of Control Offer.
Section 4.16. Limitations on Asset Sales. (a) The Company will not,
and will not permit any of its Restricted Subsidiaries to, consummate any Asset
Sale unless (i) the Company or such Restricted Subsidiary receives
consideration at the time of such Asset Sale at least equal to the Fair Market
Value of the assets included in such Asset Sale (evidenced by the delivery by
the Company to the Trustee of an Officers' Certificate certifying that such
Asset Sale complies with this clause (i)), (ii) immediately before and
immediately giving effect to such Asset Sale, no Default or Event of Default
shall have occurred and be continuing, and (iii) at least 75% of the
consideration received by the Company or such Restricted Subsidiary therefor is
in the form of cash paid at the closing thereof. The amount (without
duplication) of any (x) Indebtedness (other than Subordinated Indebtedness) of
the Company or such Restricted Subsidiary that is expressly assumed by the
transferee in such Asset Sale and with respect to which the Company or such
Restricted Subsidiary, as the case may be, is unconditionally released by the
holder of such Indebtedness, and (y) any Cash Equivalents, or other notes,
securities or items of property received from such transferee that are promptly
(but in any event within 30 days) converted by the Company or such Restricted
Subsidiary to cash (to the extent of the cash actually so received), shall be
deemed to be cash for purposes of clause (ii) and, in the case of clause (x)
above, shall also be deemed to constitute a repayment of, and a permanent
reduction in, the amount of such Indebtedness for purposes of the following
paragraph (b). If at any time any non-cash consideration received by the
Company or any Restricted Subsidiary of the Company, as the case may be, in
connection with any Asset Sale is converted into or sold or otherwise disposed
of for cash (other than interest received with respect to any such non-cash
consideration), then the date of such conversion or disposition shall be deemed
to constitute the date of an Asset Sale hereunder and the Net Available
Proceeds thereof shall be applied in accordance with this Section 4.16. A
transfer of assets by the Company to a Restricted Subsidiary or by a Restricted
Subsidiary to the Company or to a Restricted Subsidiary will not be deemed to
be an Asset Sale and a transfer of assets that constitutes a Restricted
Investment and that is permitted under Section 4.05 will not be deemed to be an
Asset Sale.
(b) If the Company or any Restricted Subsidiary engages in an
Asset Sale, the Company or any Restricted Subsidiary shall, no later than 270
days after such Asset Sale, either (i) apply all or any of the Net Available
Proceeds therefrom to repay amounts outstanding under the Credit Agreement or
any other Senior Indebtedness; provided, in each case, that the related loan
commitment (if any) is thereby permanently reduced by the amount of such
Indebtedness so repaid and/or (ii) invest all or any part of the Net Available
Proceeds thereof in the purchase of fixed assets
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to be used by the Company and its Restricted Subsidiaries in a Related Business
(together with any short-term assets incidental thereto), or the making of a
Related Business Investment. The amount of such Net Available Proceeds not
applied or invested as provided in this paragraph will constitute "EXCESS
PROCEEDS."
(c) When the aggregate amount of Excess Proceeds equals or
exceed $10.0 million (such date, the "ASSET SALE TRIGGER DATE"), the Company
will be required to make an offer to purchase, from all Holders of the Notes,
an aggregate principal amount of Notes equal to the amount of such Excess
Proceeds as follows:
(i) The Company will make an offer to purchase (a "NET
PROCEEDS OFFER") from all Holders of the Notes, in accordance with the
procedures set forth in Section 3.08, the maximum principal amount
(expressed as a multiple of $1,000) of Notes that may be purchased out of
the amount (the "PAYMENT AMOUNT") of such Excess Proceeds.
(ii) The offer price for the Notes will be payable in
cash in an amount equal to 100% of the principal amount of the Notes
tendered pursuant to a Net Proceeds Offer, plus accrued and unpaid
interest and Special Interest, if any, to the date such Net Proceeds Offer
is consummated (the "OFFERED PRICE"), in accordance with the procedures
set forth in this Indenture. To the extent that the aggregate Offered
Price of Notes tendered pursuant to a Net Proceeds Offer is less than the
Payment Amount relating thereto (such shortfall constituting a "NET
PROCEEDS DEFICIENCY"), the Company may use such Net Proceeds Deficiency,
or a portion thereof, for general corporate purposes, subject to the
limitations in Section 4.05.
(iii) If the aggregate Offered Price of Notes validly
tendered and not withdrawn by Holders thereof exceeds the Payment Amount,
Notes to be purchased will be selected on a pro rata basis (with such
adjustments as may be deemed appropriate by the Company so that only Notes
in denominations of $1,000, or integral multiples thereof, will be
purchased). The Net Proceeds Offer shall remain open for a period of at
least 20 Business Days following its commencement (the "NET PROCEEDS OFFER
PERIOD"). No later than five Business Days after the termination of the
Offer Period (the "NET PROCEEDS PURCHASE DATE"), the Company will purchase
the principal amount of Notes required to be purchased pursuant to this
covenant. Payment for any Notes so purchased will be made in the same
manner as interest payments are made.
(iv) Upon completion of such Net Proceeds Offer in
accordance with the foregoing provisions, the amount of Excess Proceeds
with respect to which such Net Proceeds Offer was made shall be deemed to
be zero.
The Company will not permit any Subsidiary to enter into or suffer to
exist any agreement that would place any restriction of any kind (other than
pursuant to law or regulation) on the ability of the Company to make a Net
Proceeds Offer following any Asset Sale. The Company will comply with Rule
14e-1 under the Exchange Act and any other securities laws and regulations
thereunder,
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if applicable, in the event that an Asset Sale occurs and the Company is
required to purchase Notes as described above.
Section 4.17. Additional Note Guarantees. If the Company or any of its
Subsidiaries shall acquire or create another Subsidiary (other than (x) any
Foreign Subsidiary or (y) a Subsidiary that has been designated as an
Unrestricted Subsidiary), then within 10 days after acquiring or creating such
Subsidiary, the Company will cause each such Subsidiary to execute and deliver
to the Trustee a supplement to this Indenture, substantially in the form of
Exhibit C hereto, as a Subsidiary Guarantor.
ARTICLE 5
Successors
Section 5.01. Limitations on Mergers and Certain Other Transactions.
The Company will not, in a single transaction or a series of related
transactions, (i) consolidate or merge with or into (other than a merger with a
Wholly-Owned Restricted Subsidiary solely for the purpose of changing the
Company's jurisdiction of incorporation to another State of the United States),
or sell, lease, transfer, convey or otherwise dispose of or assign all or
substantially all of the assets of the Company or the Company and its
Subsidiaries (taken as a whole), or assign any of its obligations under the
Notes and this Indenture, to any Person or (ii) adopt a Plan of Liquidation
unless, in either case: (v) the Person formed by or surviving such
consolidation or merger (if other than the Company) or to which such sale,
lease, conveyance or other disposition or assignment shall be made (or, in the
case of a Plan of Liquidation, any Person to which assets are transferred)
(collectively, the "SUCCESSOR"), is a corporation organized and existing under
the laws of any State of the United States of America or the District of
Columbia, and the Successor assumes by supplemental indenture in a form
satisfactory to the Trustee all of the obligations of the Company under the
Notes and this Indenture; (w) immediately prior to and immediately after giving
effect to such transaction and the assumption of the obligations as set forth
in clause (v) above and the incurrence of any Indebtedness to be incurred in
connection therewith, no Default or Event of Default shall have occurred and be
continuing; (x) immediately after and giving effect to such transaction and the
assumption of the obligations set forth in clause (v) above and the incurrence
of any Indebtedness to be incurred in connection therewith, and the use of any
net proceeds therefrom on a pro forma basis, (1) the Consolidated Net Worth of
the Company or the Successor, as the case may be, would be at least equal to
the Consolidated Net Worth of the Company immediately prior to such transaction
and (2) the Company or the Successor, as the case may be, could meet the
Coverage Ratio Incurrence Condition; (y) each Subsidiary Guarantor, unless it
is the other party to the transactions described above, shall have confirmed,
by a supplemental indenture in form and substance reasonably satisfactory to
the Trustee, that its Note Guarantee shall apply to the obligations of the
Company or the Successor under the Notes and this Indenture; and (z) the
Company will have delivered to the Trustee an Officers' Certificate and an
Opinion of Counsel, each stating that such consolidation, merger or transfer
and such supplemental indenture (if any) comply with the provisions of this
Section 5.01. For purposes of this covenant, any Indebtedness of the Successor
which was not
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Indebtedness of the Company immediately prior to the transaction shall be
deemed to have been incurred in connection with such transaction.
ARTICLE 6
Defaults and Remedies
Section 6.01. Events of Default. (a) Each of the following constitutes
an event of default (an "EVENT OF DEFAULT"):
(i) failure by the Company to pay interest on any of
the Notes when it becomes due and payable and the continuance of any such
failure for 30 days;
(ii) failure by the Company to pay the principal or
premium, if any, on any of the Notes when it becomes due and payable,
whether at stated maturity, upon redemption, upon acceleration or
otherwise;
(iii) failure by the Company to comply with any of its
agreements or covenants described above under Article 5, or in respect of
its obligations to make a Change of Control Offer or a Net Proceeds Offer
described in Sections 4.15 and 4.16, respectively;
(iv) failure by the Company to comply with any other
covenant in this Indenture and continuance of such failure for 60 days
after notice of such failure has been given to the Company by the Trustee
or to the Company and the Trustee by the Holders of at least 25% of the
aggregate principal amount of the Notes then outstanding;
(v) failure by either the Company or any of its
Restricted Subsidiaries to make any payment when due after the expiration
of any applicable grace period, in respect of any Indebtedness of the
Company or any of such Restricted Subsidiaries, or the acceleration of the
maturity of such Indebtedness by the holders thereof because of a default,
with an aggregate outstanding principal amount for all such Indebtedness
under this clause (v) of $10.0 million or more;
(vi) one or more final, non-appealable judgments or
orders that exceed $10.0 million in the aggregate for the payment of money
have been entered by a court or courts of competent jurisdiction against
the Company or any Subsidiary of the Company and such judgment or
judgments have not been satisfied, stayed, annulled or rescinded within 60
days of being entered;
(vii) except as permitted by this Indenture, any Note
Guarantee ceases to be in full force and effect or any Guarantor
repudiates its obligations under any Note Guarantee; and
(viii) if under any Bankruptcy Law, (A) the Company, or
any Significant Subsidiary commences a voluntary case, consents to the
entry of an order for relief against it in an
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involuntary case, consents to the appointment of a Custodian of it or for
all or substantially all of its property, or makes a general assignment
for the benefit of its creditors, or (B) a court of competent jurisdiction
enters an order or decree, and such order or decree remains unstated and
in effect for 60 days, that is for relief against the Company or any
Significant Subsidiary in an involuntary case, appoints a Custodian of the
Company or any Significant Subsidiary or for all or substantially all of
the property of the Company or any Significant Subsidiary, or orders the
liquidation of the Company or any Significant Subsidiary.
(b) Any notice of default delivered to the Company by the
Trustee or by Holders of Notes with a copy to the Trustee must specify the
Default, demand that it be remedied and state that the notice is a "NOTICE OF
DEFAULT".
Section 6.02. Acceleration. (a) If an Event of Default (other than an
Event of Default under Section 6.01(a)(viii) involving the Company) occurs and
is continuing under this Indenture, the Trustee, by written notice to the
Company, or the Holders of at least 25% in aggregate principal amount of the
Notes then outstanding by written notice to the Company and the Trustee may
declare all amounts owing under the Notes to be due and payable immediately.
Upon such declaration of acceleration, the aggregate principal of, premium, if
any, and interest on the outstanding Notes shall immediately become due and
payable.
(b) Notwithstanding anything to the contrary in this
Indenture, if an Event of Default arises under Section 6.01(a)(viii) involving
the Company, the principal amount of and premium on, if any, and any accrued
and unpaid interest (including Special Interest, if any) on all outstanding
Notes shall ipso facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any Holders.
(c) The Holders of a majority in aggregate principal amount
of the then outstanding Notes by notice to the Trustee may rescind any
declaration of acceleration of such Notes and its consequences if (i) the
rescission would not conflict with any judgment or decree, (ii) all existing
Defaults and Events of Default (other than the nonpayment of principal of, or
premium, if any, or interest on, the Notes which shall have become due by such
declaration) shall have been cured or waived and (iii) the Trustee has been
paid all amounts due to it pursuant to Section 7.07.
Section 6.03. Other Remedies. If an Event of Default occurs and is
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of, or premium, if any, or interest (including Special Interest,
if any) on, the Notes or to enforce the performance of any provision of the
Notes or this Indenture. The Trustee may maintain a proceeding even if it does
not possess any of the Notes or does not produce any of them in the proceeding.
A delay or omission by the Trustee or any Holder in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy
or constitute a waiver of or acquiescence in the Event of Default. All remedies
are cumulative to the extent permitted by law.
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Section 6.04. Waiver of Past Defaults. The Holders of a majority in
aggregate principal amount of the then outstanding Notes by notice to the
Trustee may on behalf of all Holders waive any existing Default or Event of
Default and its consequences under this Indenture, except a continuing Default
or Event of Default in the payment of the principal of, premium, if any, or
interest (including Special Interest, if any) on, any Note (which may only be
waived with the consent of each Holder affected). Upon any such waiver, such
Default shall cease to exist, and any Event of Default arising therefrom shall
be deemed to have been cured for every purpose of this Indenture; provided that
no such waiver shall extend to any subsequent or other Default or Event of
Default or impair any right consequent thereon.
Section 6.05. Control by Majority of Holders. Subject to Section
7.01(e), the Holders of a majority in aggregate principal amount of the then
outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on it by this Indenture. However, the Trustee may refuse to
follow any direction that conflicts with law or this Indenture, that the
Trustee determines may be unduly prejudicial to the rights of other Holders, or
would involve the Trustee in personal liability. The Trustee may take any
other action deemed proper by the Trustee that is not inconsistent with such
direction. Notwithstanding any provision to the contrary in this Indenture,
the Trustee shall not be obligated to take any action with respect to the
provisions of Section 6.12 hereof unless directed to do so pursuant to this
Section 6.05.
Section 6.06. Limitations on Suits by Holders. A Holder may pursue a
remedy with respect to this Indenture or the Notes only if: (1) the Holder
gives to the Trustee written notice of a continuing Event of Default; (2) the
Holders of at least 25% in principal amount of the then outstanding Notes make
a written request to the Trustee to pursue the remedy; (3) such Holder or
Holders offer to the Trustee indemnity satisfactory to the Trustee against any
loss, liability or expense; (4) the Trustee does not comply with the request
within 60 days after receipt of the request and the offer of indemnity; and (5)
during such 60-day period the Holders of a majority in aggregate principal
amount of the then outstanding Notes do not give the Trustee a direction
inconsistent with the request. A Holder may not use this Indenture to
prejudice the rights of another Holder or to obtain a preference or priority
over another Holder. Holders of the Notes may not enforce this Indenture or
the Notes, except as provided herein.
Section 6.07. Rights of Holders to Receive Payment. Notwithstanding
any other provision of this Indenture, but subject to Article 10, the right of
any Holder to receive payment of principal of, and premium, if any, and
interest (including Special Interest, if any) on, a Note, on or after a
respective due date expressed in the Note, or to bring suit for the enforcement
of any such payment on or after such respective date, shall not be impaired or
affected without the consent of the Holder.
Section 6.08. Collection Suit by Trustee. If an Event of Default
specified in Section 6.01(a)(i) or (a)(ii) occurs and is continuing, the
Trustee is authorized to recover judgment in its own name and as trustee of an
express trust against the Company (or any Guarantor or other obligor under the
Notes) for (i) principal, premium, if any, interest, if any, and Special
Interest, if any, remaining
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unpaid on the Notes, (ii) interest on overdue principal and premium, if any,
and, to the extent lawful, interest, and (iii) such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel ("TRUSTEE EXPENSES").
Section 6.09. Trustee May File Proofs of Claim. The Trustee may file
such proofs of claim and other papers or documents as may be necessary or
advisable to have the claims of the Trustee (including any claim for Trustee
Expenses and for amounts due under Section 7.07) and the Holders allowed in any
Insolvency or Liquidation Proceeding or other judicial proceeding relative to
the Company (or any Subsidiary Guarantor or other obligor upon the Notes), its
creditors or its property and shall be entitled and empowered to collect,
receive and distribute to Holders any money or other property payable or
deliverable on any such claims and each Holder authorizes any Custodian in any
such Insolvency or Liquidation Proceeding or other judicial proceeding to make
such payments to the Trustee, and if the Trustee shall consent to the making of
such payments directly to the Holders any such Custodian is hereby authorized
to make such payments directly to the Holders, and to pay to the Trustee any
amount due to it hereunder for Trustee Expenses, and any other amounts due the
Trustee or any predecessor Trustee under Section 7.07; provided, however, that
the Trustee shall not be authorized to (i) consent to, accept or adopt on
behalf of any Holder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder or (ii) vote in
respect of the claim of any Holder in any such Insolvency or Liquidation
Proceeding or other judicial proceeding. To the extent that the payment of any
such Trustee Expenses, and any other amounts due the Trustee under Section 7.07
out of the estate in any such proceeding, shall be denied for any reason,
payment of the same shall be secured by a Lien on, and shall be paid out of,
any and all distributions, dividends, money, Notes and other properties which
the Holders may be entitled to receive in such proceeding, whether in
liquidation or under any plan of reorganization or arrangement or otherwise.
Section 6.10. Priorities. If the Trustee collects any money pursuant
to this Article 6, it shall pay out the money in the following order:
First: to the Trustee for all Trustee Expenses and for all
amounts due under Section 7.07;
Second: to the holders of Senior Indebtedness to the extent
required by Article 10;
Third: to Holders for amounts due and unpaid on the Notes for
principal, premium, if any, interest, Special Interest,
if any, ratably, without preference or priority of any
kind, according to the amounts due and payable on the
Notes for principal, premium, if any, interest and
Special Interest, if any, respectively; and
Fourth: to the Company or to such party as a court of competent
jurisdiction shall direct.
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The Trustee may fix a record date and payment date for any payment to
Holders.
Section 6.11. Undertaking for Costs. In any suit for the enforcement
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as a Trustee, a court in its discretion
may require the filing by any party litigant in the suit of an undertaking to
pay the costs of the suit, and the court in its discretion may assess
reasonable costs, including reasonable attorneys' fees, against any party
litigant in the suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant. This Section 6.11 does not
apply to a suit by the Trustee, a suit by a Holder pursuant to Section 6.06, or
a suit by Holders of more than 10% in principal amount of the then outstanding
Notes.
Section 6.12. Willful Default. In the case of an Event of Default
occurring by reason of any willful action (or inaction) taken (or not taken) by
or on behalf of the Company with the intention of avoiding payment of the
premium that the Company would have had to pay if the Company then had elected
to redeem the Notes under the provisions of Article 3 and under the Notes, an
equivalent premium shall also become and be immediately due and payable, to the
extent permitted by law, upon the acceleration of the Notes. If an Event of
Default occurs prior to April 1, 2003 by reason of any willful action (or
inaction) taken (or not taken) by or on behalf of the Company with the
intention of avoiding the prohibition on redemption of the Notes prior to April
1, 2003, then, upon acceleration of the Notes, an additional premium shall also
become and be immediately due and payable, to the extent permitted by law, in
an amount equal to 10.0%.
ARTICLE 7
Trustee
Section 7.01. Duties of Trustee. (a) If an Event of Default occurs
(and has not been cured) the Trustee shall (i) exercise the rights and powers
vested in it by this Indenture, and (ii) use the same degree of care and skill
in exercising such rights and powers as a prudent man would exercise or use
under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) the Trustee's duties shall be determined solely by the express provisions
of this Indenture and the Trustee need perform only those duties that are
specifically set forth in this Indenture and no others, and no implied
covenants or obligations shall be read into this Indenture against the Trustee;
and (ii) in the absence of bad faith on its part, the Trustee may conclusively
rely, as to the truth of the statements and the correctness of the opinions
expressed therein, upon certificates or opinions furnished to the Trustee and
conforming to the requirements of this Indenture. However, the Trustee shall
examine the certificates and opinions to determine whether they conform to this
Indenture's requirements.
(c) The Trustee shall not be relieved from liability for its
own negligent action, its own negligent failure to act, or its own wilful
misconduct, except that: (i) this Section 7.01(c) does not limit the effect of
Section 7.01(b); (ii) the Trustee shall not be liable for any error of
judgment made
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in good faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and (iii) the Trustee shall not
be liable with respect to any action it takes or omits to take in good faith in
accordance with a direction it receives pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates
to the Trustee shall be subject to paragraphs (a), (b) and (c) of this Section.
(e) No provision of this Indenture shall require the Trustee
to expend or risk its own funds or incur any liability. The Trustee shall be
under no obligation to exercise any of its rights and powers or to perform any
duty under this Indenture at the request of any Holders, including, without
limitation, the provisions of Section 6.05 hereof, unless such Holders shall
have offered to the Trustee security and indemnity satisfactory to it against
any loss, liability or expense that might be incurred by it in complying with
such request.
(f) The Trustee shall not be liable for interest on any money
received by it except as it may agree in writing with the Company. Money held
in trust by the Trustee need not be segregated from other funds except to the
extent required by law.
Section 7.02. Rights of Trustee. (a) The Trustee may rely on any
document it believes to be genuine and to have been signed or presented by the
proper Person. The Trustee need not investigate any fact or matter stated in
any such document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officers' Certificate or an Opinion of Counsel, or both. The
Trustee shall not be liable for any action it takes or omits to take in good
faith in reliance on such Officers' Certificate or Opinion of Counsel. The
Trustee may consult with counsel and advice of such counsel or any Opinion of
Counsel shall be full and complete authorization and protection in respect of
any action taken, suffered or omitted by it under this Indenture in good faith
and in reliance on such advice or opinion.
(c) The Trustee may act through agents and shall not be
responsible for the misconduct or negligence of any agent appointed with due
care.
(d) The Trustee shall not be liable for any action it takes
or omits to take in good faith that it believes to be authorized or within its
rights or powers.
(e) Unless otherwise specifically provided in this Indenture,
any demand, request, direction or notice from the Company shall be sufficient
if signed by an Officer of the Company.
(f) The Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request or
direction of any of the Holders, unless such Holders shall have offered to the
Trustee reasonable security or indemnity against the costs, expenses and
liabilities that might be incurred by it in compliance with such request or
direction.
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(g) The Trustee shall not be charged with knowledge of any
Default or Event of Default with respect to the Notes unless either (1) a Trust
Officer shall have actual knowledge of such Default or Event of Default or (2)
written notice of such Default or Event of Default shall have been given to the
Trustee by the Company or any other obligor on the Notes or by any Holder of
the Notes.
Section 7.03. Individual Rights of Trustee. The Trustee in its
individual or any other capacity may become the owner or pledgee of Notes and
may otherwise deal with the Company or any of its Affiliates with the same
rights it would have if it were not Trustee. The Trustee shall at all times
comply with Section 310(b) of the TIA as in effect from time to time. Each
Agent shall have the same rights as the Trustee under this Section 7.03.
Section 7.04. Trustee's Disclaimer. The Trustee shall not be
responsible for and makes no representation as to the validity or adequacy of
this Indenture, the Notes or any Note Guarantee; it shall not be accountable
for the Company's use of the proceeds from the Notes, and it shall not be
responsible for any statement or recital in this Indenture or any statement in
the Notes or any other document executed in connection with the sale of the
Notes or pursuant to this Indenture other than its certificate of
authentication.
Section 7.05. Notice to Holders of Defaults and Events of Default. If
a Default or Event of Default occurs and is continuing and if it is known to
the Trustee, the Trustee shall mail to the Holders a notice of the Default or
Event of Default within 30 days after the occurrence thereof. Except in the
case of a Default or Event of Default in payment of principal or interest or
Special Interest, if any, on any Note (including any failure to redeem Notes
called for redemption or any failure to purchase Notes that are tendered
pursuant to an Offer and that are required to be purchased by the terms of this
Indenture), the Trustee may withhold the notice if and so long as a committee
of its Trust Officers determines in good faith that withholding such notice is
in the Holders' interests.
Section 7.06. Reports by Trustee to Holders. Within 60 days after each
May 15 beginning with May 15, 1998, the Trustee shall mail to the Holders a
brief report dated as of such reporting date that complies with section 313(a)
of the TIA (but if no event described in section 313(a) of the TIA has occurred
within the twelve months preceding the reporting date, no report need be
transmitted). The Trustee also shall comply with section 313(b)(2) of the TIA.
The Trustee shall also transmit by mail all reports as required by section
313(c) of the TIA.
Commencing at the time this Indenture is qualified under the TIA, a copy
of each report at the time of its mailing to Holders shall be filed with the
SEC and each stock exchange on which the Notes are listed. The Company shall
notify the Trustee when the Notes are listed on any stock exchange.
Section 7.07. Compensation and Indemnity. The Company shall pay to the
Trustee from time to time such compensation for its services hereunder as the
parties shall agree to from time to time. The Trustee's compensation shall not
be limited by any law on compensation of a trustee of
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an express trust. The Company shall reimburse the Trustee upon request for all
reasonable disbursements, advances and expenses it incurs or makes in addition
to the compensation for its services. Such expenses shall include the
reasonable compensation, disbursements and expenses of the Trustee's agents and
counsel.
The Company shall indemnify the Trustee for, from and against any and all
losses, liabilities or expenses the Trustee Incurs arising out of or in
connection with the acceptance or administration of its duties under this
Indenture (including any expenses Incurred in connection with the performance
of its duties under Section 6.08), except as set forth below. The Trustee
shall notify the Company promptly of any claim for which it may seek indemnity;
provided, however, that failure by the Trustee to provide the Company with any
such notice shall not relieve the Company of any of its obligations under this
Section 7.07 except to the extent that the Company has been prejudiced by such
failure. The Company need not pay for any settlement made without its consent,
which consent shall not be unreasonably withheld.
The Company's obligations under this Section 7.07 shall survive the
resignation or removal of the Trustee and the satisfaction and discharge of
this Indenture. The Company need not reimburse any expense or indemnify
against any loss or liability the Trustee Incurs through the Trustee's
negligence or bad faith.
To secure payment of the Company's obligations under this Section 7.07,
the Trustee shall have a Lien prior to the Notes on all money or property the
Trustee holds or collects, except that held in trust to pay principal of, and
premium, if any, interest and Special Interest, if any, on, particular Notes.
Such Lien shall survive the satisfaction and discharge of this Indenture.
When the Trustee Incurs expenses or renders services after an Event of
Default specified in Section 6.01(a)(viii) occurs, the expenses and the
compensation for the services (including the fees and expenses of its agents
and counsel) are intended to constitute administrative expenses under any
Bankruptcy Law without any need to demonstrate substantial contribution under
Bankruptcy Law.
Section 7.08. Replacement of Trustee. A resignation or removal of the
Trustee and appointment of a successor Trustee shall become effective only upon
the successor Trustee's acceptance of appointment as provided in this Section
7.08.
The Trustee may resign and be discharged from the trust hereby created by
so notifying the Company in writing. The Holders of a majority in aggregate
principal amount of the then outstanding Notes may remove the Trustee by so
notifying the Trustee and the Company in writing. The Company may remove the
Trustee if: (i) the Trustee fails to comply with Section 7.10; (ii) the
Trustee is adjudged a bankrupt or an insolvent or an order for relief is
entered with respect to the Trustee under any Bankruptcy Law; (iii) a Custodian
or public officer takes charge of the Trustee or its property or (iv) the
Trustee becomes incapable of performing the services of the Trustee hereunder.
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If the Trustee resigns or is removed or if a vacancy exists in the office
of Trustee for any reason, the Company shall promptly appoint a successor
Trustee, provided that within one year after such appointment the Holders of a
majority in aggregate principal amount of the then outstanding Notes may
appoint a successor Trustee to replace any successor Trustee appointed by the
Company. If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or
the Holders of at least 10% in principal amount of the then outstanding Notes
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee fails to comply with Section 7.10, any Holder may petition
any court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor Trustee.
A successor Trustee shall deliver a written acceptance of its appointment
to the retiring Trustee and to the Company. Thereupon, the resignation or
removal of the retiring Trustee shall become effective and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. The successor Trustee shall mail a notice of its appointment to
Holders. The retiring Trustee shall promptly transfer all property it holds as
Trustee to the successor Trustee, subject to its rights under Section 7.07 and
provided that all sums owing to the retiring Trustee hereunder have been paid.
Notwithstanding replacement of the Trustee pursuant to this Section 7.08, the
Company's obligations under Section 7.07 shall continue for the retiring
Trustee's benefit with respect to expenses and liabilities relating to the
retiring Trustee's activities prior to being replaced.
Section 7.09. Successor Trustee by Merger, Etc. If the Trustee
consolidates, merges or converts into, or transfers all or substantially all
of its corporate trust business to, another corporation, subject to Section
7.10, the successor corporation without any further act shall be the successor
Trustee. As soon as practicable, the successor Trustee shall give notice of
its succession to the Company and the Holders of the Notes.
Section 7.10. Eligibility; Disqualification. The Trustee shall at all
times (i) be a corporation organized and doing business under the laws of the
United States of America, of any state thereof, or the District of Columbia
authorized under such laws to exercise corporate trustee power, (ii) be subject
to supervision or examination by federal or state authority, (iii) have a
combined capital and surplus of at least $50 million as set forth in its most
recent published annual report of condition, and (iv) satisfy the requirements
of sections 310(a)(1), (2) and (5) and 310(b) of the TIA.
Section 7.11. Preferential Collection of Claims Against Company. The
Trustee is subject to section 311(a) of the TIA, excluding any creditor
relationship listed in section 311(b) of the TIA. A Trustee who has resigned or
been removed shall be subject to section 311(a) of the TIA to the extent
indicated therein.
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ARTICLE 8
Discharge of Indenture
Section 8.01. Discharge of Liability on Notes; Defeasance. (a) Subject
to Sections 8.01(c) and 8.06, this Indenture shall cease to be of any further
effect after (i) either the Company has delivered to the Trustee all
outstanding Notes (other than Notes replaced pursuant to Section 2.09) for
cancellation or all outstanding Notes have become due and payable and the
Company has irrevocably deposited with the Trustee or a Paying Agent money
and/or Government Securities in an amount sufficient (without reinvestment
thereof) to pay when due all principal of, premium, if any, and interest and
Special Interest, if any, on, all outstanding Notes (other than Notes replaced
pursuant to Section 2.09), and (ii) the Company pays all other sums payable
under this Indenture.
(b) Subject to Sections 8.01(c), 8.02, and 8.06, the Company
at any time may terminate all its obligations under this Indenture and the
Notes ("LEGAL DEFEASANCE"), or its obligations under Sections 4.02, 4.03, 4.05,
4.06, 4.07, 4.08, 4.09, 4.10, 4.11, 4.12, 4.13, 4.15, 4.16, 4.17 and 5.01
("COVENANT DEFEASANCE"). The Company may exercise Legal defeasance
notwithstanding its prior exercise of Covenant Defeasance.
If the Company exercises Legal Defeasance, payment of the Notes may not be
accelerated because of an Event of Default. If the Company exercises Covenant
Defeasance, payment of the Notes may not be accelerated because of an Event of
Default specified in 6.01 (a)(iii), (iv), (v), (vi), (vii) or (viii).
Upon satisfaction of the conditions set forth in Section 8.02 and upon the
Company's request (and at the Company's expense), the Trustee shall acknowledge
in writing the discharge of those obligations that the Company has terminated.
Upon discharge of the Company's obligations as a result of the exercise by the
Company of its Covenant Defeasance the obligations of the Guarantors under the
Note Guarantees and under this Indenture shall terminate.
(c) Notwithstanding Sections 8.01(a) and (b), the Company's
obligations under Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 2.09, 4.01,
4.04, 7.07, 7.08, 8.04, 8.05, and 8.06, and the obligations of the Trustee and
the Paying Agent under Section 8.04 shall survive until the Notes have been
paid in full. Thereafter, the Company's obligations under Sections 7.07 and
8.05 and the obligations of the Company, Trustee and Paying Agent under Section
8.04 shall survive.
Section 8.02. Conditions to Defeasance. The Company may exercise
either Legal Defeasance or Covenant Defeasance only if:
(i) the Company irrevocably deposits with the Trustee,
in trust, for the benefit of the Holders of the Notes, cash in U.S.
dollars, non-callable Government Securities, or a combination thereof, in
such amounts as will be sufficient, (x) in the opinion of a nationally
recognized firm of independent public accountants, to pay the principal
of, premium, if any, and interest and Special Interest, if any, on the
outstanding Notes on the stated maturity or
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the date such payments are due in accordance with the terms of the Notes
or on the applicable, redemption date, as the case may be, and (y) in the
opinion of the Company as stated in an Officers' Certificate, to pay the
Trustee Expenses. In addition, the Company specifies whether the Notes
are being defeased to maturity or to a particular redemption date,
(ii) in the case of Legal Defeasance, the Company shall
have delivered to the Trustee (1) an Opinion of Counsel reasonably
acceptable to the Trustee confirming that (x) the Company has received
from, or there has been published by, the Internal Revenue Service a
ruling or (y) since the date of this Indenture, there has been a change in
the applicable federal income tax law, in either case to the effect that,
and based thereon such Opinion of Counsel will confirm that, the Holders
of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance and will
be subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Legal Defeasance
had not occurred, (2) an Opinion of Counsel to the effect that (x) the
deposit of the trust funds does not violate the Investment Company Act of
1940 and (y) the trust funds will not be subject to the effect of Section
547 of the United States Bankruptcy Code or Section 15 of the New York
Debtor and Creditor Law in a case commenced by or against the Company
under either such statute,
(iii) in the case of Covenant Defeasance, the Company
shall have delivered to the (1) Trustee an Opinion of Counsel in the
United States reasonably acceptable to the Trustee confirming that the
Holders of the outstanding Notes will not recognize income, gain or loss
for federal income tax purposes as a result of such Covenant Defeasance
and will be subject to federal income tax on the same amounts, in the same
manner at the same times as would have been the case if such Covenant
Defeasance had not occurred, (2) an Opinion of Counsel to the effect that
(x) the deposit of the trust funds does not violate the Investment Company
Act of 1940 and (y) the trust funds will not be subject to the effect of
Section 547 of the United States Bankruptcy Code or Section 15 of the New
York Debtor and Creditor Law in a case commenced by or against the Company
under either such statute,
(iv) no Default or Event of Default shall have occurred
and be continuing on the date of such deposit (other than a Default or
Event of Default resulting from the borrowing of funds to be applied to
such deposit) or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the
123rd day after the date of deposit,
(v) such Legal Defeasance or Covenant Defeasance shall
not result in a breach or violation of, or constitute a Default under any
material agreement or instrument (other than this Indenture) to which the
Company or any of its Subsidiaries is a party or by which the Company or
any of its Subsidiaries is bound,
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(vi) the Company shall have delivered to the Trustee an
Officers' Certificate stating that the deposit was not made by the Company
with the intent of preferring the Holders of Notes over the other
creditors of the Company with the intent of defeating, hindering, delaying
or defrauding creditors of the Company or others and
(vii) the Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent relating to the Legal Defeasance or the Covenant
Defeasance have been complied with.
Section 8.03. Application of Trust Money. The Trustee or Paying Agent
shall hold in trust money and/or Government Securities deposited with it
pursuant to this Article 8. The Trustee or Paying Agent shall apply the
deposited money and the money from Government Securities in accordance with
this Indenture to the payment of principal of, and premium, if any, interest or
Special Interest, if any, on, the Notes. Money deposited with the Trustee or
a Paying Agent pursuant to this Article 8 shall not be subject to the
provisions of Article 10.
Section 8.04. Repayment to Company. After the Notes have been paid in
full, the Trustee and the Paying Agent shall promptly turn over to the Company
any excess money or Notes held by them.
Any money deposited with the Trustee or a Paying Agent pursuant to this
Article 8 for the payment of the principal of, premium, if any, interest or
Special Interest, if any, on, any Note that remains unclaimed for two years
after becoming due and payable shall be paid to the Company on its request; and
the Holder of such Note shall thereafter, as an unsecured general creditor,
look only to the Company for payment thereof, and all liability of the Trustee
or such Paying Agent with respect to such money shall cease; provided, however,
that the Trustee or such Paying Agent, before being required to make any such
repayment, may at the expense of the Company cause to be published once, in The
New York Times and The Wall Street Journal (National Edition), notice that such
money remains unclaimed and that, after a date specified therein, which shall
not be less than 30 days from the date of such notification or publication, any
unclaimed balance of such money then remaining will be repaid to the Company.
Section 8.05. Indemnity for Government Securities. The Company shall
pay and shall indemnify the Trustee and any Paying Agent against any tax, fee
or other charge imposed on or assessed against cash and/or Government
Securities deposited with it pursuant to this Article 8 or the principal and
interest received on such cash and/or Government Securities.
Section 8.06. Reinstatement. If the Trustee or Paying Agent is unable
to apply any money or Government Securities in accordance with this Article 8
by reason of any legal proceeding or by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, the Company's Obligations under this Indenture and the Notes
and the Guarantors' Obligations under the Note Guarantees shall be revived and
reinstated as though no deposit had occurred pursuant to this Article 8 until
such time as the Trustee or Paying
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Agent is permitted to apply all such money or Government Securities in
accordance with this Article 8; provided, however, that if the Company or any
Guarantor has made any payment of principal of, or premium, if any, interest,
or Special Interest, if any, on, any Notes because of the reinstatement of its
Obligations under this Indenture and the Notes or the Note Guarantees, the
Company or such Guarantor, as the case may be, shall be subrogated to the
Holders' rights to receive such payment from the money or Government Securities
held by the Trustee or Paying Agent.
ARTICLE 9
Amendments
Section 9.01. Amendments and Supplements Permitted without Consent of
Holders. Notwithstanding Section 9.02, the Company, the Guarantors and the
Trustee may amend or supplement this Indenture or the Notes without the consent
of any Holder to: (i) cure any ambiguity, defect or inconsistency; (ii)
provide for uncertificated Notes in addition to or in place of Certificated
Notes; (iii) provide for the assumption of the obligations to the Holders of
the Company or a Guarantor, as the case may be, in the event of a merger or
consolidation; (iv) make any change that (1) would provide any additional
rights or benefits to Holders or (2) does not adversely affect the legal rights
under this Indenture of any Holder; (v) comply with Section 4.17 or Article 11;
(vi) secure the Notes pursuant to the requirements of Section 4.11; or (vii)
comply with the requirements of the SEC in order to effect or maintain the
qualification of this Indenture under the TIA.
Section 9.02. Amendments and Supplements Requiring Consent of Holders.
(a) Except as otherwise provided in Sections 9.01, this Indenture and the Notes
may be amended or supplemented with the written consent of the Holders of at
least a majority in aggregate principal amount of the Notes then outstanding
(including consents obtained in connection with a tender offer or exchange
offer for the Notes), and any existing Default or Event of Default or
compliance with any provision of this Indenture or the Notes may be waived
(other than any continuing Default or Event of Default in the payment of the
principal of, premium, if any, or interest on the Notes) with the consent of
Holders of at least a majority in aggregate principal amount of the then
outstanding Notes (including consents obtained in connection with a tender
offer or exchange offer for the Notes); provided that:
(i) no such modification or amendment may, without the
consent of the Holders of at least 75% in aggregate principal amount of
Notes then outstanding, amend or modify the obligations of the Company
under Section 4.15 (or the definitions related thereto) that could
adversely affect the rights of any holder of the Notes; and
(ii) without the consent of each Holder affected, the
Company and the Trustee may not: (w) extend the maturity of any Note; (x)
affect the terms of any scheduled payment of interest on or principal of
the Notes (including without limitation any redemption provisions); (y)
take any action that would subordinate the Notes or the Note Guarantees to
any other Indebtedness of the Company or any of Guarantors, respectively
(except as provided in Article 10), or otherwise affect the ranking of the
Notes or the Note Guarantees;
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or (z) reduce the percentage of Holders necessary to consent to an
amendment, supplement or waiver to this Indenture.
(b) It shall not be necessary for the consent of the Holders
under this Section 9.02 to approve the particular form of any proposed
amendment, supplement or waiver, but it shall be sufficient if such consent
approves the substance thereof. After an amendment, supplement or waiver under
this Section becomes effective, the Company shall mail to each Holder affected
thereby a notice briefly describing the amendment, supplement or waiver. Any
failure of the Company to mail such notice, or any defect therein, shall not,
however, in any way impair or affect the validity of any such amended or
supplemental indenture or waiver.
Section 9.03. Compliance with TIA. Every amendment or supplement to
this Indenture or the Notes shall be set forth in an amended supplemental
indenture that complies with the TIA as then in effect.
Section 9.04. Revocation and Effect of Consents. (a) Until an
amendment, supplement or waiver becomes effective, a consent to it by a Holder
of a Note is a continuing consent by the Holder and every subsequent Holder of
a Note or portion of a Note that evidences the same Indebtedness as the
consenting Holder's Note, even if notation of the consent is not made on any
Note. However, any such Holder or subsequent Holder may revoke the consent as
to his or her Note or portion of a Note if the Trustee receives the notice of
revocation before the date on which the Trustee receives an Officers'
Certificate certifying that the Holders of the requisite principal amount of
Notes have consented to the amendment, supplement or waiver.
(b) The Company may, but shall not be obligated to, fix a
record date for the purpose of determining the Holders of Notes entitled to
consent to any amendment or waiver. If a record date is fixed, then
notwithstanding the provisions of the immediately preceding paragraph, those
Persons who were Holders of Notes at such record date (or their duly designated
proxies), and only those Persons, shall be entitled to consent to such
amendment or waiver or to revoke any consent previously given, whether or not
such Persons continue to be Holders of Notes after such record date. No consent
shall be valid or effective for more than 90 days after such record date unless
consents from Holders of the principal amount of Notes required hereunder for
such amendment or waiver to be effective shall have also been given and not
revoked within such 90-day period.
(c) After an amendment, supplement or waiver becomes
effective, it shall bind every Holder, unless it is of the type described in
clause (ii) of Section 9.02(a), in which case the amendment, supplement or
waiver shall only bind each Holder that consented to it and every subsequent
holder of a Note that evidences the same debt as the consenting Holder's Note.
Section 9.05. Notation or Exchange of Notes. The Trustee may place an
appropriate notation about an amendment, supplement or waiver on any Note
thereafter authenticated. The Company in exchange for all Notes may issue and
the Trustee shall authenticate New Notes that
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reflect the amendment, supplement or waiver. Failure to make the appropriate
notation or issue a New Note shall not affect the validity and effect of such
amendment, supplement or waiver.
Section 9.06. Trustee Protected. Upon the Company's request, after
receipt by the Trustee of a resolution of the Board of Directors of the Company
authorizing the execution of any amended or supplemental indenture described in
Section 9.02, the Trustee shall join with the Company and the Guarantors in the
execution of any amended or supplemental indenture authorized or permitted by
the terms of this Indenture, but the Trustee shall not be obligated to enter
into an amended or supplemental indenture that adversely affects its own
rights, duties or immunities under this Indenture or otherwise. In signing
such amended or supplemental indenture, the Trustee shall be entitled to
receive and, subject to Section 7.01, shall be fully protected in relying upon,
an Officers' Certificate and Opinion of Counsel pursuant to Sections 12.04 and
12.05 as conclusive evidence that such amended or supplemental indenture is
authorized or permitted by this Indenture, that it is not inconsistent
herewith, and that it will be valid and binding upon the Company and the
Guarantors in accordance with its terms.
ARTICLE 10
Subordination
Section 10.01. Agreement to Subordinate. The Company and each Guarantor
agrees, and each Holder by accepting a Note agrees, that the payment by the
Company of principal of, and premium, if any, and interest (including Special
Interest, if any) on the Notes, and by each Guarantor of such amounts under its
Note Guarantee (collectively, the "NOTE INDEBTEDNESS"), are subordinated to the
prior payment in full in cash when due of the principal of, and premium, if
any, and accrued and unpaid interest on and all other amounts owing in respect
of, all existing and future Senior Indebtedness of the Company and of each
Guarantor, as the case may be.
Section 10.02. Liquidation; Dissolution; Bankruptcy. (a) Upon any
payment or distribution to creditors of the Company or any Guarantor of the
assets of the Company or such Guarantor of any kind or character in a total or
partial liquidation or dissolution of the Company or such Guarantor or in a
bankruptcy, reorganization, insolvency, receivership or similar proceeding
relating to the Company or any Guarantor, whether voluntary or involuntary
(including any assignment for the benefit of creditors and proceedings for
marshaling of assets and liabilities of the Company or such Guarantor) (a
"INSOLVENCY OR LIQUIDATION PROCEEDING"), the holders of all Senior Indebtedness
of the Company or any Guarantor then outstanding will be entitled to payment in
full in cash (including interest accruing subsequent to the filing of petition
of bankruptcy or insolvency at the rate specified in the document relating to
the applicable Senior Indebtedness, whether or not such interest is an allowed
claim enforceable against the Company or such Guarantor under applicable law)
before the Holders of Notes are entitled to receive any payment (other than
payments made from a trust previously established pursuant to provisions
described in Section 8.02) on or with respect to the Note Indebtedness and
until all such Senior Indebtedness receives payment in full in cash, any
distribution to which the Holders of Notes would be entitled will be made to
holders of such Senior Indebtedness.
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(b) Notwithstanding anything to the contrary in Section
10.02, Holders of Notes may continue to receive payments from the trust
established pursuant to Article 8.
Section 10.03. No Payment on Notes in Certain Circumstances. (a) Upon
the occurrence of any default in the payment of any principal of or interest on
or other amounts due on any Designated Senior Indebtedness of the Company or
any Guarantor (a "PAYMENT DEFAULT"), no payment of any kind or character shall
be made by the Company or such Guarantor (or by any other Person on its or
their behalf) with respect to the Note Indebtedness unless and until (i) such
Payment Default shall have been cured or waived in accordance with the
instruments governing such Indebtedness or shall have ceased to exist, (ii)
such Designated Senior Indebtedness has been discharged or paid in full in cash
in accordance with the instruments governing such Indebtedness or (iii) the
benefits of this sentence have been waived by the holders of such Designated
Senior Indebtedness or their representative, including, if applicable, the
Agents, immediately after which the Company or any Guarantor, as the case may
be, must resume making any and all required payments, including missed
payments, in respect of its obligations under the Notes.
(b) Upon (i) the occurrence and continuance of an event of
default (other than a Payment Default) relating to Designated Senior
Indebtedness, as such event of default is defined therein or in the instrument
or agreement under which it is outstanding, which event of default, pursuant to
the instruments governing such Designated Senior Indebtedness, entitles the
holders (or a specified portion of the holders) of such Designated Senior
Indebtedness or their designated representative to immediately accelerate
without further notice (except such notice as may be required to effect such
acceleration) the maturity of such Designated Senior Indebtedness (whether or
not such acceleration has actually occurred) (a "NON-PAYMENT DEFAULT") and (ii)
the receipt by the Trustee and the Company or any Guarantor from the trustee or
other representative of holders of such Designated Senior Indebtedness of
written notice (a "PAYMENT BLOCKAGE NOTICE") of such occurrence, no payment is
permitted to be made by the Company or any Guarantor (or by any other Person on
its or their behalf) in respect of the Note Indebtedness for a period (a
"PAYMENT BLOCKAGE PERIOD") commencing on the date of receipt by the Trustee of
such notice and ending on the earliest to occur of the following events
(subject to any blockage of payments that may then be in effect due to a
Payment Default on Designated Senior Indebtedness): (w) such Non-payment
Default has been cured or waived or has ceased to exist; (x) a
179-consecutive-day period commencing on the date such written notice is
received by the Trustee has elapsed; (y) such Payment Blockage Period has been
terminated by written notice to the Trustee from the trustee or other
representative of holders of such Designated Senior Indebtedness, whether or
not such Non-payment Default has been cured or waived or has ceased to exist;
and (z) such Designated Senior Indebtedness has been discharged or paid in full
in cash, immediately after which, in the case of clause (w), (x), (y) or (z),
the Company or any Guarantor, as the case may be, must resume making any and
all required payments, including missed payments, in respect of its obligations
under the Notes. Notwithstanding the foregoing, (A) not more than one Payment
Blockage Period may be commenced in any period of 360 consecutive days and (B)
no default or event of default with respect to the Designated Senior
Indebtedness of the Company or any Guarantor that was the subject of a Payment
Blockage Notice which existed or was continuing on the date of the giving of
any Payment Blockage Notice shall be
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or serve as the basis for the giving of a subsequent Payment Blockage Notice
whether or not within a period of 360 consecutive days unless such default or
event of default shall have been cured or waived for a period of at least 90
consecutive days after such date. Notwithstanding anything in this Indenture
to the contrary, there must be 180 consecutive days in any 360-day period in
which no Payment Blockage Period is in effect.
(c) Notwithstanding the foregoing, Holders of Notes may
receive and retain Permitted Junior Securities and payment from the money or
the proceeds held in any defeasance trust described under Article 8, and no
such receipt or retention will be contractually subordinated in right of
payment to any Senior Indebtedness or subject to the restrictions described in
this Article 10.
Section 10.04. Acceleration of Notes. If payment of the Notes is
accelerated because of an Event of Default, the Company shall promptly notify
the Credit Facility Agent and each holder of the Senior Indebtedness of the
Company or any Guarantor of the acceleration.
Section 10.05. When Distributions Must Be Paid Over. In the event that
any payment or distribution of assets of the Company or any Guarantor, whether
in cash, property or securities, shall be received by the Trustee or the
Holders of Notes at a time when such payment or distribution is prohibited by
this Article 10, such payment or distribution shall be segregated from other
funds or assets and held in trust for the benefit of the holders of Senior
Indebtedness of the Company or such Guarantor, as the case may be, and shall be
paid or delivered by the Trustee or such Holders, as the case may be, to the
holders of the Senior Indebtedness of the Company or such Guarantor, as the
case may be, remaining unpaid or unprovided for or their representative or
representatives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing any of such Senior Indebtedness of the Company
or such Guarantor, as the case may be, may have been issued, ratably according
to the aggregate amounts remaining unpaid on account of the Senior Indebtedness
of the Company or such Guarantor, as the case may be, held or represented by
each, for application to the payment of all Senior Indebtedness of the Company
or such Guarantor, as the case may be, remaining unpaid, to the extent
necessary to pay or to provide for the payment in full in cash of all such
Senior Indebtedness after giving effect to any concurrent payment or
distribution to the holders of such Senior Indebtedness.
With respect to the holders of Senior Indebtedness of the Company or any
Guarantor, the Trustee undertakes to perform only such obligations on its part
as are specifically set forth in this Article 10, and no implied covenants or
obligations with respect to any holders of the Senior Indebtedness of the
Company or any Guarantor shall be read into this Indenture against the Trustee.
The Trustee shall not be deemed to owe any fiduciary duty to the holders of the
Senior Indebtedness of the Company or any Guarantor and shall not be liable to
any holders of such Senior Indebtedness if the Trustee shall pay over or
distribute to, or on behalf of, Holders or the Company or any other Person,
money or assets to which any holders of such Senior Indebtedness are entitled
pursuant to this Article 10, except if such payment is made at a time when a
Trust Officer has knowledge that the terms of this Article 10 prohibit such
payment.
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Section 10.06. Notice. Neither the Trustee nor the Paying Agent shall
at any time be charged with the knowledge of the existence of any facts that
would prohibit the making of any payment to or by the Trustee or Paying Agent
under this Article 10, unless and until the Trustee or Paying Agent shall have
received written notice thereof from the Company or such Guarantor or one or
more holders of the Senior Indebtedness of the Company or such Guarantor, as
the case may be, or a Representative of any holders of such Senior
Indebtedness; and, prior to the receipt of any such written notice, the Trustee
or Paying Agent shall be entitled to assume conclusively that no such facts
exist. The Trustee shall be entitled to rely on the delivery to it of written
notice by a Person representing itself to be a holder of the Senior
Indebtedness of the Company or such Guarantor (or a Representative thereof) to
establish that such notice has been given.
The Company shall promptly notify the Trustee and the Paying Agent in
writing of any facts it knows that would cause a payment of principal of, or
premium, if any, or interest (including Special Interest, if any) on, the Notes
or any other Obligation in respect of the Notes to violate this Article 10, but
failure to give such notice shall not affect the subordination of the Notes to
the Senior Indebtedness of the Company or any Guarantor provided in this
Article 10 or the rights of holders of such Senior Indebtedness under this
Article 10.
Section 10.07. Subrogation. After all Senior Indebtedness of the
Company or any Guarantor has been paid in full in cash and until the Notes are
paid in full, Holders shall be subrogated (equally and ratably with all other
Indebtedness pari-passu with the Notes) to the rights of holders of such Senior
Indebtedness to receive distributions applicable to such Senior Indebtedness to
the extent that distributions otherwise payable to the Holders have been
applied to the payment of such Senior Indebtedness. A distribution made under
this Article 1 to holders of the Senior Indebtedness of the Company or any
Guarantor that otherwise would have been made to Holders is not, as between the
Company or such Guarantor, as the case may be, and Holders, a payment by the
Company or such Guarantor, as the case may be, on its Senior Indebtedness.
Section 10.08. Relative Rights. This Article 10 defines the relative
rights of Holders and holders of the Senior Indebtedness of the Company or any
Guarantor. Nothing in this Indenture shall: (1) impair, as between the
Company or a Guarantor, as the case may be, and Holders, the Obligations of the
Company or any Guarantor, which are absolute and unconditional, to pay
principal of, and premium, if any, and interest (including Special Interest, if
any) on the Notes in accordance with their terms; (2) affect the relative
rights of Holders and the creditors of the Company or any Guarantor other than
their rights in relation to holders of the Senior Indebtedness of the Company
or any Guarantor; or (3) prevent the Trustee or any Holder from exercising its
available remedies upon a Default or Event of Default, subject to the rights of
holders of the Senior Indebtedness of the Company or any Guarantor to receive
distributions and payments otherwise payable to Holders.
Nothing contained in this Article 10 or elsewhere in this Indenture or in
any Note is intended to or shall impair, as between the Company, any Guarantor
and the Holders, the Obligations of the Company and the Guarantors, which are
absolute and unconditional, to pay to the Holders the principal of, and
premium, if any, and interest (including Special Interest, if any) on the Notes
as and
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when the same shall become due and payable in accordance with their terms, or
is intended to or shall affect the relative rights of the Holders and creditors
of the Company and the Guarantors other than the holders of the Senior
Indebtedness of the Company or any Guarantor, nor shall anything herein or
therein prevent the Trustee or any Holder from exercising all remedies
otherwise permitted by applicable law upon Default under this Indenture,
subject to the rights, if any, under this Article 10 of the holders of such
Senior Indebtedness.
The failure to make a payment on account of principal of, or interest on
the Notes by reason of any provision of this Article 10 shall not be construed
as preventing the occurrence of an Event of Default under Section 6.01.
Section 10.09. The Company, Guarantors and Holders May Not Impair
Subordination. (a) No right of any holder of the Senior Indebtedness of the
Company or any Guarantor to enforce the subordination as provided in this
Article 10 shall at any time or in any way be prejudiced or impaired by any act
or failure to act by the Company or any Guarantor or by any noncompliance by
the Company or any Guarantor with the terms, provisions and covenants of this
Indenture or the Notes or any other agreement regardless of any knowledge
thereof with which any such holder may have or be otherwise charged.
(b) Without in any way limiting Section 10.09(a), the holders
of any Senior Indebtedness of the Company or any Guarantor may, at any time and
from time to time to the extent not otherwise prohibited by this Indenture,
without the consent of or notice to any Holders, without incurring any
liabilities to any Holder and without impairing or releasing the subordination
and other benefits provided in this Indenture or the Holders' obligations to
the holders of such Senior Indebtedness, even if any Holder's right of
reimbursement or subrogation or other right or remedy is affected, impaired or
extinguished thereby, do any one or more of the following: (i) amend, renew,
exchange, extend, modify, increase or supplement in any manner such Senior
Indebtedness or any instrument evidencing or guaranteeing or securing such
Senior Indebtedness or any agreement under which such Senior Indebtedness is
outstanding (including, but not limited to, changing the manner, place or terms
of payment or changing or extending the time of payment of, or renewing,
exchanging, amending, increasing or altering, (x) the terms of such Senior
Indebtedness, (y) any security for, or any Guarantee of, such Senior
Indebtedness, (z) any liability of any obligor on such Senior Indebtedness
(including any guarantor) or any liability Incurred in respect of such Senior
Indebtedness); (ii) sell, exchange, release, surrender, realize upon, enforce
or otherwise deal with in any manner and in any order any property pledged,
mortgaged or otherwise securing such Senior Indebtedness or any liability of
any obligor thereon, to such holder, or any liability Incurred in respect
thereof; (iii) settle or compromise any such Senior Indebtedness or any other
liability of any obligor of such Senior Indebtedness to such holder or any
security therefor or any liability Incurred in respect thereof and apply any
sums by whomsoever paid and however realized to any liability (including,
without limitation, payment of any of the Senior Indebtedness) in any manner or
order; and (iv) fail to take or to record or otherwise perfect, for any reason
or for no reason, any lien or security interest securing such Senior
Indebtedness by whomsoever granted, exercise or delay in or refrain from
exercising any right or remedy against any obligor or any guarantor or any
other Person,
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elect any remedy and otherwise deal freely with any obligor and any security
for such Senior Indebtedness or any liability of any obligor to the holders of
such Senior Indebtedness or any liability Incurred in respect of such Senior
Indebtedness.
Section 10.10. Distribution or Notice to Representative. Whenever a
distribution is to be made, or a notice given, to holders of Senior
Indebtedness of the Company or any Guarantor, the distribution may be made and
the notice given to their Representative, if any. If any payment or
distribution of the Company's assets is required to be made to holders of any
of the Senior Indebtedness of the Company or any Guarantor pursuant to this
Article 10, the Trustee and the Holders shall be entitled to rely upon any
order or decree of any court of competent jurisdiction, or upon any certificate
of a Representative of such Senior Indebtedness or a Custodian, in ascertaining
the holders of such Senior Indebtedness entitled to participate in any such
payment or distribution, the amount to be paid or distributed to holders of
such Senior Indebtedness and all other facts pertinent to such payment or
distribution or to this Article 10.
Section 10.11. Rights of Trustee and Paying Agent. The Trustee or
Paying Agent may continue to make payments on the Notes unless at least two
Business Days prior to any payment date it has received written notice of facts
that would cause a payment of principal of, or premium, if any, or interest
(including Special Interest, if any) on the Notes to violate this Article 10.
Only the Company, a Guarantor, a Representative of Senior Indebtedness, or a
holder of Senior Indebtedness that has no Representative may give such notice.
To the extent permitted by the TIA, the Trustee in its individual or any
other capacity may hold Indebtedness of the Company or any Guarantor (including
Senior Indebtedness) with the same rights it would have if it were not Trustee.
Any Agent may do the same with like rights.
Section 10.12. Authorization to Effect Subordination. Each Holder of a
Note by its acceptance thereof authorizes and directs the Trustee on its behalf
to take such action as may be necessary or appropriate to effectuate the
subordination as provided in this Article 10, and appoints the Trustee as such
Holder's attorney-in-fact for any and all such purposes (including, without
limitation, the timely filing of a claim for the unpaid balance of the Note
that such Holder holds in the form required in any Insolvency or Liquidation
Proceeding and causing such claim to be approved).
If a proper claim or proof of debt in the form required in such proceeding
is not filed by or on behalf of all Holders prior to 30 days before the
expiration of the time to file such claims or proofs, then the holders or a
Representative of any Senior Indebtedness of the Company or any Guarantor are
hereby authorized, and shall have the right (without any duty), to file an
appropriate claim for and on behalf of the Holders.
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ARTICLE 11
Guarantee
Section 11.01. Guarantee. Each Guarantor hereby unconditionally,
jointly and severally, guarantees (each a "NOTE GUARANTEE") to each Holder of a
Note authenticated and delivered by the Trustee that: (i) the principal of,
premium, interest (including Special Interest, if any) on the Notes will be
promptly paid in full when due, whether at maturity, by acceleration,
redemption or otherwise, and interest on the overdue principal of and interest
(including Special Interest, if any), and premium, if any, on the Notes, if
any, to the extent lawful, and all other Obligations of the Company to the
Holders or the Trustee under this Indenture and the Notes will be promptly paid
in full, all in accordance with the terms of this Indenture and the Notes; and
(ii) in case of any extension of time of payment or renewal of any Notes or
any of such other Obligations, that the Notes will be promptly paid in full
when due in accordance with the terms of such extension or renewal, whether at
stated maturity, by acceleration or otherwise.
Each Guarantor hereby further agrees that its Obligations under this
Indenture and the Notes shall, subject to Section 11.05, be unconditional,
regardless of the validity, legality or enforceability of this Indenture or the
Notes, the absence of any action to enforce this Indenture or the Notes, any
waiver or consent by any Holder with respect to any provisions this Indenture
or the Notes, any modification or amendment of, or supplement of, this
Indenture or the Notes, the recovery of any judgment against the Company or any
action to enforce any such judgment, or any other circumstance that might
otherwise constitute a legal or equitable discharge or defense of such
Guarantor. Each Guarantor hereby waives diligence, presentment, demand of
payment, filing of claims with a court in the event of insolvency or bankruptcy
of the Company, any right to require a proceeding first against the Company,
protest, notice and all demands whatsoever and covenants that its Note
Guarantee will not be discharged except by complete performance by the Company
of such Obligations. If any Holder or the Trustee is required by any court or
otherwise to return to the Company, such Guarantor or a Custodian of the
Company or such Guarantor any amount paid by the Company or such Guarantor to
the Trustee or such Holder, its Note Guarantee shall, to the extent previously
discharged as a result of any such payment, be immediately reinstated and be in
full force and effect. Each Guarantor hereby acknowledges and agrees that, as
between it, on the one hand, and the Holders and the Trustee, on the other
hand, (x) the maturity of the Company's Obligations under this Indenture and
the Notes may be accelerated as provided in Article 6 for purposes of its Note
Guarantee notwithstanding any stay, injunction or other prohibition preventing
such acceleration, and (y) in the event of any declaration of acceleration of
the Company's Obligations under this Indenture and the Notes as provided in
Article 6, such Obligations (whether or not due and payable) shall forthwith
become due and payable by such Guarantor for the purpose of its Note Guarantee.
(b) Upon making any payment with respect to the Company
hereunder, a Guarantor shall be subrogated to the rights of the payee against
the Company with respect to such payment; provided that no Guarantor shall
enforce any payment by way of subrogation or contribution until all
Obligations of the Company under this Indenture have been paid in full.
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Section 11.02. Trustee to Include Paying Agent. In case at any time any
Paying Agent other than the Trustee shall have been appointed by the Company,
the term "Trustee" as used in this Article 11 shall (unless the context shall
otherwise require) be construed as extending to and including such Paying Agent
within its meaning as fully and for all intents and purposes as if such Paying
Agent were named in this Article 11 in place of the Trustee.
Section 11.03. Subordination of Guarantee. Each Guarantor's Obligations
under its Note Guarantee shall be junior and subordinated in right of payment
to any Senior Indebtedness of such Guarantor in the same manner and to the same
extent as the Notes are subordinated to Senior Indebtedness of the Company
pursuant to Article 10. Any Payment Blockage Notice given to the Trustee in
respect of the Company's Designated Senior Indebtedness pursuant to Section
10.03 shall be deemed to be a Payment Blockage Notice given to the Trustee in
respect of such Guarantor's Designated Senior Indebtedness and any Payment
Blockage Notice given to the Trustee in respect of such Guarantor's Designated
Senior Indebtedness pursuant to this Section 11.03 shall be deemed to be a
Payment Blockage Notice given to the Trustee in respect of the Company's
Designated Senior Indebtedness.
In the event of a conflict between the provisions of Section 10.03 and the
provisions of Section 10.03 as read to apply to such Guarantor's Note Guarantee
pursuant to this Section 11.03, the provisions of Section 10.03 shall apply and
govern this Indenture.
Section 11.04. Senior Subordinated Debt of Guarantor. Each Guarantor
hereby agrees that it will not incur, guarantee or otherwise become liable for
any Indebtedness that is subordinated or junior in right of payment to any
Senior Indebtedness of such Guarantor unless such Indebtedness is pari passu
with or is expressly subordinated in right of payment to the Notes.
Section 11.05. Limits of Guarantee. (a) Notwithstanding anything to the
contrary in this Article 11, the aggregate amount of the Obligations guaranteed
under this Indenture by each Subsidiary Guarantor shall be limited in amount to
the lesser of (a) the maximum amount that would not render such Subsidiary
Guarantor's obligations subject to avoidance under applicable fraudulent
conveyance provisions of the United States Bankruptcy Code or any comparable
provision of any applicable state law and (b) the maximum amount that would not
render the Note Guarantee an improper corporate distribution by such Subsidiary
Guarantor under applicable state law.
Section 11.06. Subsidiary Guarantors May Consolidate, etc., on Certain
Terms. No Subsidiary Guarantor may consolidate with or merge with or into
(whether or not such Subsidiary Guarantor is the surviving Person), another
Person, whether or not affiliated with such Subsidiary Guarantor, unless:
(a) subject to the provisions of Section 11.07 hereof, the
Person formed by or surviving any such consolidation or merger (if other than
such Subsidiary Guarantor) assumes all the obligations of such Subsidiary
Guarantor) assumes all the obligations of such Subsidiary Guarantor
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pursuant to a supplemental indenture in form reasonably satisfactory to the
Trustee in respect of the Notes, this Indenture and such Subsidiary Guarantor's
Note Guarantee;
(b) immediately after giving effect to such transaction, no
Default or Event of Default exists; and
(c) immediately after giving effect to such transaction, the
Coverage Ratio Incurrence Condition would be met.
Notwithstanding the foregoing, none of the Subsidiary Guarantors shall be
permitted to consolidate with or merge with or into (whether or not such
Subsidiary Guarantor is the surviving Person), another corporation, Person or
entity pursuant to the preceding sentence if such consolidation or merger would
not be permitted by Section 5.01 hereof.
In case of any such consolidation or merger and upon the assumption by the
successor corporation, by supplemental indenture, executed and delivered to the
Trustee and satisfactory in form to the Trustee, and the due and punctual
performance of all of the covenants and conditions of this Indenture to be
performed by such Subsidiary Guarantor, such successor corporation shall
succeed to and be substituted for such Subsidiary Guarantor with the same
effect as if it had been named herein as a Subsidiary Guarantor.
Except as set forth in Articles 4 and 5 hereof, nothing contained in this
Indenture or in any of the Notes shall prevent any consolidation or merger of
any Subsidiary Guarantor with or into the Company or another Subsidiary
Guarantor, or shall prevent any sale or conveyance of the property of any
Subsidiary Guarantor as an entirety or substantially as an entirety to the
Company or any Subsidiary Guarantor.
Section 11.07. Releases of Guarantees. In the event of a sale or other
disposition of all or substantially all of the assets of any Subsidiary
Guarantor or a sale or other disposition of all of the Capital Stock of any
Subsidiary Guarantor, to any corporation or other Person (including an
Unrestricted Subsidiary) by way of merger, consolidation, or otherwise, in a
transaction that does not violate any of the covenants of this Indenture, then
such Subsidiary Guarantor (in the event of a sale or other disposition, by way
of such merger, consolidation or otherwise, of all the Capital Stock of such
Subsidiary Guarantor) shall be released and relieved of any obligations under
its Note Guarantee and such acquiring corporation or other Person (in the
event of a sale or other disposition of all or substantially all of the assets
of such Subsidiary Guarantor), if other than a Subsidiary Guarantor, shall have
no obligation to assume or otherwise become liable under such Note Guarantee;
provided, that the Net Available Proceeds of such sale or other disposition are
applied in accordance with Section 4.16 hereof. Upon delivery by the Company
to the Trustee of an Officers' Certificate and an Opinion of Counsel to the
effect that such sale or other disposition was made by the Company in
accordance with the provisions of this Indenture, including without limitation
Section 4.16, the Trustee shall execute any documents reasonably required in
order to evidence the release of any Subsidiary Guarantor from its obligations
under its Note Guarantee.
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Any Subsidiary Guarantor not released from its obligations under its Note
Guarantee shall remain liable for the full amount of principal of and interest
on the Notes and for the other obligations of such Subsidiary Guarantor under
this Indenture as provided in Article 11.
Any Subsidiary Guarantor that is designated an Unrestricted Subsidiary in
accordance with the terms of this Indenture shall be released from and relieved
of its obligations under its Note Guarantee and any Unrestricted Subsidiary
that becomes a Restricted Subsidiary and any newly created or newly acquired
Subsidiary that is or becomes a Subsidiary shall be required to execute a
supplemental indenture in accordance with the terms of this Indenture.
ARTICLE 12
Miscellaneous
Section 12.01. Trust Indenture Act Controls. If any provision of this
Indenture limits, qualifies, or conflicts with the duties imposed by operation
of Section 318(c) of the TIA, the imposed duties shall control.
Section 12.02. Notices. Any notice or communication by the Company, the
Guarantors or the Trustee to the others is duly given if in writing in the
English language and delivered in person, mailed by registered or certified
mail, postage prepaid, return receipt requested or delivered by telecopier or
overnight air courier guaranteeing next day delivery to the following address:
If to the Company or the Guarantors:
Pool Energy Services Co.
10375 Richmond Avenue
Houston, Texas 77042
Telecopier: (713) 954-3037
Attention: Senior Vice President, Finance
Copy to: Treasurer
Telecopier: (713) 954-3244
If to the Trustee:
Marine Midland Bank
140 Broadway-12th Floor
New York, New York 10005-1180
Telecopier: (212) 658-6425
Attention: Corporate Trust Administration
The Company, the Guarantors or the Trustee by notice to the others may
designate additional or different addresses for subsequent notices or
communications.
All notices and communications (other than those sent to Holders) shall be
deemed to have been duly given: (i) at the time delivered by hand, if
personally delivered; (ii) the date receipt is
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acknowledged, if mailed by registered or certified mail; (iii) when answered
back, if telecopied and (iv) the next Business Day after timely delivery to the
courier, if sent by overnight air courier guaranteeing next day delivery.
Any notice or communication to a Holder shall be mailed by first-class
mail to his or her address shown on the register maintained by the Registrar.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders. If a notice or
communication is mailed in the manner provided above within the time
prescribed, it is duly given, whether or not the addressee receives it. If the
Company or any Guarantor mails a notice or communication to Holders, it shall
mail a copy to the Trustee and each Agent at the same time.
Section 12.03. Communication by Holders with Other Holders. Holders may
communicate pursuant to section 312(b) of the TIA with other Holders with
respect to their rights under this Indenture or the Notes. The Company, the
Trustee, the Registrar and any other Person shall have the protection of
section 312(c) of the TIA.
Section 12.04. Certificate and Opinion As to Conditions Precedent. Upon
any request or application by the Company to the Trustee to take any action
under this Indenture, the Company shall furnish to the Trustee: (a) an
Officers' Certificate (which shall include the statements set forth in Section
12.05) stating that, in the opinion of the signers, all conditions precedent
and covenants, if any, provided for in this Indenture relating to the proposed
action have been complied with; and (b) an Opinion of Counsel (which shall
include the statements set forth in Section 12.05) stating that, in the opinion
of such counsel, all such conditions precedent provided for in this Indenture
relating to the proposed action have been complied with.
Section 12.05. Statements Required in Certificate or Opinion. Each
certificate or opinion with respect to compliance with a condition or covenant
provided for in this Indenture (other than a certificate provided pursuant to
section 314(a)(4) of the TIA) shall include: (1) a statement that the Person
making such certificate or opinion has read such covenant or condition; (2) a
brief statement as to the nature and scope of the examination or investigation
upon which the statements or opinions contained in such certificate or opinion
are based; (3) a statement that, in the opinion of such Person, he has made
such examination or investigation as is necessary to enable him to express an
informed opinion as to whether or not such covenant or condition has been
complied with, and (4) a statement as to whether, in such Person's opinion,
such condition or covenant has been complied with.
Section 12.06. Rules by Trustee and Agents. The Trustee may make
reasonable rules for action by or at a meeting of Holders. The Registrar or
Paying Agent may make reasonable rules and set reasonable requirements for its
functions.
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Section 12.07. Legal Holidays. If a payment date is a not a Business
Day at a place of payment, payment may be made at that place on the next
succeeding day that is a Business Day, and no interest shall accrue for the
intervening period.
Section 12.08. No Recourse Against Others. No director, officer,
employee, incorporator or direct or indirect stockholder or Affiliate of the
Company or any Guarantor (other than the Company and any Guarantor), as such,
shall have any liability for any obligation of the Company or any Guarantor
under this Indenture, the Notes Guarantees or the Notes or for any claim based
on, in respect of, or by reason of, any such obligation or the creation of any
such obligation. Each Holder by accepting a Note waives and releases such
Persons from all such liability and such waiver and release is part of the
consideration for the issuance of the Notes.
Section 12.09. Counterparts. This Indenture may be executed in any
number of counterparts and by the parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
Section 12.10. Table of Contents, Headings, Etc. The Table of Contents
and headings of the Articles and Sections of this Indenture have been inserted
for convenience of reference only, are not to be considered a part of this
Indenture, and shall in no way modify or restrict any of the terms or
provisions of this Indenture.
Section 12.11. Governing Law. The laws of the State of New York shall
govern this Indenture, the Note Guarantees and the Notes.
Section 12.12. No Adverse Interpretation of Other Agreements. This
Indenture may not be used to interpret another indenture, loan or debt
agreement of the Company or any of its Subsidiaries, and no other indenture,
loan or debt agreement may be used to interpret this Indenture.
Section 12.13. Successors. All agreements of the Company and the
Guarantors in this Indenture and the Notes shall bind any successors of the
Company and such Guarantors, respectively. All agreements of the Trustee in
this Indenture shall bind its successor.
Section 12.14. Severability. If any provision in this Indenture or in
the Notes shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.
Section 12.15. Third Party Beneficiaries. Holders of Senior
Indebtedness are third party beneficiaries of this Indenture, and any of them
(or their Representative) shall have the right to enforce the provisions of
this Indenture that benefit such holders.
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<PAGE> 81
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed as of the date and year first written above.
POOL ENERGY SERVICES CO.
By:
----------------------------------------
Name:
Title:
By:
----------------------------------------
Name:
Title:
MARINE MIDLAND BANK
as Trustee
By:
----------------------------------------
Name:
Title:
GUARANTORS:
ASSOCIATED PETROLEUM SERVICES, INC.
BIG 10 FISHING TOOL COMPANY, INC.
INTERNATIONAL AIR DRILLING COMPANY
KUUKPIK - POOL ARCTIC ALASKA
By: Pool Alaska, Inc., d/b/a Pool Arctic Alaska
PCNV, INC.
POOL ALASKA, INC.
POOL AMERICAS, INC.
POOL-AUSTRALIA, INC.
POOL CALIFORNIA ENERGY SERVICES, INC.
POOL COMPANY
POOL COMPANY HOUSTON LTD.
By: Pool Company, General Partner
POOL COMPANY TEXAS, LTD.
By: Pool Company, General Partner
POOL INTERNATIONAL, INC.
POOL PRODUCTION SERVICES, INC.
PTX, INC.
By:
--------------------------------------------------
Name:
Title:
<PAGE> 82
EXHIBIT A
(FORM OF FACE OF NOTE)
[Securities Act Legend]
THE SECURITY (OR ITS PREDECESSOR) EVIDENCED HEREBY WAS ORIGINALLY ISSUED
IN A TRANSACTION EXEMPT FROM REGISTRATION UNDER SECTION 5 OF THE U.S.
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THE
SECURITY EVIDENCED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN APPLICABLE EXEMPTION
THEREFROM. EACH PURCHASER OF THE SECURITY EVIDENCED HEREBY (1) BY ITS
ACQUISITION HEREOF REPRESENTS THAT (A) IT IS A "QUALIFIED INSTITUTIONAL
BUYER" (AS DEFINED IN RULE 144A UNDER THE SECURITIES ACT) OR (B) IT IS NOT
A U.S. PERSON AND IS ACQUIRING THE SECURITY EVIDENCED HEREBY IN AN
OFFSHORE TRANSACTION IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES
ACT AND (2) IS HEREBY NOTIFIED THAT THE SELLER MAY BE RELYING ON THE
EXEMPTION FROM THE PROVISIONS OF SECTION 5 OF THE SECURITIES ACT PROVIDED
BY RULE 144A THEREUNDER OR ANOTHER EXEMPTION UNDER THE SECURITIES ACT.
THE HOLDER OF THE SECURITY EVIDENCED HEREBY AGREES FOR THE BENEFIT OF THE
ISSUER THAT (X) SUCH SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE
TRANSFERRED ONLY (i) (a) TO A PERSON WHO THE SELLER REASONABLY BELIEVES IS
A QUALIFIED INSTITUTIONAL BUYER (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A,
(b) IN A TRANSACTION MEETING THE REQUIREMENTS OF RULE 144 UNDER THE
SECURITIES ACT, (c) OUTSIDE THE UNITED STATES TO A PERSON THAT IS NOT A
U.S. PERSON (AS DEFINED IN RULE 902 UNDER THE SECURITIES ACT) IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 904 UNDER THE SECURITIES ACT
OR (d) IN ACCORDANCE WITH ANOTHER EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT (AND BASED UPON AN OPINION OF COUNSEL
IF THE COMPANY SO REQUESTS), (ii) TO THE COMPANY OR (iii) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT AND, IN EACH CASE, IN ACCORDANCE WITH ANY
APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES OR ANY OTHER
APPLICABLE JURISDICTION AND (Y) THE HOLDER WILL, AND EACH SUBSEQUENT
HOLDER IS REQUIRED TO, NOTIFY ANY PURCHASER FROM IT OF THE
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<PAGE> 83
SECURITY EVIDENCED HEREBY OF THE RESALE RESTRICTIONS SET FORTH IN (X)
ABOVE.
[Additional Legend if Note is a Global Note]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC
(AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS
IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE
OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL
INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE, BUT
NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN
SECTIONS 2.06, 2.07 AND 2.08 OF THE INDENTURE.
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<PAGE> 84
POOL ENERGY SERVICES CO.
8 5/8% [SERIES A] [SERIES B] SENIOR SUBORDINATED NOTE DUE 2008
No. ___________ $__________
CUSIP NO.
Pool Energy Services Co., a corporation duly organized and existing under
the laws of the State of Texas (herein called the "Company", which term
includes any successor Person under the Indenture hereinafter referred to), for
value received, hereby promises to pay to Cede & Co., or registered assigns,
the principal sum of One Hundred and Fifty Million Dollars on April 1, 2008.
Interest Payment Dates: April 1 and October 1, commencing
October 1, 1998
Record Dates: March 15 and September 15
Pursuant to the Indenture, the payment of principal of and premium, if
any, and interest and, if applicable, Special Interest on this Note is
unconditionally guaranteed by the Guarantors referred to on the reverse hereof.
Reference is hereby made to the further provisions of this Note set forth
on the reverse hereof and as more fully specified in the Indenture, which
further provisions shall for all purposes have the same effect as if set forth
at this place.
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<PAGE> 85
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
POOL ENERGY SERVICES CO.
By:
------------------------------------------
Name:
Title:
By:
------------------------------------------
Name:
Title:
GUARANTORS:
ASSOCIATED PETROLEUM SERVICES, INC.
BIG 10 FISHING TOOL COMPANY, INC.
INTERNATIONAL AIR DRILLING COMPANY
KUUKPIK - POOL ARCTIC ALASKA
By: Pool Alaska, Inc., d/b/a Pool Artic Alaska
PCNV, INC.
POOL ALASKA, INC.
POOL AMERICAS, INC.
POOL-AUSTRALIA, INC.
POOL CALIFORNIA ENERGY SERVICES, INC.
POOL COMPANY
POOL COMPANY HOUSTON LTD.
By: Pool Company, General Partner
POOL COMPANY TEXAS, LTD.
By: Pool Company, General Partner
POOL INTERNATIONAL, INC.
POOL PRODUCTION SERVICES, INC.
PTX, INC.
By:
---------------------------------------------
Name:
Title:
Dated: _____________________
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<PAGE> 86
FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION
This is one of the Notes referred to in the within-mentioned Indenture.
MARINE MIDLAND BANK,
as Trustee
By:
-------------------------------------------------
Authorized Signatory
FORM OF ALTERNATIVE CERTIFICATE OF AUTHENTICATION
This is one of the Notes referred to in the within-mentioned Indenture.
MARINE MIDLAND BANK,
as Trustee
By:
---------------------------------------------------
as Authenticating Agent
By:
---------------------------------------------------
Authorized Signatory
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<PAGE> 87
FORM OF REVERSE OF NOTE
1. INTEREST. Pool Energy Services Co. (the "Company")
promises to pay interest on the principal amount of this Note at the rate and
in the manner specified below. Cash interest will accrue at 8_% per annum
until maturity and will be payable semi-annually in arrears in cash on April 1
and October 1 of each year commencing October 1, 1998, or if any such day is
not a Business Day on the next succeeding Business Day (each an "Interest
Payment Date"). Interest on this Note will accrue from the most recent date on
which interest has been paid or, if no interest has been paid, from the
original date of issue. To the extent lawful, the Company shall pay interest
on overdue principal, premium, if any, interest and Special Interest, if any,
from time to time on demand at the rate of 8_% per annum, compounded
semi-annually. Interest will be computed on the basis of a 360-day year of
twelve 30-day months.
[In the event that a Registration Default occurs under the Registration
Rights Agreement, then Special Interest (as defined therein) (in addition to
the interest otherwise due hereon) will accrue on the principal amount of the
Notes and the New Notes (in addition to the stated interest on the Notes and
the New Notes) from and including the date on which any such Registration
Default shall occur to but excluding the date on which any such Registration
defaults have been cured. Special Interest will accrue at a rate of 0.25% per
annum during the 90-day period immediately following the occurrence of any
Registration Default and shall increase by 0.25% per annum at the end of each
subsequent 90-day period, but in no event shall such rate exceed 1.5% per
annum. All accrued Special Interest, if any, will be paid by the Company or
the Guarantors, in arrears, on each Interest Payment Date, commencing October
1, 1998. Upon the cure of all Registration Defaults, the accrual of Special
Interest will cease.](1)
[There shall also be payable in respect of this Note all Special Interest
that may have accrued on the Note for which this Note was exchanged (as defined
in such Note) pursuant to the Exchange Offer or otherwise pursuant to a
Registration of such Note, such Special Interest to be payable in accordance
with the terms of such Note.](2)
2. METHOD OF PAYMENT. The Company will pay interest on this
Note to the Person who is the registered Holder of this Note at the close of
business on the record date for the next Interest Payment Date, which record
date shall be March 15 and September 15 of each year (each a "Record Date")
even if such Note is cancelled after such Record Date and on or before such
Interest Payment Date. Holders must surrender Notes to a Paying Agent, as
defined below, to collect principal payments on such Notes. Principal of,
premium, if any, interest and Special Interest, if any, on, the Notes will be
payable at the office or agency of the Company maintained for such purpose
within the City and State of New York or, at the option of the Company by wire
transfer of immediately available funds or, in the case of certificated
securities only, by mailing a check to the registered
- --------------------
(1) To be included in Notes but not New Notes.
(2) To be included in New Notes.
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<PAGE> 88
address of the Holder. Until otherwise designated by the Company, the
Company's office or agency will be the office of the Trustee maintained for
such purpose.
3. PAYING AGENT AND REGISTRAR. (a) Marine Midland Bank (the
"Trustee") will initially act as the Paying Agent and Registrar. The Company
may appoint additional paying agents or co-registrars, and change the Paying
Agent, any additional paying agent, the Registrar or any co-registrar without
prior notice to any Holder. The Company or any of its Subsidiaries may act in
any such capacity.
(b) Pursuant to the Indenture, the Company has
appointed the Trustee as transfer and exchange agent for the purpose of
any transfer or exchange of the Notes.
(c) Holders shall present Notes to the Trustee, as
transfer and exchange agent.
4. INDENTURE. The Company has issued the Notes under an
Indenture, dated as of March 31, 1998 (the "Indenture"), among the Company, as
issuer of the Notes, the Guarantors party thereto and the Trustee. The terms
of the Notes include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S. Code
Sections 77aaa-77bbbb) as in effect on the date of the original issuance of the
Notes (the "Trust Indenture Act"). The Notes are subject to, and qualified by,
all such terms, certain of which are summarized herein, and Holders are
referred to the Indenture and the Trust Indenture Act for a statement of such
terms (all capitalized terms not defined herein shall have the meanings
assigned to them in the Indenture). The Notes are unsecured general
obligations of the Company limited to $150,000,000 in aggregate principal
amount.
5. REDEMPTION PROVISIONS. (a) The Notes are not subject to
any mandatory sinking fund redemption prior to maturity.
(b) Except as set forth below in this Section 5, the
Notes may not be redeemed at the option of the Company prior to April 1,
2003. On April 1, 2003 and thereafter, the Notes will be subject to
redemption at the option of the Company, in whole or in part, upon not
less than 30 nor more than 60 days' notice, at the redemption prices
(expressed as percentages of the principal amount of the Notes) set forth
below, together with accrued and unpaid interest (including Special
Interest, if any) thereon, if any, to the applicable redemption date, if
redeemed during the twelve-month period beginning on April 1 of the years
indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
--------------------------------------------- ----------
<S> <C>
2003 104.313%
2004 102.875%
2005 101.438%
2006 and thereafter 100.000%
</TABLE>
(c) In addition to the Company's right to redeem the Notes as
set forth in Section 5(b), from time to time prior to April 1, 2001, the
Company may redeem up to 35% of the
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<PAGE> 89
aggregate principal amount of the Notes outstanding on the Issue Date at
a redemption price equal to 108.625% of the principal amount thereof, in
each case plus accrued and unpaid interest (including Special Interest, if
any) thereon, if any, to the redemption date, with the net cash proceeds
of one or more Equity Offerings; provided that at least $97.5 million of
the aggregate principal amount of the Notes remains outstanding
immediately after the occurrence of such redemption; and provided, further
that each such redemption occurs within 60 days of the date of the closing
of any such Equity Offering.
(d) If less than all of the Notes are to be redeemed
at any time, selection of the Notes to be redeemed will be made by the
Trustee from among the outstanding Notes on a pro rata basis, by lot or by
any other method permitted in the Indenture. Notice of redemption will be
mailed at least 30 days but not more than 60 days before any redemption
date to each holder whose Notes are to be redeemed at the registered
address of such holder. On and after the redemption date, interest will
cease to accrue on the Notes or portions thereof called for redemption.
6. MANDATORY OFFERS. (a) Within 30 days after any Change of
Control Trigger Date or Asset Sale Trigger Date, the Company shall mail to the
Trustee (who shall mail to each Holder) a notice stating certain details as set
forth in Section 3.08 of the Indenture in connection with the Offer that the
Company is obligated under the Indenture to make to Holders in such
circumstances.
(b) Holders may tender all or, subject to Section 8
below, any portion of their Notes by completing the attachment hereto
entitled "OPTION OF HOLDER TO ELECT PURCHASE" in an Offer.
(c) Upon a Change of Control, any Holder of Notes will
have the right to cause the Company to purchase the Notes of such Holder,
in whole or in part in integral multiples of aggregate principal amount of
$1,000, at a purchase price in cash equal to 101% of the principal amount
thereof plus accrued and unpaid interest (including Special Interest, if
any), if any, to the date of repurchase, as provided in, and subject to
the terms of the Indenture.
(d) Upon there being at least $10,000,000 in Excess
Proceeds relating to one or more Asset Sales, any Holder of Notes will
have the right to cause the Company to purchase the Notes, equal to the
amount of such Excess Proceeds, of such Holder, in whole or in part in
integral multiples of aggregate principal amount of $1,000, at a purchase
price in cash equal to 100% of the principal amount thereof plus accrued
and unpaid interest, if any, and Special Interest, if any, to the date
such Net Proceeds Offer is consummated, as provided in, and subject to the
terms of the Indenture.
(e) Promptly after consummation of an Offer, (i) the
Paying Agent shall mail or wire transfer, if permitted under the
Indenture, to each Holder of Notes or portions thereof accepted for
payment an amount equal to the Change of Control Purchase Price or Offered
Price, as the case may be, (ii) with respect to any tendered Note not
accepted for payment in whole or in part, the Trustee shall return such
Note to the Holder thereof, and (iii) with respect to any Note accepted
for payment in part, the Company shall issue and the Trustee
A-8
<PAGE> 90
shall authenticate and mail to each such Holder a new Note equal in
principal amount to the unpurchased portion of the tendered Note.
(f) The Company will (i) announce the results of the
Offer to Holders on or as soon as practicable after the Purchase Date, and
(ii) comply with Rule 14e-1 under the Securities Exchange Act of 1934, as
amended, and any other securities laws and regulations to the extent such
laws and regulations are applicable to any Offer.
7. NOTES TO BE REDEEMED OR PURCHASED. The Notes may be
redeemed or purchased in part, but only in multiples of $1,000 principal amount
unless all Notes held by a Holder are to be redeemed or purchased. On or after
any date on which Notes are redeemed or purchased, interest ceases to accrete
or accrue, as the case may be, on the Notes or portions thereof called for
redemption or accepted for purchase on such date.
8. DENOMINATIONS, TRANSFER, EXCHANGE. The Notes are in
registered form, without coupons, in denominations of $1,000 principal amount
and integral multiples thereof. The transfer of Notes may be registered and
Notes may be exchanged as provided in the Indenture. Holders seeking to
transfer or exchange their Notes may be required, among other things, to
furnish appropriate endorsements and transfer documents and to pay any taxes
and fees required by law or permitted by the Indenture. The Registrar need not
exchange or register the transfer of any Note or portion of a Note selected for
redemption or tendered pursuant to an Offer. Neither the Trustee or the
Registrar shall be required to issue, register the transfer of or exchange any
Note to register the transfer of or exchange any Note selected for redemption,
to register the transfer of or exchange any Note for a period of 15 days before
the mailing of a notice of redemption ending on the date of such mailing, to
register the transfer or exchange of a Note between a record date and the next
succeeding interest payment date.
9. PERSONS DEEMED OWNERS. The registered Holder of a Note
shall be treated as the owner of the Note for all purposes.
10. AMENDMENTS AND WAIVERS. (a) Subject to certain
exceptions, the Indenture and the Notes may be amended or supplemented with the
written consent of the Holders of at least a majority in aggregate principal
amount of the then outstanding Notes (including consents obtained in connection
with a tender offer or exchange offer for the Notes), and any existing Default
or Event of Default or compliance with any provision of the Indenture or the
Notes may be waived with the consent of the Holders of at least a majority in
aggregate principal amount of the then outstanding Notes (including consents
obtained in connection with a tender offer or exchange offer for the Notes);
provided that: (i) no such modification or amendment may, without the consent
of the Holders of at least 75% in aggregate principal amount of such series of
Notes then outstanding, amend or modify the obligations of the Company under
Section 4.15 of the Indenture (or the definitions related thereto) that could
adversely affect the rights of any holder of the Notes; and (ii) without the
consent of each holder affected, the Company and the Trustee may not: (w)
extend the maturity of any Note; (x) affect the terms of any scheduled payment
of interest on or principal of the Notes (including without limitation any
redemption provisions); (y) take any action that would subordinate the Notes or
the Note Guarantees to any other Indebtedness of the Company or any of
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<PAGE> 91
Guarantors, respectively (except as provided in Article 10), or otherwise
affect the ranking of the Notes or the Note Guarantees; or (z) reduce the
percentage of Holders necessary to consent to an amendment, supplement or
waiver to this Indenture.
(b) Notwithstanding section 10(a) above, the Company,
the Guarantors and the Trustee may amend or supplement the Indenture or
the Notes, without the consent of any Holder, to: cure any ambiguity,
defect or inconsistency; provide for uncertificated Notes in addition to
or in place of Certificated Notes; provide for the assumption of the
obligations to the Holders of the Company or a Guarantor, as the case may
be, in the event of a merger or consolidation; make any change that would
provide any additional rights or benefits to Holders or does not adversely
affect the legal rights under the Indenture of any Holder; comply with
Section 4.17 or Article 11 of the Indenture; secure the Notes pursuant to
the requirements of Section 4.11 of the Indenture; comply with the
requirements of the SEC in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
(c) Certain provisions of the Indenture cannot be
amended, supplemented or waived without the consent of each Holder of
Notes affected.
11. DEFAULTS AND REMEDIES. Events of Default include: (i)
failure by the Company to pay interest on any of the Notes when it becomes due
and payable and the continuance of any such failure for 30 days; (ii) failure
by the Company to pay the principal or premium, if any, on any of the Notes
when it becomes due and payable, whether at stated maturity, upon redemption,
upon acceleration or otherwise; (iii) failure by the Company to comply with any
of its agreements or covenants described under Article 5 of the Indenture, or
in respect of its obligations to make a Change of Control Offer or a Net
Proceeds Offer described in Section 4.15 and 4.16 of the Indenture,
respectively; (iv) failure by the Company to comply with any other covenant in
the Indenture and continuance of such failure for 60 days after notice of such
failure has been given to the Company by the Trustee or to the Company and the
Trustee by the Holders of at least 25% of the aggregate principal amount of the
Notes then outstanding; (v) failure by either the Company or any of its
Restricted Subsidiaries to make any payment when due after the expiration of
any applicable grace period, in respect of any Indebtedness of the Company or
any of such Restricted Subsidiaries, or the acceleration of the maturity of
such Indebtedness by the holders thereof because of a default, with an
aggregate outstanding principal amount for all such Indebtedness under this
clause (v) of $10.0 million or more; (vi) one or more final, non-appealable
judgments or orders that exceed $10.0 million in the aggregate for the payment
of money have been entered by a court or courts of competent jurisdiction
against the Company or any Subsidiary of the Company and such judgment or
judgments have not been satisfied, stayed, annulled or rescinded within 60 days
of being entered; (vii) certain events of bankruptcy, insolvency or
reorganization involving the Parent, the Company or any Significant Subsidiary;
and (viii) except as permitted by the Indenture, any Note Guarantee ceases to
be in full force and effect or any Guarantor repudiates its obligations under
any Note Guarantee.
If an Event of Default (other than an Event of Default specified in clause
(vii) above involving the Company), occurs and is continuing under the
Indenture, the Trustee, by written notice to the Company, or the Holders of at
least 25% in aggregate principal amount of the Notes then
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<PAGE> 92
outstanding by written notice to the Company and the Trustee may declare all
amounts owing under the Notes to be due and payable immediately. Upon such
declaration of acceleration, the aggregate principal of, premium, if any, and
interest on the outstanding Notes shall immediately become due and payable. If
an Event of Default results from bankruptcy, insolvency or reorganization
involving the Company, all outstanding Notes shall become due and payable
without any further action or notice. In certain cases, the Holders of a
majority in aggregate principal amount of the Notes then outstanding may waive
an existing Default or Event of Default and its consequences, except a default
in the payment of principal of, premium, if any, and interest on the Notes.
The Holders may not enforce the provisions of the Indenture or the Notes
except as provided in the Indenture. Subject to certain limitations, Holders
of a majority in principal amount of the Notes then outstanding may direct the
Trustee in its exercise of any trust or power; provided however, that such
direction does not conflict with the terms of the Indenture. The Trustee may
withhold from the Holders notice of any continuing Default or Event of Default
(except any Default or Event of Default in payment of principal of, premium, if
any, or interest on the Notes) if the Trustee determines that withholding such
notice is in the holders' interest.
12. GUARANTEE. Each Guarantor unconditionally, jointly and
severally, guarantees (each a "NOTE GUARANTEE") to each Holder of a Note
authenticated and delivered by the Trustee that: (i) the principal of, premium,
interest (including Special Interest, if any) on the Notes will be promptly
paid in full when due, whether at maturity, by acceleration, redemption or
otherwise, and interest on the overdue principal of and interest and
(including, Special Interest, if any), and premium, if any, on the Notes, if
any, to the extent lawful, and all other Obligations of the Company to the
Holders or the Trustee under this Indenture and the Notes will be promptly paid
in full, all in accordance with the terms of this Indenture and the Notes; and;
(ii) in case of any extension of time of payment or renewal of any Notes or any
of such other Obligations, that the Notes will be promptly paid in full when
due in accordance with the terms of such extension or renewal, whether at
stated maturity, by acceleration or otherwise; provided that notwithstanding
anything to the contrary herein or in Article 11 of the Indenture, the
aggregate amount of the Obligations guaranteed under the Indenture by any
Subsidiary Guarantor shall be limited in amount to the lesser of (x) the
maximum amount that would not render such Subsidiary Guarantor's obligations
subject to avoidance under applicable fraudulent conveyance provisions of the
United States Bankruptcy Code or any comparable provision of any applicable
state law and (y) the maximum amount that would not render the Note Guarantee
of such Subsidiary Guarantor an improper corporate distribution by such
Subsidiary Guarantor under applicable state law. The Note Guarantees are
subject to release as and to the extent provided in the Indenture.
13. ADDITIONAL NOTE GUARANTEES. If the Company or any of its
Subsidiaries shall acquire or create another Subsidiary (other than (x) any
Foreign Subsidiary or (y) a Subsidiary that has been designated as an
Unrestricted Subsidiary), then within 10 days after acquiring or creating such
Subsidiary, the Company will cause each such Subsidiary to execute and deliver
to the Trustee a supplement to of this Indenture as a Subsidiary Guarantor.
14. SUBORDINATION. (a) All Obligations owed under and in
respect of the Notes are subordinated in right of payment, to the extent and in
the manner provided in Article 10 of the
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<PAGE> 93
Indenture, to the prior payment in full in cash of all Obligations owed under
and in respect of all Senior Indebtedness of the Company, and the subordination
of the Notes is for the benefit of all Holders of all Senior Indebtedness,
whether outstanding on the Closing Date or incurred thereafter. The Company
agrees, and the Holder of this Note by accepting the Note agrees, to the
subordination.
(b) Each Guarantor's Obligations under its Notes
Guarantee shall be junior and subordinated in right of payment to any
Senior Indebtedness of the Guarantor in the manner set forth in more
detail in Section 11.03 of the Indenture.
15. TRUSTEE DEALINGS WITH COMPANY. The Trustee in its
individual or any other capacity may become the owner or pledgee of Notes and
may otherwise deal with the Company or any of its Affiliates with the same
rights it would have if it were not Trustee.
16. NO RECOURSE AGAINST OTHERS. No director, officer,
employee, incorporator or direct or indirect stockholder of the Company or any
Guarantor (other than the Company and any Subsidiary Guarantor), as such, shall
have any liability for any obligation of the Company or such Subsidiary
Guarantor under the Indenture or the Notes or for any claim based on, in
respect of, or by reason of, any such obligation or the creation of any such
obligation. Each Holder by accepting a Note waives and releases such Persons
from all such liability, and such waiver and release is part of the
consideration for the issuance of the Notes.
17. MERGERS AND CERTAIN OTHER TRANSACTIONS. The Company will
not, in a single transaction or a series of related transactions, (i)
consolidate or merge with or into (other than a merger with a Wholly-Owned
Restricted Subsidiary solely for the purpose of changing the Company's
jurisdiction of incorporation to another State of the United States), or sell,
lease, transfer, convey or otherwise dispose of or assign all or substantially
all of the assets of the Company or the Company and its Subsidiaries (taken as
a whole), or assign any of its obligations under the Notes and the Indenture,
to any Person or (ii) adopt a Plan of Liquidation unless, in either case: (a)
the Person formed by or surviving such consolidation or merger (if other than
the Company) or to which such sale, lease, conveyance or other disposition or
assignment shall be made (or, in the case of a Plan of Liquidation, any Person
to which assets are transferred) (collectively, the "SUCCESSOR"), is a
corporation organized and existing under the laws of any State of the United
States of America or the District of Columbia, and the Successor assumes by
supplemental indenture in a form satisfactory to the Trustee all of the
obligations of the Company under the Notes and the Indenture; (b) immediately
prior to and immediately after giving effect to such transaction and the
assumption of the obligations as set forth in clause (a) above and the
incurrence of any Indebtedness to be incurred in connection therewith, no
Default or Event of Default shall have occurred and be continuing; and (c)
immediately after and giving effect to such transaction and the assumption of
the obligations set forth in clause (a) above and the incurrence of any
Indebtedness to be incurred in connection therewith, and the use of any net
proceeds therefrom on a pro forma basis, (1) the Consolidated Net Worth of the
Company or the Successor, as the case may be, would be at least equal to the
Consolidated Net Worth of the Company immediately prior to such transaction and
(2) the Company or the Successor, as the case may be, could meet the Coverage
Ratio Incurrence Condition; and (d) each Subsidiary Guarantor, unless it is the
other party to the transactions described above, shall have confirmed, by a
supplemental indenture, that its Note Guarantee shall
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<PAGE> 94
apply to the obligations of the Company or the Successor under the Notes and
the Indenture; and (e) the Company will have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the provisions of Section 5.01 of the Indenture. For purposes of
this paragraph, any Indebtedness of the Successor which was not Indebtedness of
the Company immediately prior to the transaction shall be deemed to have been
incurred in connection with such transaction.
18. GOVERNING LAW. This Note shall be governed by and
construed in accordance with the internal laws of the State of New York,
without regard to the conflict of laws provisions thereof.
19. AUTHENTICATION. This Note shall not be valid until
authenticated by the manual signature of the Trustee or an authenticating agent
20. CUSIP/CINS NUMBERS. Pursuant to a recommendation
promulgated by the Committee on Uniform Note Identification Procedures, the
Company has caused CUSIP and CINS numbers, as applicable, to be printed on the
Notes and has directed the Trustee to use CUSIP and CINS numbers, as
applicable, in notices of redemption, purchases or exchanges as a convenience
to Holders. No representation is made as to the accuracy of such numbers
either as printed on the Notes or as contained in any notice of redemption and
reliance may be placed only on the other identification numbers printed on the
Notes.
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture. Request may be made to: Pool Energy Services
Co., 10375 Richmond Avenue, Houston, Texas 77042, Attention: Corporate
Secretary.
A-13
<PAGE> 95
SCHEDULE OF EXCHANGES OF CERTIFICATED NOTES(3)
The following exchanges of a part of this Global Note for Certificated Notes
have been made:
<TABLE>
<CAPTION>
Principal Amount of Signature of
Amount of decrease in Amount of increase in this Global Note authorized officer of
Date of Principal Amount Principal Amount of following such Trustee or Notes
Exchange of this Global Note this Global Note decrease (or increase) Custodian
- ------------- ------------------------- ------------------------- --------------------------- -----------------------
<S> <C> <C> <C> <C>
</TABLE>
- --------------------
(3) This schedule should only be added if the Note is issued in global form.
A-15
<PAGE> 96
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered Holder hereby sell(s), assign(s)
and transfer(s) unto
Insert Taxpayer Identification No.:
----------------------------------
Please print or typewrite name and address including zip code of assignee:
- ------------------------------------------------------------
- ------------------------------------------------------------
the within Note and all rights thereunder, hereby irrevocably constituting and
appointing
____________________
attorney to transfer said Note on the books of the Company with full power of
substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED ON ALL NOTES OTHER THAN EXCHANGE NOTES,
RESTRICTED GLOBAL NOTES AND OFFSHORE CERTIFICATED NOTES:]
In connection with any transfer of this Note occurring prior to the date
which is the earlier of (i) the date of an effective Registration or (ii) two
years after the later of the original issuance of this Note or the last date on
which this Note was held by the Company or an Affiliate of the Company, the
undersigned confirms, without utilizing any general solicitation or general
advertising, that:
[CHECK ONE]
[ ] (a) this Note is being transferred in compliance with the
exemption from registration under the Securities Act of
1933, as amended, provided by Rule 144A thereunder.
OR
[ ] (b) this Note is being transferred other than in accordance
with (a) above and documents are being furnished which
comply with the conditions of transfer set forth in this
Note and the Indenture.
If neither of the foregoing boxes is checked, the Registrar shall not be
obligated to register this Note in the name of any Person other than the Holder
hereof unless and until the conditions to any such transfer or registration set
forth herein and in Section 2.08 of the Indenture shall have been satisfied.
Date: Signature:
---------------- ----------------------------
NOTICE: The signature to this assignment must correspond with the name as
written upon the face of the within-mentioned instrument in every
particular, without alteration or any change whatsoever.
A-15
<PAGE> 97
TO BE COMPLETED BY PURCHASER IF (a), ABOVE, IS CHECKED:
The undersigned represents and warrants that it is purchasing this Note
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
of 1933, as amended, and is aware that the sale to it is being made in reliance
on Rule 144A and acknowledges that it has received such information regarding
the Company as the undersigned has requested pursuant to Rule 144A or has
determined not to request such information and that it is aware that the
transferor is relying upon the undersigned's foregoing representations in order
to claim the exemption from registration provided by Rule 144A.
Dated: Signature:
------------ ---------------------------
NOTICE: To be executed by an executive
officer of the transferee
Signature Guarantee:
-------------------------------
(Signature must be guaranteed by a financial institution that is a member
of the Securities Transfer Agent Medallion Program ("STAMP"), in accordance
with the Securities Exchange Act of 1934, as amended.)
A-16
<PAGE> 98
OPTION OF HOLDER TO ELECT PURCHASE
If you elect to have this Note purchased by the Company pursuant to
Section 4.15 of the Indenture, check the box: [ ]
If you elect to have this Note purchased by the Company pursuant to
Section 4.16 of the Indenture, check the box: [ ]
If you elect to have only part of the principal amount of this Note
purchased by the Company pursuant to Section 4.15 or 4.16 of the Indenture,
state the portion of such amount (multiples of $1,000 principal amount only):
$_________________________.
Dated: Your signature:
- ------------------- ---------------------------------
(Sign exactly as name appears on
the other side of this Note)
Signature Guarantee:
----------------------------------------------
(Signature must be guaranteed by a financial institution that is a member
of the Securities Transfer Agent Medallion Program ("STAMP"), in accordance
with the Securities Exchange Act of 1934, as amended.)
A-17
<PAGE> 99
EXHIBIT B
Form of Certificate to be Delivered
in Connection with Transfers
Pursuant to Regulation S
_________, ____
- ----------------------
- ----------------------
- ----------------------
Attention: Corporate Trust Administration
Re: Pool Energy Services Co. (the "Company")
8 5/8% Senior Subordinated Notes due 2008 (the "Notes")
Dear Sirs:
In connection with our proposed sale of $150,000,000 aggregate principal
amount of the Notes, we confirm that such sale has been effected pursuant to
and in accordance with Regulation S under the Securities Act of 1933, as
amended, and, accordingly, we represent that:
(1) the offer of the Notes was not made to a person in the
United States;
(2) at the time the buy order was originated, the transferee
was outside the United States or we and any person acting on our behalf
reasonably believed that the transferee was outside the United States;
(3) no directed selling efforts have been made by us in the
United States in contravention of the requirements of Rule 903(b) or Rule
904(b) of Regulation S, as applicable; and
(4) the transaction is not part of a plan or scheme to evade
the registration requirements of the Securities Act of 1933.
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any
interested party in any administrative or legal proceedings or official inquiry
with respect to the matters covered hereby. Terms used in this certificate
have the meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By:
---------------------------------------------
Authorized Signatory
<PAGE> 100
EXHIBIT C
==============================================================================
POOL ENERGY SERVICES CO.
AND
THE GUARANTORS NAMED HEREIN
SERIES A AND SERIES B
8 5/8% SENIOR SUBORDINATED NOTES DUE 2008
--------------------
FORM OF SUPPLEMENTAL INDENTURE
DATED AS OF __________, ____
--------------------
--------------------
MARINE MIDLAND BANK,
TRUSTEE
--------------------
=============================================================================
C-1
<PAGE> 101
This SUPPLEMENTAL INDENTURE, dated as of __________ ___, ____, is among
Pool Energy Services Co., a Texas corporation (the "Company"), each of the
parties identified under the caption "Guarantors" on the signature page hereto
(the "Guarantors") and Marine Midland Bank, as Trustee.
RECITALS
WHEREAS, the Company, the initial Guarantors and the Trustee entered into
an Indenture, dated as of March 31, 1998 (the "Indenture"), pursuant to which
the Company has originally issued $150,000,000 in principal amount of 8 5/8%
Senior Subordinated Notes due 2008 (the "Notes"); and
WHEREAS, Section 9.01 of the Indenture provides that the Company and the
Trustee may amend or supplement the Indenture in order to execute and deliver a
guarantee (a "Note Guarantee") to comply with Section 4.17 thereof without the
consent of the Holders of the Notes; and
WHEREAS, all acts and things prescribed by the Indenture, by law and by
the charter and the bylaws (or comparable constituent documents) of the
Company, of the Guarantors and of the Trustee necessary to make this
Supplemental Indenture a valid instrument legally binding on the Company, the
Guarantors and the Trustee, in accordance with its terms, have been duly done
and performed;
NOW, THEREFORE, to comply with the provisions of the Indenture and in
consideration of the above premises, the Company, the Guarantors and the
Trustee covenant and agree for the equal and proportionate benefit of the
respective Holders of the Notes as follows:
ARTICLE 1
SECTION 1.01. This Supplemental Indenture is supplemental to the
Indenture and does and shall be deemed to form a part of, and shall be
construed in connection with and as part of, the Indenture for any and all
purposes.
SECTION 1.02. This Supplemental Indenture shall become effective
immediately upon its execution and delivery by each of the Company, the
Guarantors and the Trustee.
ARTICLE 2
From this date, in accordance with Section 4.17 and by executing this
Supplemental Indenture, the Guarantors whose signatures appear below are
subject to the provisions of the Indenture to the extent provided for in
Article 11 thereunder.
ARTICLE 3
SECTION 3.01. Except as specifically modified herein, the Indenture and
the Notes are in all respects ratified and confirmed (mutatis mutandis) and
shall remain in full force and effect in accordance with their terms with all
capitalized terms used herein without definition having the same respective
meanings ascribed to them as in the Indenture.
C-2
<PAGE> 102
SECTION 3.02. Except as otherwise expressly provided herein, no duties,
responsibilities or liabilities are assumed, or shall be construed to be
assumed, by the Trustee by reason of this Supplemental Indenture. This
Supplemental Indenture is executed and accepted by the Trustee subject to all
the terms and conditions set forth in the Indenture with the same force and
effect as if those terms and conditions were repeated at length herein and made
applicable to the Trustee with respect hereto.
SECTION 3.03. THE LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED
TO CONSTRUE AND ENFORCE THIS SUPPLEMENTAL INDENTURE.
SECTION 3.04. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of such
executed copies together shall represent the same agreement.
[NEXT PAGE IS SIGNATURE PAGE]
C-3
<PAGE> 103
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed, all as of the date first written above.
POOL ENERGY SERVICES CO.
By:
-----------------------------------
Name:
Title:
GUARANTORS:
ASSOCIATED PETROLEUM SERVICES, INC.
BIG 10 FISHING TOOL COMPANY, INC.
INTERNATIONAL AIR DRILLING COMPANY
KUUKPIK - POOL ARCTIC ALASKA
By: Pool Alaska, Inc., d/b/a Pool Artic Alaska
PCNV, INC.
POOL ALASKA, INC.
POOL AMERICAS, INC.
POOL-AUSTRALIA, INC.
POOL CALIFORNIA ENERGY SERVICES, INC.
POOL COMPANY
POOL COMPANY HOUSTON LTD.
By: Pool Company, General Partner
POOL COMPANY TEXAS, LTD.
By: Pool Company, General Partner
POOL INTERNATIONAL, INC.
POOL PRODUCTION SERVICES, INC.
PTX, INC.
By:
-----------------------------------
Name:
Title:
MARINE MIDLAND BANK,
as Trustee
By:
-----------------------------------
Name:
Title:
C-4
<PAGE> 1
EXHIBIT 4.5
================================================================================
POOL ENERGY SERVICES CO.
AND
THE GUARANTORS NAMED HEREIN
SERIES A AND SERIES B
8 5/8% SENIOR SUBORDINATED NOTES DUE 2008
-------------------
SUPPLEMENTAL INDENTURE
DATED AS OF MARCH 31, 1998
-------------------
-------------------
MARINE MIDLAND BANK,
TRUSTEE
-------------------
================================================================================
<PAGE> 2
This SUPPLEMENTAL INDENTURE, dated as of March 31, 1998, is among Pool
Energy Services Co., a Texas corporation (the "Company"), each of the parties
identified under the caption "Guarantors" on the signature page hereto (the
"Guarantors") and Marine Midland Bank, as Trustee.
RECITALS
WHEREAS, the Company, the initial Guarantors and the Trustee entered
into an Indenture, dated as of March 31, 1998 (the "Indenture"), pursuant to
which the Company has originally issued $150,000,000 in principal amount of
8 5/8% Senior Subordinated Notes due 2008 (the "Notes"); and
WHEREAS, Section 9.01 of the Indenture provides that the Company and
the Trustee may amend or supplement the Indenture in order to execute and
deliver a guarantee (a "Note Guarantee") to comply with Section 4.17 thereof
without the consent of the Holders of the Notes; and
WHEREAS, all acts and things prescribed by the Indenture, by law and by
the charter and the bylaws (or comparable constituent documents) of the Company,
of the Guarantors and of the Trustee necessary to make this Supplemental
Indenture a valid instrument legally binding on the Company, the Guarantors and
the Trustee, in accordance with its terms, have been duly done and performed;
NOW, THEREFORE, to comply with the provisions of the Indenture and in
consideration of the above premises, the Company, the Guarantors and the Trustee
covenant and agree for the equal and proportionate benefit of the respective
Holders of the Notes as follows:
ARTICLE 1
SECTION 1.01. This Supplemental Indenture is supplemental to the
Indenture and does and shall be deemed to form a part of, and shall be construed
in connection with and as part of, the Indenture for any and all purposes.
SECTION 1.02. This Supplemental Indenture shall become effective
immediately upon its execution and delivery by each of the Company, the
Guarantors and the Trustee.
ARTICLE 2
From this date, in accordance with Section 4.17 and by executing this
Supplemental Indenture, the Guarantors whose signatures appear below are subject
to the provisions of the Indenture to the extent provided for in Article 11
thereunder.
ARTICLE 3
SECTION 3.01. Except as specifically modified herein, the Indenture and
the Notes are in all respects ratified and confirmed (mutatis mutandis) and
shall remain in full force and effect in accordance with their terms with all
capitalized terms used herein without definition having the same respective
meanings ascribed to them as in the Indenture.
<PAGE> 3
SECTION 3.02. Except as otherwise expressly provided herein, no duties,
responsibilities or liabilities are assumed, or shall be construed to be
assumed, by the Trustee by reason of this Supplemental Indenture. This
Supplemental Indenture is executed and accepted by the Trustee subject to all
the terms and conditions set forth in the Indenture with the same force and
effect as if those terms and conditions were repeated at length herein and made
applicable to the Trustee with respect hereto.
SECTION 3.03. THE LAW OF THE STATE OF NEW YORK SHALL GOVERN AND BE USED
TO CONSTRUE AND ENFORCE THIS SUPPLEMENTAL INDENTURE.
SECTION 3.04. The parties may sign any number of copies of this
Supplemental Indenture. Each signed copy shall be an original, but all of such
executed copies together shall represent the same agreement.
[NEXT PAGE IS SIGNATURE PAGE]
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed, all as of the date first written above.
POOL ENERGY SERVICES CO.
By: /s/ E. J. SPILLARD
--------------------------------------
Name: E. J. Spillard
Title: Senior Vice President, Finance
GUARANTORS:
ASSOCIATED PETROLEUM SERVICES, INC.
BIG 10 FISHING TOOL COMPANY, INC.
INTERNATIONAL AIR DRILLING COMPANY
KUUKPIK/POOL ARCTIC ALASKA
By: Pool Alaska, Inc., d/b/a Pool
Arctic Alaska
PCNV, INC.
POOL ALASKA, INC.
POOL AMERICAS, INC.
POOL-AUSTRALIA, INC.
POOL CALIFORNIA ENERGY SERVICES, INC.
POOL COMPANY
POOL COMPANY HOUSTON LTD.
By: Pool Company, General Partner
POOL COMPANY TEXAS, LTD.
By: Pool Company, General Partner
POOL INTERNATIONAL, INC.
POOL PRODUCTION SERVICES, INC.
PTX, INC.
SEA MAR, INC.
SEA MAR MANAGEMENT, INC.
By: /s/ E. J. SPILLARD
--------------------------------------
Name: E. J. Spillard
Title: Senior Vice President, Finance
MARINE MIDLAND BANK,
as Trustee
By: /s/ FRANK J. GODINO
--------------------------------------
Name: FRANK J. GODINO
Title: Vice President
<PAGE> 1
EXHIBIT 4.6
- --------------------------------------------------------------------------------
NABORS HOLDING COMPANY
(formerly known as POOL ENERGY SERVICES CO.)
and
THE GUARANTORS NAMED HEREIN
$150,000,000
8 5/8% Senior Subordinated Notes due 2008
SECOND SUPPLEMENTAL INDENTURE
Dated as of December 1, 1999
HSBC BANK USA,
AS TRUSTEE
- --------------------------------------------------------------------------------
<PAGE> 2
This SECOND SUPPLEMENTAL INDENTURE, dated as of December 1 1999, is
among Nabors Holding Company, a Delaware corporation (formerly known as Pool
Energy Services Co., a Texas corporation) ("NHC" or the "Company"), Associated
Petroleum Services, Inc., International Air Drilling Company, Kuukpik-Pool
Arctic Alaska, Pool Alaska, Inc. (the successor by merger of Pool Alaska, Inc.,
a Texas corporation), Pool Americas, Inc., Pool-Australia, Inc., Pool Company,
Pool Company Texas, Ltd. (the successor by merger of Pool Production Services,
Inc.), Pool International, Inc., Pool Well Services Co. (the successor by merger
of Pool California Energy Services, Inc. and Big 10 Fishing Tool Company), PCNV,
Inc., PTX, Inc., Sea Mar, Inc. and Sea Mar Management, Inc. (collectively
referred to herein as the "Guarantors") and HSBC Bank USA (formerly known as
Marine Midland Bank), as trustee (the "Trustee").
RECITALS
WHEREAS, Pool Energy Services Co., a Texas corporation ("PESC"), the
subsidiary guarantors referred to therein and the Trustee entered into an
Indenture, dated as of March 31, 1998, as amended by the First Supplemental
Indenture, dated as of March 31, 1998 (as amended, the "Indenture"), pursuant to
which PESC issued $150,000,000 in aggregate principal amount of 8 5/8% Senior
Subordinated Notes due 2008 (the "Notes"), the payment of which was guaranteed
by such subsidiary guarantors.
WHEREAS, as of November 24, 1999 (i) Starry Acquisition Corp. merged
with and into PESC, and as a result PESC became a wholly-owned subsidiary of
Nabors Industries, Inc. ("Nabors") and (ii) PESC changed its state of
incorporation and name through a merger with and into NHC (such transactions are
collectively referred to as the "Acquisition"), in each case in accordance with
Section 5.01 of the Indenture.
WHEREAS, as of November 24, 1999 and in connection with the
Acquisition: (i) Pool California Energy Services, Inc. ("PCESI") merged with and
into Pool Well Services Co. ("PWSC"), a newly-formed wholly-owned subsidiary of
PCESI incorporated under the laws of Delaware; (ii) PoolCo transferred certain
assets and stock to Pool Production Services, Inc. ("PPS"); (iii) PPS merged
with and into Pool Company Texas Ltd. ("PCT"); (iv) Pool Alaska, Inc., a Texas
corporation ("PAI") merged with and into Pool Alaska, Inc., a newly formed
subsidiary of NHC incorporated in Delaware ("New Pool Alaska") and (v) Big 10
Fishing Tool Company, Inc. ("Big 10") merged with and into PWSC (such
transactions are collectively referred to as the "Mergers"). Upon consummating
of all of the Mergers: (a) PWSC became the successor by merger of PCESI and Big
10; (b) PCT became the successor by merger of PPS; and (c) New Pool Alaska
became the successor by merger of PAI.
WHEREAS, in connection with the Acquisition, Pool Company Houston Ltd.
("PCH Ltd.") has or will dissolve and distribute its assets to its limited and
general partners, PCNV and PWSC (such transaction is referred to as the
"Dissolution," together with the Mergers, the "Transactions").
WHEREAS, Section 9.01 of the Indenture permits PESC, the subsidiary
guarantors, parties thereto and the Trustee to amend or supplement the Indenture
or the Notes without the consent of any Holders to, among other things, provide
for the assumption of the obligations to the Holders of PESC or such subsidiary
guarantors, as the case may be, in the event of a merger or consolidation and to
make any change that (1) would provide any additional rights or benefits to
Holders or (2) does not adversely affect the legal rights under this Indenture
of any Holder.
WHEREAS, the Company desires to and has requested that the Trustee
enter into this Second Supplemental Indenture to, among other things, (i)
provide for the Acquisition and the change of the name of the issuer of the
Notes to "Nabors Holding Company" and a change of its jurisdiction of
incorporation to Delaware, (ii) provide for the assumption or reaffirmation of
the obligations of PESC to the Holders by the Company, and (iii) provide for the
Transactions and the assumption and/or ratification of the obligations of the
applicable subsidiary guarantors by the applicable surviving entities.
WHEREAS, the execution and delivery of this Second Supplemental
Indenture has been duly authorized by the appropriate resolutions of the Board
of Directors (or other applicable governing body) of the Company and each of the
guarantors listed on the signature pages hereto.
Page 2
<PAGE> 3
WHEREAS, the Board of Directors of the Company has determined that the
preservation of the existence of PCESI, PPS, PAI, Big 10 and PCH Ltd. is no
longer desirable in the conduct of the business of the Company and its
subsidiaries taken as a whole, and that the loss thereof is not adverse in any
material respect to the Holders.
WHEREAS, all conditions and requirements necessary to make this Second
Supplemental Indenture a valid, binding and legal instrument enforceable in
accordance with its terms have been performed and fulfilled by the parties
hereto and the execution and delivery thereof have been in all respects duly
authorized by the parties hereto.
NOW, THEREFORE, in consideration of the above recitals, each party
hereto agrees, for the benefit of the other and for the equal and ratable
benefit of the Holders of the Notes, as follows:
ARTICLE I
ASSUMPTION OF OBLIGATIONS; ADDITION OF GUARANTEES
Section 1.1. Assumption and Reaffirmation by the Company. In accordance
with Section 5.01 of the Indenture, the Company hereby assumes and reaffirms the
obligations of PESC under the Indenture and the Notes in accordance with the
provisions thereof.
Section 1.2. Reaffirmation of Guarantees by Surviving Original
Subsidiary Guarantors. In accordance with Section 5.01 of the Indenture, each of
Associated Petroleum Services, Inc., International Air Drilling Company,
Kuukpik-Pool Arctic Alaska, Pool Americas, Inc., Pool-Australia, Inc., Pool
Company, PCT, Pool International, Inc., PCNV, PTX, Inc., Sea Mar, Inc. and Sea
Mar Management, Inc. hereby assumes and reaffirms the obligations of a Guarantor
under the Indenture and the Notes in accordance with the provisions thereof and
is subject to the provisions of the Indenture in accordance with Article 11
thereunder.
Section 1.3. Assumption and Reaffirmation of Guarantees by Surviving
Subsidiary Guarantors. Each of New Pool Alaska, PWSC and PCT (in each case,
without duplication of any applicable obligations under Section 1.2 hereof)
hereby assumes and reaffirms the obligation of a Guarantor under the Indenture
and the Notes in accordance with the provision thereof and is subject to the
provisions of the Indenture in accordance with Article 11 thereunder.
ARTICLE II
AMENDMENTS TO THE INDENTURE
Section 2.1. Change of Name and Jurisdiction of Organization. For all
purposes of the Indenture and the Notes, the Indenture and the Notes are amended
by deleting all references to "Pool Energy Services Co." and "Pool Energy
Services Co., a Texas corporation" (or substantially similar phrases) and
replacing them with "Nabors Holding Company" and "Nabors Holding Company, a
Delaware corporation" (or substantially similar phrases), respectively, as the
context requires.
Section 2.2. References to Subsidiary Guarantors. For all purposes of
the Indenture and the Notes, all references to "Subsidiary Guarantors" or
"Subsidiary Guarantor" are amended to refer to the guarantors listed on the
signature pages hereof or any one of them, respectively, as the context
requires.
Section 2.3. Change of Address. The Company hereby designates that the
address listed below be the address set forth for the Company or the Guarantors
for all purposes of the Indenture, including without limitation, Section 12.02
thereof:
Nabors Holding Company
515 West Greens Road
Suite 1200
Houston, Texas 77067-4525
Telecopier: (281) 775-8431
Attention: Legal Department.
Page 3
<PAGE> 4
ARTICLE III
NOTATION OF NOTES
Notes authenticated and delivered for transfer or exchange of
outstanding Notes after the Effective Time (as defined below), and all Notes
presented or delivered to the Trustee on after such date for the purpose of
being stamped, shall be stamped (unless textually revised as hereinafter
provided) by the Trustee with a notation substantially in the form as follows:
"THE INDENTURE DATED AS OF MARCH 31, 1998 REFERRED TO IN THIS
NOTE HAS BEEN AMENDED BY A FIRST SUPPLEMENTAL INDENTURE DATED
AS OF MARCH 31, 1998 AND A SECOND SUPPLEMENTAL INDENTURE DATED
AS OF DECEMBER 1, 1999, PURSUANT TO WHICH CERTAIN PROVISIONS
OF THE INDENTURE HAVE BEEN AMENDED, ELIMINATED OR OTHERWISE
MODIFIED AS SET FORTH IN SUCH FIRST AND SECOND SUPPLEMENTAL
INDENTURES. COPIES OF THE FIRST AND SECOND SUPPLEMENTAL
INDENTURES ARE ON FILE WITH, AND AVAILABLE ON REQUEST FROM,
THE TRUSTEE AND THE COMPANY."
Any Notes hereafter authenticated or delivered may be textually revised, making
changes in phraseology and form (but not in substance) as may be appropriate so
as to conform, in the opinion of the Trustee and the Company, to modifications
made by this Second Supplemental Indenture.
ARTICLE IV
MISCELLANEOUS
Section 4.1. Capitalized Terms. Capitalized terms used herein and not
otherwise defined have the meaning set forth in the Indenture.
Section 4.2. Operation of Second Supplemental Indenture. This Second
Supplemental Indenture will become effective as of the date hereof.
Section 4.3. Conflict with the Trust Indenture Act. If any provision of
this Second Supplemental Indenture modifies or excludes any provision of the
Trust Indenture Act that is required under such Act to be part of and govern
this Second Supplemental Indenture, the latter provision of the Trust Indenture
Act shall control. If any provision hereof modifies or excludes any provision of
the Trust Indenture Act that may be so modified or excluded, the latter
provision of the Trust Indenture Act shall be deemed to apply to this Second
Supplemental Indenture, as so modified or excluded, as the case may be.
Section 4.4. Notes Deemed Conformed. As of the Effective Time, the
provisions of each Note then outstanding shall be deemed to be conformed,
without the necessity for any reissuance or exchange of such Note or any other
action on the part of the Holders, the Company, the Guarantors or the Trustee,
so as to reflect this Second Supplemental Indenture.
Section 4.5. Mutatis Mutandis. Except as specifically modified herein,
the Indenture and the Notes are in all respects ratified and confirmed (mutatis
mutandis) and shall remain in full force and effect in accordance with their
terms with all capitalized terms used herein without definition having the same
definition ascribed to them as in the Indenture. The Indenture shall be deemed
to have such other changes as to grammar, tense, syntax and like concepts as
shall be necessary to effect the changes contemplated herein.
Page 4
<PAGE> 5
Section 4.6. No Additional Trustee Obligations. Except as otherwise
expressly provided herein, no duties, responsibilities or liabilities are
assumed, or shall be construed to be assumed, by the Trustee by reason of this
Second Supplemental Indenture. This Second Supplemental Indenture is executed
and accepted by the Trustee subject to all the terms and conditions set forth in
the Indenture with the same force and effect as if those terms and conditions
were repeated at length herein and made applicable to the Trustee with respect
hereto.
Section 4.7. Successors. All agreements of the Company, the Guarantors
and the Trustee in this Second Supplemental Indenture and in the Indenture shall
bind their respective successors.
Section 4.8. Benefits of Second Supplemental Indenture. Nothing in this
Second Supplemental Indenture, express or implied, shall give to any person,
other than the parties hereto and their successors hereunder and the Holders,
any benefit or any legal or equitable right, remedy or claim under this Second
Supplemental Indenture or the Indenture.
Section 4.9. Severability. In case any provision in this Second
Supplemental Indenture, or in the Indenture, shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby, it being
intended that all of the provisions hereof shall be enforceable to the full
extent permitted by law.
Section 4.10. Headings. The Section headings of this Second
Supplemental Indenture have been inserted for convenience of reference only, are
not to be considered a part of this Second Supplemental Indenture and shall not
modify or restrict any of the terms or provisions hereof.
Section 4.11. Multiple Originals. The parties may sign any number of
copies of this Second Supplemental Indenture. Each signed copy shall be an
original, but all of them together represent the same agreement.
Section 4.12. The Trustee. The Trustee is not responsible in any manner
whatsoever for or in respect of the validity or sufficiency of this Second
Supplemental Indenture or for or in respect of the recitals contained herein,
all of which are made solely by the Company.
Section 4.13. Governing Law. THE LAW OF THE STATE OF NEW YORK SHALL
GOVERN AND BE USED TO CONSTURE AND ENFORCE THIS SECOND SUPPLEMENTAL INDENTURE.
[Signature Pages Follows]
Page 5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental
Indenture to be duly executed as of the date first above written.
COMPANY:
NABORS HOLDING COMPANY (formerly known as
POOL ENERGY SERVICES CO.)
By: /s/ Daniel McLachlin
Name: Daniel McLachlin
Title: Secretary
GUARANTORS:
ASSOCIATED PETROLEUM SERVICES, INC.
INTERNATIONAL AIR DRILLING COMPANY
KUUKPIK - POOL ARCTIC ALASKA
By: Pool Alaska, Inc., d/b/a Pool Arctic
Alaska
POOL ALASKA, INC.
POOL AMERICAS, INC.
POOL-AUSTRALIA, INC.
POOL COMPANY
POOL COMPANY TEXAS, LTD.
By: Pool Well Services Co., General
Partner
POOL INTERNATIONAL, INC.
POOL WELL SERVICES CO.
PTX, INC.
SEA MAR, INC.
SEA MAR MANAGEMENT, INC.
By: /s/ Daniel McLachlin
Name: Daniel McLachlin
Title: Secretary
PCNV, INC.
By: /s/ Jay Weidenbach
Name: Jay Weidenbach
Title: Secretary
TRUSTEE:
HSBC BANK USA, as Trustee
By: /s/ Frank J. Godino
Name: Frank J. Godino
Title: Vice President
Page 6
<PAGE> 1
EXHIBIT 11
NABORS INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three
Months Ended Year Ended
Year Ended December 31, December 31, September 30,
1999 1998 1997 1997
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C>
Basic:
Weighted average number of shares outstanding (1) 111,395 100,807 100,814 96,034
----------- ------------ ----------- ------------
Net income $ 27,704 $ 124,988 $ 41,327 $ 114,808
----------- ------------ ----------- ------------
Per share amount $ .25 $ 1.24 $ .41 $ 1.20
----------- ------------ ----------- ------------
Diluted:
Weighted average number of shares outstanding (1) 111,395 100,807 100,814 96,034
Net effect of dilutive stock options and warrants-based
on the treasury stock method using
average market price 9,054 2,231 6,096 6,424
Assumed conversion of 5% convertible notes (1) - 9,517 9,517 9,517
----------- ------------ ----------- ------------
Total 120,449 112,555 116,427 111,975
----------- ------------ ----------- ------------
Net income $ 27,704 $ 124,988 $ 41,327 $ 114,808
Add 5% convertible note interest, net
of tax effect (1) - 5,392 1,348 5,606
----------- ------------ ----------- ------------
Total $ 27,704 $ 130,380 $ 42,675 $ 120,414
----------- ------------ ----------- ------------
Per share amount $ .23 $ 1.16 $ .37 $ 1.08
----------- ------------ ----------- -------------
</TABLE>
(1) The 5% convertible notes were converted into 9.5 million shares of
common stock during the third quarter of 1999. As a result for the
year ended December 31, 1999, basic and diluted shares outstanding
reflect the weighted average effect of the 9.5 million shares of
common stock issued in connection with the conversion of the 5%
convertible notes based upon the actual date of conversion.
<PAGE> 1
EXHIBIT 12
NABORS INDUSTRIES, INC. AND SUBSIDIARIES
COMPUTATION OF RATIOS OF EARNINGS TO FIXED CHARGES
(In thousands, except ratio amounts)
<TABLE>
<CAPTION>
Three
Months Ended Year Ended
Year Ended December 31, December 31, September 30,
1999 1998 1997 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Pretax income $ 45,629 $ 199,981 $ 62,616 $ 182,410
Add fixed charges as adjusted (from below) 31,165 16,040 4,107 16,980
----------- ----------- ---------- -----------
Earnings $ 76,794 $ 216,021 $ 66,723 $ 199,390
----------- ----------- ---------- -----------
Fixed charges:
Interest expense:
Interest on indebtedness $ 30,088 $ 14,974 $ 3,858 $ 15,993
Capitalized 154 2,648 297 1,191
Amortization of debt costs 307 489 121 527
Interest portion of rental expense 770 577 128 460
----------- ----------- ---------- -----------
Fixed charges before adjustments 31,319 18,688 4,404 18,171
Less capitalized interest (154) (2,648) (297) (1,191)
----------- ----------- ---------- -----------
Fixed charges as adjusted $ 31,165 $ 16,040 $ 4,107 $ 16,980
----------- ----------- ---------- -----------
Ratio (earnings divided by fixed charges
before adjustments) 2.45 11.56 15.15 10.97
----------- ----------- ---------- -----------
</TABLE>
<PAGE> 1
EXHIBIT 13
A
SIMPLE
PLAN
[GRAPHIC]
Nabors Industries 1999 annual report
<PAGE> 2
<TABLE>
<S> <C>
The Interconnected Elements of our Strategy ................................. 2
Financial Highlights ........................................................ 15
Areas of Operation .......................................................... 17
Financial Review ............................................................ 40
Corporate Information ....................................................... 68
</TABLE>
<PAGE> 3
WITH
INCREASING
IMPACT
[GRAPHIC]
1
<PAGE> 4
THE INTERCONNECTED
[DRAWING OF DRILLING RIG]
1 LOW-COST PREMIUM ASSETS
2 FAVORABLE LONG-TERM AND DIVERSE MARKETS
3 SUSTAINABLE COMPETITIVE ADVANTAGES
4 DEDICATED AND CAPABLE EMPLOYEES
5 EMPHASIS ON SAFETY AND QUALITY
6 LEADING-EDGE TECHNOLOGY
7 FINANCIAL FLEXIBILITY
8 SEIZE OPPORTUNITIES
2
<PAGE> 5
ELEMENTS OF OUR STRATEGY
1999 represented one of the worst market environments I have experienced during
my tenure with Nabors. However, your Company was able to mitigate the effects
of this market and even capitalize upon it by adhering to the elements of our
long-term strategic plan. In fact, we not only weathered the storm, we
consummated two major acquisitions while still managing to enhance our capital
structure. These accomplishments allowed us to emerge from the trough as a
stronger company ready to realize the potential impact robust demand for our
services should have on our financial results.
3
<PAGE> 6
[DRAWING OF UMBRELLA]
WEATHERING THE STORM
4
<PAGE> 7
The weak drilling market that started in late 1997 deepened in 1999 as reflected
by the US working rig count, which in April reached its lowest level since Baker
Hughes began tracking rigs shortly after World War II. This decline was the
direct result of continued reductions in capital spending by our customers,
many of whom saw their financial positions even further eroded in 1999 by
protracted low oil prices. While oil prices steadily increased throughout the
remainder of the year following a March OPEC agreement to curtail production,
increases in customer spending for drilling continued to lag.
In spite of this anemic market, Nabors remained profitable. At the same time, we
maintained a relatively high level of discretionary cash flow by quickly and
aggressively reducing overhead
5
<PAGE> 8
and operating costs, and by selectively curtailing capital expenditures. Our
cost control efforts were supplemented during the second half of the year by
significant improvement in gas-directed activity in our Gulf of Mexico offshore
platform workover, US Lower 48 land and Canadian drilling operations. These
positive elements were largely offset by further deterioration in our
International and Offshore platform drilling operations where a number of higher
cash flow, long-term contracts were completed in mid-year. By year end, the
outlook was much improved for all Nabors operations as crude oil and natural gas
prices continued to exceed expectations.
The combination of our ability to maintain a strong financial position and
achieve relatively good results during the downturn led to an
6
<PAGE> 9
($)
REMAINING PROFITABLE
7
<PAGE> 10
[GRAPHIC]
BUILDING THROUGH ACQUISITIONS
[GRAPHIC]
8
<PAGE> 11
improved relative stock valuation. Our favorable valuation and good access to
low-cost capital allowed us to again take advantage of industry weakness by
completing two strategic acquisitions, Bayard Drilling Technologies, Inc. and
Pool Energy Services Co.
These sizeable acquisitions significantly added to our premium asset base,
further strengthened our workforce, expanded our presence geographically and
added two new lines of business, US land well-servicing and workover, and
marine supply vessels. Specifically, Bayard added 87 primarily deep premium
rigs, all located in the US Lower 48. Pool augmented significantly our Alaska,
Offshore and International operations. In both cases we were able to eliminate
redundant overhead and apply Nabors' lower insurance and operating costs, saving
approximately $30 million annually in Pool alone.
9
<PAGE> 12
We also took several steps to further enhance our solid financial position. In
March, prior to the significant rise in interest rates, Nabors placed $325
million in five-year term Senior Debt at 6.8%. This was undertaken in
anticipation of refinancing roughly $330 million in Pool and Bayard debt upon
closing of these acquisitions.
In addition, during June and July we repaid the $40 million in Nabors'
higher-cost debt and called our $172.5 million in convertible debt, thus forcing
conversion of these notes into common stock. We addressed the acquired
companies' debt by providing both with sufficient funds to repay approximately
$70 million in miscellaneous debt. We also repurchased all of Bayard's $100
million in 11% notes and $86 million of Pool's $150 million issue of 8 5/8%
notes.
10
<PAGE> 13
ENHANCING OUR CAPITAL STRUCTURE
[GRAPHIC]
11
<PAGE> 14
EMERGING STRONGER
[GRAPHIC]
12
<PAGE> 15
These actions reduced our total debt to capitalization ratio to less than 25%,
from a high of 40% pro forma for the acquisitions (assuming both occurred
concurrently), and earned upgrades of our debt ratings.
Nabors' actions during the drilling industry downturn have allowed us to emerge
stronger than ever. We now have a much larger asset base in many good operating
regions. Our businesses are stronger, with more assets and broader product
lines. We continue to invest in enhancing the safety, quality, technology and
efficiency of our operations. Our financial position is stronger than ever, as
is our access to low-cost capital. This combination bodes well for higher
earnings and enhances our ability to consider ever more significant strategic
opportunities.
13
<PAGE> 16
The accomplishments of our dedicated and capable workforce in 1999 are
remarkable, particularly in the improvements they effected in the areas of
safety, quality and efficiency of our operations.
The emerging supply/demand balance of both the assets we operate and the
commodities that underpin our industry imply an enduring recovery. These
conditions, along with all of 1999's enhancements, suggest even higher potential
in all of our businesses. We will thus concentrate our efforts on realizing this
potential. I look forward to reporting higher earnings and return on capital in
2000.
/s/ EUGENE M. ISENBERG
Eugene M. Isenberg
Chairman and Chief Executive Officer
[PICTURED LEFT TO RIGHT]
Anthony G. Petrello, President and Chief Operating Officer
Richard A. Stratton, Vice Chairman
Eugene M. Isenberg, Chairman and Chief Executive Officer
14
<PAGE> 17
NABORS INDUSTRIES
FINANCIAL HIGHLIGHTS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Twelve
Months Ended
Year Ended Year Ended December 31,
operating data December 31, December 31, (Unaudited) Year Ended September 30,
- ------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 642,264 $ 968,157 $1,115,032 $1,029,303 $ 719,743 $ 572,788 $ 484,268
Depreciation and amortization 99,893 84,949 72,350 66,391 46,117 31,042 26,241
Operating income 58,408 182,338 195,348 154,761 77,099 58,555 9,299
Net income 27,704 124,988 136,020 114,808 70,500 51,104 1,350
Net income per diluted share $ .23 $ 1.16 $ 1.24 $ 1.08 $ .75 $ .57 $ .02
Weighted average number of
diluted shares outstanding 120,449 112,555 113,793 111,975 93,752 89,655 85,620
Capital expenditures and
acquisitions of businesses $ 667,517 $ 313,464 $ 381,009 $ 396,668 $ 174,483 $ 144,560 $ 62,907
- ------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
operating data Year Ended September 30,
- -------------------------------------------------------------------------
1993 1992 1991
<S> <C> <C> <C>
Revenues $ 419,406 $ 312,407 $ 264,239
Depreciation and amortization 22,434 16,526 10,119
Operating income 38,257 34,705 30,324
Net income 38,558 33,740 29,724
Net income per diluted share $ .50 $ .45 $ .42
Weighted average number of
diluted shares outstanding 77,806 74,666 70,728
Capital expenditures and
acquisitions of businesses $ 84,752 $ 61,124 $ 88,104
- -------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
As of As of As of
balance sheet data December 31, December 31, December 31, As of September 30,
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and short-term
marketable securities $ 111,666 $ 23,450 $ 12,606 $ 11,044 $ 104,027 $ 15,334 $ 45,232
Working capital 195,817 36,822 62,571 70,872 172,091 33,892 77,248
Property, plant and
equipment, net 1,669,466 1,127,154 923,402 861,393 511,203 393,464 283,141
Total assets 2,398,003 1,465,907 1,281,306 1,234,232 871,274 593,272 490,273
Long-term obligations 482,600 217,034 226,299 229,507 229,504 51,478 61,879
Stockholders' equity 1,470,074 867,469 767,340 727,843 457,822 368,750 317,424
Funded debt to capital ratio 0.25:1 0.26:1 0.27:1 0.27:1 0.35:1 0.20:1 0.21:1
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
balance sheet data As of September 30,
- --------------------------------------------------------------------------
1993 1992 1991
<S> <C> <C> <C>
Cash and short-term
marketable securities $ 70,458 $ 14,783 $ 15,139
Working capital 113,653 33,831 15,650
Property, plant and
equipment, net 270,865 220,761 185,543
Total assets 493,927 339,930 285,615
Long-term obligations 73,109 49,294 37,489
Stockholders' equity 307,583 201,058 157,302
Funded debt to capital ratio 0.24:1 0.28:1 0.24:1
- --------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Twelve
Months Ended
geographic distribution Year Ended Year Ended December 31,
of revenues and assets December 31, December 31, (Unaudited) Year Ended September 30,
- -----------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
United States $ 439,131 $ 692,636 $ 867,999 $ 797,319 $ 503,622 $ 383,376 $ 299,278
Foreign 203,133 275,521 247,033 231,984 216,121 189,412 184,990
- -----------------------------------------------------------------------------------------------------------------------------------
$ 642,264 $ 968,157 $1,115,032 $1,029,303 $ 719,743 $ 572,788 $ 484,268
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets:
United States $1,917,751 $1,068,193 $ 958,026 $ 897,453 $ 593,014 $ 348,248 $ 287,390
Foreign 480,252 397,714 323,280 336,779 278,260 245,024 202,883
- -----------------------------------------------------------------------------------------------------------------------------------
$2,398,003 $1,465,907 $1,281,306 $1,234,232 $ 871,274 $ 593,272 $ 490,273
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
geographic distribution
of revenues and assets Year Ended September 30,
- ---------------------------------------------------------------------------
1993 1992 1991
<S> <C> <C> <C>
Revenues:
United States $ 224,401 $ 138,534 $ 146,690
Foreign 195,005 173,873 117,549
- ---------------------------------------------------------------------------
$ 419,406 $ 312,407 $ 264,239
- ---------------------------------------------------------------------------
Total assets:
United States $ 277,945 $ 152,715 $ 144,590
Foreign 215,982 187,215 141,025
- ---------------------------------------------------------------------------
$ 493,927 $ 339,930 $ 285,615
- ---------------------------------------------------------------------------
</TABLE>
15
<PAGE> 18
[GRAPHIC: a pie chart representing the Company's estimate of the relative size
of the contribution from each of its more significant business lines under a
scenario where the supply and demand for rigs is in balance.]
OPERATING SYNERGIES
16
<PAGE> 19
Nabors Industries operates through a group of semi-autonomous business units,
among whom it allocates capital and other resources, and provides centralized
administration support. These units are organized on a geographic and
line-of-business basis, each possessing leading market positions, high-quality
assets and capable people.
17
<PAGE> 20
NABORS ALASKA
NABORS ALASKA COMPLETED 1998 AT RECORD LEVELS OF PERFORMANCE, BUT IMMEDIATELY
ENDURED A PRECIPITOUS DECLINE IN ACTIVITY.
Activity bottomed out at one-third of historical highs in the second
quarter of 1999 and remained there throughout the year. The work force reduction
that accompanied this decline was the largest in the history of this operating
unit.
The year was not without some bright spots, however. The Pool
acquisition, while late in the year, adds three active drilling rigs.
Significant operating synergies and consolidation savings have already been
effected.
During the decline in activity, this unit continued to expand its
commitment to safety. We implemented an even more intensive safety incentives
program which rewards compliance as well as results. The success of the program
was evident during the second half of 1999 when Nabors Alaska experienced no
lost time accidents or OSHA recordable incidents.
Furthermore, by year end we had completed implementation of a
structured technical limits program in conjunction with BP Amoco. The program
identifies and records how drilling hazards and risks were managed on previous
wells and incorporates that data into future well planning. This system is
expected to improve drilling efficiency and reduce costs.
Going forward, Nabors Alaska expects 2000 to be greatly improved as
customers begin to implement previously announced higher levels of spending.
Prudhoe Bay should see expanded activity and prospects in Cook Inlet are bright
for the second half of the year. Significantly higher levels of activity should
follow once the uncertainties surrounding the proposed merger of BP Amoco and
Arco are resolved.
18
<PAGE> 21
[PHOTO OF ARCTIC DRILLING RIG]
19
<PAGE> 22
NABORS CANADA
NABORS CANADA EXPERIENCED A STRONG RECOVERY IN THE THIRD QUARTER FROM THE SOFT
MARKET THAT HAD PREVAILED FROM MID-1998 THROUGH THE FIRST TWO QUARTERS OF 1999.
THE LAST THREE MONTHS WERE THE STRONGEST FOURTH QUARTER ON RECORD IN TERMS OF
RIG UTILIZATION.
20
<PAGE> 23
[PHOTO OF DRILLING RIG]
This robust market appears sustainable throughout 2000 and beyond,
based upon improved oil and gas prices and Canada's added capacity to export gas
to the United States, which will be further enhanced with the opening of the new
Alliance pipeline in 2001. Deep gas drilling is particularly strong in existing
areas, with new discoveries in the higher latitudes holding great promise.
Nabors is particularly well-positioned to participate in this expanding market
given our premium rigs in the deeper classifications, and our ability as demand
merits to add capacity at favorable capital costs from rigs stacked in the US
Lower 48.
Nabors has proactively instituted programs to address the need for
qualified crews that is sure to result from this increased level of activity. A
new safety initiative and expanded training programs should maintain the high
standards our customers have come to expect from Nabors crews.
21
<PAGE> 24
US LOWER 48
[PHOTO OF DRILLING RIG]
22
<PAGE> 25
IMPROVING OIL PRICES FUELED A REBOUND IN THIS BUSINESS UNIT'S PERFORMANCE IN THE
THIRD AND FOURTH QUARTERS OF 1999. THE AVERAGE RIG COUNT IMPROVED TO 55% OF ITS
1997 HIGH AFTER FALLING TO A LOW OF 30% AT THE END OF THE SECOND QUARTER.
Nabors' rig level profitability remained solid despite low activity,
due to a lower-cost structure and the contributions of integrated rentals like
top drives and rig instrumentation.
A highlight of the year was the company's excellent safety performance,
which continued a trend within Nabors and placed the company at the top of the
industry. Our lost time accident rate is approximately one-fourth of the
comparable industry average. This advances us toward our primary goal of
protecting the health and well being of our most important asset, our people.
It also contributes to improved morale and reduced turnover and is an important
element in our customer's contractor selection process.
Nabors also expects much of the new drilling activity to be deeper
prospects. It took steps to meet expected demand in this market by overhauling
and upgrading to state-of-the-art status two of our stacked, ultra-deep drilling
rigs. One of these rigs is now working and the other has good prospects. A third
deep drilling rig was also reactivated and refurbished and is now working. Going
forward, the company expects continued improvement in drilling activity in 2000,
with the corresponding improvement in dayrates that accompanies tightening
supply in the face of increased demand. Premium rigs should be
23
<PAGE> 26
[PHOTO OF DRILLING RIG]
24
<PAGE> 27
highly utilized, the primary reason why Nabors is upgrading many of its rigs,
with more than 100 scheduled to get new engines and improved drilling fluids
processing equipment in the coming year. We expect to have substantially all of
our fleet outfitted with our sister company's state-of-the-art instrumentation
systems. We are also adding new Canrig top drives to our fleet to meet the
higher demand for these units on our SCR rigs, 50% of which are currently so
equipped. These and other upgrades will improve drilling efficiency and safety
and reduce costs, all of which are expected to increase demand for these rigs.
Nabors' large and diversified rig fleet should once again position the
company to meet demand wherever it occurs. The company already has expanded its
presence in California and along the Texas Gulf Coast by moving rigs from areas
of lesser activity. This ability will become even more important in 2000 as the
number of active Nabors rigs is expected to once again reach much higher levels.
Nabors' US land safety performance
* IADC data for 1999 is preliminary.
(Incident rate per 200K man-hours)
[GRAPH]
IADC
Total Recordable Incidents 8.74*
Nabors
Total Recordable Incidents 4.44*
IADC
Lost Time Accidents 2.09*
Nabors
Lost Time Accidents .47*
Nabors Drilling USA closed calendar year 1999 with outstanding achievement in
safety.
o 181 rigs operated 33,050 rig days and 5 million man-hours without a lost
time accident
o 106 rigs completed 16,275 rig days and over 2.5 million man-hours without
an OSHA recordable incident
o 55 rigs operating more than two years without a recordable incident
25
<PAGE> 28
[PHOTO OF DRILLING RIG]
26
<PAGE> 29
INTERNATIONAL
NABORS INDUSTRIES' ACQUISITION OF POOL ENERGY SERVICES IN LATE NOVEMBER IS
HAVING A MAJOR IMPACT ON NABORS INTERNATIONAL.
The acquisition significantly enhanced our position in Saudi Arabia
while eliminating redundant administrative costs there and in Pool's
Houston-based international division headquarters. It also provides Nabors with
a presence in Argentina, Ecuador, Guatemala, Oman and Pakistan.
Several term contracts bolstered this unit's performance during the
first and second quarters, but their expiration, combined with further
reductions in drilling activity, resulted in declining profitability until the
fourth quarter. However, during the last few months of the year there was a
significant increase in bidding activity and we received several contract
awards. The financial impact of these successes will be felt throughout 2000.
Both the type and location of the Nabors International rig fleet
contributed to the high success rate the company enjoyed during recent bidding.
At year end, we had executed or were negotiating contracts that would soon
return numerous idle rigs to service in Venezuela, Colombia, Ecuador, Yemen,
Saudi Arabia, Algeria and other areas. Most of this success is due to our
fleet's proximity to the projects and technical suitability. These resources
will become even more important as demand for strategically located rigs
increases. Several additional projects are expected to result from a new influx
of bidding in the Middle East and South America, and provide reason for optimism
in the second and third quarters.
Nabors International will continue to reinforce its successful safety
program and has begun implementation of this program throughout the former Pool
operations. This is expected to enhance the company's already high safety
rating.
27
<PAGE> 30
NABORS OFFSHORE
NABORS OFFSHORE SAW ITS PERFORMANCE IN 1999 DECLINE SOMEWHAT FROM THE LEVELS
ACHIEVED IN 1998, BUT THIS BUSINESS UNIT WAS STILL SOLIDLY PROFITABLE AND WELL
AHEAD OF MOST OTHERS IN THE INDUSTRY.
Low oil prices kept jackup and workover rigs largely inactive during
the first half of the year. This unit bridged the downturn by contributions from
several long-term contracts for both platform workover and drilling rigs. At
mid-year, all but two of the platform drilling contracts were completed, the
loss of which more than offset increased gas-related activity in our jackup and
workover rig fleets.
Nabors Offshore responded to reduced utilization levels by initiating a
significant reduction in general and administrative overhead costs. The company
took further steps to reduce costs by mothballing rigs with no near-term
prospects.
Nabors Industries' acquisition of Pool Energy Services Co. is having a
large impact on Nabors Offshore. This unit is already realizing numerous
benefits by improving the profitability of Pool's rigs, by eliminating redundant
overhead and consolidating facilities.
Going forward, Nabors Offshore expects steadily improving results from
continued improvement in utilization and pricing within its platform and jackup
workover rig fleets.
The outlook for the larger platform drilling rigs is also improving, as
evidenced by a recent new contract in Trinidad, and several new inquiries in
March of 2000.
28
<PAGE> 31
[PHOTO OF PLATFORM RIG]
29
<PAGE> 32
WELL-SERVICING
[PHOTO OF MOBILE WELL-SERVICING RIG]
30
<PAGE> 33
POOL WELL SERVICING, WHICH WAS ACQUIRED IN LATE-1999, EXPERIENCED A ROLLER
COASTER EFFECT WITH ACTIVITY DECLINING TO 50% OF 1998 HISTORICAL HIGHS, THEN
REBOUNDED IN THE THIRD AND FOURTH QUARTERS TO FINISH AT APPROXIMATELY 70% OF
RECORD UTILIZATION LEVELS.
Pool Well Services is the US land well-servicing and workover business
Nabors acquired in its acquisition of Pool Energy Services Company in late 1999.
Well-servicing is the term applied to mechanical repairs performed on producing
wells, primarily oil wells with artificial lift systems. This type of work is
the dominant one of three components of this unit's business. Other services are
workover, which involves more extensive reworking of oil and gas wells to
increase production, and production services, which consists primarily of the
transportation, storage and disposal of oilfield fluids.
After a slow start, the market for Pool Well Services rebounded in
mid-1999 in response to improved oil prices. By mid-year, activity fell to 50%
of its 1998 highs. By year end, well-servicing activity, which is usually the
first to respond to higher oil prices and is often a good leading indicator of
improved oil directed drilling activity, climbed back to 70% of its record
utilization levels. Pricing stayed firm throughout this period and trended
upward at the end of the year. This unit also took steps to improve its
profitability by restructuring its organization, reducing man power and closing
unprofitable facilities.
Going forward, the company expects further improvement in 2000 in both
utilization and pricing. Efficiency and profitability will be further enhanced
by the reduced overhead and improved operating synergies resulting from its
consolidation within the Nabors group.
31
<PAGE> 34
MARINE SUPPLY
[PHOTO OF SUPPLY VESSEL]
32
<PAGE> 35
AND TRANSPORTATION
1999 INITIALLY WAS A WEAK YEAR FOR SEA MAR, WHOSE BUSINESS CLOSELY TRACKS
DRILLING ACTIVITY, BUT AN IMPROVED FOURTH QUARTER GIVES REASON FOR OPTIMISM IN
2000.
Sea Mar is the offshore marine transportation business Nabors acquired
as part of the Pool Energy Services Company acquisition. At year end, it
consisted of fourteen supply vessels, eight mini-supply vessels, two research
vessels, one anchor-handling and towing vessel, and five recently constructed
deepwater drilling support vessels. The five new vessels are part of a $100
million, ten-vessel building program initiated prior to our acquisition. Two
more boats have been delivered since the first of the year and the final two
will be delivered in the second half of the year.
These new vessels fit Nabors' premium asset strategy. While the older,
more common vessels still face weak demand, these new vessels appear to be
appropriately designed and well-timed. They are particularly well-suited to
supporting deepwater programs because of their innovative design and other
features, notably dynamic positioning and expanded dimensions that yield
essentially twice the deck space, bulk materials and fuel transport capacity of
conventional 180-ft. supply vessels. Another feature, shallower draft, provides
accessibility to an increased number of ports, providing the customer with
additional flexibility in locating shore bases and potentially reducing
nonproductive transit time.
The company took steps to mitigate the impact of the weak market
conditions in 1999 by reducing operating costs and stacking some of its older
assets to defer maintenance costs associated with required dry docking.
Going forward, the company expects continued improvement in Gulf of
Mexico drilling activity and a proportionate increase in demand for vessels,
especially the new vessels, all of which should be contributing to earnings by
year end. Sea Mar is also pursuing several opportunities outside its normal
scope of operations, including subsea fiber optic cable maintenance.
33
<PAGE> 36
MANUFACTURING
NABORS CONTINUES TO BENEFIT FROM THE CONTRIBUTION OF RENTALS AND OUTSIDE SALES
OF TOP DRIVES AND RIG INSTRUMENTATION PROVIDED THROUGH SUBSIDIARIES CANRIG AND
EPOCH.
Canrig had a weak 1999 with the only highlight being the penetration of
the ultra-deepwater drilling market with the shipment of four top drive systems
for use on state-of-the-art semi-submersible offshore rigs. Since late 1999,
this unit has experienced a healthy increase in its backlog, which stood at 70%
of planned 2000 capacity in March. Other recent developments are the
establishment of a new alliance with another of the largest US land drillers,
and the pending roll out of the industry's first 750-ton A/C top drive for land
application.
In 1999, Epoch experienced rapid adoption of its Rigwatch(TM) System
first introduced in 1998, with 150 units operating nationwide by year end. The
mudlogging segments of the business also experienced significant improvement.
New product development continued in 1999. We released Rigwatch(TM)
2000, which further automates and accelerates data collection at the rig while
building a database of drilling parameters. We also upgraded our DML 2000
mudlogging system and will soon roll out a new customer accessed website called
"My Rigs.com(TM)" that will let customers use the Internet to monitor rig
performance anywhere in the world. We have now installed Rig Report(TM) software
and Epoch instrumentation on over 140 domestic rigs. We have automated payroll
and procurement processing as well as daily operations reporting utilizing our
intranet, and we are moving forward on accounts receivable automation.
Going forward, 2000 looks strong with this entity expected to nearly
double the number of its systems in place by year end.
34
<PAGE> 37
AND TECHNOLOGY
[PHOTO OF TOP DRIVE MANUFACTURING PROCESS]
35
<PAGE> 38
TRANSPORTATION
[PHOTO]
36
<PAGE> 39
AND CONSTRUCTION
BOTH PEAK USA AND PEAK OILFIELD SERVICE COMPANY (ALASKA) ENTERED 1999 WITH
MODEST EXPECTATIONS, BUT A COMBINATION OF COST-CUTTING EFFORTS, ORGANIZATIONAL
RESTRUCTURING AND BETTER THAN ANTICIPATED ACTIVITY IN SOME AREAS YIELDED
ACCEPTABLE RESULTS FOR BOTH OF THESE BUSINESS UNITS.
Peak USA consists of some 400 units of oilfield hauling and rig moving
equipment, primarily located in Texas, Oklahoma and Louisiana. During the year,
Peak USA became a wholly-owned subsidiary of Nabors following our purchase of
the remaining 50% of this joint venture company from our Alaskan partner. Peak
USA is now fully consolidated into Nabors Industries and the company has been
put under new management.
Our 50% Alaskan joint venture, Peak Oilfield Service Company, benefited
from the long cycle time required in new field development. Peak was awarded
meaningful construction activity related to development of the infrastructure
for the Alpine field on the North Slope. Increased revenues from Prudhoe Bay's
drilling waste remediation project further helped an otherwise weak year.
In 2000, Peak Oilfield Service Company expects to benefit from
anticipated increases in exploration and development drilling activity, as well
as planned construction activity at Northstar and in the Colville River area,
some 50 miles west of Prudhoe Bay.
37
<PAGE> 40
[WORLD MAP]
Nabors operates a large, high-quality and diverse fleet of land and offshore
platform rigs in numerous areas around the globe. A significant percentage of
our rigs are rated for deeper and more sophisticated drilling applications. We
have a majority of the industry's premium electric (SCR) rigs, which generally
are preferred for directional, horizontal and deeper, more difficult wells.
Certain of our rigs are highly specialized and advanced designs for some of the
world's most challenging environments.
38
<PAGE> 41
NABORS INDUSTRIES
WORLDWIDE RIG FLEET
<TABLE>
<CAPTION>
land rig fleet LESS THAN 10,000' 10,000' TO 14,999' 15,000' TO 19,999' 20,000' AND DEEPER
525 actively marketed rigs MECH SCR MECH SCR MECH SCR MECH SCR TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ALASKA
North Slope(1) 3 2 3 9 17
Kenai/Cook Inlet 2 2
- ----------------------------------------------------------------------------------------------------------------------------
Subtotal Alaska Land Rigs 3 2 5 9 19
- ----------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL
Houston 2 2
Africa 1 1
CIS 2 1 1 2 6
Middle East 6 4 10 9 6 35
South and Central America 1 12 7 4 4 7 35
Joint Ventures(2) 14(3) 1 2 2 1 20
- ----------------------------------------------------------------------------------------------------------------------------
Subtotal International Land Rigs 21 19 20 4 17 18 99
- ----------------------------------------------------------------------------------------------------------------------------
US LOWER 48
SOUTHERN DIVISION
East Texas District 12 5 7 22 1 10 57
South Texas District 6 1 8 15 8 10 48
Gulf Coast District 1 1 3 5 25 35
SOUTHWEST DIVISION
California District 7 1 3 4 1 5 7 28
West Texas District 5 15 6 3 2 1 32
Mid-Continent District 11 23 5 23 10 7 17 96
Rockies District 9 2 26 3 27 4 1 5 77
- ----------------------------------------------------------------------------------------------------------------------------
Subtotal US Lower 48 Land Rigs 32 3 86 19 75 59 24 75 373
- ----------------------------------------------------------------------------------------------------------------------------
CANADA 14 1 5 2 2 6 5 35
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL LAND RIGS 526
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<S> <C>
US land well-servicing rigs--650 actively marketed workover/well-servicing rigs
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
offshore rig fleet PLATFORM RIGS
----------------------------------------------------------
Concentric SUPER
36 actively marketed workover rigs* Tubing 750 HP SUNDOWNER(R) 750 HP SUNDOWNER JACKUP Barge Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GULF OF MEXICO 3 2 7 3 2 9 2 28
- ----------------------------------------------------------------------------------------------------------------------------
INTERNATIONAL
Australia 1 1
Brazil 1 1
Italy 1 1
Malaysia 1 1
Mexico 3 3
Turkmenistan 1 1
- ----------------------------------------------------------------------------------------------------------------------------
Subtotal International Workover Rigs 1 2 5 8
- ----------------------------------------------------------------------------------------------------------------------------
TOTAL OFFSHORE WORKOVER RIGS 36
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
PLATFORM RIGS
--------------------------------
16 actively marketed drilling rigs MASE(TM) SELF ERECTING API BARGE JACKUP TOTAL
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
GULF OF MEXICO 2 3 5 2 12
- ----------------------------------------------------------------------------------------------------------
INTERNATIONAL
New Zealand 1 1
Trinidad 1
Middle East 1 2(4) 2
- ----------------------------------------------------------------------------------------------------------
Subtotal International Offshore
Drilling Rigs 1 1 2 4
- ----------------------------------------------------------------------------------------------------------
TOTAL OFFSHORE DRILLING RIGS 16
- ----------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes one coiled tubing drilling rig at 50% ownership.
(2) Represents the net quantity of rigs owned by Nabors at approximately
50% interest.
(3) Includes 14 well-servicing rigs.
(4) Includes one jackup drilling rig at approximately 50% ownership.
39
<PAGE> 42
THE NUMBERS
41 SELECTED FINANCIAL DATA
42 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
50 REPORT OF INDEPENDENT ACCOUNTANTS
51 CONSOLIDATED BALANCE SHEETS
52 CONSOLIDATED STATEMENTS OF INCOME
53 CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
54 CONSOLIDATED STATEMENTS OF CASH FLOWS
55 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
40
<PAGE> 43
NABORS INDUSTRIES
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Twelve
Months Ended Three
Year Ended Year Ended December 31, Months Ended
operating data(1) December 31, December 31, (Unaudited) December 31,
- -------------------------------------------------------------------------------------------
1999 1998 1997(2) 1997
<S> <C> <C> <C> <C>
Revenues $ 642,264 $ 968,157 $ 1,115,032 $ 302,806
Operating expenses:
Direct costs 418,675 623,844 774,856 199,714
General and adminis-
trative expenses 65,288 77,026 72,478 18,580
Depreciation and
amortization 99,893 84,949 72,350 20,313
Merger expenses -- -- -- --
Provision for reduction in
carrying value of assets -- -- -- --
- -------------------------------------------------------------------------------------------
Operating income 58,408 182,338 195,348 64,199
Interest (expense)
income, net (21,639) (13,983) (14,387) (3,886)
Other income, net 8,860 31,626 28,502 2,303
- -------------------------------------------------------------------------------------------
Income before
income taxes 45,629 199,981 209,463 62,616
Income taxes 17,925 74,993 73,443 21,289
- -------------------------------------------------------------------------------------------
Net income $ 27,704 $ 124,988 $ 136,020 $ 41,327
- -------------------------------------------------------------------------------------------
Net income per
diluted share $ .23 $ 1.16 $ 1.24 $ .37
Weighted average
number of diluted
shares outstanding 120,449 112,555 113,793 116,427
Capital expenditures
and acquisitions
of businesses $ 667,517 $ 313,464 $ 381,009 $ 84,038
- -------------------------------------------------------------------------------------------
<CAPTION>
operating data(1) Year Ended September 30,
- --------------------------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues $ 1,029,303 $ 719,743 $ 572,788 $ 484,268 $ 419,406 $ 312,407 $ 264,239
Operating expenses:
Direct costs 737,780 539,665 434,097 369,677 313,458 215,939 187,873
General and adminis-
trative expenses 68,616 56,862 49,094 47,770 45,257 45,237 35,923
Depreciation and
amortization 66,391 46,117 31,042 26,241 22,434 16,526 10,119
Merger expenses 1,755 -- -- 1,595 -- -- --
Provision for reduction in
carrying value of assets -- -- -- 29,686(3) -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Operating income 154,761 77,099 58,555 9,299 38,257 34,705 30,324
Interest (expense)
income, net (13,098) (9,189) (5,917) (5,778) (7,733) (4,349) 551
Other income, net 40,747 13,690 5,990 2,718 11,593 5,559 2,395
- --------------------------------------------------------------------------------------------------------------------------
Income before
income taxes 182,410 81,600 58,628 6,239 42,117 35,915 33,270
Income taxes 67,602 11,100 7,524 4,889 3,559 2,175 3,546
- --------------------------------------------------------------------------------------------------------------------------
Net income $ 114,808 $ 70,500 $ 51,104 $ 1,350 $ 38,558 $ 33,740 $ 29,724
- --------------------------------------------------------------------------------------------------------------------------
Net income per
diluted share $ 1.08 $ .75 $ .57 $ .02 $ .50 $ .45 $ .42
Weighted average
number of diluted
shares outstanding 111,975 93,752 89,655 85,620 77,806 74,666 70,728
Capital expenditures
and acquisitions
of businesses $ 396,668 $ 174,483 $ 144,560 $ 62,907 $ 84,752 $ 61,124 $ 88,104
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
balance sheet data(1) As of December 31,
- --------------------------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
Cash and short-term
marketable securities $ 111,666 $ 23,450 $ 12,606
Working capital 195,817 36,822 62,571
Property, plant and
equipment, net 1,669,466 1,127,154 923,402
Total assets 2,398,003 1,465,907 1,281,306
Long-term obligations 482,600 217,034 226,299
Stockholders' equity 1,470,074 867,469 767,340
Funded debt to
capital ratio 0.25:1 0.26:1 0.27:1
- --------------------------------------------------------------
<CAPTION>
balance sheet data(1) As of September 30,
- ------------------------------------------------------------------------------------------------------
1997 1996 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and short-term
marketable securities $ 11,044 $104,027 $ 15,334 $ 45,232 $ 70,458 $ 14,783 $ 15,139
Working capital 70,872 172,091 33,892 77,248 113,653 33,831 15,650
Property, plant and
equipment, net 861,393 511,203 393,464 283,141 270,865 220,761 185,543
Total assets 1,234,232 871,274 593,272 490,273 493,927 339,930 285,615
Long-term obligations 229,507 229,504 51,478 61,879 73,109 49,294 37,489
Stockholders' equity 727,843 457,822 368,750 317,424 307,583 201,058 157,302
Funded debt to
capital ratio 0.27:1 0.35:1 0.20:1 0.21:1 0.24:1 0.28:1 0.24:1
- ------------------------------------------------------------------------------------------------------
</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
acquired by 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 Pool Energy Services Co.
(November 1999), Bayard Drilling Technologies, Inc. (April 1999), New
Prospect Drilling Company (May 1998), Can-Tex Drilling & Exploration, Ltd.
land rigs (May 1998), Veco Drilling, Inc. land rigs (November 1997),
Diamond L Drilling & Production land rigs (November 1997), 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
("Gibson") (April 1996), Delta Drilling Company (January 1995), Grace
Drilling Company (June 1993) and Henley Drilling Company (November 1990).
The results of operations also reflect the disposition of the Company's UK
North Sea (November 1996) and Gibson (January 1998) operations.
(2) Represents unaudited recast financial data for the twelve months ended
December 31, 1997. This data was derived by adjusting the audited results
for the year ended September 30, 1997 to exclude the unaudited results for
the quarter ended December 31, 1996 and to include the audited results for
the three months ended December 31, 1997.
(3) 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.
41
<PAGE> 44
NABORS INDUSTRIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
results of operations
- --------------------------------------------------------------------------------
Fiscal Year 1999 Compared to Fiscal Year 1998
Company revenues for 1999 totaled $642.3 million, representing a
decrease of $325.9 million or 34% as compared to 1998. Operating income and net
income for 1999 totaled $58.4 million and $27.7 million ($.23 per diluted
share), respectively, representing decreases of 68% and 78% compared to 1998.
The significant reduction in the 1999 operating results is a direct
result of reduced capital spending by our customers for land drilling and
offshore drilling and workover services following the decline in crude oil and
gas prices that began during the fourth quarter of 1997 and reversed beginning
in March of 1999. This customer reaction resulted in a reduction in the
Company's rig utilization and dayrates during 1999 in most of the Company's
operating units as compared to the prior year. These lower activity and pricing
levels in our various business units leveled off during the middle to latter
part of 1999 and generally are beginning to increase in response to higher
average oil prices, which rose from a low of $11.37 per barrel in February 1999
to an average of $24.52 per barrel during the fourth quarter of 1999. Natural
gas prices have been much more stable than oil prices during the past two years,
but also have increased during 1999.
The recent increase in North American activity is illustrated by the
increase in the total US active land rig count. The rig count declined
throughout 1998, reaching a more than 50-year low of 380 working rigs during
April 1999. Since then, it has improved to 633 working rigs at December 31, 1999
(based on information published by Baker Hughes). This improvement was driven
almost exclusively by rigs drilling for natural gas. Nabors has benefited
directly from this increase in rig activity. It ended six consecutive quarters
of declining operating and net income with the Company recording increasing
operating results beginning with the third quarter and continuing with the
fourth quarter of 1999. These results appear to mark the beginning of a
sustainable upturn in our business that we expect to continue throughout the
year 2000.
Looking forward, the Company anticipates consistently improving
operating results in the US Lower 48, as well as increased levels of activity in
Canada resulting from high natural gas-related demand for deep drilling,
silicon-controlled rectifier (SCR) rigs with top drives in the Canadian
foothills. The Alaskan drilling operation is also expected to improve in 2000.
Our customers should become more active as they begin to implement their
announced, higher capital spending budgets. Additionally, utilization in the
Company's International land and Offshore operations are expected to show
improvements, based on increasing bid activity. In summary, if the current
commodity price environment continues, modest improvements that began during the
latter part of 1999 are expected to accelerate during the year 2000. As always,
there are significant risks that could disrupt or delay this positive trend.
The Company completed its acquisition of Pool Energy Services Co.
("Pool") on November 24, 1999. The acquisition was accounted for using the
purchase method of accounting, and the Company's fourth quarter results included
37 days of Pool's operating results. Pool's operations, although profitable,
were insignificant to Nabors' fourth quarter results. Although not yet complete,
the integration of Pool into Nabors is occurring rapidly and smoothly. The
Company is on schedule to realize the anticipated cost savings created from
integrating the areas of overlap. The largest savings are being derived from
consolidation of the various corporate functions and of the duplicate business
unit headquarters of the Alaska, International and Offshore units (including the
regional operations in Saudi Arabia). In addition to these cost efficiencies,
there has been improvement in all of Pool's operations, including noticeable
increases in utilization and pricing in both the land workover and
well-servicing, and marine transport businesses.
42
<PAGE> 45
The following tables set forth certain information with respect to the
Company's operating segments, the Company's rig activity and certain industry
data:
<TABLE>
<CAPTION>
Twelve
Months Ended
Year Ended Year Ended December 31,
December 31, December 31, (Unaudited) Increase (Decrease)
- ------------------------------------------------------------------------------------------------------------------------
(In thousands, except percentages) 1999 1998 1997(1) 1999 TO 1998 1998 TO 1997
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Contract drilling $ 605,271 $ 872,717 $ 1,018,445 $(267,446) (31%) $(145,728) (14%)
Manufacturing and logistics 49,220 111,188 125,992 (61,968) (56%) (14,804) (12%)
Other(2) (12,227) (15,748) (29,405) 3,521 22% 13,657 46%
- ------------------------------------------------------------------------------------------------------------------------
$ 642,264 $ 968,157 $ 1,115,032 $(325,893) (34%) $(146,875) (13%)
- ------------------------------------------------------------------------------------------------------------------------
Operating income (loss):
Contract drilling $ 71,050 $ 181,793 $ 193,553 $(110,743) (61%) $ (11,760) (6%)
Manufacturing and logistics 3,064 15,861 19,540 (12,797) (81%) (3,679) (19%)
Other(2) (15,706) (15,316) (17,745) (390) (3%) 2,429 14%
- ------------------------------------------------------------------------------------------------------------------------
$ 58,408 $ 182,338 $ 195,348 $(123,930) (68%) $ (13,010) (7%)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents unaudited recast segment information provided for comparative
purposes.
(2) Includes the elimination of inter-segment transactions and unallocated
corporate expenses.
<TABLE>
<CAPTION>
Twelve
Year Ended Year Ended Months Ended
December 31, December 31, December 31,
- ------------------------------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
Rig activity:(1)
Rig years(2) 149.5 204.1 268.8
Rig utilization 31% 48% 66%
- ------------------------------------------------------------------
</TABLE>
(1) Excludes labor contracts and Pool and Gibson well-servicing rigs.
(2) Rig years represent a measure of the number of equivalent rigs operating
during a given period. For example, one rig operating 182.5 days during a
365-day period represents 0.5 rig years.
<TABLE>
<CAPTION>
Twelve
Year Ended Year Ended Months Ended
December 31, December 31, December 31,
- ------------------------------------------------------------------
1999 1998 1997
<S> <C> <C> <C>
Average West Texas
intermediate crude
oil spot ($/bbl)(1) $19.30 $14.38 $20.58
Average US natural
gas spot ($/mcf)(1) $ 2.19 $ 2.00 $ 2.36
Average US land rig
count(2) 502 699 822
Average International
land rig count(2) 408 504 557
- ------------------------------------------------------------------
</TABLE>
(1) Source: Bloomberg
(2) Source: Baker Hughes
CONTRACT DRILLING Contract drilling revenues totaled $605.3 million
during 1999, representing a 31% decrease compared with 1998. Equivalent rigs
years decreased to 149.5 years during 1999 compared to 204.1 years during 1998.
Most of the Company's contract drilling operations experienced significant
declines in drilling activity and dayrates during 1999 as compared to 1998.
These declines resulted from reduced demand for drilling and workover services
caused by reduced customer spending resulting from lower crude oil and natural
gas prices throughout 1998 and the first quarter of 1999.
Alaskan revenues were lower during 1999 as a result of lower equivalent
rig years as compared to 1998. A number of rig contracts in Alaska were not
renewed during 1999, as had been expected, due to prevailing market conditions.
This reduction in drilling activity was partially offset by the contribution of
two newly constructed drilling rigs (7ES and 9ES), with an initial investment of
approximately $50.0 million, which commenced five-year contracts during the
fourth quarter of 1998.
Canadian revenues were lower during 1999 as a result of lower
equivalent rig years and dayrates associated with the reduced demand for
drilling services.
US Lower 48 revenues decreased during 1999 as a result of reduced
demand for drilling services. The decline in active rigs was more prevalent for
the Company's shallower mechanical rig fleet; however, all rig categories were
adversely impacted. Dayrates for all classes of rigs also decreased compared to
1998. The impact of reduced activity levels and lower dayrates on US Lower 48
margins was somewhat mitigated because an increased percentage of the Company's
working rigs were deep drilling SCR rigs. These rigs typically command higher
dayrates than shallower, mechanical rigs. US Lower 48 operations during 1999
reflect the addition of 87 rigs (73 of which are actively marketed) in
connection with the acquisition of Bayard Drilling Technologies, Inc. ("Bayard")
during April 1999.
43
<PAGE> 46
International operations revenues decreased during 1999, primarily as a
result of reduced drilling activity in the Middle East and South America. Middle
Eastern revenues declined primarily as a result of reductions in drilling
activity and dayrates in Saudi Arabia. Additionally, a jackup drilling rig did
not operate until the fourth quarter of 1999. This rig had operated in the
Persian Gulf for six months during 1998 at a significantly higher dayrate. South
America revenues were down from 1998 as a result of lower drilling activity in
Venezuela and Colombia. These decreases in South America were partially offset
by the contribution of four rigs that commenced operations in Bolivia during the
second half of 1998.
Offshore revenues decreased during 1999 as compared to 1998 as a result
of lower drilling and workover activity in the Gulf of Mexico. The Company's
platform drilling and workover rigs and jackup workover rigs had fewer operating
days and lower dayrates during 1999 as a result of the decrease in demand.
Internationally, platform workover revenues increased during 1999 as a result of
the deployment of three Super Sundowner(R) rigs, which began operations
internationally during the fourth quarter of 1998 and operated during all of
1999.
MANUFACTURING AND LOGISTICS Manufacturing and logistics revenues
totaled $49.2 million during 1999, representing a decrease of 56% compared with
1998. This decrease was primarily attributable to a change in the method of
accounting for the Company's investments in several 50% owned joint ventures,
including Peak Oilfield Service Company, an Alaskan construction and logistics
joint venture. Beginning January 1, 1999, these joint ventures have been
accounted for using the equity method of accounting, with the Company's equity
in the net income of the joint ventures recorded as a component of revenues in
the consolidated statements of income. During 1998, these investments were
accounted for using the proportionate consolidation method whereby the Company's
pro rata share of the joint venture's revenues and expenses were recorded as
corresponding revenues and expenses of the Company. Additionally, revenues for
Peak Oilfield Service Company were lower during 1999 as a result of reduced
activity. Canrig revenues were relatively unchanged during 1999. Revenues for
Epoch, the Company's drilling operation software and instrumentation provider,
were lower during 1999 as a result of decreased industry activity.
The following table sets forth selected consolidated financial
information of the Company expressed as a percentage of total operating revenues
excluding earnings (losses) from unconsolidated affiliates:
<TABLE>
<CAPTION>
Twelve
Months Ended
Year Ended Year Ended December 31,
December 31, December 31, (Unaudited)
- -------------------------------------------------------------------------------
(In thousands) 1999 1998 1997(1)
<S> <C> <C> <C>
Revenues 100.0% 100.0% 100.0%
Direct costs 65.6% 64.4% 69.5%
- -------------------------------------------------------------------------------
Gross margin 34.4% 35.6% 30.5%
General and
administrative expenses 10.2% 8.0% 6.5%
Depreciation and amortization 15.6% 8.8% 6.5%
- -------------------------------------------------------------------------------
Operating income 8.6% 18.8% 17.5%
Other (expense) income (2.0%) 1.8% 1.3%
- -------------------------------------------------------------------------------
Income before income taxes 6.6% 20.6% 18.8%
Income taxes 2.8% 7.7% 6.6%
- -------------------------------------------------------------------------------
Net income 3.8% 12.9% 12.2%
- -------------------------------------------------------------------------------
</TABLE>
(1) Represents unaudited recast financial information provided for comparative
purposes.
General and administrative expenses as a percentage of revenues
increased during 1999 due to the decline in the Company's revenues, as these
expenses were spread over a smaller revenue base. The Company has effected
significant reductions in overhead costs in response to the poor market
environment and, as a result, general and administrative expenses have decreased
in terms of absolute dollars during 1999. Depreciation expense and goodwill
amortization as a percentage of revenues increased during 1999 as a result of
the decrease in revenues during 1999, as well as significant capital
expenditures and a number of acquisitions completed during 1998 and 1999.
Interest expense increased during 1999, primarily as a result of the
March 1999 issuance of $325.0 million 6.8% Senior Unsecured Notes due April 15,
2004 (the "6.8% Notes"). Additionally, interest expense during 1999 includes
interest on Bayard's $100.0 million 11% Senior Notes due 2005 (the "11% Notes")
from April 1999 through August 1999, when the 11% Notes were purchased by the
Company in connection with a tender offer. These increases were partially
offset by several debt reduction transactions that were completed during July
and August 1999 (see further discussion under "Liquidity and Capital
Resources"). Interest income increased during 1999 as a result of interest
income earned on the remaining proceeds from the 6.8% Notes.
Other income decreased significantly during 1999 as compared to 1998.
During 1999, other income consisted primarily of realized and unrealized
holding gains recognized on investments in marketable equity securities, and
from gains on physical damage insurance claims. During 1998, gains were
recognized on the January 1998 sale of Gibson, a land workover and
well-servicing operation, and on physical damage insurance claims.
The effective tax rate during 1999 was 39.3% compared to an effective
tax rate of 37.5% during 1998.
44
<PAGE> 47
Fiscal Year 1998 Compared to
Twelve Months Ended December 31, 1997
The Company changed its fiscal year end from September 30 to December
31, effective for the fiscal year beginning January 1, 1998. The three month
transition period from October 1, 1997 through December 31, 1997 (the
"Transition Period") preceded the start of the new fiscal year. This discussion
compares the results of operations for the year ended December 31, 1998 ("1998")
with the unaudited recast results of operations for the twelve months ended
December 31, 1997 ("1997"). The results of operations for the twelve months
ended December 31, 1997 were derived by adjusting the audited results for the
year ended September 30, 1997 to exclude the unaudited results for the quarter
ended December 31, 1996, and to include the audited results for the three months
ended December 31, 1997.
Company revenues for 1998 totaled $968.2 million, representing a $146.9
million or 13% decrease compared to 1997. Operating income and net income for
1998 totaled $182.3 million and $125.0 million ($1.16 per diluted share),
respectively, representing decreases of 7% and 8% compared to 1997.
Throughout 1997 the Company benefited from increased active rig counts
and improvements in rig pricing associated with the increased demand for
drilling and workover rigs. During the fourth quarter of 1997, an imbalance
began to develop in the supply and demand for crude oil. A reduction in demand
growth rates was brought about by the Asian recession and by two consecutively
warmer-than-normal winters in North America. The supply of crude oil increased
as a result of increased production quotas by OPEC and renewed production by
Iraq. The resulting excess supply of crude oil caused significant declines in
oil prices during 1998. Crude oil prices averaged $14.38 per barrel during 1998
compared to $20.58 per barrel during 1997. During the fourth quarter of 1998,
crude oil prices averaged $12.90 per barrel, representing the lowest inflation
adjusted oil prices in history. Natural gas prices were also lower during 1998
as warmer-than-normal winters in North America during 1997 and 1998 resulted in
weaker demand. Reduced prices for oil and gas led to a sharp decline in the
demand for drilling and workover services as oil and gas companies significantly
reduced capital spending for exploration, development and production activities.
The Company's US Lower 48 operation was the first and most severely
impacted by the steadily weakening market. The total US land rig count averaged
699 during 1998 compared to 822 during 1997. The rig count continued to decline
throughout 1998 and was down to 500 rigs by year end. The area next impacted was
the Company's offshore workover rigs operating in the Gulf of Mexico. By the end
of 1998, substantially all of the Company's areas of operation experienced a
deteriorating market outlook.
CONTRACT DRILLING Contract drilling revenues totaled $872.7 million
during 1998, representing a 14% decrease compared with 1997. Equivalent rig
years decreased to 204.1 years during 1998 from an average of 268.8 years during
1997. The decrease in revenues and rig activity is primarily attributable to the
decline in drilling activity for the Company's US Lower 48 operation. These
decreases were partially offset by increased revenues from the Company's Alaska
and International operations.
The Alaska drilling operation showed significant improvements over 1997
as revenues increased by 52%. This increase was attributable to increased North
Slope drilling activity resulting from the development of marginal fields.
Increased demand led to an average of 10.5 rig years during 1998, an increase
over 1997 of 3.4 rig years, and improved dayrates. The Alaska operation
completed construction of two new drilling rigs (7ES and 9ES), with an initial
investment of approximately $50.0 million, which commenced five-year contracts
during the fourth quarter of 1998. Additionally, the Company reactivated and
modified a rig that had been stacked for a number of years. This rig began
operations during the second quarter of 1998. The Company also entered into a
joint venture during 1998, operating a coiled tubing drilling rig in Alaska.
This rig commenced operations during the second quarter.
Canadian revenues were 23% lower than the prior year as a result of
lower equivalent rig years associated with the reduced demand for drilling
services. Equivalent rig years totaled 15.1 years during 1998 compared to 22.1
years during 1997. The impact of the decline in drilling activity was somewhat
mitigated by improved average dayrates during 1998. The Canadian results also
benefited from the purchase of seven rigs from Can-Tex Drilling & Exploration,
Ltd. during the second quarter of 1998.
US Lower 48 revenues decreased by 32% during 1998 as a result of lower
equivalent rig years associated with the reduced demand for drilling services.
Equivalent rig years and utilization totaled 132.3 years and 43%, respectively,
during 1998, down significantly from 187.6 years and 64% during 1997. The
decline in equivalent rig years in the US Lower 48 during 1998 was more
prevalent for the Company's shallower mechanical rig fleet; however, all rig
categories were adversely affected. The Company's deep drilling,
silicon-controlled rectifier (SCR) rigs typically command higher dayrates and
these rigs represented a larger percentage of the Company's working rigs in the
US Lower 48 during 1998. Average US Lower 48 dayrates were higher than in 1997,
but were trending lower by the end of 1998. Additionally, revenues were
negatively impacted by the January 1998 sale of Gibson, the Company's land
workover and well-servicing operation.
International operation revenues increased by 18% despite equivalent rig
years decreasing during 1998 to 24.7 years from 27.4 years during 1997. Middle
Eastern revenues increased during 1998 as a result of increased drilling
activity in Yemen and the United Arab Emirates as compared to 1997.
Additionally, increased rental activity, improved dayrates and the recognition
of mobilization and demobilization profits in Saudi Arabia contributed to
improved results even though equivalent rig years were lower during 1998. Middle
Eastern revenues were negatively impacted during 1998 by fewer operating days
for the OceanMaster VIII, a jackup drilling rig. African revenues increased
during 1998 as a result of additional drilling activity in Gabon and
Mozambique associated with new contracts that commenced during December 1997 and
July 1998,
45
<PAGE> 48
respectively. South and Central American revenues were essentially equivalent to
the prior year as a decline in drilling activity in Venezuela was offset by new
contracts for four rigs in Bolivia. Two of these rigs commenced operations at
the end of the third quarter and two commenced operations during the fourth
quarter of 1998. Additionally, a new contract for one rig in Colombia positively
impacted South and Central American results during 1998.
Offshore revenues decreased by 4% during 1998 as a result of a
significant decline in activity for the Company's platform workover rigs
operating in the Gulf of Mexico. The demand for this class of rig was the first
to decline within the Company's Offshore operation as a result of weaker crude
oil and natural gas prices. The resulting decline in offshore revenues was
partially offset by increased platform workover revenues in international areas,
due in part to the redeployment of three Super Sundowner(R) rigs internationally
for new contracts during the fourth quarter of 1998. Additionally, the average
dayrates for all classes of rigs operating in the Gulf of Mexico and
internationally improved during 1998.
MANUFACTURING AND LOGISTICS Manufacturing and logistics revenues were
$111.2 million during 1998, as compared to $126.0 million during 1997,
representing a 12% decrease. Canrig revenues decreased significantly as a result
of a decline in land portable top drive sales, particularly to the Nabors fleet.
This decrease in top drive sales was somewhat mitigated by the introduction of a
top drive rental fleet during the year. Revenues for Epoch, the Company's
drilling operation software and instrumentation provider, and Peak Oilfield
Service Company, the Company's Alaskan construction and logistics joint venture,
were relatively flat as a result of steady activity levels.
Direct costs as a percentage of revenues decreased to 64% during 1998
as compared to almost 70% during 1997. The resulting increase in the gross
margin percentage during 1998 is the result of improved margins for several of
the Company's operations, and an increased percentage of the Company's revenues
being generated by the Company's more profitable areas of operation. During
1998, the Company benefited from cost-cutting efforts in the US Lower 48, as
well as higher margins associated with increased average dayrates in Alaska,
Canada, the US Lower 48 and several international areas. The increase in US
Lower 48 margins during 1998 was due in part to an increased percentage of the
Company's operating rigs being of the deep drilling, SCR type as compared to
1997. Additionally, a lower percentage of the Company's revenues were derived
from the US Lower 48 operation, which increased the overall gross margin
percentage. Contracts in the US Lower 48 generally earn a lower gross margin
percentage than Gulf of Mexico, Alaska and international contracts. Also
contributing to the increase in the gross margin percentage was the January 1998
sale of Gibson, the Company's lower margin land workover and well-servicing
operation.
General and administrative expenses as a percentage of revenues
increased during 1998 as a result of increased support costs associated with
the growth in activity levels throughout 1997 and the anticipated growth through
1998. As the demand for drilling and workover services weakened during 1998,
these costs represented a larger percentage of revenues.
Depreciation expense as a percentage of revenues increased during 1998
as a result of the decrease in revenues, significant capital expenditures and a
number of acquisitions completed during 1997 and 1998.
Other income increased during 1998 as compared to 1997. Other income
during 1998 included an approximate $16.0 million pre-tax gain recognized on
the sale of the Gibson operation. Other income also included gains on physical
damage insurance claims of $15.0 million and dividend income totaling $4.1
million during 1998. Unrealized holding losses on marketable equity securities
of $4.3 million reduced other income.
Other income during 1997 included an $8.8 million gain recorded on the
exercise of warrants received in connection with the sale of the Company's UK
North Sea operation in November of 1996. Other income also included $1.6 million
in realized and unrealized gains from equity security transactions, $.5 million
of dividend income, and gains on sales of long-term assets and businesses
amounting to $6.6 million.
The effective tax rate for 1998 was 37.5% as compared to 35.0% for the
prior year period.
liquidity and capital resources
- --------------------------------------------------------------------------------
Despite the poor market conditions, the Company generates significant
cash from operations. The Company also has substantial borrowing capacity under
various credit facility arrangements, and has access to public debt and equity
capital markets. The Company's senior unsecured debt ratings as provided by
Moody's Investor Service and Standard & Poor's are "A3" and "A-," respectively.
In March 2000, three executives of the Company exercised options to
acquire an aggregate of 7,500,000 shares of Nabors common stock.
The Company received approximately $90.0 million in cash in payment of
the exercise price for such options. A portion of this cash was used to repay
outstanding borrowings under the Company's credit facility.
During November 1999, the Company completed its acquisition of Pool.
Each of the approximately 19.2 million shares of Pool not owned by the Company
prior to the merger were exchanged for 1.025 shares of the Company
(approximately 19.7 million shares). Approximately $212.2 million of Pool's debt
remained outstanding as an obligation of Pool immediately following the merger.
Subsequent to the merger and prior to December 31, 1999, approximately $53.0
million of the Pool debt was extinguished. As a result of the acquisition, a
mandatory change of control cash tender offer was made to purchase the Pool
8.625% Senior Subordinated Notes due 2008 (the "8.625% Notes") at a redemption
price of 101%. During February 2000, a total of $81.3 million of the 8.625%
Notes were tendered in the offer, and $4.8 million of the 8.625% Notes were
purchased by the Company in the open market, leaving $63.9 million of the 8.625%
Notes outstanding. The Company used its line of credit to pay approximately
$70.0 million of the 8.625% Notes tendered. As of February 14, 2000, the Company
guaranteed the obligations under the 8.625% Notes.
During July 1999, the Company prepaid the entire $40.0 million
aggregate principal amount of its 9.18% Senior Notes due July 31, 2006, issued
to John Hancock Mutual Life Insurance Company and an affiliate, at par plus a
make-whole premium of approximately $4.5 million.
46
<PAGE> 49
During June 1999, the Company called its $172.5 million, 5%
Convertible Subordinated Notes due 2006, issued in May 28, 1996 (the "5% Notes")
for mandatory redemption on July 15, 1999. The redemption price was $1,035 per
$1,000 note, together with accrued and unpaid interest from May 15, 1999 to the
redemption date. Alternatively, holders of the 5% Notes could elect to convert
their notes prior to redemption, at a rate of 55.1724 shares of the Company's
common stock per $1,000 note. Holders of $172.3 million aggregate principal
amount of the 5% Notes elected to convert to 9.5 million shares of common stock.
The Company redeemed the remaining 5% Notes for $.2 million. As a result of
these transactions, the 5% Notes were cancelled during July 1999 and ceased to
be outstanding.
During June 1999, the Company filed a shelf registration statement on
Form S-3 with the Securities and Exchange Commission (SEC) to allow the Company
to offer, from time to time, up to $500.0 million in debt securities, preferred
stock, common stock, depository shares or warrants. The SEC declared the
registration statement effective on June 28, 1999. The Company currently has not
issued any securities registered under this registration statement.
During April 1999, the Company completed its acquisition of Bayard.
Each of the approximately 18.3 million shares of Bayard common stock were
exchanged for .3375 shares of the Company's common stock and $.30 per share in
cash (approximately 6.2 million shares and $5.5 million in cash in the
aggregate). Approximately $116.0 million of Bayard's debt remained outstanding
as an obligation of Bayard immediately following the merger, which the Company
did not guarantee. Approximately $14.3 million of Bayard's senior debt was paid
off subsequent to the merger pursuant to contractual requirements. During July
1999, the Company made a cash tender offer to the holders of the 11% Notes that
expired on August 3, 1999. The price offered was $1,110 per $1,000 note
(inclusive of interest through July 1, 1999) plus interest on such amount from
and including July 2, 1999 to but excluding the date of payment, at a per annum
rate of 5.0%. In connection with the offer, the Company acquired the entire
issue of 11% Notes.
During March 1999, the Company issued the 6.8% Notes. Interest on the
6.8% Notes is payable semi-annually on April 15 and October 15, commencing on
October 15, 1999. A portion of the proceeds from the issuance of the 6.8% Notes
was used to repay certain short-term and long-term borrowings of the Company,
including the repayment of the 9.18% Notes and the 11% Notes.
The Company had working capital of $195.8 million as of December 31,
1999, representing a $159.0 million increase as compared to December 31, 1998.
The increase in working capital is primarily attributable to the significant
increase in cash and cash equivalents and marketable securities representing the
remaining proceeds from the issuance of the 6.8% Notes. Additionally, proceeds
from the 6.8% Notes were used to reduce short-term borrowings as compared to
December 31, 1998. The balances of accounts receivable and accounts payable have
increased as compared to December 31, 1998. This is a result of the working
capital acquired as part of the acquisitions of Pool and Bayard, partially
offset by a decrease in accounts receivable and accounts payable caused by the
decline in drilling activity. Additionally, the current portion of long-term
obligations decreased primarily as a result of principal payments on various
term notes.
Goodwill was recorded in connection with the acquisitions of Pool and
Bayard. Other long-term assets increased as a result of the change in the method
of accounting for the Company's investments in several joint ventures (Note 1).
The Company's long-term obligations increased primarily as a result of the
issuance of the 6.8% Notes, Pool's 8.625% Notes and Bayard's 11% Notes, but
reflects the pre-payment of the 9.18% Notes and the 11% Notes, and the
conversion and redemption of the 5% Notes. The Company's ratio of funded debt to
funded debt plus stockholders' equity, commonly referred to as the funded debt
to capital ratio, was 0.25:1 as of December 31, 1999 as compared to 0.26:1 as of
December 31, 1998.
Net cash provided by operating activities totaled $128.3 million
during 1999 compared to $281.7 million during 1998. During 1999 and 1998, net
income was increased for non-cash items such as depreciation and deferred taxes,
and cash was provided from changes in the Company's working capital accounts.
Net cash used for investing activities totaled $87.3 million during
1999 compared to $276.3 million during 1998. During 1999, cash was used for
capital expenditures and purchases of marketable securities and cash was
provided by acquisitions of businesses and dispositions of long-term assets.
During 1998, cash was used for capital expenditures, acquisitions of businesses
and purchases of marketable securities and provided by disposition of long-term
assets and businesses.
Financing activities provided cash totaling $22.9 million during 1999
compared to $5.7 million during 1998. During 1999, cash was provided by the
issuance of the 6.80% Notes and was used to reduce short-term borrowings and
other long-term borrowings, including the 11% Notes and the 9.18% Notes and
other debt of acquired entities. During 1998, cash was provided by short-term
borrowings and used for reduction in long-term borrowings.
The Company's cash and cash equivalents and investments in short-term
marketable securities totaled $111.7 million as of December 31, 1999. The
Company currently has credit facility arrangements with various banks with total
availability of $232.1 million. As of December 31, 1999, remaining availability,
after borrowings on the facilities and outstanding letters of credit, totaled
approximately $214.6 million.
As of December 31, 1999, the Company had outstanding capital
expenditure purchase commitments of approximately $54.2 million, including $41.4
million for the construction of five supply vessels. The Company also had a $9.1
million deposit with the manufacturer of the vessels to be applied against the
purchase commitment.
Projected capital expenditures for the year 2000 for sustaining and
known new construction and enhancement projects are expected to total
approximately $180.0 million. The Company historically has completed a number of
acquisitions
47
<PAGE> 50
and will continue to evaluate opportunities to acquire assets or businesses to
enhance the Company's operations. Several of the previous acquisitions were paid
for by the Company issuing its common stock. Future acquisitions may be paid for
using existing cash, borrowings under lines of credit or issuance of debt or
Company stock. Such capital expenditures and acquisitions are at the discretion
of the Company and will depend on management's view of market conditions and
other factors.
The Company's historical capital expenditures and acquisitions of
businesses are classified as follows:
<TABLE>
<CAPTION>
Twelve
Months Ended
Year Ended Year Ended December 31,
December 31, December 31, (Unaudited)
- -------------------------------------------------------------------------------
(In thousands) 1999 1998 1997(1)
<S> <C> <C> <C>
New construction $ 5,297 $ 51,205 $ 28,920
Enhancement 16,481 105,138 91,216
Acquisitions 591,141 52,883 187,343
Sustaining 54,598 104,238 73,530
- -------------------------------------------------------------------------------
$667,517 $313,464 $381,009
- -------------------------------------------------------------------------------
</TABLE>
(1) Represents unaudited recast financial information provided for comparative
purposes.
The current cash equivalents, short-term investments, credit facility
position and projected cash flow generated from current operations are expected
to adequately finance the Company's sustaining capital and debt service
requirements for the next twelve months.
other matters
- --------------------------------------------------------------------------------
Year 2000 Issue and Compliance Program
BACKGROUND The Year 2000 problem ("Y2K") refers to the fact that a
number of computers, computer programs and other equipment with embedded chips
or processors (referred to collectively as "Systems") in use today, use two
digits rather than four digits to define the applicable year. Any Systems that
are date sensitive may recognize a date of "00" as the year 1900 rather than the
year 2000. This could result in miscalculations or System failures causing
disruptions of operations, as well as potentially exposing the Company to third
party liability.
Y2K COMPLIANCE PROGRAM The Company initiated a Y2K compliance program
during July 1998 to ensure that all of the critical Systems and processes that
are under its direct control remain functional. The Company organized a task
force of key employees, including a full-time Y2K coordinator, and engaged an
outside consultant to assist in the management of its Y2K compliance program.
The Company's Y2K compliance program focused on the Company's Systems, as well
as the Systems of key third party service providers, product suppliers and
customers. The first phase of the program consisted of inventorying or
identifying all Systems. The identified Systems were prioritized and all
critical Systems were assessed for Y2K compliance as part of the second phase of
the program. In the third phase, Systems were remediated or replaced as
necessary and contingency plans were developed. The fourth phase involved
testing select critical systems to ensure Y2K compliance. The Company completed
all phases of the program prior to December 31, 1999 and has not experienced,
nor does it anticipate, any significant disruptions in any of its Systems or its
operations as a result of the Y2K problem.
CRITICAL SYSTEMS The Systems that are critical to the Company's
operations include both its accounting and administrative Systems and its
operational Systems. Upgrades to a number of the Company's accounting and
administrative Systems in the ordinary course of business had the added benefit
of resolving certain Y2K compliance issues. Accordingly, the Company believes
its critical accounting and administrative Systems, which consist primarily of
computer hardware and software, to be substantially Y2K compliant. The Company's
critical operational Systems consist primarily of Systems in use on the
Company's drilling rigs. The Company has completed an inventory of each drilling
and workover rig's critical Systems and has completed assessing these Systems
for Y2K compliance. Based on this analysis and in reliance on information
provided by various equipment vendors, the Company's rigs appear to be Y2K
compliant.
NABORS PRODUCTS Two of the Company's subsidiaries manufacture and sell
software, instrumentation and top drive systems to affiliates and third parties.
Manufacturers such as Canrig and Epoch may have added exposure to third parties
that can be mitigated, in part, by early notification and remediation, which the
Company has completed. Epoch has thoroughly investigated its hardware and
software products for Y2K compliance. With the exception of PERC versions 4.0
and earlier, and DRS for DOS, all are Y2K compliant. Epoch has upgrades
available for both of the non-compliant products that will make them Y2K
compliant and provide additional benefits for customers. Epoch has alerted all
customers who purchased non-compliant products as to the potential problems and
has offered to sell them the upgrades. Most of the customers have upgraded or
agreed to upgrade. The remaining customers either have determined not to upgrade
or are still assessing their systems. Canrig has identified four embedded chips
which interface with its top drives and has contacted the manufacturers of these
chips. The manufacturers all have certified that the chips are Y2K compliant. In
addition, the Company has validated the manufacturer's certification through
testing. Even so, the Company cannot guarantee that systems supplied by third
party manufacturers will remain functional. Finally, in operating the top
drives, no dates are entered and no calculations are made utilizing dates.
Therefore, the issue of Y2K compliance does not appear applicable to the top
drives as manufactured by the Company.
KEY THIRD PARTIES Third parties that are key to the Company's
operations include suppliers that provide capital equipment and other supplies
and services essential to the operation of the Company's drilling rigs or
business, and customers that provide a source of revenue and cash flow to the
Company. Any significant Y2K disruptions of the Company's key suppliers and
customers could adversely impact the Company's financial condition, results of
operations or cash flows. The
48
<PAGE> 51
Company has directly contacted key suppliers and customers and has reviewed
published information of various suppliers to determine the state of their Y2K
readiness. Because the Company must rely on representations made by key third
parties with respect to their state of Y2K readiness, it cannot guarantee
that all of the Systems of key third parties that are relied upon by the Company
will remain functional. The Company has completed identifying and contacting all
key third parties with respect to their Y2K readiness.
CONTINGENCY PLANS Contingency plans have been prepared by each business
unit. These plans address the continuation or restoration of critical business
functions should a Y2K disruption occur.
COSTS The incremental costs incurred by the Company that relate solely
to the Y2K compliance program have not been and are not expected to be material.
These costs are exclusive of upgrades made to the Company's Systems in the
ordinary course of business and consist primarily of fees paid to an outside
consultant and internal employee time. The Company did not separately track the
internal costs incurred for the Y2K project, which consisted primarily of
payroll and related costs associated with employee time.
RISKS There are numerous uncertainties that make the ultimate impact of
Y2K disruptions in the United States or other countries where the Company
operates difficult to predict. While the Company obtained representations from
key third parties with respect to their Y2K readiness, there will be certain
Systems or processes relied on by the Company that are outside of the Company's
control. The failure by key third parties to correct their Y2K issues could
adversely affect the Company. Additionally, the Company could be unsuccessful in
identifying and remediating or replacing all of its non-compliant Systems and,
as such, the Company's financial condition, results of operations and cash flows
could be materially impacted. While the Company has not experienced and does not
currently anticipate any catastrophic System failures, no assurances can be made
that such failures will not ultimately occur.
Forward-Looking Statements
The statements in this document that relate to matters that are not
historical facts are "forward-looking statements" within the meaning of Section
27A of the Securities Exchange Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. When used in this document, words such as "anticipate",
"believe", "expect", "plan", "intend", "estimate", "project", "will", "could",
"may", "predict" and similar expressions are intended to identify
forward-looking statements. Future events and actual results may differ
materially from the results set forth in or implied in the forward-looking
statements. Factors that might cause such a difference include:
o fluctuations in worldwide prices of oil and natural gas and demand for oil
and natural gas;
o fluctuations in levels of oil and gas exploration and development
activities;
o fluctuations in the demand for contract drilling and workover services;
o the existence of competitors, technological changes and developments in the
industry;
o the existence of operating risks inherent in the contract drilling
industry;
o the existence of regulatory uncertainties;
o the possibility of political instability in any of the countries in which
Nabors does business; and
o Y2K issues and general economic conditions.
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 also materially affect the Company's financial
condition, results of operations and cash flows.
Financial Instruments and Market Risk
The Company is exposed to certain market risks arising from the use of
financial instruments in the ordinary course of business. This risk arises
primarily as a result of potential changes in the fair market value of financial
instruments that would result from adverse fluctuations in interest rates,
foreign currency exchange rates and marketable equity security prices as
discussed below.
INTEREST RATE RISK The Company is exposed at various times to interest
rate risk through its variable rate short-term borrowings. However, as of
December 31, 1999, the Company did not have any variable rate short-term
borrowings outstanding.
FOREIGN CURRENCY RISK The Company operates in a number of international
areas and is involved in transactions denominated in currencies other than US
dollars, which exposes the Company to foreign exchange rate risk. The most
significant exposures arise in connection with the Company's operations in
Canada and Saudi Arabia which usually are substantially unhedged. The Company at
various times utilizes forward exchange contracts, local currency borrowings and
the payment structure of customer contracts to selectively hedge its exposure to
exchange rate fluctuations in connection with monetary assets, liabilities and
cash flows denominated in certain foreign currencies. A hypothetical 10%
decrease in the value of all foreign currencies relative to the US dollar as of
December 31, 1999 would result in a $2.3 million decrease in the fair value of
the Company's net monetary assets denominated in currencies other than US
dollars. The Company does not hold or issue forward exchange contracts or other
derivative financial instruments for speculative purposes.
EQUITY PRICE RISK The Company maintains an investment portfolio of
marketable equity securities that potentially expose the Company to equity price
risk. These equity securities are carried at fair market value and include $3.9
million in securities classified as trading and $27.2 million in securities
classified as available-for-sale as of December 31, 1999. A hypothetical 10%
decrease in the market prices for all marketable equity securities would
decrease the fair market value of the Company's trading securities and
available-for-sale securities by $.4 million and $2.7 million, respectively.
49
<PAGE> 52
NABORS INDUSTRIES
REPORT OF INDEPENDENT ACCOUNTANTS
to the board of directors and stockholders
of Nabors Industries, Inc.
- --------------------------------------------------------------------------------
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of income, changes in stockholders' equity and
cash flows present fairly, in all material respects, the financial position of
Nabors Industries, Inc. and its Subsidiaries at December 31, 1999 and 1998, and
the results of their operations and their cash flows for the years then ended,
the three months in the period ended December 31, 1997, and the year in the
period ended September 30, 1997, in conformity with accounting principles
generally accepted in the United States. 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 of these statements in accordance with auditing standards generally
accepted in the United States, which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
Houston, Texas
February 9, 2000
50
<PAGE> 53
NABORS INDUSTRIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
assets December 31, December 31,
- ---------------------------------------------------------------------------------
1999 1998
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 80,580 $ 16,748
Marketable securities 31,086 6,702
Accounts receivable, net 205,643 174,304
Inventory and supplies 25,758 25,740
Deferred income taxes 39,074 15,665
Prepaid expenses and other current assets 79,152 42,021
- ---------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 461,293 281,180
Property, plant and equipment, net 1,669,466 1,127,154
Goodwill, net 169,054 8,037
Marketable securities -- 23,890
Other long-term assets 98,190 25,646
- ---------------------------------------------------------------------------------
TOTAL ASSETS $ 2,398,003 $ 1,465,907
- ---------------------------------------------------------------------------------
liabilities and stockholders' equity
- ---------------------------------------------------------------------------------
Current liabilities:
Current portion of long-term obligations $ 3,599 $ 11,329
Short-term borrowings -- 74,565
Trade accounts payable 80,343 58,534
Accrued liabilities 160,546 85,262
Income taxes payable 20,988 14,668
- ---------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 265,476 244,358
Long-term obligations 482,600 217,034
Other long-term liabilities 86,849 49,182
Deferred income taxes 93,004 87,864
- ---------------------------------------------------------------------------------
TOTAL LIABILITIES 927,929 598,438
- ---------------------------------------------------------------------------------
Commitments and contingencies (Note 10)
Stockholders' equity:
Capital stock,par value $.10 per share:
Authorized common shares 200,000; issued
137,421 in 1999 and 101,382 in 1998 13,742 10,138
Capital in excess of par value 958,704 394,562
Accumulated other comprehensive loss (3,828) (10,983)
Retained earnings 506,273 478,569
Less treasury stock, at cost, 589 common shares (4,817) (4,817)
- ---------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 1,470,074 867,469
- ---------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 2,398,003 $ 1,465,907
- ---------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
51
<PAGE> 54
NABORS INDUSTRIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months
Year Ended Year Ended Ended Year Ended
December 31, December 31, December 31, September 30,
- ----------------------------------------------------------------------------------------------------------
1999 1998 1997 1997
<S> <C> <C> <C> <C>
REVENUES $ 638,507 $ 968,462 $ 302,831 $ 1,028,853
Earnings (losses) from unconsolidated affiliates 3,757 (305) (25) 450
- ----------------------------------------------------------------------------------------------------------
Total revenues 642,264 968,157 302,806 1,029,303
- ----------------------------------------------------------------------------------------------------------
Operating expenses:
Direct costs 418,675 623,844 199,714 737,780
General and administrative expenses 65,288 77,026 18,580 68,616
Depreciation and amortization 99,893 84,949 20,313 66,391
Merger expenses -- -- -- 1,755
- ----------------------------------------------------------------------------------------------------------
Operating expenses 583,856 785,819 238,607 874,542
- ----------------------------------------------------------------------------------------------------------
Operating income 58,408 182,338 64,199 154,761
- ----------------------------------------------------------------------------------------------------------
Other (expense) income:
Interest expense (30,395) (15,463) (3,979) (16,520)
Interest income 8,756 1,480 93 3,422
Other income, net 8,860 31,626 2,303 40,747
- ----------------------------------------------------------------------------------------------------------
Other (expense) income (12,779) 17,643 (1,583) 27,649
- ----------------------------------------------------------------------------------------------------------
Income before income taxes 45,629 199,981 62,616 182,410
- ----------------------------------------------------------------------------------------------------------
Income taxes (benefits):
Current (2,478) 40,256 7,103 11,459
Deferred 20,403 34,737 14,186 56,143
- ----------------------------------------------------------------------------------------------------------
Total income taxes 17,925 74,993 21,289 67,602
- ----------------------------------------------------------------------------------------------------------
NET INCOME $ 27,704 $ 124,988 $ 41,327 $ 114,808
- ----------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE:
BASIC $ .25 $ 1.24 $ .41 $ 1.20
- ----------------------------------------------------------------------------------------------------------
DILUTED $ .23 $ 1.16 $ .37 $ 1.08
- ----------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
BASIC 111,395 100,807 100,814 96,034
- ----------------------------------------------------------------------------------------------------------
DILUTED 120,449 112,555 116,427 111,975
- ----------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
52
<PAGE> 55
NABORS INDUSTRIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Accumulated
Common Stock Capital Other
--------------------- in Excess Comprehensive
Shares Par Value of Par Value Income
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCES, SEPTEMBER 30, 1996 87,470 $ 8,747 $ 250,995 $ 1,036
- ---------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income
Translation adjustment 375
Unrealized gain on marketable securities,
net of tax and reclassification adjustments 15,359
- ---------------------------------------------------------------------------------------------------------------
Total comprehensive income -- -- -- 15,734
- ---------------------------------------------------------------------------------------------------------------
Issuance of common shares for stock options exercised 8,897 890 49,679
Issuance of common shares for stock awards 19 2 131
Issuance of common shares in connection with the
Adcor acquisition 3,354 335 23,409
Issuance of common shares for warrants exercised 1,500 150 8,100
Tax benefit on stock option deductions 59,545
- ---------------------------------------------------------------------------------------------------------------
Subtotal 13,770 1,377 140,864 --
- ---------------------------------------------------------------------------------------------------------------
BALANCES, SEPTEMBER 30, 1997 101,240 10,124 391,859 16,770
- ---------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income
Translation adjustment (1,813)
Unrealized loss on marketable securities,
net of tax and reclassification adjustments (8,287)
- ---------------------------------------------------------------------------------------------------------------
Total comprehensive income -- -- -- (10,100)
- ---------------------------------------------------------------------------------------------------------------
Issuance of common shares for stock options exercised 66 7 433
Issuance of common shares for stock awards 19 2 131
Tax benefit on stock option deductions 7,697
- ---------------------------------------------------------------------------------------------------------------
Subtotal 85 9 8,261 --
- ---------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1997 101,325 10,133 400,120 6,670
- ---------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income
Translation adjustment (3,724)
Unrealized loss on marketable securities,
net of tax and reclassification adjustments (13,929)
- ---------------------------------------------------------------------------------------------------------------
Total comprehensive income -- -- -- (17,653)
- ---------------------------------------------------------------------------------------------------------------
Issuance of common shares for stock options exercised 126 12 903
Return and retirement of common shares held in
escrow in connection with the Adcor acquisition (69) (7) (1,315)
Issuance of warrants in connection with
the New Prospect acquisition 1,452
Conversion of 5% Notes 2
Repurchase of common shares
Reduction of tax benefit on stock option deductions (6,600)
- ---------------------------------------------------------------------------------------------------------------
Subtotal 57 5 (5,558) --
- ---------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1998 101,382 10,138 394,562 (10,983)
- ---------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income
Translation adjustment 1,541
Unrealized gain on marketable securities,
net of tax and reclassification adjustments 5,614
- ---------------------------------------------------------------------------------------------------------------
Total comprehensive income -- -- -- 7,155
- ---------------------------------------------------------------------------------------------------------------
Issuance of common shares for stock options exercised 633 63 6,282
Issuance of common shares in connection
with the Bayard acquisition 6,167 617 74,230
Issuance of common shares in
connection with the Pool acquisition 19,743 1,974 282,879
Return and retirement of common shares held in
escrow in connection with the Adcor acquisition (12) (1) 1
Conversion of 5% Notes, net of issuance costs 9,508 951 169,436
Tax benefit on stock option deductions 31,314
- ---------------------------------------------------------------------------------------------------------------
Subtotal 36,039 3,604 564,142 --
- ---------------------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1999 137,421 $ 13,742 $ 958,704 $ (3,828)
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
Total
Retained Treasury Stockholders'
Earnings Stock Equity
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCES, SEPTEMBER 30, 1996 $ 200,208 $(3,164) $ 457,822
- ------------------------------------------------------------------------------------------------
Comprehensive income:
Net income 114,808 114,808
Translation adjustment 375
Unrealized gain on marketable securities,
net of tax and reclassification adjustments 15,359
- ------------------------------------------------------------------------------------------------
Total comprehensive income 114,808 -- 130,542
- ------------------------------------------------------------------------------------------------
Issuance of common shares for stock options exercised 50,569
Issuance of common shares for stock awards 133
Issuance of common shares in connection with the
Adcor acquisition (2,762) 20,982
Issuance of common shares for warrants exercised 8,250
Tax benefit on stock option deductions 59,545
- ------------------------------------------------------------------------------------------------
Subtotal (2,762) -- 139,479
- ------------------------------------------------------------------------------------------------
BALANCES, SEPTEMBER 30, 1997 312,254 (3,164) 727,843
- ------------------------------------------------------------------------------------------------
Comprehensive income:
Net income 41,327 41,327
Translation adjustment (1,813)
Unrealized loss on marketable securities,
net of tax and reclassification adjustments (8,287)
- ------------------------------------------------------------------------------------------------
Total comprehensive income 41,327 -- 31,227
- ------------------------------------------------------------------------------------------------
Issuance of common shares for stock options exercised 440
Issuance of common shares for stock awards 133
Tax benefit on stock option deductions 7,697
- ------------------------------------------------------------------------------------------------
Subtotal -- -- 8,270
- ------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1997 353,581 (3,164) 767,340
- ------------------------------------------------------------------------------------------------
Comprehensive income:
Net income 124,988 124,988
Translation adjustment (3,724)
Unrealized loss on marketable securities,
net of tax and reclassification adjustments (13,929)
- ------------------------------------------------------------------------------------------------
Total comprehensive income 124,988 -- 107,335
- ------------------------------------------------------------------------------------------------
Issuance of common shares for stock options exercised 915
Return and retirement of common shares held in
escrow in connection with the Adcor acquisition (1,322)
Issuance of warrants in connection with
the New Prospect acquisition 1,452
Conversion of 5% Notes 2
Repurchase of common shares (1,653) (1,653)
Reduction of tax benefit on stock option deductions (6,600)
- ------------------------------------------------------------------------------------------------
Subtotal -- (1,653) (7,206)
- ------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1998 478,569 (4,817) 867,469
- ------------------------------------------------------------------------------------------------
Comprehensive income:
Net income 27,704 27,704
Translation adjustment 1,541
Unrealized gain on marketable securities,
net of tax and reclassification adjustments 5,614
- ------------------------------------------------------------------------------------------------
Total comprehensive income 27,704 -- 34,859
- ------------------------------------------------------------------------------------------------
Issuance of common shares for stock options exercised 6,345
Issuance of common shares in connection
with the Bayard acquisition 74,847
Issuance of common shares in
connection with the Pool acquisition 284,853
Return and retirement of common shares held in
escrow in connection with the Adcor acquisition --
Conversion of 5% Notes, net of issuance costs 170,387
Tax benefit on stock option deductions 31,314
- ------------------------------------------------------------------------------------------------
Subtotal -- -- 567,746
- ------------------------------------------------------------------------------------------------
BALANCES, DECEMBER 31, 1999 $ 506,273 $(4,817) $ 1,470,074
- ------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
53
<PAGE> 56
NABORS INDUSTRIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three Months
Year Ended Year Ended Ended Year Ended
December 31, December 31, December 31, September 30,
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1997
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 27,704 $ 124,988 $ 41,327 $ 114,808
Adjustments to net income:
Depreciation and amortization 99,893 84,949 20,313 66,391
Deferred income taxes 20,403 34,737 14,186 56,143
Gains on disposition of long-term assets and businesses (2,915) (34,126) (345) (32,143)
(Gains) losses on marketable securities and warrants (3,656) 4,324 142 (11,461)
Foreign currency transaction and translation losses (gains) 37 (216) (3) (919)
Equity in (earnings) losses of affiliates (3,757) 305 25 (450)
Other 241 (211) 59 398
Increase (decrease), net of effects from acquisitions
and dispositions, from changes in:
Accounts receivable 33,005 62,165 1,895 (76,646)
Inventory and supplies 9,996 (4,721) 67 (3,415)
Prepaid expenses and other current assets (3,399) (541) 1,836 349
Other long-term assets (9,710) (6,803) (1,011) (1,540)
Trade accounts payable and accrued liabilities (15,346) (21,233) (13,320) 46,751
Income taxes payable (10,497) 2,395 699 3,760
Other long-term liabilities (13,730) 35,731 3,204 2,978
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 128,269 281,743 69,074 165,004
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities, available-for-sale (25,375) (18,531) -- (4,803)
Sales of marketable securities, available-for-sale 6,602 -- -- --
Sales of marketable securities, trading -- -- -- 3,653
Exercise of warrants -- -- -- 9,417
Cash received from disposition of long-term assets and businesses 5,650 48,828 1,217 52,174
Cash received (paid) for acquisitions of businesses, net 6,332 (28,208) (25,666) (118,134)
Capital expenditures (82,126) (276,471) (58,372) (267,882)
Distribution from (investment in) affiliates 1,575 (1,952) (200) (502)
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (87,342) (276,334) (83,021) (326,077)
- ------------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in restricted cash (1,060) (946) (6) (24)
Long-term borrowings 324,707 -- -- --
Reduction of long-term obligations (232,864) (10,805) (1,056) (19,040)
(Decrease) increase in short-term borrowings, net (73,565) 18,205 16,273 28,852
Common stock and treasury stock transactions 5,687 (738) 440 58,819
- ------------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 22,905 5,716 15,651 68,607
- ------------------------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 63,832 11,125 1,704 (92,466)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 16,748 5,623 3,919 95,867
ADJUSTMENT FOR ADCOR CASH, BEGINNING OF PERIOD -- -- -- 518
- ------------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 80,580 $ 16,748 $ 5,623 $ 3,919
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
54
<PAGE> 57
NABORS INDUSTRIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 summary of significant accounting policies
- --------------------------------------------------------------------------------
Nature of Operations
Nabors is the largest land drilling contractor in the world, with over
500 actively marketed land drilling rigs as of December 31, 1999. Nabors
conducts oil, gas and geothermal land drilling operations in the US Lower 48
states, Alaska and Canada, and internationally, primarily in South and Central
America and the Middle East. Nabors also is one of the largest land
well-servicing and workover contractors in the United States. We own and operate
approximately 680 actively marketed land workover and well-servicing rigs,
primarily in the southwestern and western United States and in certain
international markets. Nabors also is a leading provider of offshore platform
workover and drilling rigs. Nabors markets 37 platform, 11 jackup and four barge
rigs in the Gulf of Mexico and international markets. These rigs provide
well-servicing, workover and drilling services. We own and operate 40 of these
rigs through international joint ventures. To further supplement our primary
business, we offer 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. Our
land transportation and hauling fleet includes 160 rig and oilfield equipment
hauling tractor-trailers, over 300 fluid hauling trucks, approximately 970 fluid
storage tanks, 15 salt water disposal wells and other auxiliary equipment used
in domestic drilling and well-servicing operations. We also have a fleet of 31
marine transportation and support vessels in the Gulf of Mexico that provides
transportation of drilling materials, supplies and crews for offshore rig
operations and support for other offshore operations. In addition, we
manufacture and lease or sell top drives for a broad range of drilling rig
applications and we manufacture and lease or sell rig instrumentation and data
collection equipment and rig reporting software.
The Company's businesses depend to a large degree on the level of
capital 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, also 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.
Investments in companies where the Company has the ability to exert
significant influence over, but not control operating and financial policies are
accounted for by the equity method, with the Company's share of the net income
of these joint ventures recorded as a component of revenues in the consolidated
statements of income, and the Company's investment in these joint ventures
carried as a single amount in the consolidated balance sheets. The Company's
principal joint venture operations include a construction and logistics
operation in Alaska and drilling and workover operations located in Saudi
Arabia, Oman and Argentina.
Investments in net assets of affiliated companies accounted for under
the equity method amounted to $54.1 million as of December 31, 1999 and is
included in other long-term assets in the consolidated balance sheet.
For the periods prior to January 1, 1999, investments in several 50%
owned joint ventures were accounted for using the proportionate consolidation
method, whereby the Company's pro rata share of the joint venture's revenues,
expenses and financial position were recorded as corresponding revenues,
expenses and financial position of the Company. The following table summarizes
the effect of the change in accounting method from the proportionate
consolidation method to the equity method on the Company's consolidated balance
sheet as of January 1, 1999:
<TABLE>
<CAPTION>
Increase
(Decrease)
- -------------------------------------------------------------
(In thousands)
<S> <C>
Current assets $(12,806)
Property, plant and equipment, net (23,684)
Other long-term assets 27,155
- -------------------------------------------------------------
Total assets $ (9,335)
- -------------------------------------------------------------
Current liabilities $ (7,624)
Long-term obligations (1,711)
- -------------------------------------------------------------
Total liabilities $ (9,335)
- -------------------------------------------------------------
</TABLE>
55
<PAGE> 58
The Company's proportionate share of the 50% owned joint ventures' net
assets, revenues and pre-tax income for the years prior to the change to the
equity method of accounting was as follows:
<TABLE>
<CAPTION>
Three Months
Year Ended Ended Year Ended
December 31, December 31, September 30,
- ------------------------------------------------------------------------
1998 1997 1997
<S> <C> <C> <C>
Net assets $18,731 $29,675 $31,723
Revenues 63,056 16,817 70,675
Pre-tax income 10,803 2,265 10,695
- ------------------------------------------------------------------------
</TABLE>
Fiscal Year Change
The Company changed its fiscal year end from September 30 to December
31, effective for the fiscal year beginning January 1, 1998. The three month
transition period from October 1, 1997 through December 31, 1997 (the
"Transition Period") preceded the start of the new fiscal year. The fiscal year
ended September 30, 1997 ("1997") has not been recast to conform to the new
fiscal year ended December 31.
Cash and Cash Equivalents
Cash and cash equivalents include demand deposits 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 specific identification method is used. In accordance with this
method, 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 and drilling
instrumentation systems that are manufactured by Company subsidiaries for
resale. Inventory and supplies are valued at the lower of weighted average cost
or market value.
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 qualifying assets are capitalized as a
component of the cost of such assets. The Company provides for the depreciation
of its drilling and workover rigs using the units-of-production method over a
4,200-day period after provision for salvage value. When the Company's rigs are
not operating, a depreciation charge is provided for using the straight-line
method over an assumed depreciable life of 20 years. Effective April 1, 1998,
the Company changed the estimated depreciable lives of operating rigs from 3,800
to 4,200 active days to better reflect the useful lives of these assets. The
effect of this change in accounting estimate increased net income by
approximately $.05 per diluted share for 1998. Depreciation on buildings,
well-servicing rigs, oilfield hauling and mobile equipment, marine
transportation and support vessels, 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;
well-servicing rigs - 15 to 35 years; marine transportation and support vessels
- - 15 to 25 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. 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 the results of
operations.
Goodwill
Goodwill represents the cost in excess of fair value of the net assets
of companies acquired (Note 2). Goodwill is amortized using the straight-line
method over 30 years and is recorded net of accumulated amortization of $3.0
million and $1.1 million as of December 31, 1999 and 1998, respectively.
Amortization of goodwill for the years ended December 31, 1999, 1998, the
Transition Period and 1997 amounted to $1.9 million, $1.3 million, $.3 million
and $1.5 million, respectively. The carrying amount of unamortized goodwill is
reviewed for potential impairment loss when events or changes in circumstances
indicate that the carrying amount of goodwill may not be recoverable.
Income Taxes
United States deferred income taxes have not been provided on
unremitted earnings of foreign subsidiaries as such earnings are considered
permanently reinvested. The Company realizes an income tax benefit associated
with certain stock options issued under the Company's stock option plans. This
benefit results in a reduction in taxes payable and an increase in capital in
excess of par value.
56
<PAGE> 59
Revenue Recognition
Revenues and costs on daywork contracts are recognized daily and
revenues and costs applicable to footage and turnkey contracts are recognized
when the well is completed (completed contract method). Revenues and related
costs for the manufacturing operations 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 and therefore translation
gains or losses are accumulated in a separate section of stockholders' equity.
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 the Company's results of
operations.
Earnings Per Share
Basic earnings per share for all periods presented equals net income
divided by the weighted average number of shares of common stock outstanding
during the period, excluding shares of common stock held in treasury. Diluted
earnings per share for 1998, the Transition Period and 1997 reflect the assumed
conversion of the aggregate principal amount of the $172.5 million, 5%
Convertible Subordinated Notes due 2006, issued on May 28, 1996 (the "5% Notes")
as conversion in those periods would have been dilutive. As a result of the
assumed conversion in those periods, net income is adjusted in 1998, the
Transition Period and 1997 to add back $5.4 million, $1.3 million and $5.6
million, respectively, representing interest expense relating to the 5% Notes on
an after tax basis. This adjusted net income is divided by the sum of: (1) the
weighted average number of shares of common stock outstanding used for the basic
computation; (2) the net effect of dilutive stock options and warrants; (3) for
1998, the Transition Period and 1997, 9.5 million shares of common stock assumed
to be issued upon conversion of the 5% Notes. Basic and diluted earnings per
share for 1999 reflects the weighted average effect of 9.5 million shares of
common stock issued in connection with the conversion of $172.3 million
aggregate principal amount of the 5% Notes based upon the actual date of
conversion during the third quarter of 1999 (Note 6).
Stock-Based Compensation
The Company accounts for stock-based compensation using the intrinsic
value method prescribed by Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees. Accordingly, compensation cost for
stock options is measured as the excess, if any, of the quoted market price of
the Company's common stock at the date of grant over the amount an employee must
pay to acquire the common stock.
Cash Flow Supplemental Information
The cash flow supplemental information for 1999, 1998, the Transition
Period and 1997 is as follows:
<TABLE>
<CAPTION>
Three Months
Year Ended Year Ended Ended Year Ended
December 31, December 31, December 31, September 30,
- --------------------------------------------------------------------------------------------------------------------------------
(In thousands) 1999 1998 1997 1997
<S> <C> <C> <C> <C>
Cash paid for income taxes $ 9,506 $ 36,331 $ 6,361 $ 6,303
Cash paid for interest, net of capitalized interest 25,047 14,707 5,005 15,028
Acquisition of businesses:
Fair value of assets acquired less negative goodwill 734,335 39,034 25,666 124,415
Goodwill 162,700 4,873 -- 4,050
Liabilities assumed or created (500,235) (14,222) -- (10,331)
Common stock of acquired company previously owned (26,463) -- -- --
Equity consideration issued (359,700) (1,452) -- --
- --------------------------------------------------------------------------------------------------------------------------------
Cash paid for acquisitions 10,637 28,233 25,666 118,134
Cash acquired in acquisitions (16,969) (25) -- --
- --------------------------------------------------------------------------------------------------------------------------------
Cash (received) paid for acquisitions, net (6,332) 28,208 25,666 118,134
- --------------------------------------------------------------------------------------------------------------------------------
Property, plant and equipment additions by notes payable -- -- -- 4,400
Disposition of businesses:
Equity consideration received -- 1,000 -- 567
Unrealized gain (loss) on marketable securities
reclassification amount:
Unrealized holding gains (losses) arising during period,
net of tax 7,999 (13,929) (8,287) 15,359
Less: reclassification adjustment for gains (losses)
included in net income (2,385) -- -- --
- --------------------------------------------------------------------------------------------------------------------------------
Net unrealized gains (losses) on securities 5,614 (13,929) (8,287) 15,359
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
57
<PAGE> 60
Financial Instruments and Risk Concentration
The fair value of the Company's fixed rate long-term debt is estimated
based on quoted market prices, where applicable, or based on the present value
of expected cash flows relating to the debt 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 including current
portion thereof is as follows:
<TABLE>
<CAPTION>
December 31,
- ---------------------------------------------------------------------------------
(In thousands) 1999 1998
Carrying Value Fair Value Carrying Value Fair Value
<S> <C> <C> <C> <C>
6.8% Senior
Unsecured Notes $325,000 $313,203 $ -- $ --
8.625% Senior
Subordinated
Notes 150,000 154,140 -- --
5% Convertible
Notes -- -- 172,498 173,447
9.18% Senior
Secured Notes -- -- 40,000 44,356
Other long-term
obligations 11,199 11,199 15,865 15,865
- ---------------------------------------------------------------------------------
$486,199 $478,542 $228,363 $233,668
- ---------------------------------------------------------------------------------
</TABLE>
FOREIGN CURRENCY RISK The Company operates in a number of international
areas and is involved in transactions denominated in currencies other than US
dollars, which exposes the Company to foreign exchange rate risk. The most
significant exposures arise in connection with the Company's operations in
Canada and Saudi Arabia which usually are substantially unhedged. The Company at
various times utilizes forward exchange contracts, local currency borrowings and
the payment structure of customer contracts to selectively hedge its exposure to
exchange rate fluctuations in connection with monetary assets, liabilities and
cash flows denominated 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 exchange contracts are deferred and recognized as
foreign currency gains or losses over the term of the contract. Deferred
unrealized losses associated with these forward exchange contracts were not
significant as of December 31, 1999 and December 31, 1998. The remaining forward
exchange contract matured on June 30, 1999 and had a face value of $13.2 million
as of December 31, 1998. The Company does not hold or issue forward exchange
contracts or other derivative financial instruments for speculative purposes.
CREDIT RISK Financial instruments that potentially subject the Company
to concentrations of credit risk consist primarily of deposits and temporary
cash investments that the Company has with a variety of 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.
EQUITY PRICE RISK The Company maintains an investment portfolio of
marketable equity securities that potentially exposes the Company to equity
price risk.
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 these
estimates.
2 acquisitions, capital expenditures and dispositions
- --------------------------------------------------------------------------------
During November 1999, the Company completed its acquisition of Pool
Energy Services Co. ("Pool"). Each of the approximately 19.2 million shares of
Pool not owned by the Company prior to the merger were exchanged for 1.025
shares of the Company (approximately 19.7 million shares). Pool owned five
drilling rigs in Alaska, 57 drilling and workover and well-servicing rigs in
international areas (including 39 rigs operated through joint ventures), 22
offshore platform drilling rigs in the Gulf of Mexico, and 650 active and 104
stacked workover and well-servicing rigs in the United States. Pool also owned
and operated 27 marine transportation and support vessels, more than 300 fluid
hauling trucks and a large quantity of fluid storage tanks.
During April 1999, the Company completed its acquisition of Bayard
Drilling Technologies, Inc. ("Bayard"). Each of the approximately 18.3 million
shares of Bayard common stock were exchanged for .3375 shares of the Company's
common stock and $.30 per share in cash (approximately 6.2 million shares and
$5.5 million in cash in the aggregate). The acquisition of Bayard added 87
drilling rigs, 73 of which were actively marketed. The majority of the rigs are
located in Oklahoma and south Texas, with the balance of the fleet located
throughout east Texas, and Louisiana. In addition, Bayard had a significant
inventory of new component equipment including drill pipe, engines and high
horsepower mud pumps. Bayard also owned and operated a fleet of oilfield hauling
equipment.
The Pool and Bayard acquisitions were accounted for using the purchase
method of accounting and, accordingly, Pool's and Bayard's results of operations
have been included in the consolidated financial statements of the Company
commencing on the effective date of each respective acquisition. The purchase
price for both the Pool and Bayard acquisitions were initially allocated based
on preliminary estimates of the fair market value of the assets acquired and the
liabilities assumed as of
58
<PAGE> 61
the respective acquisition dates. The purchase price allocation for the Bayard
acquisition has been finalized; however, the purchase price relating to the Pool
acquisition is subject to adjustment as additional information becomes available
and is evaluated. The preliminary purchase price allocated for the Pool
acquisition and the final purchase price for the Bayard acquisition resulted in
goodwill of approximately $132.2 million and $27.7 million, respectively, which
is being amortized on a straight-line basis over 30 years.
The following unaudited pro forma summary of financial information
presents the Company's consolidated results of operations as if the acquisitions
of Pool and Bayard had occurred at the beginning of the periods presented, after
including the impact of certain adjustments including: (1) the elimination of
nonrecurring merger related costs, (2) reduced depreciation expense reflecting
the reduction in value assigned to property, plant and equipment, (3)
amortization of goodwill, (4) reduced interest expense associated primarily with
the elimination of certain financing costs and (5) the related income tax
effects of these adjustments.
<TABLE>
<CAPTION>
Year ended December 31,
- --------------------------------------------------------------------------------
(In thousands, except 1999 1998
per share amounts) As reported Pro forma As reported Pro forma
<S> <C> <C> <C> <C>
Revenues $642,264 $949,994 $968,157 $1,520,838
Net income before
extraordinary
items $ 27,704 $ 15,759 $124,988 $ 147,826
Net income $ 27,704 $ 15,759 $124,988 $ 147,488
Net income before
extraordinary
items per
diluted share $ .23 $ .11 $ 1.16 $ 1.11
Net income per
diluted share $ .23 $ .11 $ 1.16 $ 1.10
Weighted average
number of
diluted shares
outstanding 120,449 142,271 112,555 138,488
- --------------------------------------------------------------------------------
</TABLE>
The pro forma financial information presented does not purport to
indicate what the combined results of operations would have been had the mergers
occurred at the beginning of the periods presented or the results of operations
that may be obtained in the future. Additionally, the pro forma financial
information presented does not reflect the anticipated cost savings resulting
from the integration of the Company's, Pool's and Bayard's operations.
During November 1999, the Company purchased the remaining 50% of Peak
USA that it did not already own for approximately $5.1 million in cash and
recorded approximately $2.8 million of goodwill.
During May 1998, the Company completed the acquisitions of the stock of
New Prospect Drilling Company ("New Prospect") and certain assets of Can-Tex
Drilling & Exploration, Ltd. ("Can-Tex") for approximately $28.0 million in cash
and the issuance of warrants to purchase 200,000 shares of Nabors common stock
(Note 8), which were valued at their estimated fair market value. The New
Prospect fleet consisted of six rigs and other equipment located in Arkansas and
Oklahoma, and the Can-Tex fleet consisted of seven rigs and other equipment
located in Alberta, Canada. The Company accounted for these acquisitions under
the purchase method of accounting.
During January 1998, the Company completed the sale of all of the
capital stock of its wholly-owned subsidiary, J.W. Gibson Well Service Company
("Gibson"), to a subsidiary of Key Energy Group, Inc. ("Key"). The assets of
Gibson consisted of 74 active well-servicing and workover rigs, associated
auxiliary equipment, trucks, inventory and several yards and related facilities.
As consideration for the sale of Gibson, the Company received approximately
$20.0 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 an exercise price of $18.00 per share, and recorded a pre-tax gain of
approximately $16.0 million. The warrants have subsequently been converted to
Key common stock.
During November 1997, the Company completed the acquisition of certain
domestic land drilling assets from Veco Drilling, Inc. ("Veco") and Diamond L
Drilling & Production ("Diamond L") for approximately $26.0 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 land rigs located in east Texas. The Company accounted for
these acquisitions under the purchase method of accounting.
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 Company accounted for this acquisition under the purchase
method of accounting.
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 for $85.0 million in cash.
During January 1997, the Company completed the acquisition of
Adcor-Nicklos Drilling Company ("Adcor"). All of the stock of Adcor was
exchanged for 3.4 million shares of Nabors common stock. Subsequent to the
merger, 81,550 Nabors shares that were held in escrow were returned to the
Company and retired. The Adcor fleet consisted of 30 active and six stacked land
rigs located in the United States. The assets also included drill pipe, spare
drilling equipment, yards, vehicles and other support equipment. The transaction
was
59
<PAGE> 62
accounted for as a pooling-of-interests. The results of operations of Adcor were
included in the Company's 1997 results of operations 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 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.
3 marketable securities
- --------------------------------------------------------------------------------
Marketable securities classified as current and long-term assets are as
follows:
<TABLE>
<CAPTION>
December 31, December 31,
- ----------------------------------------------------------------------------------
(In thousands) 1999 1998
<S> <C> <C>
Current assets:
Equity securities, classified
as trading, at fair value $ 3,930 $ 2,658
Equity securities, classified
as available-for-sale, at fair value 27,156 4,044
- ----------------------------------------------------------------------------------
$31,086 $ 6,702
Long-term assets:
Equity securities, classified
as available-for-sale, at fair value $ -- $23,890
- ----------------------------------------------------------------------------------
</TABLE>
The equity securities classified as long-term assets as of December 31,
1998 represented Pool common shares that had been purchased prior to the
acquisition of Pool.
The fair value of equity securities that were classified as
available-for-sale exceeded cost by $3.9 million as of December 31, 1999 and
were lower than cost by $5.2 million as of December 31, 1998.
The Company recorded unrealized holding gains (losses) on equity
securities classified as trading totaling $1.3 million, $(4.3) million, $(.1)
million and $1.1 million during 1999, 1998, the Transition Period and 1997,
respectively.
During 1999, the Company received $6.6 million of proceeds and realized
gains of $2.4 million resulting from the sale of certain investments in equity
securities that had been classified as available-for-sale.
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.
4 property, plant and equipment
- --------------------------------------------------------------------------------
The major components of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
- ---------------------------------------------------------------------------------
(In thousands) 1999 1998
<S> <C> <C>
Land $ 9,253 $ 5,749
Buildings 20,489 20,784
Drilling, workover and well-servicing rigs,
and related equipment 1,940,665 1,423,483
Marine transportation and support vessels 108,227 2,932
Oilfield hauling and mobile equipment 52,305 58,246
Other machinery and equipment 21,383 17,514
- ---------------------------------------------------------------------------------
2,152,322 1,528,708
Less: accumulated depreciation
and amortization(1) 482,856 401,554
- ---------------------------------------------------------------------------------
$1,669,466 $1,127,154
- ---------------------------------------------------------------------------------
</TABLE>
(1) Includes, as of December 31, 1999 and 1998, reserves of $50.9 million and
$53.6 million, respectively, resulting from the permanent impairment of
certain asset values.
Repair and maintenance expense included in direct costs in the
consolidated statements of income amounted to $68.7 million, $102.1 million,
$32.0 million and $116.9 million for 1999, 1998, the Transition Period and 1997,
respectively.
Interest expense of $.2 million, $2.6 million, $.3 million and $1.2
million was capitalized during 1999, 1998, the Transition Period and 1997,
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%. The Company did not have any
short-term borrowings outstanding at December 31, 1999. The weighted average
interest rate on short-term borrowings outstanding as of December 31, 1998
equaled 5.88%.
The Company has a $200 million unsecured revolving credit facility with
a syndicate of banks. The credit facility is a committed facility with a term of
five years that expires on September 5, 2002. Loans under the credit facility
bear interest, at the option of the Company, at the agent bank's prime rate or
LIBOR, plus a margin (.25% at December 31, 1999) that varies depending on the
Company's senior unsecured debt rating. A commitment fee (.085% at December 31,
1999) is charged based on the average daily unused portion of the credit
facility. 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.
60
<PAGE> 63
Availability and borrowings under the lines of credit are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
- ---------------------------------------------------------------------------------
(In thousands) 1999 1998
<S> <C> <C>
Lines of credit available $ 232,051 $ 254,584
Short-term borrowings outstanding -- (74,565)
Letters of credit outstanding (17,402) (13,555)
- ---------------------------------------------------------------------------------
Remaining availability $ 214,649 $ 166,464
- ---------------------------------------------------------------------------------
</TABLE>
6 long-term obligations
- --------------------------------------------------------------------------------
Long-term obligations consist of the following:
<TABLE>
<CAPTION>
December 31, December 31,
- -----------------------------------------------------------------------------------
(In thousands) 1999 1998
<S> <C> <C>
6.8% Senior Unsecured Notes
due April 2004 $325,000 $ --
8.625% Senior Subordinated Notes
due April 2008(1) 150,000 --
5% Convertible Notes
due May 2006 -- 172,498
9.18% Senior Secured Notes payable
in semi-annual installments of $4,000
commencing January 2002 -- 40,000
Loan payable in April 1999 -- 7,881
Medium-term notes payable, maturing from
1999 to 2003, from 5.56% to 9.5%(2) 11,199 7,984
- -----------------------------------------------------------------------------------
486,199 228,363
Less: current portion 3,599 11,329
- -----------------------------------------------------------------------------------
$482,600 $217,034
- -----------------------------------------------------------------------------------
</TABLE>
(1) Represents the principal amount of 8.625% Notes outstanding at December 31,
1999. $86.1 million of the 8.625% Notes were paid in February 2000 in
connection with a tender offer made by the Company and notes purchased in
the open market. $63.9 million remained outstanding as long-term debt after
February 2000.
(2) Certain of these obligations are collateralized by specific assets financed
with the related proceeds. The aggregate net book value of such assets
approximated $6.3 million and $13.5 million as of December 31, 1999 and
1998, respectively.
During March 1999, the Company issued $325.0 million of 6.8% Senior
Unsecured Notes due April 15, 2004 (the "6.8% Notes"). Interest on the 6.8%
Notes is payable semi-annually on April 15 and October 15, commencing on October
15, 1999. The 6.8% Notes are redeemable in whole or in part, at the option of
the Company at any time, at a redemption price equal to the greater of (1) 100%
of their principal amount or (2) the sum of the present values of the remaining
scheduled payments of principal and interest discounted to the date of
redemption on a semi-annual basis using the comparable treasury security yield
plus 25 basis points together in either case with accrued and unpaid interest.
Certain restrictions have been imposed on the Company as a result of the
issuance of the 6.8% Notes, including limitations on the incurrence of liens and
certain sale-leaseback transactions. A portion of the proceeds from the issuance
of the 6.8% Notes was used to repay certain short-term and long-term borrowings
of the Company, including the repayment of the Company's 9.18% Senior Secured
Notes (the "9.18% Notes") and the Bayard 11% Senior Notes (the "11% Notes").
Prior to its acquisition by the Company, Pool had issued 8.625% Notes
in the aggregate principal amount of $150.0 million. The 8.625% Notes are
redeemable at the option of the Company, in whole or in part, at any time on or
after April 1, 2003 at a redemption price equal to 104.313% of the principal
amount thereof, plus accrued interest, declining ratably to par on April 1,
2006. As a result of the acquisition of Pool by the Company, a mandatory change
of control cash tender offer was made to purchase the 8.625% Notes at a
redemption price of 101%. During February 2000, a total of $81.3 million of the
8.625% Notes were tendered in the offer, and $4.8 million of the 8.625% Notes
were purchased by the Company in the open market, leaving $63.9 million of the
8.625% Notes outstanding. When it made the change of control offer, the Company
also solicited the consent of the remaining holders of the 8.625% Notes to
amend the terms of the indenture governing the 8.625% Notes to generally conform
to the covenants contained in the Company's 6.8% Notes and to add the Company as
a guarantor of the obligations thereunder. Consents were received from holders
of over 75% of the principal amount of the 8.625% Notes and the amendments were
adopted and the full and unconditional guarantee entered into as of February 14,
2000. The 8.625% Notes contain certain covenants that, among other things, limit
the ability of the Company to incur additional liens.
Bayard had issued the 11% Notes due 2005 in the principal amount of
$100.0 million prior to being acquired by the Company. During July 1999, the
Company made a cash tender offer to the holders of the 11% Notes that expired on
August 3, 1999. The price offered was $1,110 per $1,000 note plus interest on
such amount from and including July 2, 1999 to but excluding the date of
payment, at a per annum rate of 5.0%. In connection with the offer, the Company
acquired the entire issue of 11% Notes. In connection with the transaction, the
Company recognized a pre-tax extraordinary gain of $4.7 million resulting from
the repayment of the 11% Notes at less than the amount recorded on the Company's
books. This gain was netted against the extraordinary loss on the 9.18% Notes
described below and was included in the Company's consolidated statements of
income as other income.
On May 28, 1996, the Company issued $172.5 million of 5% Convertible
Subordinated Notes with a scheduled maturity on May 15, 2006. During June 1999,
the Company called its 5% Notes for mandatory redemption on July 15, 1999. The
redemption price was $1,035 per $1,000 note, together with accrued and unpaid
interest from May 15, 1999 to the redemption date. Alternatively, holders of the
5% Notes could elect to convert their notes prior to redemption, at a rate of
55.1724 shares of the Company's common stock per $1,000 note. Holders of $172.3
million aggregate principal amount of the 5% Notes elected to convert to 9.5
million shares of common stock. The Company redeemed the remaining 5% Notes for
$.2 million. As a result of these transactions, the 5% Notes were cancelled
during July 1999 and ceased to be outstanding.
61
<PAGE> 64
The Company issued the 9.18% Notes in the principal amount of $40.0
million to the John Hancock Mutual Life Insurance Company and an affiliate
("John Hancock"), pursuant to a note purchase agreement dated October 1, 1992.
During July 1999, the Company prepaid the entire $40.0 million aggregate
principal amount of its 9.18% Notes due July 31, 2006, at par plus a make-whole
premium of approximately $4.5 million. In connection with the transaction, the
Company recognized a pre-tax extraordinary loss of $4.7 million resulting from
the make-whole premium paid and the recognition of certain deferred financing
costs.
During June 1999, the Company filed a shelf registration statement on
Form S-3 with the Securities and Exchange Commission (SEC) to allow the Company
to offer, from time to time, up to $500.0 million in debt securities, preferred
stock, common stock, depository shares or warrants. The SEC declared the
registration statement effective on June 28, 1999. The Company currently has not
issued any securities registered under this registration statement.
As of December 31, 1999, the maturities of long-term obligations for
the five years after 1999 and thereafter are as follows:
<TABLE>
<CAPTION>
- --------------------------
(In thousands)
<S> <C>
2000 $ 3,599
2001 3,554
2002 2,510
2003 1,536
2004 325,000
Thereafter(1) 150,000
- --------------------------
$486,199
- --------------------------
</TABLE>
(1) Represents the principal amount of 8.625% Notes outstanding at December 31,
1999. $86.1 million of the 8.625% Notes were paid in February 2000 in
connection with a tender offer made by the Company and notes purchased in
the open market. $63.9 million remained outstanding as long-term debt after
February 2000.
7 income taxes
- --------------------------------------------------------------------------------
The Company's income tax, reconciled to the US federal income tax using
the federal statutory rate, and an analysis of the income tax provision are as
follows:
<TABLE>
<CAPTION>
Three Months
Year Ended Year Ended Ended Year Ended
December 31, December 31, December 31, September 30,
- ------------------------------------------------------------------------------------------------------------------
(In thousands) 1999 1998 1997 1997
<S> <C> <C> <C> <C>
Total pre-tax income(1) $ 45,629 $199,981 $ 62,616 $182,410
- ------------------------------------------------------------------------------------------------------------------
Expected federal income tax using the 35% statutory rate 15,970 69,993 21,916 63,844
State income taxes (416) 3,974 1,702 1,453
Foreign taxes and other 2,371 1,026 (2,329) 2,305
- ------------------------------------------------------------------------------------------------------------------
Total income tax $ 17,925 $ 74,993 $ 21,289 $ 67,602
- ------------------------------------------------------------------------------------------------------------------
Analysis of the income tax provision:
Current:
US federal $(11,000) $ 22,780 $ 1,696 $ 1,113
State 168 2,610 745 35
Foreign 8,354 14,866 4,662 10,311
- ------------------------------------------------------------------------------------------------------------------
(2,478) 40,256 7,103 11,459
- ------------------------------------------------------------------------------------------------------------------
Deferred:
US federal 19,266 29,384 12,160 49,269
State (808) 3,504 1,875 2,200
Foreign 1,945 1,849 151 4,674
- ------------------------------------------------------------------------------------------------------------------
20,403 34,737 14,186 56,143
- ------------------------------------------------------------------------------------------------------------------
Total income tax $ 17,925 $ 74,993 $ 21,289 $ 67,602
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes foreign income before taxes of $48.1 million, $56.4 million, $10.3
million and $30.9 million, for 1999, 1998, the Transition Period and 1997,
respectively.
62
<PAGE> 65
The components of the Company's net deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
- ---------------------------------------------------------------------------------
(In thousands) 1999 1998
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $ 76,430 $ 21,006
Accrued liabilities and other 110,716 40,218
General tax credits 19,186 7,198
Unrealized loss on marketable securities -- 2,050
- ---------------------------------------------------------------------------------
Deferred tax asset 206,332 70,472
- ---------------------------------------------------------------------------------
Deferred tax liabilities:
Excess tax over book depreciation (258,819) (142,671)
Unrealized gain on marketable securities (1,443) --
- ---------------------------------------------------------------------------------
Deferred tax liability (260,262) (142,671)
- ---------------------------------------------------------------------------------
Net deferred tax liability (53,930) (72,199)
Less current asset portion 39,074 15,665
- ---------------------------------------------------------------------------------
Non-current deferred tax liability $ (93,004) $ (87,864)
- ---------------------------------------------------------------------------------
</TABLE>
In conjunction with the acquisitions of Pool, Bayard, Peak USA and New
Prospect (Note 2), deferred tax assets (liabilities) of $(30.9) million, $45.1
million, $(1.9) million and $(8.8) million, respectively, were recorded in the
year of acquisition.
For US federal income tax purposes, the Company has net operating loss
carryforwards of approximately $215.2 million that, if not utilized, will expire
from 2002 to 2019. The net operating loss carryforwards for Alternative Minimum
Tax purposes are approximately $45.3 million. There are Alternative Minimum Tax
credit carryforwards of $19.2 million available to offset future regular tax
liabilities.
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.
8 capital stock and stock options
- --------------------------------------------------------------------------------
Capital Stock
During November 1999, the Company acquired all of the outstanding
shares of Pool in exchange for 19.7 million newly issued shares of the Company's
common stock ("Shares") (Note 2).
During June and July 1999, the Company issued 9.5 million Shares in
connection with the conversion of $172.3 million aggregate principal amount of
the 5% Notes (Note 6).
During April 1999, the Company acquired all of the outstanding shares
of Bayard common stock in exchange for 6.2 million newly issued Shares (Note 2).
The Company also issued warrants to acquire an aggregate of 133,988 Shares in
exchange for previously issued Bayard warrants to acquire shares of Bayard
common stock. The warrants issued by Nabors have exercise prices ranging from
$21.33 per Share to $28.74 per Share. They expire at various times between May
1, 2000 and May 1, 2003.
During July 1998, the Company repurchased 100,000 Shares in the open
market at a cost of $1.7 million, or at an average cost of $16.53 per Share.
During May 1998, the Company issued warrants to purchase 200,000 Shares
at an exercise price of $30.00 per Share. The warrants were issued in connection
with the New Prospect acquisition (Note 2) and expire on April 30, 2003.
During January 1997, the Company acquired all of the outstanding Shares
of Adcor in exchange for 3.4 million newly issued Shares (Note 2). During 1999
and 1998, respectively, 11,865 and 69,685 Shares that had been held in escrow in
connection with the Company's acquisition of Adcor were returned to the Company
and retired.
During January 1997, warrants to acquire 1.5 million Shares were
exercised at a price of $5.50 per Share. The warrants had originally been issued
to John Hancock during 1990.
The Company is authorized to issue up to 10.0 million 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 December 31, 1999, there were warrants outstanding to purchase
333,988 Shares at prices ranging from $21.33 per Share to $30.00 per Share. The
warrants expire at various times between May 1, 2000 and May 1, 2003.
Stock Option Plans
As of December 31, 1999, the Company has several stock option plans
under which options to purchase 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 targeted 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 9.1 million and 11.1 million Shares
remained available for grant as of December 31, 1999 and 1998, respectively.
63
<PAGE> 66
On December 11, 1998, certain options previously granted to employees
of the Company were re-priced to the closing price of the Company's Shares on
that date. Options to purchase 11.2 million Shares with exercise prices ranging
from $16.00 to $40.25 were re-priced to $12.50. As a condition of the
re-pricing, certain employees forfeited 25% of the options previously granted,
or 3.6 million options, and none of the re-priced options were able to be
exercised for a one-year period from the re-pricing date.
A summary of stock option transactions is as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------
(In thousands, except per share amounts) Weighted
Average
Exercise
Shares Price
<S> <C> <C>
Options outstanding as of September 30, 1996 12,411 $ 6.31
Granted 11,706 21.72
Exercised (8,897) 5.68
Forfeited (118) 10.34
- -----------------------------------------------------------------------------
Options outstanding as of September 30, 1997 15,102 $18.59
Granted 15 37.50
Exercised (66) 6.68
Forfeited (12) 12.26
- -----------------------------------------------------------------------------
Options outstanding as of December 31, 1997 15,039 $18.67
Granted 6,927 18.49
Exercised (126) 7.24
Forfeited (3,726) 22.34
- -----------------------------------------------------------------------------
Options outstanding as of December 31, 1998 18,114 $11.77
Granted 5,394 21.95
Exercised (633) 10.04
Forfeited (197) 24.21
- -----------------------------------------------------------------------------
Options outstanding as of December 31, 1999 22,678 $14.13
- -----------------------------------------------------------------------------
</TABLE>
Of the options outstanding, 19.3 million, 6.0 million, 13.3 million and
13.3 million were exercisable at weighted average exercise prices of $13.49,
$10.40, $19.24 and $19.30 as of December 31, 1999, 1998, 1997 and September 30,
1997, respectively.
A summary of stock options outstanding at December 31, 1999 is as
follows:
<TABLE>
<CAPTION>
Options Outstanding
- -------------------------------------------------------------------------------------
(In thousands, except per share amounts) Weighted Weighted
Average Average
Number Remaining Exercise
Outstanding Contractual Life Price
Range of exercise prices:
<S> <C> <C> <C>
$ 1.07 - 1.61 218 1.2 $ 1.07
4.04 - 6.06 269 2.7 4.83
6.22 - 9.33 804 4.3 6.93
9.40 - 14.10 17,318 7.6 12.25
14.13 - 21.19 294 8.7 15.81
21.56 - 32.34 3,706 9.9 24.85
36.89 - 55.36 1 4.4 36.89
67.26 - 100.89 68 3.8 67.26
- -------------------------------------------------------------------------------------
22,678 7.7 $14.13
- -------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Options Exercisable
- ------------------------------------------------------------------------------
(In thousands, except per share amounts) Weighted
Average
Number Exercise
Exercisable Price
<S> <C> <C>
Range of exercise prices:
$ 1.07 - 1.61 218 $ 1.07
4.04 - 6.06 269 4.83
6.22 - 9.33 804 6.93
9.40 - 14.10 15,513 12.30
14.13 - 21.19 49 16.62
21.56 - 32.34 2,378 24.91
36.89 - 55.36 1 36.89
67.26 - 100.89 27 67.26
- ------------------------------------------------------------------------------
19,259 $13.49
- ------------------------------------------------------------------------------
</TABLE>
The weighted average fair value of options granted during 1999, 1998,
the Transition Period and 1997 was $7.12, $5.05, $13.43 and $4.96, 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 1999, 1998, the Transition Period and
1997, respectively: risk-free interest rates of 5.76%, 4.95%, 5.88% and 5.80%;
dividend yield of 0.0% for all periods; expected life of 2.97 years, 2.2 years,
3.5 years and 2.1 years; and volatility of 42.0%, 38.9%, 38.9% and 30.9%.
Had compensation cost for the Company's stock-based compensation plans
been recognized in accordance with SFAS 123, the Company's net income (loss) and
diluted earnings (loss) per share for 1999, 1998, the Transition Period and 1997
would have been $(1.7) million and $(.01) per share, $99.7 million and $.93 per
share, $41.0 million and $.36 per share and $66.1 million and $.63 per share,
respectively. 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.
9 pension, postretirement and postemployment benefits
- --------------------------------------------------------------------------------
Pension Plans
In conjunction with the Pool acquisition, the Company acquired the
assets and liabilities of a defined benefit pension plan, the Pool Company
Retirement Income Plan (the "Plan"). Benefits under the Plan are frozen and
participants are fully vested in their accrued retirement benefit on December
31, 1998.
Postretirement Benefits Other Than Pensions
Prior to the date of the acquisition, Pool provided certain
postretirement health care and life insurance benefits to eligible retirees who
had attained specific age and years of service requirements. The Company
terminated this plan at the date of acquisition, November 24, 1999.
64
<PAGE> 67
The Company has adopted and retroactively applied the disclosure
requirements prescribed by SFAS No. 132, "Employers' Disclosures About Pensions
and Other Postretirement Benefits". This statement standardizes the disclosure
requirements for pensions to the extent practicable, requires additional
information on changes in the benefit obligations and fair values of plan
assets, and eliminates certain disclosures no longer considered useful.
Summarized information on the Company's pension plan is as follows:
<TABLE>
<CAPTION>
Year ended
pension benefits December 31,
- -------------------------------------------------------------------------------
(In thousands) 1999
<S> <C>
Change in benefit obligation:
Benefit obligation at beginning of year $ --
Acquisition 13,024
Interest cost 86
Benefit payments (59)
- -------------------------------------------------------------------------------
Benefit obligation at end of year 13,051
- -------------------------------------------------------------------------------
Change in plan assets:
Fair value of plan assets at beginning of year --
Acquisition 12,172
Actual return on plan assets 334
Benefit payments (59)
- -------------------------------------------------------------------------------
Fair value of plan assets at end of year 12,447
- -------------------------------------------------------------------------------
Funded status:
Funded status at end of year (604)
Unrecognized net actuarial gain (254)
- -------------------------------------------------------------------------------
Net amount recognized (858)
- -------------------------------------------------------------------------------
Net liability recognized $ (858)
- -------------------------------------------------------------------------------
</TABLE>
1999 Weighted average assumptions:
Pool retirement income plan:
Weighted average discount rate 6.50%
Expected long-term rate of return on plan assets 6.50%
- -----------------------------------------------------------------
<TABLE>
<CAPTION>
Year ended
pension benefits December 31,
- ------------------------------------------------------------
(In thousands) 1999
<S> <C>
Components of net periodic benefit cost:
Service cost $ --
Interest cost 86
Expected return on plan assets (80)
- ------------------------------------------------------------
Net periodic benefit cost $ 6
- ------------------------------------------------------------
</TABLE>
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 $3.9 million, $6.4 million, $1.4 million and $4.4
million for 1999, 1998, the Transition Period and 1997, respectively. The
Company does not provide postemployment 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-cancellable operating leases, with lease
terms in excess of one year subsequent to December 31, 1999, are as follows:
<TABLE>
<CAPTION>
- --------------------------
(In thousands)
<S> <C>
2000 $12,538
2001 11,559
2002 10,858
2003 6,340
2004 5,528
Thereafter 2,369
- --------------------------
$49,192
- --------------------------
</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 $5.1 million, $3.8
million, $.9 million and $3.1 million for 1999, 1998, the Transition Period and
1997, 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 as of December 31, 1999 are as follows:
<TABLE>
<CAPTION>
- --------------------------
(In thousands)
<S> <C>
2000 $2,025
2001 1,503
- --------------------------
$3,528
- --------------------------
</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 December 31, 1999, the Company had outstanding capital
expenditure purchase commitments of approximately $54.2 million, including $41.4
million for the construction of five supply vessels. The Company also had a $9.1
million deposit with the manufacturer of the vessels, that will be applied
against the purchase commitment.
Contingencies
A purported class action lawsuit is pending against Bayard Drilling
Technologies, Inc., a wholly-owned subsidiary of Nabors, certain directors and
officers of Bayard, the managing underwriters of Bayard's initial public
offering, and certain former stockholders of Bayard, alleging violations of
federal securities laws in connection with its initial public offering that
occurred prior to the Company's acquisition of Bayard.
65
<PAGE> 68
The lawsuit, Yuan v. Bayard Drilling Technologies, Inc., et al. ("Yuan"), was
filed on February 3, 1998 in the United States District Court for the Western
District of Oklahoma. Two related suits have been consolidated with Yuan.
The plaintiffs in this lawsuit purport to sue on their own behalf and
on behalf of all persons who purchased shares of Bayard common stock in or
traceable to the initial public offering. In the lawsuit, plaintiffs allege
claims against all defendants under the Securities Act of 1933. The plaintiffs
allege, among other things, that the registration statement and prospectus for
Bayard's initial public offering contained materially false and misleading
information and omitted material facts.
An amended consolidated complaint was filed on July 30, 1998 and a
motion to dismiss was filed by Bayard and the other defendants. This motion was
granted in part (with respect to Chesapeake, certain non-employee directors,
certain shareholders and the underwriters) and denied in part (with respect to
Bayard and certain of Bayard's officers and directors).
Nabors and Bayard believe the allegations in this lawsuit are without
merit and Bayard is defending vigorously the claims brought against it. Neither
Nabors nor Bayard is able, however, to predict the outcome of this lawsuit or
the costs to be incurred in connection with their defense and there can be no
assurance that this litigation will be resolved in Bayard's favor. An adverse
result or prolonged litigation could have an adverse effect on the financial
position or results of operations of Bayard.
Nabors and its subsidiaries are defendants or otherwise involved in a
number of other lawsuits in the ordinary course of their business. In the
opinion of management, Nabors' ultimate liability with respect to these pending
lawsuits is not expected to have a significant or material adverse effect on
Nabors' consolidated financial position, cash flows or results of operations.
11 supplemental balance sheet and income statement information
- --------------------------------------------------------------------------------
Accounts receivable is net of an allowance for doubtful accounts of
$5.0 million and $3.7 million as of December 31, 1999 and 1998, respectively.
Prepaid expenses and other current assets include income taxes
receivable of $19.2 million as of December 31, 1999 and insurance claims
receivable of $14.0 million and $15.2 million as of December 31, 1999 and 1998,
respectively.
Accrued liabilities include the following:
<TABLE>
<CAPTION>
December 31, December 31,
- ------------------------------------------------------------------------------------
(In thousands) 1999 1998
<S> <C> <C>
Accrued compensation $ 34,221 $24,596
Deferred revenue 12,614 16,737
Workers' compensation liabilities 10,624 10,066
Merger liabilities 43,265 --
Other accrued liabilities 59,822 33,863
- ------------------------------------------------------------------------------------
$160,546 $85,262
- ------------------------------------------------------------------------------------
</TABLE>
Other income, net includes the following:
<TABLE>
<CAPTION>
Three Months
Year Ended Year Ended Ended Year Ended
December 31, December 31, December 31, September 30,
- ------------------------------------------------------------------------------------------------
(In thousands) 1999 1998 1997 1997
<S> <C> <C> <C> <C>
Gains (losses)
on marketable
securities and warrants $ 3,656 $ (4,324) $ (142) $ 11,461
Gains on disposition
of long-term assets
and businesses 2,915 34,126 345 32,143
Dividend income 496 4,119 18 572
Foreign currency
(losses) gains (37) 216 3 919
Other 1,830 (2,511) 2,079 (4,348)
- ------------------------------------------------------------------------------------------------
$ 8,860 $ 31,626 $ 2,303 $ 40,747
- ------------------------------------------------------------------------------------------------
</TABLE>
12 unaudited quarterly financial information
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31, 1999
- -----------------------------------------------------------------------------------------
(In thousands, except Quarter Ended
per share amounts) March 31, June 30, September 30, December 31,
<S> <C> <C> <C> <C>
Revenues $152,987 $129,939 $142,390 $216,948
Gross margin(1) 59,687 48,644 48,899 66,359
Operating income 21,966 9,800 10,022 16,620
Net income 11,964 3,298 4,741 7,701
Earnings per share:(2)
Basic $ .12 $ .03 $ .04 $ .06
Diluted $ .12 $ .03 $ .04 $ .06
- -----------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31, 1998
- -----------------------------------------------------------------------------------------
(In thousands, except Quarter Ended
per share amounts) March 31, June 30, September 30, December 31,
<S> <C> <C> <C> <C>
Revenues $286,774 $248,928 $224,215 $208,240
Gross margin(1) 98,327 88,833 84,956 72,197
Operating income 57,019 48,747 45,105 31,467
Net income 39,692 35,732 28,538 21,026
Earnings per share(2):
Basic $ .39 $ .35 $ .28 $ .21
Diluted $ .36 $ .33 $ .27 $ .20
</TABLE>
(1) Gross profit represents revenues minus direct costs, and excludes
depreciation expense and general and administrative expenses.
(2) Earnings per share are computed independently for each of the quarters
presented. Therefore, the sum of the quarterly earnings per share may not
equal the total computed for the year.
66
<PAGE> 69
13 segment information
- --------------------------------------------------------------------------------
The Company's 11 business units (eight in 1998 and nine in 1997) have
been aggregated into two reportable segments, specifically (1) contract
drilling, including workover and well-servicing, and (2) manufacturing and
logistics, based on the nature of the services provided, the class of customers,
the methods used to provide services and other economic characteristics. The
contract drilling segment consists of the Company's Alaska, Canada, US Lower 48,
International, Offshore and UK North Sea (in 1997) operations. These units
provide oil and gas drilling, workover and well-servicing on land and offshore.
The manufacturing and logistics segment consists of the Company's Canrig, Epoch,
Peak Oilfield Service Company, Peak USA and Sea Mar operating units. These units
manufacture top drives, manufacture drilling instrumentation systems, provide
construction and logistics services, provide trucking and logistics services and
provide marine transportation and support services, respectively.
The accounting policies of the segments are the same as those described
in the Summary of Significant Accounting Policies (Note 1). Inter-segment sales
are recorded at cost or cost plus a profit margin. The Company evaluates the
performance of its segments based on operating income.
The following table sets forth financial information with respect to
the Company and its reportable segments:
<TABLE>
<CAPTION>
Year Ended Year Ended Three Months Ended Year Ended
December 31, December 31, December 31, September 30,
- ----------------------------------------------------------------------------------------------------------------------------------
(In thousands) 1999 1998 1997 1997
<S> <C> <C> <C> <C>
Revenues:(1)
Contract drilling(2) $ 605,271 $ 872,717 $ 280,373 $ 940,941
Manufacturing and logistics(3) 49,220 111,188 31,316 115,051
Other(4) (12,227) (15,748) (8,883) (26,689)
- ----------------------------------------------------------------------------------------------------------------------------------
Total revenues $ 642,264 $ 968,157 $ 302,806 $ 1,029,303
- ----------------------------------------------------------------------------------------------------------------------------------
Depreciation and amortization:
Contract drilling $ 96,422 $ 79,976 $ 19,335 $ 62,572
Manufacturing and logistics 3,766 5,402 1,061 3,964
Other(5) (295) (429) (83) (145)
- ----------------------------------------------------------------------------------------------------------------------------------
Total depreciation $ 99,893 $ 84,949 $ 20,313 $ 66,391
- ----------------------------------------------------------------------------------------------------------------------------------
Operating income (loss):
Contract drilling $ 71,050 $ 181,793 $ 64,596 $ 157,879
Manufacturing and logistics 3,064 15,861 5,653 13,428
Other(5) (15,706) (15,316) (6,050) (16,546)
- ----------------------------------------------------------------------------------------------------------------------------------
Total operating income 58,408 182,338 64,199 154,761
Interest expense (30,395) (15,463) (3,979) (16,520)
Interest income 8,756 1,480 93 3,422
Other income, net 8,860 31,626 2,303 40,747
- ----------------------------------------------------------------------------------------------------------------------------------
Income before income taxes $ 45,629 $ 199,981 $ 62,616 $ 182,410
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets:
Contract drilling(6) $ 1,920,129 $ 1,334,378 $ 1,159,844 $ 1,106,390
Manufacturing and logistics(7) 286,501 83,980 69,761 66,585
Other(5) 191,373 47,549 51,701 61,257
- ----------------------------------------------------------------------------------------------------------------------------------
Total assets $ 2,398,003 $ 1,465,907 $ 1,281,306 $ 1,234,232
- ----------------------------------------------------------------------------------------------------------------------------------
Capital expenditures and acquisitions of businesses:
Contract drilling $ 539,994 $ 305,620 $ 83,136 $ 391,446
Manufacturing and logistics 125,036 8,530 1,994 12,689
Other(5) 2,487 (686) (1,092) (7,467)
- ----------------------------------------------------------------------------------------------------------------------------------
Total capital expenditures $ 667,517 $ 313,464 $ 84,038 $ 396,668
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) One customer represented approximately 11% of consolidated revenues during
1998. Both of the Company's reportable segments recorded sales to this
customer.
(2) Includes earnings of unconsolidated affiliates, accounted for by the equity
method of $.8 million for 1999.
(3) Includes earnings (losses) of unconsolidated affiliates, accounted for by
the equity method, of $3.0 million, $(.3) million , $0 million and $.5
million for 1999, 1998, the Transition Period and 1997, respectively.
(4) Elimination of inter-segment manufacturing and logistics sales.
(5) Includes the elimination of inter-segment transactions and unallocated
corporate expenses, assets and capital expenditures.
(6) Includes $28.2 million of investments in affiliates accounted for by the
equity method for 1999.
(7) Includes $25.9 million, $4.9 million, $3.8 million and $3.6 million of
investments in affiliates accounted for by the equity method for 1999,
1998, the Transition Period and 1997, respectively.
67
<PAGE> 70
The following table sets forth financial information with respect to
the Company's operations by geographic area:
<TABLE>
<CAPTION>
Year Ended Year Ended Three Months Ended Year Ended
December 31, December 31, December 31, September 30,
- --------------------------------------------------------------------------------------------------------------
(In thousands) 1999 1998 1997 1997
<S> <C> <C> <C> <C>
Revenues:
United States $ 439,131 $ 692,636 $ 236,508 $ 797,319
Foreign 203,133 275,521 66,298 231,984
- --------------------------------------------------------------------------------------------------------------
$ 642,264 $ 968,157 $ 302,806 $1,029,303
- --------------------------------------------------------------------------------------------------------------
Property, plant and equipment, net:
United States $1,326,929 $ 823,561 $ 703,594 $ 642,394
Foreign 342,537 303,593 219,808 218,999
- --------------------------------------------------------------------------------------------------------------
$1,669,466 $1,127,154 $ 923,402 $ 861,393
- --------------------------------------------------------------------------------------------------------------
</TABLE>
NABORS INDUSTRIES
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 Corporate 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
PricewaterhouseCoopers LLP
Houston, Texas
price of common stock
As of December 31, 1999, there were 136,831,925 shares of Common Stock
outstanding held by 2,297 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 calendar quarters
indicated.
<TABLE>
<CAPTION>
Stock Price
- -----------------------------------------------------------------
Calendar Year High Low
<S> <C> <C>
1997 First quarter 22 14 3/4
Second quarter 25 1/16 17 3/4
Third quarter 40 7/8 24 7/8
Fourth quarter 46 13/16 26
- -----------------------------------------------------------------
1998 First quarter 31 9/16 19 15/16
Second quarter 27 3/8 19 3/4
Third quarter 21 7/16 11 3/4
Fourth quarter 20 11/16 12 1/16
- -----------------------------------------------------------------
1999 First quarter 19 10 3/4
Second quarter 25 5/16 15 1/2
Third quarter 29 1/2 21 9/16
Fourth quarter 31 1/4 19 3/4
- -----------------------------------------------------------------
</TABLE>
68
<PAGE> 71
NABORS INDUSTRIES
OFFICERS AND DIRECTORS
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 - Administration and Corporate Secretary
Bruce P. Koch
Vice President - Finance
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.
James L. Payne
Chief Executive Officer
Santa Fe Snyder Corporation
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
PRINCIPAL OPERATING SUBSIDIARIES
principal operating subsidiaries
Nabors Alaska Drilling, Inc.
Anchorage, Alaska
James Denney, President
Nabors Drilling Limited
Nisku, Alberta
Duane A. Mather, President
Nabors Drilling USA, Inc.
Houston, Texas
Larry P. Heidt, President
Nabors Drilling International Limited and
Pool International Ltd.
Houston, Texas
Siegfried Meissner, President
Nabors Offshore Corporation
Houston, Texas
Jerry C. Shanklin, President
Pool Well Services Co. & Pool Company Texas, Ltd.
Houston, Texas
Nicholas Petronio, President
Sea Mar Inc.
Houston, Texas
Al Gonsoulin, President
CANRIG Drilling Technology, Ltd.
Magnolia, Texas
Allan Richardson, President
EPOCH Well Services, Inc.
Bakersfield, California
Christopher P. Papouras, President
Peak USA Energy Services Ltd.
Houston, Texas
Steve Adam, President
Peak Oilfield Service Company
Anchorage, Alaska
Michael R. O' Connor, President
Design: Savage Design Group, Inc., Houston, Texas
<PAGE> 72
Inside Back Cover
515 West Greens Road
Suite 1200
Houston, Texas 77067
281-874-0035
Nabors Industries 1999 annual report
<PAGE> 1
EXHIBIT 21
SIGNIFICANT SUBSIDIARIES
SUBSIDIARY NAME JURISDICTION
- --------------- ------------
Canrig Drilling Technology Ltd. Delaware
Epoch Well Services, Inc. Delaware
Nabors Alaska Drilling, Inc. Alaska
Nabors Alaska Services Corp. Alaska
Nabors Corporate Services, Inc. Delaware
Nabors Drilling International Limited Delaware
Nabors Drilling Limited Canada
Nabors Drilling USA, Inc. Delaware
Nabors Holding Company Delaware
Nabors International, Inc. Delaware
Nabors Offshore Corporation Delaware
Peak Oilfield Services Company (50% ownership) Alaska
Pool Company Delaware
Pool Company Texas, Ltd. Texas
Pool Well Services Co. Delaware
Sea Mar, Inc. Louisiana
Sea Mar Management, Inc. Louisiana
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the registration
statements of Nabors Industries, Inc. on Form S-8 (Registration Numbers
333-57129, 333-11313, 33-87322, 33-87324, 33-47521, 33-45097, 33-36229,
33-56000, 33-54858, 333-92483, 333-91829, 333-91743, 333-87069, 333-86289 and
333-76077), on Form S-4 (Registration Numbers 333-72397 and 333-84781) and on
Form S-3 (Registration Numbers 333-25233 and 333-81137) of our report dated
February 9, 2000 relating to the consolidated financial statements, which
appears in the Annual Report to Shareholders, which is incorporated in this
Annual Report on Form 10-K.
Houston, Texas
March 30, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 80,580
<SECURITIES> 31,086
<RECEIVABLES> 210,631
<ALLOWANCES> 4,988
<INVENTORY> 25,758
<CURRENT-ASSETS> 461,293
<PP&E> 2,152,322
<DEPRECIATION> 482,856
<TOTAL-ASSETS> 2,398,003
<CURRENT-LIABILITIES> 265,476
<BONDS> 482,600
0
0
<COMMON> 13,742
<OTHER-SE> 1,456,332
<TOTAL-LIABILITY-AND-EQUITY> 2,398,003
<SALES> 638,507
<TOTAL-REVENUES> 642,264
<CGS> 418,675
<TOTAL-COSTS> 418,675
<OTHER-EXPENSES> 165,181
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 30,395
<INCOME-PRETAX> 45,629
<INCOME-TAX> 17,925
<INCOME-CONTINUING> 27,704
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,704
<EPS-BASIC> .25
<EPS-DILUTED> .23
</TABLE>
