<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 1994
COMMISSION FILE NUMBER 0-16703
CLIFFS DRILLING COMPANY
(Exact name of registrant as specified in its charter)
DELAWARE 76-0248934
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
300 CITICORP CENTER 77002
HOUSTON, TEXAS (Zip Code)
(Address of principal
executive offices)
(713) 651-9426
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
Number of shares of Common Stock outstanding as of July 26, 1994: 4,128,104
(Exhibit Index Located on Page 21)
Page 1 of 21 Pages
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CLIFFS DRILLING COMPANY
FORM 10-Q
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1994
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Consolidated Statements of Operations (Unaudited) -
CLIFFS DRILLING COMPANY
Three and Six Months ended June 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Balance Sheets -
CLIFFS DRILLING COMPANY
June 30, 1994 (Unaudited) and December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statements of Cash Flows (Unaudited) -
CLIFFS DRILLING COMPANY
Three and Six Months ended June 30, 1994 and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Interim Consolidated Financial Statements (Unaudited) . . . . . . . . . . . . . . . . . . . . . . 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . 19
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
EXHIBIT INDEX . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
2
<PAGE> 3
CLIFFS DRILLING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------- --------------
1994 1993 1994 1993
---- ---- ---- ----
(In thousands, except per share amounts)
<S> <C> <C> <C> <C>
REVENUES:
Revenues $ 15,475 $ 12,224 $ 31,955 $ 30,041
Income (Loss) from Equity Investment 1,072 (5) 1,069 (5)
-------- --------- --------- --------
16,547 12,219 33,024 30,036
COSTS AND EXPENSES:
Operating Expenses 7,433 4,465 15,103 15,989
Depreciation, Depletion and Amortization 3,513 4,064 7,100 7,999
Contract Termination Provision 1,762 -- 3,377 --
Exploration Costs 26 60 47 107
General and Administrative Expense 1,268 1,215 2,519 2,348
-------- --------- --------- --------
14,002 9,804 28,146 26,443
-------- --------- --------- --------
OPERATING INCOME 2,545 2,415 4,878 3,593
OTHER INCOME (EXPENSE):
Gain on Disposition of Assets 590 278 536 701
Interest Income 162 242 377 472
Interest Expense (262) (366) (423) (793)
Exchange Rate Loss (783) (58) (995) (109)
Other, net (235) (320) (663) (377)
-------- --------- --------- --------
INCOME BEFORE INCOME TAXES 2,017 2,191 3,710 3,487
INCOME TAX EXPENSE 499 156 772 358
-------- --------- --------- --------
NET INCOME 1,518 2,035 2,938 3,129
DIVIDENDS APPLICABLE TO PREFERRED STOCK (665) (665) (1,330) (1,330)
-------- --------- --------- --------
NET INCOME APPLICABLE TO COMMON
AND COMMON EQUIVALENT SHARES $ 853 $ 1,370 $ 1,608 $ 1,799
======== ========= ========= ========
NET INCOME PER SHARE:
Primary $ 0.20 $ 0.30 $ 0.37 $ 0.40
======== ========= ========= ========
Assuming Full Dilution $ 0.20 $ 0.30 $ 0.37 $ 0.40
======== ========= ========= ========
WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING:
Primary 4,196 4,515 4,328 4,512
======== ========= ========= ========
Assuming Full Dilution 4,196 4,515 4,328 4,512
======== ========= ========= ========
</TABLE>
See accompanying notes to interim consolidated financial statements.
3
<PAGE> 4
CLIFFS DRILLING COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1994 1993
-------- ------------
(UNAUDITED)
(In thousands)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and Cash Equivalents $ 2,124 $ 10,615
Accounts Receivable, net of allowance for doubtful accounts of $679
and $697 at June 30, 1994 and December 31, 1993, respectively 17,451 15,743
Other Receivables 2,378 3,812
Inventories 5,815 2,478
Drilling Contracts in Progress 11,090 485
Prepaid Insurance 2,650 1,098
Other Prepaid Expenses 3,483 3,798
--------- ---------
Total Current Assets 44,991 38,029
PROPERTY AND EQUIPMENT, AT COST:
Rigs and Related Equipment 167,606 168,059
Oil and Gas Properties ("successful efforts" method) 25,051 24,888
Other 2,948 2,534
--------- ---------
195,605 195,481
Less: Accumulated Depreciation, Depletion and Amortization (109,777) (108,975)
--------- ---------
Net Property and Equipment 85,828 86,506
NOTES AND OTHER RECEIVABLES - LONG TERM 6,454 7,044
INVESTMENT IN AND ADVANCES TO UNCONSOLIDATED AFFILIATE 2,021 1,852
OTHER ASSETS 766 92
--------- ---------
TOTAL ASSETS $ 140,060 $ 133,523
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 17,685 $ 8,679
Accrued Expenses, Including Interest 8,229 7,248
Accrued Litigation Settlement and Expenses -- 1,700
--------- ---------
Total Current Liabilities 25,914 17,627
NOTES PAYABLE - LONG TERM 11,033 13,108
OTHER LIABILITIES 588 659
DEFERRED INCOME 4,257 885
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK:
$2.3125 Convertible Exchangeable Preferred Stock, 3,000,000 shares
authorized; 1,150,000 shares issued and outstanding at June 30, 1994
and December 31, 1993, respectively ($28,750,000 liquidation value) 28,750 28,750
SHAREHOLDERS' EQUITY:
Common Stock, $.01 par value, 15,000,000 shares authorized; 4,128,104 and
4,513,104 shares issued and outstanding at June 30, 1994 and
December 31, 1993, respectively 45 45
Paid in Capital 99,133 99,133
Retained Earnings (Deficit) (24,684) (26,292)
Less: Notes Receivable from Officers for Restricted Stock (232) (232)
Restricted Stock (69) (103)
Treasury Stock, at cost, 390,000 and 5,000 shares at June 30, 1994
and December 31, 1993, respectively (4,675) (57)
--------- ---------
Total Shareholders' Equity 69,518 72,494
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 140,060 $ 133,523
========= =========
</TABLE>
See accompanying notes to interim consolidated financial statements.
4
<PAGE> 5
CLIFFS DRILLING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
-------------- --------------
1994 1993 1994 1993
---- ---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 1,518 $ 2,035 $ 2,938 $ 3,129
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Depreciation, Depletion and Amortization 3,513 4,064 7,100 7,999
Contract Termination Provision 1,762 -- 3,377 --
Mobilization Expense Amortization 109 500 269 1,040
Gain on Disposition of Assets (590) (278) (536) (701)
Other 5 (11) (200) (9)
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts Receivable 4,060 451 436 (3,500)
Inventories (3,057) (253) (3,686) (428)
Drilling Contracts in Progress (9,589) (353) (10,348) 774
Prepaid Expenses and Other Current Assets (695) (1,024) (1,378) (903)
Investment in and Advances to Unconsolidated Affiliate (1,844) (1,063) (169) (1,245)
Other Assets 345 (22) (802) (22)
Accounts Payable and Other Accrued Liabilities 5,108 (1,239) 7,625 (1,896)
Deferred Income -- 257 -- 512
-------- --------- --------- --------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 645 3,064 4,626 4,750
INVESTING ACTIVITIES:
Capital Expenditures (1,686) (2,331) (6,455) (7,292)
Proceeds from Sale of Property and Equipment 57 818 73 5,818
Collection of Notes Receivable 256 457 590 694
-------- --------- --------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (1,373) (1,056) (5,792) (780)
FINANCING ACTIVITIES:
Proceeds from Borrowings 10,500 -- 10,500 --
Payments on Borrowings (8,582) (4,082) (12,575) (7,120)
Acquisition of Treasury Stock (2,109) -- (3,920) --
Proceeds from Issuance of Common Stock -- 18 -- 18
Preferred Stock Dividends (665) (665) (1,330) (1,330)
-------- --------- --------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (856) (4,729) (7,325) (8,432)
-------- --------- --------- --------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS (1,584) (2,721) (8,491) (4,462)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 3,708 13,956 10,615 15,697
-------- --------- --------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 2,124 $ 11,235 $ 2,124 $ 11,235
======== ========= ========= ========
</TABLE>
See accompanying notes to interim consolidated financial statements.
5
<PAGE> 6
CLIFFS DRILLING COMPANY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1994
1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting only of normal and recurring adjustments) necessary to present a
fair statement of the results for the period included herein have been made and
the disclosures contained herein are adequate to make the information presented
not misleading. Operating results for the three and six months ended June 30,
1994 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1994. For further information, refer to the
consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December 31, 1993.
2. EARNINGS PER SHARE
Primary earnings per share computations are based on net income less dividends
on the Company's $2.3125 Convertible Exchangeable Preferred Stock (the
"Preferred Stock"), divided by the average number of common shares and
equivalents outstanding during the respective periods. Common stock
equivalents include the number of shares issuable upon exercise of stock
options, less the number of shares that could have been repurchased with the
exercise proceeds using the treasury stock method. The Preferred Stock is not
included in the primary earnings per share computation as it is not a common
stock equivalent. Fully diluted earnings per common share computations are
made after the assumption of conversion of the Preferred Stock when the effect
of such conversion is dilutive.
6
<PAGE> 7
CLIFFS DRILLING COMPANY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1994
3. TREASURY STOCK
The Company purchased on the open market 385,000 shares of its Common Stock at
an aggregate purchase price of $4,618,000, or approximately $12.00 per share,
during the six months ended June 30, 1994. During the fourth quarter of 1993,
the Company purchased on the open market 5,000 shares at an aggregate purchase
price of $57,000, or approximately $11.40 per share. All of the acquired
shares are held as Common Stock in treasury, less shares issued to employees
under certain benefit plans.
4. NOTES PAYABLE
The Company executed the Second Restated Credit Agreement with Internationale
Nederlanden (U.S.) Capital Corporation ("INCC") during the first quarter of
1994, thereby converting its $10,000,000 working capital credit facility to a
$20,000,000 revolving line of credit subject to certain borrowing base
limitations. The revolving line of credit matures on January 1, 1996.
Subsequent to June 30, 1994, the Company drew an additional $2,000,000 under
the revolving line of credit to fund its working capital requirements.
5. CHANGE IN PRESENTATION
Certain financial statement items have been reclassified in the prior year to
make them conform with the current year presentation.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
Activity in the contract drilling industry and related oil service businesses
has shown signs of improvement over the last two years due to various market
consolidations and more stable natural gas prices. Crude oil prices declined
significantly during the first quarter of 1994, but have returned to higher
levels during the second quarter. These enhanced market conditions have
resulted in an improvement in the balance of supply and demand for drilling
equipment and increased rig utilization and dayrates. Competition, however,
remains intense within the contract drilling industry. The financial condition
and results of operations of the Company and other drilling contractors are
dependent upon the price of oil and natural gas, as demand for their services
is primarily dependent upon the level of spending by oil and gas companies for
exploration, development and production activities.
The Company has endeavored to mitigate the effect of volatile product pricing
by diversifying its scope of operations beyond the traditional domestic daywork
contract drilling market. To achieve its strategic objective, the Company
established separate but related lines of business in turnkey drilling and
Mobile Offshore Production Unit ("MOPU") operations, and pursued foreign
drilling and production opportunities. Each of the Company's business segments
will continue to be affected, however, by the unsettled energy markets, which
are influenced by a variety of factors, including general economic conditions,
the extent of worldwide oil and gas production and demand therefor, government
regulations, and environmental concerns.
RESULTS OF OPERATIONS
Three Months Ended June 30, 1994 Versus 1993
The Company recognized net income, before preferred dividends, of $1.5 million
during the second quarter of 1994 compared to net income of $2.0 million in the
same period in 1993. Operating income increased $.1 million in the second
quarter of 1994 compared to the second quarter of 1993, even though net income
was lower. The improvement in operating income was due to increased foreign
daywork drilling operating income of $1.4 million, increased turnkey drilling
operating income of $.7 million, and decreased domestic daywork drilling
operating losses of $.5 million. These improvements were offset in part by
decreased MOPU operating income of $2.5 million. Net income was lower in the
second quarter of 1994 when compared to the second quarter of 1993 due
primarily to exchange losses incurred from devaluation of the Venezuelan
Bolivar.
8
<PAGE> 9
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
-------- INCREASE
1994 1993 (DECREASE)
---- ---- ----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Daywork Drilling:
Domestic $ 7 $ 197 $ (190)
Foreign 8,356 5,286 3,070
Turnkey Drilling 3,557 49 3,508
MOPU Operations 4,810 5,305 (495)
Oil and Gas 791 1,382 (591)
Eliminations (974) -- (974)
----------- ----------- -----------
Consolidated $ 16,547 $ 12,219 $ 4,328
=========== =========== ===========
Operating Income (Loss):
Daywork Drilling:
Domestic $ 3 $ (493) $ 496
Foreign 2,110 693 1,417
Turnkey Drilling 739 87 652
MOPU Operations 1,114 3,581 (2,467)
Oil and Gas (67) (220) 153
Corporate Office (1,284) (1,233) (51)
Eliminations (70) -- (70)
----------- ----------- -----------
Consolidated $ 2,545 $ 2,415 $ 130
=========== =========== ===========
</TABLE>
DAYWORK DRILLING
Domestic daywork drilling results in the second quarter of 1994 reflect the
Company's strategy to diversify away from this volatile market. As a result of
rig deployments out of the United States, domestic daywork drilling operating
losses decreased by $.5 million from the second quarter of 1993 to the second
quarter of 1994. Operating losses incurred in the second quarter of 1993 were
due primarily to stacked rig costs associated with the Company's domestic land
rigs. One of the Company's land drilling rigs, which was stacked during the
first four months of 1993, was mobilized to Venezuela during the first quarter
of 1994 and began daywork drilling operations for Corpoven, S.A. ("Corpoven")
for a three-year term. Two of the Company's land drilling rigs, which were
stacked during all of 1993, were mobilized to Venezuela during the first
quarter of 1994 and are currently drilling the first of 6 turnkey wells for
Corpoven.
Foreign daywork drilling revenues increased $3.1 million from $5.3 million in
the second quarter of 1993 to $8.4 million in the second quarter of 1994.
Foreign daywork drilling operating income increased $1.4 million during the
same period. Foreign daywork drilling operating results reflect increased
revenues and operating income primarily due to contributions from one of the
9
<PAGE> 10
Company's jack-up drilling rigs which was mobilized to the Bay of Tampico,
Mexico during the first quarter of 1994. This jack-up drilling rig is
currently drilling the second of 2 turnkey wells for Cliffs Neddrill Central
Turnkey International ("CNCTI"), a joint venture in which the Company holds a
one-third ownership interest, and is expected to come off contract during the
third or fourth quarter of 1994. Also contributing to the improved results
were the additional land rig operations in Venezuela, offset in part by
decreased average dayrates for the Company's 2 jack-up drilling rigs working in
Venezuela during the second quarter of 1994 when compared to the same period in
1993.
Contracts for the Company's 2 jack-up drilling rigs operating in Venezuela were
renegotiated and extended to March, 1995. The contract rates are adjusted
quarterly based upon fluctuations in oil prices from the base oil price in
effect at the contract renewal date. Contracts on 2 of the 3 land drilling rigs
working in eastern Venezuela expire in September, 1995, and the other contract
expires in February, 1997.
TURNKEY DRILLING
Turnkey drilling revenues increased $3.5 million from $.1 million in the second
quarter of 1993 to $3.6 million in the second quarter of 1994. Turnkey
drilling operating income increased $.7 million during the same period. Three
turnkey contracts were completed in the second quarter of 1994 compared to one
completed during the same period in 1993. Two of the 3 turnkey wells completed
in the second quarter of 1994 and the turnkey well completed in the second
quarter of 1993 were drilled for CNCTI and recorded under the equity method.
The Company is currently drilling the initial wells included in 2 packages of 3
turnkey wells for Corpoven. The 6 wells will be completed during 1994 and 1995
with revenues of approximately $36 million. The Company mobilized 2 land rigs
to Venezuela during the first quarter of 1994 to work on these projects. The
Company mobilized an idle jack-up drilling rig to the Bay of Tampico, Mexico in
the first quarter of 1994 to drill 2 of the 4 wells awarded to CNCTI by
Petroleos de Mexico S.A. ("PEMEX"). This jack-up drilling rig is currently
drilling the second well. In addition to the turnkey wells being drilled in
Mexico and Venezuela, the Company is currently in the process of drilling one
turnkey well in the United States and one in Holland. Two of the wells
currently in progress have encountered downhole problems. The Company accrued
a total of $950,000 for expected losses on these contracts in the second
quarter of 1994.
MOPU OPERATIONS
MOPU revenues decreased $.5 million from $5.3 million in the second quarter of
1993 to $4.8 million in the second quarter of 1994. MOPU operating income
decreased $2.5 million during the same period. The decrease in revenues was
primarily due to the expiration in May, 1994 of the two-year contract on the
Langley, one of 3 MOPUs working in Venezuela, partially offset by contributions
from MOPU No. 8 which began operations during the third quarter of 1993.
10
<PAGE> 11
Operating income decreased primarily due to the non-cash deferral of income
recognition of $1.8 million for potential losses that could occur upon exercise
of certain buyout options on the remaining 2 MOPUs working in Venezuela. The
expiration of the contract on the Langley also caused a decrease in operating
income. The Langley contributed revenues of $.6 million and $1.5 million and
operating income of $.2 million and $1.1 million during the second quarter of
1994 and 1993, respectively. The Langley is currently preparing for
demobilization back to the United States. No assurance can be given that the
Company will be able to secure a contract for the operation of this unit. Each
of the 2 remaining MOPUs working in Venezuela has an initial contract term of
two years which concludes in September, 1994, subject to certain buyout
options, which if exercised, could have a material impact on the Company's
future results of operations. See "Liquidity and Capital Resources."
The contract for MOPU No. 4, which was operating in the Gulf of Mexico,
terminated at the end of April, 1994. The Company is currently marketing this
MOPU. No assurance can be given that the Company will be able to secure a
contract for the operation of MOPU No. 4. The Company has secured a bareboat
charter for one of its idle MOPUs from a third party for use as a workover rig
in the U.S. Gulf of Mexico. Operations commenced during the latter part of the
second quarter of 1994. The Company has also secured a contract for another of
its idle MOPUs beginning in the fourth quarter of 1994.
OIL AND GAS
Oil and gas revenues decreased $.6 million from $1.4 million in the second
quarter of 1993 to $.8 million for the same period in 1994, primarily due to
reduced gas revenues resulting from a net revenue interest reduction upon
payout of one of its significant wells. Operating losses in the second quarter
of 1994 decreased $.2 million when compared to the same period in 1993,
primarily because decreased depreciation, depletion and amortization and other
operating expenses more than offset the revenue decrease.
CORPORATE OVERHEAD
Corporate overhead increased $.1 million from $1.2 million in the second
quarter of 1993 to $1.3 million in the second quarter of 1994. The increase
was primarily due to an overall increase in employment costs.
11
<PAGE> 12
OTHER INCOME (EXPENSE)
The Company recognized $.5 million of other expense during the second quarter
of 1994 compared to $.2 million of other expense during the same period in
1993. The net increase in other expenses resulted primarily from increased
exchange rate losses of $.7 million, partially offset by increased gains from
disposition of assets of $.3 million and decreased interest expense of $.1
million. See "Liquidity and Capital Resources."
RESULTS OF OPERATIONS
Six Months Ended June 30, 1994 Versus 1993
The Company recognized net income, before preferred dividends, of $2.9 million
during the first six months of 1994 compared to net income of $3.1 million in
the same period in 1993. Operating income increased $1.3 million in the first
six months of 1994 compared to the first six months of 1993, even though net
income was lower. The improvement in operating income was due to increased
foreign daywork drilling operating income of $3.0 million, decreased domestic
daywork drilling operating losses of $1.4 million, and increased turnkey
drilling operating income of $.7 million. These improvements were offset in
part by decreased MOPU operating income of $3.8 million. Net income was lower
in the first six months of 1994 when compared to the same period in 1993 due
primarily to exchange losses incurred from devaluation of the Venezuelan
Bolivar.
12
<PAGE> 13
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
-------- INCREASE
1994 1993 (DECREASE)
---- ---- ----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Revenues:
Daywork Drilling:
Domestic $ 15 $ 220 $ (205)
Foreign 15,560 10,306 5,254
Turnkey Drilling 6,471 6,716 (245)
MOPU Operations 10,589 10,453 136
Oil and Gas 1,365 2,341 (976)
Eliminations (976) -- (976)
----------- ----------- -----------
Consolidated $ 33,024 $ 30,036 $ 2,988
=========== =========== ===========
Operating Income (Loss):
Daywork Drilling:
Domestic $ (62) $ (1,507) $ 1,445
Foreign 3,610 562 3,048
Turnkey Drilling 1,165 480 685
MOPU Operations 3,197 7,009 (3,812)
Oil and Gas (403) (565) 162
Corporate Office (2,559) (2,386) (173)
Eliminations (70) -- (70)
----------- ----------- -----------
Consolidated $ 4,878 $ 3,593 $ 1,285
=========== =========== ===========
</TABLE>
DAYWORK DRILLING
Domestic daywork drilling results in the first six months of 1994 reflect the
Company's strategy to diversify away from this volatile market. As a result of
rig deployments out of the United States, domestic daywork drilling operating
losses decreased by $1.4 million from the first six months of 1993 to the first
six months of 1994. Operating losses incurred in the first six months of 1993
were due primarily to stacked rig costs associated with the Company's domestic
land rigs. One of the Company's land drilling rigs, which was stacked during
the first four months of 1993, was mobilized to Venezuela during the first
quarter of 1994 and began daywork drilling operations for Corpoven for a
three-year term. Two of the Company's land drilling rigs, which were stacked
during all of 1993, were mobilized to Venezuela during the first quarter of
1994 and are currently drilling the first of 6 turnkey wells for Corpoven.
Foreign daywork drilling revenues increased $5.3 million from $10.3 million in
the first six months of 1993 to $15.6 million in the first six months of 1994.
Foreign daywork drilling operating income
13
<PAGE> 14
increased $3.0 million during the same period. Foreign daywork drilling
operating results reflect increased revenues and operating income primarily due
to contributions from one of the Company's jack-up drilling rigs which was
mobilized to the Bay of Tampico, Mexico during the first quarter of 1994. This
jack-up drilling rig is currently drilling the second of 2 turnkey wells for
CNCTI, and is expected to come off contract during the third or fourth quarter
of 1994. Also contributing to the improved results were the additional land
rig operations in Venezuela, offset in part by decreased average dayrates for
the Company's 2 jack-up drilling rigs working in Venezuela.
Contracts for the Company's 2 jack-up drilling rigs operating in Venezuela were
renegotiated and extended to March, 1995. The contract rates are adjusted
quarterly based upon fluctuations in oil prices from the base oil price in
effect at the contract renewal date. Contracts on 2 of the 3 land drilling rigs
working in eastern Venezuela expire in September, 1995, and the other contract
expires in February, 1997.
TURNKEY DRILLING
Turnkey drilling revenues decreased $.2 million from $6.7 million in the first
six months of 1993 to $6.5 million in the same period in 1994. Turnkey
drilling operating income increased $.7 million during the same period. Four
turnkey contracts were completed in the first six months of 1994 compared to 2
turnkey contracts completed in the same period in 1993, resulting in the
increase in operating income. Two of the 4 turnkey wells completed in the
first six months of 1994 and one of the 2 turnkey wells completed in the same
period in 1993 were drilled by CNCTI and recorded under the equity method.
The Company is currently drilling the initial wells included in 2 packages of 3
turnkey wells for Corpoven. The 6 wells will be completed during 1994 and 1995
with revenues of approximately $36 million. The Company mobilized 2 land rigs
to Venezuela during the first quarter of 1994 to work on these projects. The
Company mobilized an idle jack-up drilling rig to the Bay of Tampico, Mexico in
the first quarter of 1994 to drill 2 of the 4 wells awarded to CNCTI by PEMEX.
This jack-up drilling rig is currently drilling the second well. In addition
to the turnkey wells being drilled in Mexico and Venezuela, the Company is
currently in the process of drilling one turnkey well in the United States and
one in Holland. Two of the wells currently in progress have encountered
downhole problems. The Company accrued a total of $950,000 for expected losses
on these contracts in the 1994 results of operations.
MOPU OPERATIONS
MOPU revenues increased $.1 million from $10.5 million in the first six months
of 1993 to $10.6 million in the first six months of 1994. However, MOPU
operating income decreased $3.8 million during the same period. The increase
in revenues was primarily due to contributions from MOPU No. 8 which began
operations during the third quarter of 1993, offset in part by reduced revenues
14
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associated with the expiration in May, 1994 of the two-year contract on the
Langley, one of 3 MOPUs working in Venezuela. Operating income decreased
primarily due to the non-cash deferral of income recognition of $3.4 million
for potential losses that could occur upon exercise of certain buyout options
on the remaining 2 MOPUs working in Venezuela. The expiration of the contract
on the Langley also caused a decrease in operating income. The Langley
contributed revenues of $2.0 million and $2.9 million and operating income of
$1.3 million and $2.2 million during the first six months of 1994 and 1993,
respectively. The Langley is currently preparing for demobilization back to
the United States. No assurance can be given that the Company will be able to
secure a contract for the operation of this unit. Each of the 2 remaining
MOPUs working in Venezuela has an initial contract term of two years which
concludes in September, 1994, subject to certain buyout options, which if
exercised, could have a material impact on the Company's future results of
operations. See "Liquidity and Capital Resources."
The contract for MOPU No. 4, which was operating in the Gulf of Mexico, expired
at the end of April, 1994. The Company is currently marketing this MOPU. No
assurance can be given that the Company will be able to secure a contract for
the operation of MOPU No. 4. The Company has secured a bareboat charter for
one of its idle MOPUs from a third party for use as a workover rig in the U.S.
Gulf of Mexico. Operations commenced during the latter part of the second
quarter of 1994. The Company has also secured a contract for another of its
idle MOPUs beginning in the fourth quarter of 1994.
OIL AND GAS
Oil and gas revenues decreased $1.0 million from $2.4 million in the first six
months of 1993 to $1.4 million for the same period in 1994, primarily due to
reduced gas revenues resulting from a net revenue interest reduction upon
payout of one of its significant wells. Operating losses in the first six
months of 1994 decreased $.2 million when compared to the same period in 1993,
primarily because decreased depreciation, depletion and amortization and other
operating expenses more than offset the revenue decrease.
CORPORATE OVERHEAD
Corporate overhead increased $.2 million from $2.4 million in the first six
months of 1993 to $2.6 million in the first six months of 1994. The increase
was primarily due to an overall increase in employment costs.
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OTHER INCOME (EXPENSE)
The Company recognized $1.2 million of other expense during the first six
months of 1994 compared to $.1 million of other expense during the same period
in 1993. The net increase in other expenses resulted primarily from increased
exchange rate losses of $.9 million. See "Liquidity and Capital Resources."
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalents decreased $8.5 million from $10.6
million at December 31, 1993 to $2.1 million at June 30, 1994. The decrease
resulted from $6.5 million used to fund capital expenditures and $17.8 million
used to make payments on borrowings, preferred stock dividends and purchases of
Treasury Stock, partially offset by $4.6 million provided by operating
activities, $10.5 million from borrowings, and $.7 million received primarily
from the collection of notes receivable.
Cash provided by operating activities of $4.6 million included $8.3 million
used for working capital and other requirements, primarily to fund the
Company's foreign daywork drilling and turnkey drilling operations.
"Inventories" increased from December 31, 1993 to June 30, 1994 due primarily
to the purchase of casing and other supplies for turnkey and daywork drilling
operations in Venezuela. The increases in "Drilling Contracts in Progress" and
"Accounts Payable" were due primarily to the Company's expanded turnkey
operations.
Cash was used during the first six months of 1994 to fund $6.5 million of
capital expenditures, which primarily related to the upgrade of the 3
additional land rigs mobilized to Venezuela, one jack-up rig mobilized for
drilling operations in Mexico, modifications to an idle MOPU in preparation for
workover operations in the U.S. Gulf of Mexico, and drill pipe purchases for
the expanded drilling operations in Venezuela.
During the fourth quarter of 1992, the Company acquired 5 jack-up drilling rigs
at a cost of $6.0 million, with plans to convert them to MOPUs. The first
unit, MOPU No. 8, was converted and commenced operations on July 19, 1993. It
is currently contracted to Union Pacific Resources Company. The second of the
5 rigs acquired was also converted to a MOPU. The Company has secured a
contract for this unit, MOPU No. 10, which will commence operations in the
fourth quarter of 1994. One of the acquired rigs is currently being used as a
mobile offshore supply unit to facilitate the Company's joint venture turnkey
drilling operations in Mexico. The Company upgraded and mobilized another of
the acquired rigs into Mexico during the first quarter of 1994 for turnkey
drilling operations in the Bay of Tampico. The Company has secured a bareboat
charter on the final unit from a third party for use as a workover rig in the
U.S. Gulf of Mexico. The Company refurbished the rig during 1994 at a cost of
$1.3 million, with operations commencing during the latter part of the second
quarter of 1994.
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The Langley, one of 3 MOPUs working in Venezuela, ended its two-year contract
in May, 1994, and the contract was not extended. The rig is currently
preparing for demobilization back to the United States. The demobilization
costs will be reimbursed to the Company by the operator. No assurance can be
given that the Company will be able to secure a contract for this unit. Each
of the 2 remaining MOPUs working in Venezuela has an initial contract term of
two years expiring in September, 1994, subject to certain buyout options. The
buyout options can be exercised at any time during the contract term. The loss
of future operating income associated with these units, should the buyout
options be exercised or contract renewals not be obtained, could have a
material adverse effect on the Company's future results of operations. Because
the Company now believes there is a reasonable likelihood that the buyout
options on the 2 units will be exercised in 1994, the Company is deferring
income recognition on these 2 units to the extent of potential losses that
could occur upon exercise of the options. At June 30, 1994, the Company had
provided an aggregate of $4.0 million of reserves to offset potential losses on
the units if the buyout options were to be exercised. The Company expects to
defer additional income recognition in the amount of $1.8 million in the third
quarter of 1994.
Charter hire payments commenced September, 1992 with respect to the first of 3
MOPUs contracted to work in Venezuela. Charter hire payments commenced in
February, 1993 on the other 2 MOPUs working in Venezuela. Eighty-five percent
(85%) of the cash flow attributable to the contracts for the Company's 3 MOPUs
in Venezuela is dedicated to debt repayment under the contracts and loan
agreements relating to such MOPUs.
Approximately 58% of the Company's revenues and a substantial portion of its
operating income were sourced from its Venezuelan operations during the first
six months of 1994. These operations are subject to customary political and
foreign currency risks in addition to operational risks. The Company has
attempted to reduce these risks through insurance and the structure of its
Venezuelan contracts. Exchange losses increased substantially in the first six
months of 1994 compared to the same period in 1993 due to significant
devaluation of the Venezuelan Bolivar during the period. Despite the current
economic volatility in Venezuela, the Company believes that the country
continues to be a favorable market for its services.
In conjunction with the redelivery to the owner of 3 offshore drilling rigs
under long-term charters, a dispute existed as to whether or not the Company
complied with the terms of the charters regarding maintenance and repair of the
rigs during the charter period, as well as the condition of the rigs upon
redelivery. Following a trial in February, 1994, a judgment was entered in the
United States District Court, Southern District of Texas, Houston Division,
which awarded the owner $3.5 million, plus court costs, offset by a partial
summary judgment of $1.8 million. The Company reported this litigation
settlement and expenses in the Consolidated Statements of Operations during the
fourth quarter of 1993. The Company paid the owner $1.7 million in February,
1994 as a final settlement of all disputed issues.
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<PAGE> 18
At December 31, 1993, the Company's credit agreement with INCC, formerly
Internationale Nederlanden Bank N.V., provided for a $10.0 million working
capital credit facility which had a maturity date of January 1, 1995 and a
$30.0 million term loan which matures January 1, 1995. As of June 30, 1994, the
outstanding balance of the Company's term loan with INCC was $5.0 million,
which is scheduled to be paid in full on or before October 1, 1994. The
Company executed the Second Restated Credit Agreement with INCC during March,
1994, thereby converting its $10.0 million working capital credit facility to a
$20.0 million revolving line of credit subject to certain borrowing base
limitations. The revolving line of credit matures on January 1, 1996. As of
June 30, 1994, the outstanding balance of the Company's revolving line of
credit with INCC was $6.0 million. Subsequent to June 30, 1994, the Company
drew an additional $2.0 million under the revolving line of credit.
The Company from time to time purchases its Common Stock in the open market.
The Company purchased 385,000 shares of its Common Stock at an aggregate
purchase price of $4.6 million, or approximately $12.00 per share, during the
six months ended June 30, 1994. A total of 5,000 shares, at an aggregate
purchase price of $.1 million, or approximately $11.40 per share, was acquired
in the fourth quarter of 1993. Management of the Company believes that the
Common Stock is trading at prices which do not reflect the value of the Company
and has determined that the acquisition of such stock would be in the best
interest of the Company and its shareholders. All of the acquired shares are
held as Common Stock in treasury, less shares issued to employees under certain
benefit plans.
The ability of the Company to fund working capital, capital expenditures, debt
service and dividends in excess of cash on hand will be dependent upon the
success of the Company's domestic and foreign operations. To the extent that
internal sources are insufficient to meet those cash requirements, the Company
can draw on its available credit facility or seek other debt or equity
financing; however, the Company can give no assurance that such other debt or
equity financing would be available on terms acceptable to the Company.
In any case, the satisfaction of long-term capital requirements will depend
upon successful implementation by the Company of its business strategy and
future results of operations. Management believes it has successfully
implemented the strategy to achieve results of operations commensurate with its
immediate and near-term liquidity requirements.
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PART II
OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's Annual Meeting of Shareholders was held on May 19, 1994, at which
the shareholders voted on the election of two directors and the appointment of
the Company's independent public accountants. Of the 3,861,005 shares of
Common Stock present in person or by proxy, 3,847,652 shares were voted for the
election of Michael M. Cone as a director and 3,847,452 shares were voted for
the election of John D. Weil as a director, with 13,353 and 13,553 shares
withheld, respectively; and 3,813,685 shares were voted for the appointment of
Ernst & Young as the Company's independent public accountants for 1994, while
881 shares were voted against such appointment with 46,439 shares abstaining.
Directors whose terms of office continued were H. Robert Hirsch, Robert M.
McInnes, Randolph Newcomer, Joseph E. Reid, and Douglas E. Swanson.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.20 - Form of Executive Agreement dated as of July 20, 1994.
(b) Reports on Form 8-K
None.
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SIGNATURES
Pursuant to the requirements 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.
CLIFFS DRILLING COMPANY
Date: July 26, 1994 By /s/ EDWARD A. GUTHRIE
Edward A. Guthrie
Vice President - Finance
Date: July 26, 1994 By /s/ CINDY B. TAYLOR
Cindy B. Taylor
Corporate Controller
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EXHIBIT INDEX
10.20 -- Form of Executive Agreement dated as of July 20, 1994.
21
<PAGE> 1
EXECUTIVE AGREEMENT
THIS EXECUTIVE AGREEMENT (the "Agreement") is entered into as of the
____ day of _____________, 1994 by and between CLIFFS DRILLING COMPANY, a
Delaware corporation (the "Company"), and ________________________ (the
"Executive").
W I T N E S S E T H:
WHEREAS, it is in the best interests of the Company and its
shareholders to assure that the Company will have the continued dedication of
the Executive, notwithstanding the possibility, threat or occurrence of a
Change of Control (as defined in Section 2 below) of the Company; and
WHEREAS, it is imperative to diminish the inevitable distraction of
the Executive by virtue of the personal uncertainties and risks created by a
pending or threatened Change of Control and to encourage the Executive's full
attention and dedication to the Company currently and in the event of any
threatened or pending Change of Control; and
WHEREAS, it is imperative to provide the Executive with compensation
and benefits arrangements upon a Change of Control which ensure that the
compensation and benefits expectations of the Executive will be satisfied and
which are competitive with those of other corporations.
NOW, THEREFORE, in order to accomplish these objectives, and in
consideration of the mutual covenants and agreements set forth herein and other
good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties, intending to be legally bound, agree as
follows:
1. Certain Definitions. The following terms shall have the
indicated meanings:
(a) The "Effective Date" shall mean the first date during
the Change of Control Period (as defined in Section 1(b)) on which a Change of
Control occurs. Notwithstanding anything in this Agreement to the contrary, if
a Change of Control occurs and if the Executive's employment with the Company
is terminated prior to the date on which the Change of Control occurs, and if
it is reasonably demonstrated by the Executive that such termination of
employment (i) was at the request of a third party who has taken steps
reasonably calculated to effect the Change of Control or (ii) otherwise arose
in connection with or anticipation of the Change of Control, then for all
purposes of this Agreement the "Effective Date" shall mean the date immediately
prior to the date of such termination of employment.
(b) The "Change of Control Period" shall mean the period
commencing on the date hereof and ending on the _______ anniversary of such
date; provided, however, that commencing on the date one year after the date
hereof, and on each annual anniversary of such date (such date and each annual
anniversary thereof shall be hereinafter referred to as the "Renewal Date"),
the Change of Control Period shall be automatically extended so as to terminate
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<PAGE> 2
years from such Renewal Date, unless at least 60 days prior to the Renewal Date
the Company shall give notice to the Executive that the Change of Control
Period shall not be so extended.
2. Change of Control. For the purposes of this Agreement, a
"Change of Control" shall mean the occurrence of any one or more of the
following:
(a) A tender offer is made and consummated for the
ownership of 30% or more of the outstanding voting securities of the Company;
(b) The Company shall merge or consolidate with another
corporation and as a result of such merger or consolidation less than 70% of
the outstanding voting securities of the surviving or resulting corporation
shall be owned in the aggregate by the former shareholders of the Company,
other than affiliates (within the meaning of the Securities Exchange Act of
1934 (the "Exchange Act")) of any party to such merger or consolidation, as the
same shall have existed immediately prior to such merger or consolidation;
(c) The Company shall sell substantially all of its
assets to another corporation which is not a wholly owned subsidiary; or
(d) A person, as such term is used in Section 3(a)(9) or
in Section 13 (d)(3) of the Exchange Act, shall acquire, whether directly,
indirectly, beneficially or of record, 30% or more of the outstanding voting
securities of the Company.
For the purposes of this Agreement, ownership of voting securities
shall take into account and shall include ownership as determined by applying
the provisions of Rule 13d-3(d)(1)(i) promulgated under the Exchange Act.
3. Employment Period. The Company hereby agrees to continue the
Executive in its employ, and the Executive hereby agrees to remain in the
employ of the Company, in accordance with the terms and provisions of this
Agreement, for the period commencing on the Effective Date and ending on the
____________ anniversary of such date (the "Employment Period").
4. Terms of Employment. The following terms shall govern the
Executive's employment during the Employment Period:
(a) Position and Duties.
(i) During the Employment Period, the Executive's
position (including status, offices, titles and reporting
requirements), authority, duties and responsibilities shall be at
least commensurate in all material respects with the most significant
of those held, exercised and assigned at any time during the 90-day
period immediately preceding the Effective Date, and the Executive's
services shall be performed at the location where the Executive was
employed immediately preceding the Effective Date or any office which
is the headquarters of the Company and is less than 35 miles from such
location.
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<PAGE> 3
(ii) During the Employment Period, and excluding
any periods of vacation and sick leave to which the Executive is
entitled, the Executive agrees to devote reasonable attention and time
during normal business hours to the business and affairs of the
Company and, to the extent necessary to discharge the responsibilities
assigned to the Executive hereunder, to use the Executive's reasonable
best efforts to perform faithfully and efficiently such
responsibilities. During the Employment Period, it shall not be a
violation of this Agreement for the Executive to serve on corporate,
civic or charitable boards or committees, deliver lectures, fulfill
speaking engagements, teach at educational institutions, and manage
personal investments, so long as such activities do not significantly
interfere with the performance of the Executive's responsibilities as
an employee of the Company in accordance with this Agreement. It is
expressly understood and agreed that to the extent that any such
activities have been conducted by the Executive prior to the Effective
Date, the continued conduct of such activities (or the conduct of
activities similar in nature and scope thereto) subsequent to the
Effective Date shall not thereafter be deemed to interfere with the
performance of the Executive's responsibilities to the Company.
(b) Compensation. During the Employment Period, and
prior to the termination of the Executive's employment as described in Section
5 hereof, the Executive shall be entitled to the following items of
compensation:
(i) Base Salary. During the Employment Period,
the Executive shall receive an annual base salary (Annual Base
Salary"), which shall be paid in equal installments on a semi-monthly
basis, at least equal to twelve times the highest monthly base salary
paid or payable to the Executive by the Company and its affiliated
companies in respect of the twelve-month period immediately preceding
the month in which the Effective Date occurs. During the Employment
Period, the Annual Base Salary shall be reviewed at least annually and
shall be increased at any time and from time to time as shall be
substantially consistent with increases in base salary generally
awarded in the ordinary course of business to other peer executives of
the Company and its affiliated companies. Any increase in Annual Base
Salary shall not serve to limit or reduce any other obligation to the
Executive under this Agreement. Annual Base Salary shall not be
reduced after any such increase, and the term "Annual Base Salary" as
utilized in this Agreement shall refer to Annual Base Salary as so
increased. As used in this Agreement, the term "affiliated companies"
shall include any company controlled by, controlling or under common
control with the Company.
(ii) Annual Bonus. In addition to Annual Base
Salary, the Executive shall be awarded, for each fiscal year ending
during the Employment Period, an annual bonus (the "Annual Bonus") in
cash at least equal to the average annualized (for any fiscal year
consisting of less than twelve full months or with respect to which
the Executive has been employed by the Company for less than twelve
full months) bonus paid or payable, including by reason of any
deferral, to the Executive by the Company and its affiliated companies
in respect of the three fiscal years immediately preceding the fiscal
year in which the Effective Date occurs. Each such Annual Bonus shall
be paid no later than the end of the third month of the fiscal year
next following the fiscal year for which the Annual Bonus is awarded,
unless the Executive shall elect to defer the receipt of such Annual
Bonus.
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<PAGE> 4
(iii) Incentive, Savings and Retirement Plans.
During the Employment Period, the Executive shall be entitled to
participate in all incentive, savings and retirement plans, practices,
policies and programs applicable generally to other peer executives of
the Company and its affiliated companies, including without
limitation, the Cliffs Drilling Company 1988 Incentive Equity Plan, as
amended and as may be further amended from time to time (the
"Incentive Equity Plan"), the Cliffs Drilling Company Incentive Bonus
Plan, as may be amended from time to time (the "Incentive Bonus Pla"),
the Cliffs Drilling Company 401(k) Savings Plan, as amended and as may
be further amended from time to time (the "401(k) Plan"), and subject
to Section 7 hereof, the Cliffs Drilling Company Retention Plan for
Salaried Employees, as amended and as may be further amended from time
to time (the Retention Plan"), but in no event shall such plans,
practices, policies and programs provide the Executive with incentive
opportunities (measured with respect to both regular and special
incentive opportunities, to the extent, if any, that such distinction
is applicable), savings opportunities and retirement benefit
opportunities, in each case, less favorable, in the aggregate, than
the most favorable of those provided by the Company and its affiliated
companies for the Executive under such plans, practices, policies and
programs as in effect at any time during the 90-day period immediately
preceding the Effective Date or, if more favorable to the Executive,
those provided generally at any time after the Effective Date to other
peer executives of the Company and its affiliated companies.
(iv) Welfare Benefit Plans. During the Employment
Period, the Executive and/or the Executive's family, as the case may
be, shall be eligible for participation in and shall receive all
benefits under welfare benefit plans, practices, policies and programs
provided by the Company and its affiliated companies (including,
without limitation, medical, prescription, dental, disability, salary
continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Company and its affiliated
companies, but in no event shall such plans, practices, policies and
programs provide the Executive with benefits which are less favorable,
in the aggregate, than the most favorable of such plans, practices,
policies and programs in effect for the Executive at any time during
the 90-day period immediately preceding the Effective Date or, if more
favorable to the Executive, those provided generally at any time after
the Effective Date to other peer executives of the Company and its
affiliated companies.
(v) Life Insurance Policy Premium Reimbursements.
During the Employment Period, the Company shall continue to reimburse
the Executive for premium payments made by the Executive on certain
life insurance policies pursuant to an agreement between the Executive
and the Company, to the same extent such reimbursements were made at
any time during the 90-day period immediately preceding the Effective
Date.
(vi) Indemnification Arrangements. During the
Employment Period, those certain Indemnification Agreements entered
into between the Company and certain of its Executives shall remain in
full force and effect and the Executive shall remain entitled to all
of the benefits and protections afforded thereby.
(vii) Expenses. During the Employment Period, the
Executive shall be entitled to receive prompt reimbursement for all
reasonable employment expenses incurred
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<PAGE> 5
by the Executive in accordance with the most favorable policies,
practices and procedures of the Company and its affiliated companies
in effect for the Executive at any time during the 90-day period
immediately preceding the Effective Date or, if more favorable to the
Executive, as in effect generally at any time thereafter with respect
to other peer executives of the Company and its affiliated companies.
(viii) Fringe Benefits. During the Employment
Period, the Executive shall be entitled to fringe benefits in
accordance with the most favorable plans, practices, programs and
policies of the Company and its affiliated companies in effect for the
Executive at any time during the 90-day period immediately preceding
the Effective Date or, if more favorable to the Executive, as in
effect generally at any time thereafter with respect to other peer
executives of the Company and its affiliated companies.
(ix) Office and Support Staff. During the
Employment Period, the Executive shall be entitled to an office or
offices of a size and with furnishings and other appointments, and to
exclusive personal secretarial and other assistance, at least equal to
the most favorable of the foregoing provided to the Executive by the
Company and its affiliated companies at any time during the 90-day
period immediately preceding the Effective Date or, if more favorable
to the Executive, as provided generally at any time thereafter with
respect to other peer executives of the Company and its affiliated
companies.
(x) Vacation. During the Employment Period, the
Executive shall be entitled to paid vacation in accordance with the
most favorable plans, policies, programs and practices of the Company
and its affiliated companies as in effect for the Executive at any
time during the 90-day period immediately preceding the Effective Date
or, if more favorable to the Executive, as in effect generally at any
time thereafter with respect to other peer executives of the Company
and its affiliated companies.
5. Termination of Employment.
(a) Death or Disability. The Executive's employment
shall terminate automatically upon the Executive's death during the Employment
Period. If the Company determines in good faith that the Disability of the
Executive has occurred during the Employment Period (pursuant to the definition
of Disability set forth below), it may give to the Executive written notice in
accordance with Section 13(b) of its intention to terminate the Executive's
employment. In such event, the Executive's employment with the Company shall
terminate effective on the 30th day after receipt of such notice by the
Executive (the "Disability Effective Date"), provided that, within the 30 days
after such receipt, the Executive shall not have returned to full-time
performance of the Executive's duties. For purposes of this Agreement,
"Disability" shall mean the absence of the Executive from the Executive's
duties with the Company on a full-time basis for 180 consecutive business days
as a result of incapacity due to mental or physical illness which is determined
to be total and permanent by a physician selected by the Company or its
insurers and acceptable to the Executive or the Executive's legal
representative (such agreement as to acceptability not to be withheld
unreasonably).
(b) Termination by the Company for Cause. The Company
may terminate the Executive's employment during the Employment Period for
Cause. For purposes of this Agreement,
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<PAGE> 6
"Cause" shall mean (i) a material breach by the Executive of the Executive's
obligations under Section 4(a) (other than as a result of incapacity due to
physical or mental illness) which is demonstrably willful and deliberate on the
Executive's part, which is committed in bad faith or without reasonable belief
that such breach is in the best interests of the Company and which is not
remedied in a reasonable period of time after receipt of written notice from
the Company specifying such breach, or (ii) the conviction of the Executive of
a felony involving moral turpitude.
(c) Voluntary Termination by Executive for Good Reason;
Window Period. The Executive's employment may be terminated (i) during the
Employment Period by the Executive for Good Reason, or (ii) during the Window
Period by the Executive without any reason. For purposes of this Agreement,
"Window Period" shall mean the 30-day period immediately following the
Effective Date and the 30-day period immediately following each successive
anniversary of the Effective Date. For purposes of this Agreement, "Good
Reason" shall mean:
(i) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position (including
status, offices, titles and reporting requirements), authority, duties
or responsibilities as contemplated by Section 4(a) or any other
action by the Company which results in a diminution in such position,
authority, duties or responsibilities, excluding for this purpose an
isolated, insubstantial and inadvertent action not taken in bad faith
and which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(ii) any failure by the Company to comply with any
of the provisions of Section 4(b), other than an isolated,
insubstantial and inadvertent failure not occurring in bad faith and
which is remedied by the Company promptly after receipt of notice
thereof given by the Executive;
(iii) the Company's requiring the Executive to be
based at any office or location other than that described in Section
4(a)(i)(B);
(iv) any purported termination by the Company of
the Executive's employment otherwise than as expressly permitted by
this Agreement; or
(v) any failure by the Company to comply with and
satisfy Section 12(c), provided that such successor has received at
least ten days, prior written notice from the Company or the Executive
of the requirements of Section 12(c).
For purposes of this Section 5(c), any good faith determination of
"Good Reason" made by the Executive shall be conclusive.
(d) Notice of Termination. Any termination by the
Company for Cause, or by the Executive without any reason during the Window
Period or for Good Reason, shall be communicated by Notice of Termination to
the other party hereto given in accordance with Section 13(b). For purposes of
this Agreement, a "Notice of Termination" means a written notice which (i)
indicates the specific termination provision in this Agreement relied upon,
(ii) to the extent applicable, sets forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the
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<PAGE> 7
Executive's employment under the provision so indicated, and (iii) if the Date
of Termination (as defined below) is other than the date of receipt of such
notice, specifies the termination date (which date shall be not more than 15
days after the giving of such notice). The failure by the Executive or the
Company to set forth in the Notice of Termination any fact or circumstance
which contributes to a showing of Good Reason or Cause shall not waive any
right of the Executive or the Company hereunder or preclude the Executive or
the Company from asserting such fact or circumstance in enforcing the
Executive's or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" means (i)
if the Executive's employment is terminated by the Company for Cause, or by the
Executive during the Window Period or for Good Reason, the date of receipt of
the Notice of Termination or any later date specified therein, as the case may
be, (ii) if the Executive's employment is terminated by the Company other than
for Cause or Disability, the Date of Termination shall be the date on which the
Company notifies the Executive of such termination, and (iii) if the
Executive's employment is terminated by reason of death or Disability, the Date
of Termination shall be the date of death of the Executive or the Disability
Effective Date, as the case may be.
6. Obligations of the Company upon Termination.
(a) Good Reason or During the Window Period; Other Than
for Cause, Death or Disability. If, during the Employment Period, the Company
shall terminate the Executive's employment other than for Cause or Disability
or the Executive shall terminate employment either for Good Reason or without
any reason during the Window Period:
(i) the Company shall pay to the Executive in a
lump sum in cash within 30 days after the Date of Termination the
aggregate of the following amounts:
A. the sum of (1) the Executive's
Annual Base Salary through the Date of Termination to the
extent not theretofore paid, (2) the product of (x) the
Highest Annual Bonus and (y) a fraction, the numerator of
which is the number of days in the current fiscal year through
the Date of Termination, and the denominator of which is 365,
and (3) any compensation previously deferred by the Executive
(together with any accrued interest or earnings thereon) and
any accrued vacation pay, in each case to the extent not
theretofore paid (the sum of the amounts described in clauses
(1), (2), and (3) shall be hereinafter referred to as the
"Accrued Obligations"); and
B. the amount (such amount shall be
hereinafter referred to as the "Severance Amount") equal to
the sum of (1) the Executive's Annual Base Salary, calculated
from the Date of Termination through the remainder of the
Employment Period, and (2) the Highest Annual Bonus,
calculated from the Date of Termination through the remainder
of the Employment Period; provided, however, that such amount
shall be reduced by the present value (determined as provided
in Section 280G(d)(4) of the Internal Revenue Code of 1986, as
amended (the "Code")) of any other amount of severance
relating to salary or bonus continuation, if any, to be
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<PAGE> 8
received by the Executive upon termination of employment of
the Executive under any severance plan, policy or arrangement
of the Company; and
(ii) (A) any or all Stock Appreciation Rights
granted to the Executive which are outstanding for at least six months
on the Effective Date, and any or all Stock Options awarded to the
Executive under any plan not previously exercisable and vested shall
become fully exercisable and vested, (B) the restrictions and deferral
limitations applicable to any or all Restricted Stock and Deferred
Stock Awards to the Executive shall lapse and such shares and awards
shall be fully vested, and (C) the value of any or all outstanding
Stock Options, Restricted Stock and Deferred Stock awards to the
Executive shall be cashed out on the basis of the "Change in Control
Price," as defined in Section 9(d) of the Incentive Equity Plan, as of
the Effective Date; and
(iii) the Company shall promptly transfer and
assign to the Executive all such life insurance policies for which the
Company was previously reimbursing premium payments made by the
Executive pursuant to an agreement between the Executive and the
Company; and
(iv) for the remainder of the Employment Period,
or such longer period as any plan, program, practice or policy may
provide, the Company shall continue benefits to the Executive and/or
the Executive's family at least equal to those which would have been
provided to them in accordance with the plans, programs, practices and
policies described in Section 4(b)(v) if the Executive's employment
had not been terminated in accordance with the most favorable plans,
practices, programs or policies of the Company and its affiliated
companies as in effect and applicable generally to other peer
executives and their families during the 90-day period immediately
preceding the Effective Date or, if more favorable to the Executive,
as in effect generally at any time thereafter with respect to other
peer executives of the Company and its affiliated companies and their
families; provided, however, that if the Executive becomes reemployed
with another employer and is eligible to receive medical or other
welfare benefits under another employer-provided plan, the medical and
other welfare benefits described herein shall be secondary to those
provided under such other plan during such applicable period of
eligibility; and
(v) to the extent not theretofore paid or
provided, the Company shall timely pay or provide to the Executive
and/or the Executive's family any other amounts or benefits required
to be paid or provided or which the Executive and/or the Executive's
family is eligible to receive pursuant to this Agreement and under any
plan, program, policy or practice or contract or agreement of the
Company and its affiliated companies as in effect and applicable
generally to other peer executives and their families during the
90-day period immediately preceding the Effective Date or, if more
favorable to the Executive, as in effect generally thereafter with
respect to other peer executives of the Company and its affiliated
companies and their families (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits"); and
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<PAGE> 9
(vi) for a period of 12 months after such
termination of employment, the Company shall promptly reimburse the
Executive for reasonable expenses incurred for outplacement services
and/or counseling.
(b) Death. If the Executive's employment is terminated
by reason of the Executive's death during the Employment Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than for (i) payment of Accrued
Obligations (which shall be paid to the Executive's estate or beneficiary, as
applicable, in a lump sum in cash within 30 days of the Date of Termination)
and (ii) the timely payment or provision of any and all Other Benefits, which
under their terms are available in the event of death.
(c) Disability. If the Executive's employment is
terminated by reason of the Executive's Disability during the Employment
Period, this Agreement shall terminate without further obligations to the
Executive, other than for (i) payment of Accrued Obligations (which shall be
paid to the Executive in a lump sum in cash within 30 days of the Date of
Termination) and (ii) the timely payment or provision of any and all Other
Benefits, which under their terms are available in the event of a Disability.
(d) Cause; Other than for Good Reason. If the
Executive's employment shall be terminated for Cause during the Employment
Period, this Agreement shall terminate without further obligations to the
Executive other than the obligation to pay to the Executive Annual Base Salary
through the Date of Termination plus the amount of any compensation previously
deferred by the Executive, in each case to the extent theretofore unpaid. If
the Executive terminates employment during the Employment Period, excluding a
termination either for Good Reason or without any reason during the Window
Period, this Agreement shall terminate without further obligations to the
Executive, other than for payment of Accrued Obligations and the timely payment
or provision of Other Benefits. In such case, all Accrued Obligations shall be
paid to the Executive in a lump sum in cash within 30 days of the Date of
Termination.
7. Waiver of Rights Under Retention Plan. The Executive hereby
waives all rights, benefits or payments arising out of or relating to the
Retention Plan, unless such Executive shall have been terminated during the
Employment Period for Cause, in which case the Executive shall continue to be
entitled to all rights, benefits and payments to which the Executive would
otherwise have been entitled under the Retention Plan (to the extent such
rights, benefits and payments are not received under this Agreement).
8. Non-Exclusivity of Rights. Except as provided in Sections
6(a)(ii), 6(b) and 6(c), nothing in this Agreement shall prevent or limit the
Executive's continuing or future participation in any plan, program, policy or
practice provided by the Company or any of its affiliated companies and for
which the Executive may qualify, including without limitation, the Incentive
Equity Plan, the Incentive Bonus Plan, the 401(k) Plan, and subject to Section
7 hereof, the Retention Plan, nor shall anything herein limit or otherwise
affect such rights as the Executive may have under any contract or agreement
with the Company or any of its affiliated companies. Amounts which are vested
benefits or which the Executive is otherwise entitled to receive under any
plan, policy, practice or program of or any contract or agreement with the
Company or any of its affiliated companies at or
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<PAGE> 10
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
9. Full Settlement; Resolution of Disputes.
(a) The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action which the Company may have against the
Executive or others. In no event shall the Executive be obligated to seek
other employment or take any other action by way of mitigation of the amounts
payable to the Executive under any of the provisions of this Agreement and,
except as provided in Section 6(a)(ii), such amounts shall not be reduced
whether or not the Executive obtains other employment. The Company agrees to
pay promptly as incurred, to the full extent permitted by law, all legal fees
and expenses which the Executive may reasonably incur as a result of any
contest (regardless of the outcome thereof) by the Company, the Executive or
others of the validity or enforceability of, or liability under, any provision
of this Agreement or any guarantee of performance thereof (including as a
result of any contest by the Executive about the amount of any payment pursuant
to this Agreement), plus in each case interest on any delayed payment at the
applicable Federal rate provided for in Section 7872(f)(2)(A) of the Code.
(b) If there shall be any dispute between the Company and
the Executive (i) in the event of any termination of the Executive's employment
by the Company, whether such termination was for Cause, or (ii) in the event of
any termination of employment by the Executive, whether Good Reason existed or
whether the termination occurred during the Window Period, then, unless and
until there is a final, nonappealable judgment by a court of competent
jurisdiction declaring that such termination was for Cause or that the
determination by the Executive of the existence of Good Reason was not made in
good faith or that the Executive terminated his employment during the Window
Period, as the case may be, the Company shall pay all amounts, and provide all
benefits, to the Executive and/or the Executive's family or other
beneficiaries, as the case may be, that the Company would be required to pay or
provide pursuant to Section 6(a) as though such termination were by the Company
without Cause or by the Executive with Good Reason or for no reason during the
Window Period; provided, however, that the Company shall not be required to pay
any disputed amounts pursuant to this paragraph except upon receipt of an
undertaking by or on behalf of the Executive and/or the Executive's family or
other beneficiaries, as the case may be, to repay all such amounts to which the
Executive is ultimately adjudged by such court not to be entitled.
10. Certain Additional Payments by the Company.
(a) Notwithstanding anything in this Agreement to the
contrary, in the event it shall be determined that any payment or distribution
by the Company to or for the benefit of the Executive (whether paid or payable
or distributed or distributable pursuant to the terms of this Agreement or
otherwise, but determined without regard to any additional payments required
under this Section 10) (a "Payment") would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, together with any
such interest and penalties, are hereinafter collectively referred to as the
"Excise Tax"), then the Executive shall be entitled to receive an additional
payment (a "Gross-Up
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Payment") in an amount such that after payment by the Executive of all taxes
(including any interest or penalties imposed with respect to such taxes),
including, without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment,
the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax
imposed upon the Payments.
(b) Subject to the provisions of Section 10(c), all
determinations required to be made under this Section 10, including whether and
when a Gross-Up Payment is required and the amount of such Gross-Up Payment and
the assumptions to be utilized in arriving at such determination, shall be made
by the Company's independent certified public accountants (the "Accounting
Firm") which shall provide detailed supporting calculations both to the Company
and the Executive within 15 business days of the receipt of notice from the
Executive that there has been a Payment, or such earlier time as is requested
by the Company. In the event that the Accounting Firm is serving as accountant
or auditor for the individual, entity or group effecting the Change of Control,
the Executive shall appoint another nationally recognized accounting firm to
make the determinations required hereunder (which accounting firm shall then be
referred to as the Accounting Firm hereunder). All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as
determined pursuant to this Section 10, shall be paid by the Company to the
Executive within five days of the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that no Excise Tax is payable
by the Executive, it shall furnish the Executive with a written opinion that
failure to report the Excise Tax on the Executive's applicable federal income
tax return would not result in the imposition of a negligence or similar
penalty. Any determination by the Accounting Firm shall be binding upon the
Company and the Executive. As a result of the uncertainty in the application
of Section 4999 of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up Payments which will not
have been made by the Company should have been made ("Underpayment"),
consistent with the calculations required to be made hereunder. In the event
that the Company exhausts its remedies pursuant to Section 10(c) and the
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has
occurred, and any such Underpayment shall be promptly paid by the Company to or
for the benefit of the Executive.
(c) The Executive shall notify the Company in writing of
any claim by the Internal Revenue Service that, if successful, would require
the payment by the Company of the Gross-Up Payment. Such notification shall be
given as soon as practicable but no later than ten business days after the
Executive is informed in writing of such claim and shall apprise the Company of
the nature of such claim and the date on which such claim is requested to be
paid. The Executive shall not pay such claim prior to the expiration of the
30-day period following the date on which it gives such notice to the Company
(or such shorter period ending on the date that any payment of taxes with
respect to such claim is due). If the Company notifies the Executive in
writing prior to the expiration of such period that it desires to contest such
claim, the Executive shall:
(i) give the Company any information reasonably
requested by the Company relating to such claim,
(ii) take such action in connection with
contesting such claim as the Company shall reasonably request in
writing from time to time, including, without limitation,
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<PAGE> 12
accepting legal representation with respect to such claim by an
attorney reasonably selected by the Company,
(iii) cooperate with the Company in good faith in
order effectively to contest such claim, and
(iv) permit the Company to participate in any
proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax (including interest and
penalties with respect thereto) imposed as a result of such representation and
payment of costs and expenses. Without limitation on the foregoing provisions
of this Section 10(c), the Company shall control all proceedings taken in
connection with such contest and, at its sole option, may pursue or forgo any
and all administrative appeals, proceedings, hearings and conferences with the
taxing authority in respect of such claim and may, at its sole option, either
direct the Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute and
contest to a determination before any administrative tribunal, in a court of
initial jurisdiction and in one or more appellate courts, as the Company shall
determine; provided, however, that if the Company directs the Executive to pay
such claim and sue for a refund, the Company shall advance the amount of such
payment to the Executive, on an interest-free basis, and shall indemnify and
hold the Executive harmless, on an after-tax basis, from any Excise Tax or
income tax (including interest or penalties with respect thereto) imposed with
respect to such advance or with respect to any imputed income with respect to
such advance; and further provided that any extension of the statute of
limitations relating to payment of taxes for the taxable year of the Executive
with respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's control of the
contest shall be limited to issues with respect to which a Gross-Up Payment
would be payable hereunder, and the Executive shall be entitled to settle or
contest, as the case may be, any other issue raised by the Internal Revenue
Service or any other taxing authority.
(d) If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 10(c), the Executive becomes
entitled to receive any refund with respect to such claim, the Executive shall
(subject to the Company's complying with the requirements of Section 10(c)
promptly pay to the Company the amount of such refund (together with any
interest paid or credited thereon after taxes applicable thereto). If, after
the receipt by the Executive of an amount advanced by the Company pursuant to
Section 10(c), a determination is made that the Executive shall not be entitled
to any refund with respect to such claim and the Company does not notify the
Executive in writing of its intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Gross-Up Payment required to
be paid.
11. Confidential Information. The Executive shall hold in a
fiduciary capacity for the benefit of the Company all secret or confidential
information, knowledge or data relating to the
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<PAGE> 13
Company or any of its affiliated companies, and their respective businesses,
which shall have been obtained by the Executive during the Executive's
employment by the Company or any of its affiliated companies and which shall
not be or become public knowledge (other than by acts by the Executive or
representatives of the Executive in violation of this Agreement). After
termination of the Executive's employment with the Company, the Executive shall
not, without the prior written consent of the Company or as may otherwise be
required by law or legal process, communicate or divulge any such information,
knowledge or data to anyone other than the Company and those designated by it.
In no event shall an asserted violation of the provisions of this Section 11
constitute a basis for deferring or withholding any amounts otherwise payable
to the Executive under this Agreement.
12. Successors and Assigns.
(a) This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
(b) This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns.
(c) The Company will require any successor (whether
direct or indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business and/or assets of the Company to assume
expressly and agree to perform this Agreement in the same manner and to the
same extent that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, "Company" shall mean
the Company as hereinbefore defined and any successor to its business and/or
assets as aforesaid which assumes and agrees to perform this Agreement by
operation of law, or otherwise.
13. Miscellaneous.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Texas, without reference to principles
of conflict of laws. The captions of this Agreement are not part of the
provisions hereof and shall have no force or effect. This Agreement may not be
amended or modified otherwise than by a written agreement executed by the
parties hereto or their respective successors and legal representatives.
(b) All notices and other communications hereunder shall
be in writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Executive: __________________________________
__________________________________
Houston, Texas 77____
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<PAGE> 14
If to the Company: Cliffs Drilling Company
300 Citicorp Center
1200 Smith Street
Houston, Texas 77002
Attention: Compensation Committee
of the Board of Directors
or to such other address as either party shall have furnished to the other in
writing in accordance herewith. Notice and communications shall be effective
when actually received by the addressee.
(c) The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) The Company may withhold from any amounts payable
under this Agreement such Federal, state or local taxes as shall be required to
be withheld pursuant to any applicable law or regulation.
(e) The Executive's or the Company's failure to insist
upon strict compliance with any provision hereof or any other provision of this
Agreement or the failure to assert any right the Executive or the Company may
have hereunder, including, without limitation, the right of the Executive to
terminate employment for Good Reason pursuant to Section 5(c)(i)-(v), shall not
be deemed to be a waiver of such provision or right or any other provision or
right of this Agreement.
(f) The Executive and the Company acknowledge that,
except as may otherwise be provided under any other written agreement between
the Executive and the Company, the employment of the Executive by the Company
is "at will" and, prior to the Effective Date, may be terminated by either the
Executive or the Company at any time. Moreover, if prior to the Effective Date
the Executive's employment with the Company terminates, then the Executive
shall have no further rights under this Agreement.
IN WITNESS WHEREOF,the parties hereto have executed this Agreement as
of the date first above written.
Executive:
______________________________________
Name:_______________________________
Company:
CLIFFS DRILLING COMPANY
By:___________________________________
Name:_______________________________
Title:______________________________
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