<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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, 1997
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 No.)
1200 SMITH STREET, SUITE 300
HOUSTON, TEXAS 77002
(Address of Principal Executive Offices) (Zip Code)
(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 30, 1997: 15,251,579
(Exhibit Index Located on Page 19)
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CLIFFS DRILLING COMPANY
FORM 10-Q
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 1997
<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, 1997 and 1996....................3
Consolidated Balance Sheets (Unaudited) -
CLIFFS DRILLING COMPANY
June 30, 1997 and December 31, 1996..................................4
Consolidated Statements of Cash Flows (Unaudited) -
CLIFFS DRILLING COMPANY
Three and Six Months Ended June 30, 1997 and 1996....................5
Notes to Interim Consolidated Financial Statements (Unaudited).........6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS...........................9
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES........................................17
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS..........17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.............................17
SIGNATURES.................................................................18
EXHIBIT INDEX..............................................................19
</TABLE>
2
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CLIFFS DRILLING COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
---------------------- -------------------------
1997 1996 1997 1996
---------- ---------- ----------- ----------
(In thousands, except
per share amounts)
<S> <C> <C> <C> <C>
REVENUES:
Revenues.................................... $ 59,842 $ 13,699 $120,125 $ 42,760
Income from Equity Investments ............. 628 79 1,221 96
-------- -------- -------- --------
60,470 13,778 121,346 42,856
COSTS AND EXPENSES:
Operating Expenses ......................... 31,365 8,227 71,885 30,073
Depreciation, Depletion and Amortization.... 4,483 1,674 8,359 3,177
General and Administrative Expense ......... 2,255 1,416 4,159 2,814
-------- -------- -------- --------
38,103 11,317 84,403 36,064
-------- -------- -------- --------
OPERATING INCOME ................................ 22,367 2,461 36,943 6,792
OTHER INCOME (EXPENSE):
Gain on Disposition of Assets .............. 2,575 2,670 2,472 2,647
Interest Income ............................ 174 444 542 804
Interest Expense ........................... (3,809) (1,560) (7,786) (1,586)
Exchange Rate Gain (Loss) .................. 138 (985) 218 148
Other, net ................................. (478) 24 (718) (59)
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES ...................... 20,967 3,054 31,671 8,746
INCOME TAX EXPENSE .............................. 7,339 1,069 11,085 3,061
-------- -------- -------- --------
NET INCOME ...................................... 13,628 1,985 20,586 5,685
DIVIDENDS APPLICABLE TO PREFERRED STOCK ......... -- -- -- (31)
-------- -------- -------- --------
NET INCOME APPLICABLE TO COMMON AND
COMMON EQUIVALENT SHARES ................... $ 13,628 $ 1,985 $ 20,586 $ 5,654
======== ======== ======== ========
NET INCOME PER SHARE ............................ $ 0.89 $ 0.15 $ 1.34 $ 0.44
======== ======== ======== ========
WEIGHTED AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING ............... 15,384 13,648 15,365 12,726
======== ======== ======== ========
</TABLE>
See accompanying notes to interim consolidated financial statements.
<PAGE> 4
CLIFFS DRILLING COMPANY
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
1997 1996
------------- ------------
ASSETS (In thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and Cash Equivalents .................................................. $ 2,702 $ 39,181
Accounts Receivable, net of allowance for doubtful accounts of $716 and $797
at June 30, 1997 and December 31, 1996, respectively .................... 47,987 28,866
Notes and Other Receivables, Current ....................................... 4,551 4,922
Inventories ................................................................ 6,060 5,807
Drilling Contracts in Progress ............................................. 5,532 17,669
Prepaid Insurance .......................................................... 3,029 7,408
Other Prepaid Expenses ..................................................... 9,965 6,349
--------- ---------
Total Current Assets ................................................. 79,826 110,202
PROPERTY AND EQUIPMENT, AT COST:
Rigs and Related Equipment ................................................. 356,711 283,223
Other ...................................................................... 15,610 16,530
--------- ---------
372,321 299,753
Less: Accumulated Depreciation, Depletion and Amortization ................ (89,865) (83,279)
--------- ---------
Net Property and Equipment ........................................... 282,456 216,474
NOTES AND OTHER RECEIVABLES, LONG-TERM ......................................... -- 3,510
INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED AFFILIATES ....................... 5,797 4,434
DEFERRED CHARGES AND OTHER ..................................................... 4,548 4,926
--------- ---------
TOTAL ASSETS ......................................................... $ 372,627 $ 339,546
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable ........................................................... $ 22,995 $ 30,545
Accrued Interest ........................................................... 2,003 2,007
Other Accrued Expenses ..................................................... 18,812 9,429
--------- ---------
Total Current Liabilities ............................................ 43,810 41,981
10.25% SENIOR NOTES ............................................................ 150,000 150,000
DEFERRED INCOME TAXES .......................................................... 15,462 5,028
DEFERRED INCOME AND OTHER ...................................................... 44 369
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Common Stock, $.01 par value, 30,000,000 shares authorized; 15,663,593 and
7,996,436 shares issued and 15,239,973 and 7,566,504 shares outstanding
at June 30, 1997 and December 31, 1996, respectively ........................ 157 80
Paid-In Capital ............................................................ 156,693 153,513
Retained Earnings (Deficit) ................................................ 14,869 (5,717)
Less: Notes Receivable from Officers for Restricted Stock ................. (159) (186)
Restricted Stock ..................................................... (3,022) (223)
Treasury Stock, at cost, 423,620 and 429,932 shares at June 30,
1997 and December 31, 1996, respectively .......................... (5,227) (5,299)
--------- ---------
Total Shareholders' Equity ........................................... 163,311 142,168
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ........................... $ 372,627 $ 339,546
========= =========
See accompanying notes to interim consolidated financial
statements.
</TABLE>
<PAGE> 5
CLIFFS DRILLING COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30, Ended June 30,
----------------------------- -----------------------------
1997 1996 1997 1996
-------------- ------------- -------------- -------------
(In thousands)
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net Income .............................................. $ 13,628 $ 1,985 $ 20,586 $ 5,685
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Depreciation, Depletion and Amortization .............. 4,483 1,674 8,359 3,177
Deferred Income Tax Expense ........................... 6,833 540 10,434 2,532
Mobilization Expense Amortization ..................... -- 66 25 196
Gain on Disposition of Assets ......................... (2,575) (2,670) (2,472) (2,647)
Amortization of Debt Issue Costs ...................... 186 80 373 80
Amortization of Restricted Stock ...................... 55 4 78 9
Other ................................................. (29) 298 48 234
CHANGES IN OPERATING ASSETS AND LIABILITIES:
Accounts Receivable ............................... (8,156) (4,621) (17,850) (14,879)
Inventories ....................................... (407) (230) (253) (909)
Drilling Contracts in Progress .................... (1,436) (3,947) 12,137 4,125
Prepaid Insurance and Other Prepaid Expenses ...... (1,926) (530) 738 (1,274)
Investments in and Advances to Unconsolidated ..... (770) (79) (1,363) (96)
Affiliates
Accounts Payable and Other Accrued Expenses ....... (609) 3,727 1,829 (789)
---------- ----------- ---------- ----------
Net Cash Provided By (Used In) Operating ... 9,277 (3,703) 32,669 (4,556)
Activities
INVESTING ACTIVITIES:
Capital Expenditures ..................................... (27,964) (10,406) (47,841) (13,216)
Acquisition of Rigs and Related Equipment ................ -- (105,405) (28,500) (105,405)
Acquisition of Equity Interest in Rig and Related ........ -- (3,187) -- (3,187)
Equipment
Proceeds from Sale of Property and Equipment ............. 3,245 770 3,524 997
Insurance Proceeds from Loss of Rig and Related Equipment -- -- -- 292
Collection of Notes Receivable ........................... 3,182 231 3,537 448
---------- ----------- ---------- ----------
Net Cash Used In Investing Activities ...... (21,537) (117,997) (69,280) (120,071)
FINANCING ACTIVITIES:
Proceeds from Borrowings ................................. 6,500 150,000 6,500 150,000
Payments on Borrowings ................................... (6,500) -- (6,500) --
Proceeds from Exercise of Stock Options .................. 36 -- 132 --
Debt Issue Costs ......................................... -- (4,651) -- (4,651)
Acquisition of Treasury Stock ............................ -- -- -- (661)
Payments for Redemption of Preferred Stock ............... -- -- -- (850)
Preferred Stock Dividends ................................ -- -- -- (31)
---------- ----------- ---------- ----------
Net Cash Provided By Financing Activities .. 36 145,349 132 143,807
---------- ----------- ---------- ----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ......... (12,224) 23,649 (36,479) 19,180
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ............. 14,926 21,936 39,181 26,405
========== =========== ========== ==========
CASH AND CASH EQUIVALENTS AT END OF PERIOD................... $ 2,702 $ 45,585 $ 2,702 $ 45,585
========== =========== ========== ==========
</TABLE>
See accompanying notes to interim consolidated financial statements.
<PAGE> 6
CLIFFS DRILLING COMPANY
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
JUNE 30, 1997
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 periods 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, 1997 are not necessarily indicative of the results that
may be expected for the year ended December 31, 1997. 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,
1996.
2. STOCK SPLIT
On June 9, 1997, the Company effected a two-for-one stock split in the form
of a 100% stock dividend to holders of record on May 22, 1997 (the "Stock
Split"). All references to the weighted average number of common and common
equivalent shares outstanding and per share amounts have been restated to
reflect the Stock Split, unless otherwise indicated.
3. 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. Fully diluted earnings per share is not
presented for any period because it is not materially different than primary
earnings per share.
The Company issued 2,113,557 shares of common stock, $.01 par value
("Common Stock"), before effects of the Stock Split, upon conversion of
1,115,988 shares of its 1,150,000 issued and outstanding shares of Preferred
Stock on January 17, 1996. The remaining 34,012 shares of Preferred Stock were
redeemed for cash in the amount of $25.69 per share plus $.22 per share in
accrued and unpaid dividends thereon through the redemption date at a cost to
the Company of approximately $.9 million.
In February, 1997, the Financial Accounting Standards Board issued
Statement No. 128, "Earnings Per Share," (SFAS No. 128) which is required to be
adopted on December 31, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to restate
all prior periods. Under SFAS No. 128, primary earnings per share computed in
accordance with APB Opinion No. 15 will be replaced with a new simpler
calculation called basic earnings per share. Basic earnings per share will
exclude the dilutive effect of stock options. The adoption of SFAS No. 128 is
not expected to result in a material impact on earnings per share amounts for
the three and six months ended June 30, 1997 and 1996.
4. ACQUISITIONS AND FINANCING
On May 23, 1996, the Company completed the acquisition of 9 jack-up
drilling rigs and a 50% interest in the West Indies Drilling Joint Venture, a
joint venture between Cliffs Drilling Trinidad Limited and Well Services
(Marine) Limited, which owns an additional jack-up drilling rig (the "WINDJV"),
and their related assets (collectively referred to as the "Southwestern Rigs")
operated by Southwestern Offshore Corporation, a Delaware corporation
("Southwestern"). The purchase price of the Southwestern Rigs was (a) $103.8
million in cash (after reductions of $6.2 million for
6
<PAGE> 7
required refurbishments of certain Southwestern Rigs not made prior to closing)
plus (b) issuance of 1.2 million shares of the Company's Common Stock, before
effects of the Stock Split, and (c) assumption of certain contractual
liabilities, including the Company's guarantee of $4.25 million in indebtedness
of the WINDJV to Citibank N.A. related to the refurbishment of the jack-up
drilling rig owned by it (together with accrued but unpaid interest thereon and
costs of collection). In addition, on May 10, 1996, the Company acquired the
jack-up drilling rig OCEAN MAGALLANES from Diamond Offshore Southern Company
("Diamond") for $4.5 million. The Company renamed this unit Cliffs Drilling 155.
On September 30, 1996, the Company acquired a land rig from Quarles Drilling
Corp. for $2.9 million which was refurbished and commenced operations during the
second quarter of 1997 in Venezuela.
On January 24, 1997, the Company completed the acquisition of the stock of
a subsidiary of Andrade Gutierrez Perfuracao Ltda. which owned the jack-up
drilling rig ATENA, four 1,500 HP land drilling rigs, miscellaneous drilling
equipment and a contract to operate a platform rig in Brazil (the "AGP
Acquisition"). The ATENA has been renamed as Cliffs Drilling 156 and the four
land rigs have been designated as Cliffs Drilling 34, 35, 36 and 37. The
purchase price was $28.5 million in cash.
5. GAIN ON DISPOSITION OF ASSET
The Company recorded a gain of $2.7 million on the disposition of various
oil and gas related interests. The oil and gas related interests secured the
long-term note receivable valued at $3.5 million at December 31, 1996. This note
was settled in full in connection with the asset sale.
6. PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information gives effect to the
acquisition of the Southwestern Rigs using the purchase method of accounting
given the related assumptions and adjustments, the offering of $150.0 million of
senior unsecured notes (the "Senior Notes") and the issuance of 1.2 million
shares of the Company's Common Stock, before effects of the Stock Split, valued
at an average price of $18.51 per share in connection with the acquisition of
the Southwestern Rigs.
The pro forma financial information is based upon the historical
consolidated financial statements of the Company and Southwestern for the six
months ended June 30, 1996. The historical results of Southwestern include the
results of operations of the rigs that were available for service during the
indicated periods.
The pro forma financial information for the six months ended June 30, 1996
was prepared assuming that the transactions described above were consummated as
of January 1, 1996. The pro forma financial information has been prepared based
upon assumptions deemed appropriate by the Company and may not be indicative of
actual results. The historical results of Southwestern's operations are
included with the Company's results beginning May 23, 1996.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
30, 1996
-------------------------
(In thousands, except
per share amounts)
<S> <C>
Revenues......................................................... $ 57,263
Net Income ...................................................... 1,661
Net Income Per Share ............................................ $ 0.11
</TABLE>
7
<PAGE> 8
7. CHANGE IN PRESENTATION
Certain financial statement items have been reclassified in the prior year
to conform with the current year presentation.
8. SUBSEQUENT EVENT
The Company currently is contemplating the issuance of $50 million of
senior notes that are substantially the same as the existing Senior Notes in a
private placement that will not be registered under the Securities Act of 1933.
If consummated, the closing of the offering is expected to occur during August,
1997. See "Liquidity and Capital Resources."
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Form 10-Q includes "forward-looking statements" within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. All statements other than
statements of historical facts included in this Form 10-Q regarding the
Company's financial position, business strategy, budgets and plans and
objectives of management for future operations are forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. Important factors that could
cause actual results to differ materially from the Company's expectations
("Cautionary Statements") are disclosed under the captions "General" and
"Liquidity and Capital Resources" within this item and elsewhere in this Form
10-Q. All subsequent written and oral forward-looking statements attributable
to the Company, or persons acting on its behalf, are expressly qualified in
their entirety by the Cautionary Statements.
GENERAL
Activity in the contract drilling industry and related oil service
businesses has improved over the last two years due to increased worldwide
demand stemming from higher levels of pricing for oil and natural gas. Over the
past several years, the supply of offshore drilling rigs has declined while the
demand for such rigs has increased, resulting in increases in worldwide
utilization rates. 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. Crude oil and natural gas prices have continued to
fluctuate over the last several years. This price volatility creates some
market uncertainties, despite the overall improvement in oil and gas market
fundamentals.
The oil and gas industry has experienced extreme market cycles over the
past decade. The Company has endeavored to mitigate the effect of this
volatility by diversifying its scope of operations. To achieve its strategic
objective, the Company established separate but related lines of business in
daywork drilling, engineering services and MOPU operations. The Company also
has pursued foreign drilling and production opportunities in order to expand
geographically. 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, 1997 and 1996
The Company recognized net income of $13.6 million during the second
quarter of 1997 compared to net income of $2.0 million in the second quarter of
1996. Revenues increased $46.7 million and operating income increased $19.9
million in the same period. These increases were partially offset by $2.2
million of increased interest expense associated with the Senior Notes and $6.3
million of increased income taxes. Improved operating results from the
Company's daywork drilling and engineering services business segments
contributed to the increases in revenues and operating income.
9
<PAGE> 10
<TABLE>
<CAPTION>
INCREASE
1997 1996 (DECREASE)
------------ ------------- ------------
(In thousands)
<S> <C> <C> <C>
Revenues:
Daywork Drilling ....................................... $ 39,684 $ 12,647 $ 27,037
Engineering Services ................................... 22,555 887 21,668
MOPU Operations ........................................ 1,733 1,329 404
Oil and Gas ............................................ 24 239 (215)
Eliminations ........................................... (3,526) (1,324) (2,202)
----------- ---------- ----------
Consolidated ....................................... $ 60,470 $ 13,778 $ 46,692
=========== ========== ==========
Operating Income (Loss):
Daywork Drilling ....................................... $ 16,156 $ 3,342 $ 12,814
Engineering Services ................................... 7,736 (106) 7,842
MOPU Operations ........................................ 812 969 (157)
Oil and Gas ............................................ (16) (290) 274
Corporate Office ....................................... (2,321) (1,444) (877)
Eliminations ........................................... -- (10) 10
----------- ---------- ----------
Consolidated ....................................... $ 22,367 $ 2,461 $ 19,906
=========== ========== ==========
</TABLE>
Daywork Drilling
Daywork drilling revenues increased $27.0 million and operating income
increased $12.8 million in the second quarter of 1997 compared to the second
quarter of 1996. Of the $12.8 million increase in operating income, $9.7
million was generated from 10 of 11 jack-up drilling rigs acquired in May, 1996
and one jack-up drilling rig acquired in January, 1997. Operating income also
increased due to improved dayrates for the Company's jack-up and land drilling
rigs.
On May 23, 1996, the Company completed the acquisition of 9 jack-up
drilling rigs and a 50% interest in the WINDJV which owns an additional jack-up
drilling rig, and their related assets operated by Southwestern. In addition,
on May 10, 1996, the Company acquired a jack-up drilling rig from Diamond and
renamed it Cliffs Drilling 155. Eight of the 11 acquired jack-up drilling rigs
are currently operating in the Gulf of Mexico and one jack-up rig is operating
in each of Venezuela, Qatar and Trinidad. One of the 8 jack-up drilling rigs
currently operating in the Gulf of Mexico completed refurbishment activities
and commenced operations during late July, 1997.
On September 30, 1996, the Company acquired an additional land rig for
$2.9 million. The Company refurbished the drilling rig, mobilized the unit to
Venezuela and commenced operations during the second quarter of 1997.
On January 24, 1997, the Company completed the AGP Acquisition which
included one jack-up drilling rig and 4 land rigs for a purchase price of $28.5
million in cash. Cliffs Drilling 156 is currently operating in Venezuela. The
Company completed refurbishment of one of the 4 land drilling rigs, which
commenced operations in Venezuela during May, 1997, and expects to complete
refurbishment of at least one additional unit and market it for operations in
Venezuela during 1997. See "Liquidity and Capital Resources."
The Company operates its drilling rigs on both a term and a spot
(well-to-well) basis. Drilling rigs contracted on a term basis generally work
in various international locations, while drilling rigs contracted on a spot
basis generally work in the U.S. Gulf of Mexico. The following table summarizes
revenues, utilization and average dayrates for significant classes of the
Company's drilling rigs:
10
<PAGE> 11
<TABLE>
<CAPTION>
INCREASE
1997 1996 (DECREASE)
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Daywork Drilling Revenues (1):
Jack-up Rigs:
International ..................................... $ 9,969 $ 2,317 $ 7,652
Domestic .......................................... 18,216 4,585 13,631
Land Rigs ........................................... 7,958 4,523 3,435
Other (2) ........................................... 3,541 1,222 2,319
--------- --------- ---------
Total ......................................... $ 39,684 $ 12,647 $ 27,037
========= ========= =========
Average Rig Utilization (3):
Jack-up Rigs:
International...................................... 100% 100%
Domestic........................................... 100% 98%
Land Rigs............................................ 98% 100%
Average Dayrates (4):
Jack-up Rigs:
International...................................... $ 28,900 $ 20,705
Domestic........................................... 28,677 20,202
Land Rigs............................................ 12,412 8,239
</TABLE>
- ------------------
(1) Includes revenues earned from affiliates.
(2) Includes Cliffs Drilling 201, which was bareboat chartered to a 50% owned
joint venture for use as a drilling rig during the second quarter of 1997
and as a workover rig to a third party during the same period in 1996,
WINDJV operations, 2 labor maintenance contracts and a Brazilian platform
rig operation during the second quarter of 1997.
(3) Utilization rates are based upon the number of actively marketed rigs in
the fleet and exclude rigs which are unavailable for operations during
periods of refurbishment and upgrade.
(4) Daywork drilling revenues, less non-recurring revenues, divided by
aggregate contract days, adjusted to exclude days under contract at zero
dayrate.
Engineering Services
Engineering services revenues increased $21.7 million and operating income
increased $7.8 million in the second quarter of 1997 compared to the second
quarter of 1996. The Company completed 4 turnkey contracts in the second
quarter of 1997 compared to no contracts in the second quarter of 1996.
In February, 1997, the Company was awarded a contract to drill 12 turnkey
wells for Corpoven, S.A. in Venezuela. Total expected revenues for the 12 wells
are approximately $90.7 million. The Company began drilling the wells during
February, 1997 and expects to complete the 12-well package in September, 1998.
Three of the 4 wells completed during the second quarter of 1997 were part of
this 12 well package.
At June 30, 1997, the Company had 4 turnkey wells in progress in Venezuela
and one turnkey well in progress in the United States.
11
<PAGE> 12
MOPU Operations
MOPU revenues increased $.4 million while operating income decreased $.2
million in the second quarter of 1997 compared to the second quarter of 1996.
The increase in revenues was primarily due to operations associated with the
LANGLEY and 2 other MOPUs, none of which operated during the second quarter of
1996. The loss of income from Cliffs Drilling 11, which was sold during the
second quarter of 1996, partially offset the increase in revenues and also
contributed to the decrease in operating income.
The Company currently owns 5 MOPUs, all of which are under contract and
are currently operating.
Oil and Gas
Oil and gas revenues decreased $.2 million and operating losses decreased
$.3 million in the second quarter of 1997 compared to the second quarter of
1996. Revenues decreased primarily due to decreased production volumes and the
disposition of certain of the Company's oil and gas properties. Operating
losses decreased primarily due to non-recurring workover activity performed
during the second quarter of 1996. The Company does not expect any significant
activity related to oil and gas exploration and production activities during
1997.
Corporate Overhead
Corporate overhead increased $.9 million in the second quarter of 1997
compared to the second quarter of 1996, primarily due to increased costs
associated with the Southwestern operations.
Other Income (Expense) and Income Taxes
The Company recognized $8.7 million of other expense, including income
taxes, during the second quarter of 1997 compared to $.5 million of other
expense during the same period in 1996. The net increase in other expenses
resulted primarily from a $2.2 million increase in interest expense associated
with the Senior Notes and an increase in income taxes of $6.3 million, which
was offset in part by a decrease in exchange rate losses of $1.1 million. See
"Liquidity and Capital Resources."
Six Months Ended June 30, 1997 and 1996
The Company recognized net income of $20.6 million in the first six months
of 1997 compared to net income of $5.7 million during the same period in 1996.
Revenues increased $78.5 million and operating income increased $30.2 million
in the same period. These increases were partially offset by $6.2 million of
increased interest expense associated with the Senior Notes and $8.0 million of
increased income taxes. Improved operating results from the Company's daywork
drilling and engineering services business segments contributed to the
increases in revenues and operating income.
12
<PAGE> 13
<TABLE>
<CAPTION>
INCREASE
1997 1996 (DECREASE)
---------- ---------- ---------
(In thousands)
<S> <C> <C> <C>
Revenues:
Daywork Drilling ....................................... $ 73,828 $ 19,560 $ 54,268
Engineering Services ................................... 49,256 24,581 24,675
MOPU Operations ........................................ 3,325 2,321 1,004
Oil and Gas ............................................ 193 638 (445)
Eliminations ........................................... (5,256) (4,244) (1,012)
========= ======== ========
Consolidated ........................................... $ 121,346 $ 42,856 $ 78,490
========= ======== ========
Operating Income (Loss):
Daywork Drilling ....................................... $ 30,373 $ 4,079 $ 26,294
Engineering Services ................................... 9,318 4,123 5,195
MOPU Operations ........................................ 1,533 1,648 (115)
Oil and Gas ............................................ (11) (160) 149
Corporate Office ....................................... (4,270) (2,868) (1,402)
Eliminations ........................................... -- (30) 30
--------- -------- --------
Consolidated ....................................... $ 36,943 $ 6,792 $ 30,151
========= ======== ========
</TABLE>
Daywork Drilling
Daywork drilling revenues increased $54.3 million and operating income
increased $26.3 million in the first six months of 1997 compared to the same
period in 1996. Of the $26.3 million increase in operating income, $18.9
million was generated from 10 of 11 jack-up drilling rigs acquired in May, 1996
and one jack-up drilling rig acquired in January, 1997. Operating income also
increased due to improved dayrates for the Company's jack-up and land drilling
rigs.
See "Results of Operations -- Three Months Ended June 30, 1997."
The following table summarizes revenues, utilization and average dayrates
for significant classes of the Company's drilling rigs:
<TABLE>
<CAPTION>
INCREASE
1997 1996 (DECREASE)
--------- --------- ---------
(In thousands)
<S> <C> <C> <C>
Daywork Drilling Revenues (1):
Jack-up Rigs:
International ................................................. $ 18,697 $ 3,913 $ 14,784
Domestic ...................................................... 34,726 4,585 30,141
Land Rigs ....................................................... 14,060 9,408 4,652
Other (2) ....................................................... 6,345 1,654 4,691
--------- --------- ---------
Total ..................................................... $ 73,828 $ 19,560 $ 54,268
========= ========= =========
Average Rig Utilization (3):
Jack-up Rigs:
International ................................................. 100% 100%
Domestic ...................................................... 99% 98%
Land Rigs ....................................................... 99% 100%
Average Dayrates (4):
Jack-up Rigs:
International ................................................. $ 28,320 $ 21,841
Domestic ...................................................... 27,524 20,202
Land Rigs ....................................................... 11,708 8,513
- ------------------
</TABLE>
13
<PAGE> 14
(1) Includes revenues earned from affiliates.
(2) Includes Cliffs Drilling 201, which was bareboat chartered to a 50% owned
joint venture for use as a drilling rig during the first six months of
1997 and as a workover rig to a third party during the same period in
1996, WINDJV operations, 2 labor maintenance contracts and a Brazilian
platform rig operation during 1997.
(3) Utilization rates are based upon the number of actively marketed rigs in
the fleet and exclude rigs which are unavailable for operations during
periods of refurbishment and upgrade.
(4) Daywork drilling revenues less non-recurring revenues divided by aggregate
contract days, adjusted to exclude days under contract at zero dayrate.
Engineering Services
Engineering services revenues increased $24.7 million and operating income
increased $5.2 million in the first six months of 1997 compared to the same
period in 1996. The Company completed 7 turnkey contracts at improved operating
margins in the first six months of 1997 compared to 4 contracts in the same
period in 1996.
See "Results of Operations -- Three Months Ended June 30, 1997."
MOPU Operations
MOPU revenues increased $1.0 million while operating income decreased $.1
million in the first six months of 1997 compared to the same period in 1996.
The increase in revenues was primarily due to operations associated with the
LANGLEY and 2 other MOPUs, none of which operated during the first six months
of 1996. The loss of income from Cliffs Drilling 11, which was sold during the
second quarter of 1996, partially offset the increase in revenues and also
contributed to the decrease in operating income.
See "Results of Operations -- Three Months Ended June 30, 1997."
Oil and Gas
Oil and gas revenues decreased $.4 million and operating losses decreased
$.1 million in the first six months of 1997 compared to the same period in
1996. Revenues decreased primarily due to decreased production volumes and the
disposition of certain of the Company's oil and gas properties. Operating
losses decreased primarily due to non-recurring workover activity performed
during the first six months of 1996. The Company does not expect any
significant activity related to oil and gas exploration and production
activities during 1997.
Corporate Overhead
Corporate overhead increased $1.4 million in the first six months of 1997
compared to the same period in 1996, primarily due to increased costs
associated with the Southwestern operations.
Other Income (Expense) and Income Taxes
The Company recognized $16.4 million of other expense, including income
taxes, during the first six months of 1997 compared to $1.1 million of other
expense during the same period in 1996. The net increase in other expenses
resulted primarily from a $6.2 million increase in interest expense associated
with the Senior Notes and an increase in income taxes of $8.0 million. See
"Liquidity and Capital Resources."
14
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents decreased $36.5 million from $39.2 million at
December 31, 1996 to $2.7 million at June 30, 1997. The decrease resulted from
$69.3 million used in investing activities, which was offset in part by $32.7
million provided by operating activities and $.1 million provided by financing
activities.
Operating Activities
Net cash of $32.7 million provided by operating activities included $4.8
million used in working capital and other activities. "Accounts Receivable"
increased from December 31, 1996 to June 30, 1997 due primarily to increases in
dayrates and the timing of cash receipts related to U.S. Gulf of Mexico daywork
drilling operations and the timing of turnkey completions. "Drilling Contracts
in Progress" and "Accounts Payable" decreased due to the completion of the 3
turnkey contracts that were in progress at December 31, 1996. "Other Accrued
Expenses" increased primarily due to additional international operations and
refurbishment costs at June 30, 1997.
Investing Activities
Net cash of $69.3 million used in investing activities included $28.5
million used to fund the AGP Acquisition which closed during January, 1997 and
$47.8 million spent on upgrade and renovation activities on other drilling rigs
and MOPUs.
The Company has capital expenditure requirements totaling approximately
$10 million during the remainder of 1997. Of this total, approximately $3
million relates to drill pipe purchases and the remainder relates primarily to
other land and jack-up drilling rig upgrades and renovations. The Company
intends to fund these capital expenditure requirements with available cash,
internally-generated cash flow and amounts currently available under its
Revolving Credit Facility.
The Company has identified additional asset acquisitions as well as
conversions and refurbishments that will enhance its existing fleet of rigs.
The Company currently is contemplating the issuance of $50 million of senior
notes that are substantially the same as the existing Senior Notes in a private
placement that will not be registered under the Securities Act of 1933. If
consummated, the closing of the offering is expected to occur during August,
1997.
The Company recorded a gain of $2.7 million on the disposition of various
oil and gas related interests. The oil and gas related interests secured the
long-term note receivable valued at $3.5 million at December 31, 1996.
This note was settled in full in connection with the asset sale.
Financing Activities
In conjunction with the acquisition of the Southwestern Rigs, the Company
issued the Senior Notes in the aggregate principal amount of $150.0 million.
Interest on the Senior Notes is payable semi-annually during each May and
November. The Senior Notes do not require any payments of principal prior to
their stated maturity on May 15, 2003, but the Company is required to make
offers to purchase Senior Notes upon the occurrence of certain events as
defined in the indenture, such as asset sales or a change of control of the
Company. The Senior Notes are not redeemable at the option of the Company prior
to May 15, 2000. The Senior Notes are senior unsecured obligations of the
Company, ranking pari passu in right of payment with all senior indebtedness
and senior to all subordinated indebtedness, and are guaranteed by the
Company's principal subsidiaries. The indenture under which the Senior Notes
are issued imposes significant operating and financial restrictions on the
Company. Such restrictions affect, and in many respects limit or prohibit,
among other things, the ability of the Company to incur additional
indebtedness, create liens, sell assets and make dividends or other payments.
15
<PAGE> 16
On June 27, 1996, the Company and ING (U.S.) Capital Corporation ("ING")
modified and amended the Company's $20 million Revolving Credit Facility to,
among other things, increase the amount available under such facility to $35
million. The Revolving Credit Facility matures on May 31, 1998. At June 30,
1997, the Company had no indebtedness outstanding under the Revolving Credit
Facility.
On January 17, 1996, the Company issued 2,113,557 shares of Common Stock,
before effects of the Stock Split, upon conversion of 1,115,988 shares of its
1,150,000 issued and outstanding shares of Preferred Stock. The remaining 34,012
shares of Preferred Stock were redeemed for cash in the amount of $25.69 per
share plus $0.22 per share in accrued dividends thereon at a cost to the Company
of approximately $.9 million.
Exchange Rate Gains and Losses
Approximately 46% 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 1997. 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
contracts. The Company may be exposed to the risk of foreign currency losses in
connection with its foreign operations. Such losses are the result of holding
net monetary assets (cash and receivables in excess of payables) denominated in
foreign currencies during periods of a strengthening U.S. dollar. The Company's
foreign exchange gains and losses are primarily attributable to the Venezuelan
Bolivar. Venezuela instituted currency exchange controls during June, 1994,
which continued through all of 1995 and substantially eliminated exchange
losses attributable to the Company's Venezuelan operations during most of 1995.
The Company realized $1.2 million in gains in connection with Venezuelan Brady
Bond transactions during the first quarter of 1996; however, the Venezuelan
government allowed the Bolivar to "float" relative to other currencies on April
22, 1996. Significant devaluation of the Bolivar occurred at that date, which
subjected the Company to exchange rate losses on its net monetary assets.
Foreign currency exchange rate losses of $1.2 million incurred during 1996
offset exchange rate gains realized during the first quarter of 1996. The
effects of these transactions are reported as "Exchange Rate Gain (Loss)" in
the Consolidated Statements of Operations. The Company does not speculate in
foreign currencies or maintain significant foreign currency cash balances. The
Company will continue to be exposed to future foreign currency gains and losses
if the currency continues to be volatile. Despite the political and economic
risks in Venezuela, the Company believes that the country continues to be a
favorable market for its services.
Cautionary Statements
The ability of the Company to fund working capital, capital expenditures
and debt service 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.
16
<PAGE> 17
PART II
OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES
During the first six months of 1997, 10,665 shares of the Company's common
stock, $.01 par value, held by the Company as treasury shares were sold to the
Cliffs Drilling Company 401(k) Savings Plan at an aggregate price of
approximately $331,000, with individual transactions at market prices on the
various dates of sale ranging from $25.00 to $37.56 per share. These sales were
made in reliance on an exemption from registration under Section 4(2) of the
Securities Act of 1933, as amended, inasmuch as these sales constituted
transactions by the issuer not involving a public offering. All references to
the number of shares and per share amounts in this item have been restated to
reflect the Stock Split.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's Annual Meeting of Shareholders was held on May 21, 1997, at
which the shareholders voted on the election of two directors, the proposal to
increase the number of authorized shares of the Company's Common Stock and the
appointment of the Company's independent public accountants. Of the 5,831,751
shares of Common Stock present in person or by proxy, 5,828,307 shares were
voted for the election of Michael M. Cone as a director and 5,828,422 shares
were voted for the election of John D. Weil as a director, with 3,444 and 3,329
shares withheld, respectively; 5,807,032 shares were voted for the proposal to
increase the number of authorized shares of the Company's Common Stock, while
17,845 shares were voted against the proposed amendment with 6,874 shares
abstaining; and 5,823,852 shares were voted for the appointment of Ernst &
Young LLP as the Company's independent public accountants for 1997, while 5,124
shares were voted against such appointment with 2,775 shares abstaining.
All references to shares in this item are stated before effects of the Stock
Split. Directors whose terms of office continued were H. Robert Hirsch, Donald
W. Keller, Joseph E. Reid, Robert M. McInnes and Douglas E. Swanson.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
3.1.1 Certificate of Incorporation of New Cliffs Drilling Company
3.1.2 Certificate of Amendment of Certificate of Incorporation
3.1.3 Certificate of Designations of $2.3125 Convertible
Exchangeable Preferred Stock of Cliffs Drilling Company
3.1.4 Certificate of Amendment of Certificate of Incorporation
of Cliffs Drilling Company
3.1.5 Certificate of Elimination of $2.3125 Convertible
Exchangeable Preferred Stock of Cliffs Drilling Company
3.1.6 Form of Certificate of Designations of Series A Junior
Participating Preferred Stock of Cliffs Drilling Company
4.1 Certificate of Incorporation of Cliffs Drilling Company
(included as Exhibits 3.1.1, 3.1.2, 3.1.3, 3.1.4, 3.1.5
and 3.1.6)
4.9 Rights Agreement, dated effective June 17, 1997 between
the Company and Harris Trust and Savings Bank
(incorporated by reference to Exhibit 4.3 to the Company's
Registration Statement on Form 8-A as filed with the
Securities and Exchange Commission under the Securitites
Exchange Act on June 6, 1997)
27 Financial Data Schedule
(b) Reports on Form 8-K
None.
17
<PAGE> 18
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 31, 1997 By: /s/ Edward A. Guthrie
------------------------- -----------------------------
Edward A. Guthrie
Vice President - Finance
Date: July 31, 1997 By: /s/ Cindy B. Taylor
------------------------- -----------------------------
Cindy B. Taylor
Vice President - Controller
18
<PAGE> 19
EXHIBIT INDEX
3.1.1 Certificate of Incorporation of New Cliffs Drilling Company
3.1.2 Certificate of Amendment of Certificate of Incorporation
3.1.3 Certificate of Designations of $2.3125 Convertible
Exchangeable Preferred Stock of Cliffs Drilling Company
3.1.4 Certificate of Amendment of Certificate of Incorporation
of Cliffs Drilling Company
3.1.5 Certificate of Elimination of $2.3125 Convertible
Exchangeable Preferred Stock of Cliffs Drilling Company
3.1.6 Form of Certificate of Designations of Series A Junior
Participating Preferred Stock of Cliffs Drilling Company
27 Financial Data Schedule
19
<PAGE> 1
Exhibit 3.1.1
CERTIFICATE OF INCORPORATION
OF
NEW CLIFFS DRILLING COMPANY
I, the undersigned, for the purpose of incorporating and organizing a
corporation under the General Corporation Law of the State of Delaware, do
hereby certify as follows:
FIRST. The name of the Corporation (the "Corporation") is New Cliffs
Drilling Company.
SECOND. The registered office of the Corporation in the State of
Delaware is located at 1209 Orange Street, in the City of Wilmington, County of
New Castle, Delaware 19801. The name of the Corporation's registered agent at
such address is The Corporation Trust Company.
THIRD. The purpose of the Corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of the State of Delaware.
FOURTH. The total number of shares of stock which the Corporation
shall have authority to issue is 18 million, consisting of 3 million shares of
Preferred Stock, without par value (hereinafter called "Preferred Stock"), and
15 million shares of Common Stock, of the par value of $.01 per share
(hereinafter called "Common Stock").
The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors hereby is authorized to provide for the
issuance of shares of Preferred Stock in series, and by filing a certificate
pursuant to the applicable law of the State of Delaware (hereinafter called a
"Preferred Stock Designation"), to establish from time to time the number of
shares to be included in each such series, and to fix the designation, powers,
preferences and rights of the shares of each such series and the
qualifications, limitations and restrictions thereof. The authority of the
Board of Directors with respect to each series shall include, but not be
limited to, determination of the following:
(a) The designation of the series, which may be by
distinguishing number, letter and title.
(b) The number of shares of the series, which number the
Board of Directors may thereafter (except where otherwise provided in
the creation of the series) increase or decrease (but not below the
number of shares thereof then outstanding).
(c) Whether dividends, if any, shall be cumulative or
noncumulative and the dividend rate of the series.
(d) The dates at which dividends, if any, shall be
payable.
<PAGE> 2
(e) The redemption rights and price or prices, if any,
for shares of the series.
(f) The terms and amount of any sinking fund provided for
the purchase or redemption of shares of the series.
(g) The amounts payable on shares of the series in the
event of any voluntary or involuntary liquidation, dissolution or
winding up of the affairs of the Corporation.
(h) Whether the shares of the series shall be convertible
into shares of any other class or series of shares, or any other
security, of the Corporation or any other corporation, and, if so, the
specification of such other class or series or such other security,
the conversion price or prices or rate or rates, any adjustments
thereof, the date or dates as of which such shares shall be
convertible and all other terms and conditions upon which such
conversion may be made.
(i) Restrictions on the issuance of shares of the same
series or of any other class or series.
(j) The voting rights, if any, of the holders of such
series.
The Common Stock shall be subject to the express terms of the
Preferred Stock and any series thereof. Each share of Common Stock shall be
equal to each other share of Common Stock. The holders of Common Stock shall be
entitled to one vote for each such share upon all questions presented to the
stockholders.
Except as may be provided in this Certificate of Incorporation or by
the Board of Directors in a Preferred Stock Designation, the Common Stock shall
have the exclusive right to vote for the election of Directors and for all
other purposes, and holders of Preferred Stock shall not be entitled to receive
notice of any meeting of stockholders at which they are not entitled to vote.
The Corporation shall be entitled to treat the person in whose name
any share of its stock is registered as the owner thereof for all purposes and
shall not be bound to recognize any equitable or other claim to, or interest
in, such share on the part of any other person, whether or not the Corporation
shall have notice thereof, except as expressly provided by applicable laws.
FIFTH. In furtherance of, and not in limitation of, the powers
conferred by statute, the Board of Directors is expressly authorized and
empowered:
(a) to adopt, amend or repeal the By-Laws of the Corporation;
provided, however, that the By-Laws adopted by the Board of Directors
under the powers hereby conferred may be amended or repealed by the
Board of Directors or by the stockholders having voting power with
respect thereto, except that Section 4 of Article I, all of Article
II, Section 1 of Article III, and Section 4 of Article VI of the
By-Laws shall not be amended or repealed, nor shall any provision
inconsistent with such By-Laws be adopted, without
2
<PAGE> 3
the affirmative vote of the holders of at least 80 percent of the
combined voting power of all shares of the Corporation entitled to
vote generally in the election of Directors, voting together as a
single class. Notwithstanding anything contained in this Certificate
of Incorporation to the contrary, the affirmative vote of the holders
of at least 80 percent of the combined voting power of all shares of
the Corporation entitled to vote generally in the election of
Directors, voting together as a single class, shall be required to
amend, repeal or adopt any provision inconsistent with this Section
(a) of Article FIFTH; and
(b) from time to time to determine whether and to what
extent, and at what times and places, and under what conditions and
regulations, the accounts and books of the Corporation, or any of
them, shall be open to inspection of stockholders; and no stockholder
shall have any right to inspect any account, book or document of the
Corporation except as conferred by applicable law and subject to the
rights, if any, of the holders of any series of Preferred Stock.
The Corporation may in its By-Laws confer powers upon the Board of
Directors in addition to the foregoing and in addition to the powers and
authorities expressly conferred upon the Board of Directors by applicable law.
SIXTH. Subject to the rights of the holders of any class or series of
stock having a preference over the Common Stock as to dividends or upon
liquidation to elect additional Directors under specific circumstances:
(a) any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called
annual or special meeting of stockholders of the Corporation and may
not be effected by any consent in writing of such stockholders;
(b) special meetings of the stockholders of the Corporation
may be called only by the Chairman of the Board of Directors and shall
be called within 10 days after receipt of the written request of the
Board of Directors, pursuant to a resolution approved by a majority of
the Whole Board; and
(c) the business permitted to be conducted at any special
meeting of the stockholders is limited to the business brought before
the meeting by the Chairman or by the Secretary at the request of a
majority of the Board of Directors.
Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of at least 80 percent of
the combined voting power of all shares of the Corporation entitled to vote
generally in the election of Directors, voting together as a single class,
shall be required to amend, repeal, or adopt any provision, inconsistent with
this Article SIXTH. For the purposes of this Certificate of Incorporation, the
"Whole Board" is defined as the total number of Directors which the Corporation
would have if there were no vacancies.
3
<PAGE> 4
SEVENTH. Section I. Number, Election and Terms of Directors.
Subject to the rights of the holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation
to elect additional Directors under specified circumstances, the number of
Directors of the Corporation shall be fixed by the By-Laws of the Corporation
and may be increased or decreased from time to time in such a manner as may be
prescribed by the By-Laws, but in no case shall the number be less than 3 nor
more than 15.
The Directors, other than those who may be elected by the holders of
any class or series of stock having preference over the Common Stock as to
dividends or upon liquidation and other than those Directors named herein to
serve until the first annual meeting of stockholders or until their successors
are duly elected and qualify, shall be divided into three classes, as nearly
equal in number as possible. At the annual meeting of the stockholders held in
1988, one class shall be initially elected for a term expiring at the annual
meeting of stockholders to be held in 1989, another class shall be initially
elected for a term expiring at the annual meeting of stockholders to be held in
1990, and another class shall be initially elected for a term expiring at the
annual meeting of stockholders to be held in 1991 with members of each class to
hold office until their successors are elected and qualified. At each
succeeding annual meeting of the stockholders of the Corporation, the
successors of the class of Directors whose term expires at the meeting shall be
elected by plurality vote of all votes cast at such meeting to hold office for
a term expiring at the annual meeting of stockholders held in the third year
following the year of their election.
Section 2. Stockholder Nomination of Director Candidates.
Advance notice of stockholder nominations for the election of
Directors and advance notice of business to be brought by stockholders before
an annual meeting shall be given in the manner provided in the By-Laws of the
Corporation.
Section 3. Newly Created Directorships and Vacancies.
Subject to the rights of the holders of any class or series of stock
having a preference over the Common Stock as to dividends or upon liquidation
to elect additional Directors under specified circumstances, newly created
directorships resulting from any increase in the number of Directors and any
vacancy on the Board of Directors resulting from death, resignation,
disqualification, removal or other cause shall be filled solely by the
affirmative vote of a majority of the remaining Directors then in office, even
though less than a quorum of the Board of Directors, or by a sole remaining
Director. Any Director elected in accordance with the preceding sentence shall
hold office for the remainder of the full term of the class of Directors in
which the new directorship was created or the vacancy occurred and until such
Director's successor shall have been elected and qualified. No decrease in the
number of Directors constituting the Board of Directors shall shorten the term
of an incumbent Director.
Section 4. Removal of Directors.
Subject to the rights of the holders of any class or series of stock
having preference over the Common Stock as to dividends or upon liquidation to
elect additional Directors under specified
4
<PAGE> 5
circumstances, any Director may be removed from office only for cause by the
stockholders in the manner provided in this Section 4 of this Article SEVENTH.
At any annual meeting of the stockholders of the Corporation or at any special
meeting of the stockholders of the Corporation, the notice of which shall state
that the removal of a Director or Directors is among the purposes of the
meeting, the affirmative vote of the holders of at least 80 percent of the
combined voting power of the outstanding shares of Voting Stock (as defined
below), voting together as a single class, may remove such Director or
Directors for cause.
For the purposes of this Article SEVENTH, "Voting Stock" shall mean
the outstanding shares of capital stock of the Corporation entitled to vote
generally in the election of Directors. In any vote required by or provided
for in this Article SEVENTH, each share of Voting Stock shall have the number
of votes granted to it generally in the election of Directors.
Section 5. Amendments.
Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
80 percent of the combined voting power of the outstanding shares of the Voting
Stock, voting together as a single class, shall be required to amend, repeal or
adopt any provision inconsistent with this Article SEVENTH.
EIGHTH. The names and mailing addresses of the persons who are to
serve as Directors of the Corporation until the first annual meeting of
stockholders or until their successors are elected and qualified are as
follows:
Name Mailing Address
---- ---------------
M. Thomas Moore 1100 Superior Avenue, 18th Floor,
Cleveland, Ohio 44114-2589
John S. Brinzo 1100 Superior Avenue, 18th Floor,
Cleveland, Ohio 44114-2589
Robert McInnes 1100 Superior Avenue, 18th Floor,
Cleveland, Ohio 44114-2589
NINTH. Each person who is or was or had agreed to become a Director
or officer of the Corporation, or each such person who is or was serving or who
had agreed to serve at the request of the Board of Directors or an officer of
the Corporation as an employee or agent of the Corporation or as a Director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise (including the heirs, executors, administrators or
estate of such person), shall be indemnified by the Corporation to the full
extent permitted from time to time by the General Corporation Law of the State
of Delaware or any other applicable laws as presently or hereafter in effect.
Without limiting the generality or the effect of the foregoing, the Corporation
may enter into one or more agreements with any person which provide for
5
<PAGE> 6
indemnification greater or different than that provided in this Article NINTH.
Any amendment or repeal of this Article NINTH shall not adversely affect any
right or protection existing hereunder immediately prior to such amendment or
repeal.
TENTH. To the full extent permitted by the General Corporation Law of
the State of Delaware or any other applicable laws presently or hereafter in
effect, no Director of the Corporation shall be personally liable to the
Corporation or its stockholders for or with respect to any acts or omissions in
the performance of his or her duties as a Director of the Corporation. Any
amendment or repeal of this Article TENTH shall not adversely affect any right
or protection of a Director of the Corporation existing immediately prior to
such amendment or repeal.
ELEVENTH. The Corporation reserves the right to amend or repeal any
provision contained in this Certificate of Incorporation, including a Preferred
Stock Designation, in the manner now or hereafter prescribed by statute, and
this Certificate of Incorporation, including any applicable Preferred Stock
Designation, and all rights conferred upon stockholders herein are created
subject to this reservation.
TWELFTH. The name and mailing address of the incorporator is John E.
Lenhard, 18th Floor, 1100 Superior Avenue, Cleveland, Ohio 44114-2589.
IN WITNESS WHEREOF, I, the undersigned, being the incorporator
hereinabove named, do hereby execute this Certificate of Incorporation this
13th day of April, 1988.
/S/ JOHN E. LENHARD
-------------------
John E. Lenhard
6
<PAGE> 1
Exhibit 3.1.2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
* * * * *
New Cliffs Drilling Company, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware
(the "Corporation"), DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of the Corporation, acting at a
meeting duly held on June 9, 1988, adopted a resolution proposing and declaring
advisable the following amendment to the Certificate of Incorporation of the
Corporation:
RESOLVED, that, subject to the approval of the Corporation's sole
stockholder, effective at 5:00 p.m. on June 21, 1988, the Certificate
of Incorporation of New Cliffs Drilling Company be amended by changing
the Article thereof number "FIRST" so that, as amended, said Article
shall be and read as follows:
"The name of the Corporation (the "Corporation") is Cliffs Drilling
Company.
SECOND: That in lieu of a meeting and vote of stockholders, the sole
stockholder has given its written consent to said amendment in accordance with
the provisions of Section 228 of The General Corporation Law of the State of
Delaware.
THIRD: That the aforesaid amendment was duly adopted in accordance
with the applicable provisions of Section 242 and 228 of the General
Corporation Law of the State of Delaware.
- 1 -
<PAGE> 2
FOURTH: That the aforesaid amendment is to become effective
at 5:00 p.m. on June 21, 1988.
IN WITNESS WHEREOF, said New Cliffs Drilling Company has caused this
certificate to be signed by Robert McInnes, its Executive Vice-President, and
attested by Myron E. Jackson, its Secretary, this 16th day of June, 1988.
NEW CLIFFS DRILLING COMPANY
By /S/ ROBERT MCINNES
-----------------------------------
Robert McInnes
Executive Vice-President
ATTEST:
By /S/ MYRON E. JACKSON
-------------------------
Myron E. Jackson
Secretary
- 2 -
<PAGE> 1
Exhibit 3.1.3
CERTIFICATE OF DESIGNATIONS
OF
$2.3125 CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
OF
CLIFFS DRILLING COMPANY
PURSUANT TO SECTION 151 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
CLIFFS DRILLING COMPANY, a corporation organized and existing under the
laws of the State of Delaware (the "Corporation"), does hereby certify that,
pursuant to the authority conferred on the Board of Directors of the
Corporation by the Certificate of Incorporation, as amended, of the Corporation
and in accordance with Section 151 of the General Corporation Law of the State
of Delaware, the Board of Directors of the Corporation (and, as to certain
matters allowed by law, a duly authorized committee thereof) adopted the
following resolution establishing a series of 1,150,000 shares of Preferred
Stock of the Corporation designated as "$2.3125 Convertible Exchangeable
Preferred Stock":
RESOLVED, that pursuant to the authority conferred on the
Board of Directors of this Corporation by the Certificate of
Incorporation, a series of Preferred Stock, without par value, of the
Corporation be and hereby is established and created, and that the
designation and number of shares thereof and the voting and other
powers, preferences and relative, participating, optional or other
rights of the shares of such series and the qualifications,
limitations and restrictions thereof are as follows:
$2.3125 CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
1. DESIGNATION AND AMOUNT. There shall be a series of Preferred Stock
designated as "$2.3125 Convertible Exchangeable Preferred Stock", and the
number of shares constituting such series shall be 1,150,000. Such series is
referred to herein as the "Convertible Exchangeable Preferred Stock".
2. STATED CAPITAL. The amount to be represented in stated capital at all
times for each share of Convertible Exchangeable Preferred Stock shall be $.01.
3. RANK. All shares of Convertible Exchangeable Preferred Stock shall
rank prior to all of the Corporation's Common Stock, par value $.01 per
share (the "Common Stock"), now or hereafter issued, both as to payment of
dividends and as to distributions of assets upon liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary.
<PAGE> 2
4. DIVIDENDS. The holders of Convertible Exchangeable Preferred Stock
shall be entitled to receive, when, as and if declared by the Board of
Directors out of funds at the time legally available therefor, dividends at the
rate of $2.3125 per annum per share, and no more, which shall be fully
cumulative, shall accrue without interest from the date of first issuance and
shall be payable in cash quarterly in arrears on March 15, June 15, September
15 and December 15 of each year commencing December 15, 1988 (except that if
any such date is a Saturday, Sunday or legal holiday, then such dividend shall
be payable on the next day that is not a Saturday, Sunday or legal holiday) to
holders of record as they appear on the stock books of the Corporation on such
record dates, not more than 60 nor less than 10 days preceding the payment
dates for such dividends, as are fixed by the Board of Directors. For purposes
hereof, the term "legal holiday" shall mean any day on which banking
institutions are authorized to close in The City of New York or in Dallas,
Texas. Subject to the next paragraph of this Section 4, dividends on account of
arrears for any past dividend period may be declared and paid at any time,
without reference to any regular dividend payment date. The amount of dividends
payable per share of Convertible Exchangeable Preferred Stock for each
quarterly dividend period shall be computed by dividing the annual dividend
amount by four. The amount of dividends payable for the initial dividend period
and any period shorter than a full quarterly dividend period shall be computed
on the basis of a 360-day year of twelve 30-day months.
No dividends or other distributions, other than dividends payable
solely in shares of Common Stock or other capital stock of the Corporation
ranking junior as to dividends and as to liquidation rights to the Convertible
Exchangeable Preferred Stock, shall be declared, paid or set apart for payment
on, and no purchase, redemption or other acquisition shall be made by the
Corporation of, any shares of Common Stock or other capital stock of the
Corporation ranking junior as to dividends to the Convertible Exchangeable
Preferred Stock (the "Junior Dividend Stock") unless and until all accrued and
unpaid dividends on the Convertible Exchangeable Preferred Stock, including the
full dividend for the then-current quarterly dividend period, shall have been
paid or declared and set apart for payment.
If, at any time, any dividend on any capital stock of the Corporation
ranking senior as to dividends to the Convertible Exchangeable Preferred Stock
(the "Senior Dividend Stock") shall be in default, in whole or in part, then
(except to the extent allowed by the terms of such Senior Dividend Stock) no
dividend shall be paid or declared and set apart for payment on the Convertible
Exchangeable Preferred Stock unless and until all accrued and unpaid dividends
with respect to the Senior Dividend Stock, including the full dividends for the
then-current dividend period, shall have been paid or declared and set apart
for payment, without interest. No full dividends shall be paid or declared and
set apart for payment on any class or series of the Corporation's capital stock
ranking, as to dividends, on a parity with the Convertible Exchangeable
Preferred Stock (the "Parity Dividend Stock") for any period unless full
cumulative dividends have been, or contemporaneously are, paid or declared and
set apart for such payment on the Convertible Exchangeable Preferred Stock for
all dividend payment periods terminating on or prior to the date of payment of
such full cumulative dividends. No full dividends shall be paid or declared and
set apart for payment on the Convertible Exchangeable Preferred Stock for any
period unless full cumulative dividends have been, or contemporaneously are,
paid or declared and set apart for payment on the Parity Dividend Stock for all
dividend periods terminating on or prior to the date of payment of such full
cumulative dividends. When dividends are not paid in full upon the
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<PAGE> 3
Convertible Exchangeable Preferred Stock and the Parity Dividend Stock, all
dividends paid or declared and set aside for payment upon shares of Convertible
Exchangeable Preferred Stock and the Parity Dividend Stock shall be paid or
declared and set aside for payment pro rata so that the amount of dividends
paid or declared and set aside for payment per share on the Convertible
Exchangeable Preferred Stock and the Parity dividend Stock shall, in all cases,
bear to each other the same ratio that accrued and unpaid dividends per share
on the shares of Convertible Exchangeable Preferred Stock and the Parity
Dividend Stock bear to each other.
Any reference to "distribution" contained in this Section 4 shall not be
deemed to include any distribution made in connection with any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary.
5. LIQUIDATION PREFERENCE. In the event of a liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the holders of
Convertible Exchangeable Preferred Stock shall be entitled to receive out of
the assets of the Corporation, whether such assets are stated capital or
surplus of any nature, an amount equal to the dividends accrued and unpaid
thereon to the date of final distribution to such holders, whether or not
declared, without interest, and a sum equal to $25 per share, and no more,
before any payment shall be made or any assets distributed to the holders of
Common Stock or any other class or series of the Corporation's capital stock
ranking junior as to liquidation rights to the Convertible Exchangeable
Preferred Stock (the "Junior Liquidation Stock"); provided, however, that such
rights shall accrue to the holders of Convertible Exchangeable Preferred Stock
only in the event that the Corporation's payments with respect to the
liquidation preferences of the holders of capital stock of the Corporation
ranking senior as to liquidation rights to the Convertible Exchangeable
Preferred Stock (the "Senior Liquidation Stock") are fully met. The entire
assets of the Corporation available for distribution after the liquidation
preferences of the Senior Liquidation Stock are fully met shall be distributed
ratably among the holders of the Convertible Exchangeable Preferred Stock and
any other class or series of the Corporation's capital stock which may
hereafter be created having parity as to liquidation rights with the
Convertible Exchangeable Preferred Stock in proportion to the respective
preferential amounts to which each is entitled (but only to the extent of such
preferential amounts). Neither a consolidation or merger of the Corporation
with another corporation nor a sale or transfer of all or part of the
Corporation's assets for cash, securities or other property will be considered
a liquidation, dissolution or winding up of the Corporation.
6. REDEMPTION AT OPTION OF THE CORPORATION. The Corporation may not redeem
the Convertible Exchangeable Preferred Stock prior to September 15, 1991. The
Corporation, at its option, may, at any time after September 15, 1991, redeem
in whole at any time, or from time to time in part, the Convertible
Exchangeable Preferred Stock on any date set by the Board of Directors, at the
following cash redemption prices per share if redeemed during the twelve-month
period beginning September 15 of the year specified below:
-3-
<PAGE> 4
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
---- ----------------
<S> <C>
1991 $26.62
1992 26.39
1993 26.16
1994 25.93
1995 25.69
1996 25.46
1997 25.23
</TABLE>
and thereafter at $25 per share, plus, in each case, an amount in cash equal to
all dividends on the Convertible Exchangeable Preferred Stock accrued and
unpaid thereon, whether or not declared, pro rata to the date fixed for
redemption, such sum being hereinafter referred to as the "Redemption Price".
In case of the redemption of less than all of the then outstanding
Convertible Exchangeable Preferred Stock, the Corporation shall designate by
lot, or in such other manner as the Board of Directors may determine, the
shares to be redeemed, or shall effect such redemption pro rata.
Notwithstanding the foregoing, the Corporation shall not redeem less than all
of the Convertible Exchangeable Preferred Stock at any time outstanding until
all dividends accrued and in arrears upon all Convertible Exchangeable
Preferred Stock then outstanding shall have been paid for all past dividend
periods.
Not more than 60, nor less than 20 days prior to the redemption date,
notice by first class mail, postage prepaid, shall be given to the holders of
record of the Convertible Exchangeable Preferred Stock to be redeemed,
addressed to such stockholders at their last addresses as shown on the books of
the Corporation. Each such notice of redemption shall specify the date fixed
for redemption, the Redemption Price, the place or places of payment, that
payment will be made upon presentation and surrender of the shares of
Convertible Exchangeable Preferred Stock, that on and after the redemption
date, dividends will cease to accumulate on such shares, the then effective
conversion rate pursuant to Section 8 and that the right of holders to convert
shall terminate at the close of business on the fifth business day prior to the
redemption date.
Any notice which is mailed as herein provided shall be conclusively
presumed to have been duly given, whether or not the holder of the Convertible
Exchangeable Preferred Stock receives such notice; and failure to give such
notice by mail, or any defect in such notice, to the holders of any shares
designated for redemption shall not affect the validity of the proceedings for
the redemption of any other shares of Convertible Exchangeable Preferred Stock.
On or after the date fixed for redemption as stated in such notice, each holder
of the shares called for redemption shall surrender the certificate evidencing
such shares to the Corporation at the place designated in such notice and shall
thereupon be entitled to receive payment of the Redemption Price. If less than
all the shares represented by any such surrendered certificate are redeemed, a
new certificate shall be issued representing the unredeemed shares. If, on the
date fixed for redemption, funds necessary for the redemption shall be
available therefor and shall have been irrecoverably deposited or set aside,
then, notwithstanding that the certificates evidencing any shares so called for
redemption shall not have been surrendered, the dividends with respect to the
shares so called
-4-
<PAGE> 5
shall cease to accrue after the date fixed for redemption, the shares shall no
longer be deemed outstanding, the holders thereof shall cease to be
stockholders, and all rights whatsoever with respect to the shares so called
for redemption (except the right of the holders to receive the Redemption Price
without interest upon surrender of their certificates therefor) shall
terminate.
The shares of Convertible Exchangeable Preferred Stock shall not be
subject to the operation of any purchase, retirement or sinking fund.
7. REDEMPTION AT OPTION OF HOLDERS. In the event (i) any person (with the
defined meaning as used in Section 13(d) of the Securities Exchange Act of
1934, as amended, or any successor provision) becomes the beneficial owner (as
defined in Rule 13d-3 under the Securities Exchange Act of 1934, as amended, or
any successor provision) of more than 50% of the Common Stock (a "Share
Acquisition") or the Corporation is a party to a business combination,
including a merger or consolidation or the sale of all or substantially all of
its assets and (ii) either (a) as a result of such a Share Acquisition or
business combination, the Convertible Exchangeable Preferred Stock thereafter
is not convertible into common stock of the Corporation or of the ultimate
parent of the Corporation which common stock is traded on the New York Stock
Exchange, the American Stock Exchange or through the NASDAQ National Market
System or (b) all or substantially all of the consideration paid in such Share
Acquisition or business combination does not consist of common stock of the
ultimate parent of the Company which common stock is traded on the New York
Stock Exchange, the American Stock Exchange or the NASDAQ National Market
System, then each holder of Convertible Exchangeable Preferred Stock, subject
to the conditions of this Section 7, shall have the option to require the
Corporation to redeem all of the shares of Convertible Exchangeable Preferred
Stock owned by such holder at $25 per share plus accrued and unpaid dividends
to the redemption date.
In the event of any Share Acquisition meeting the conditions specified in
clauses (i) and (ii) of the first paragraph of this Section 7, the Corporation
shall, on the date that is 45 days after the date of such Share Acquisition,
upon the written demand of any record holder of Convertible Exchangeable
Preferred Stock which so requests, redeem all of the shares of Convertible
Exchangeable Preferred Stock owned by such holder at $25 per share plus accrued
and unpaid dividends to such redemption date. Within 10 days after the
Corporation has knowledge that such Share Acquisition has occurred, it shall
mail to each record holder of Convertible Exchangeable Preferred Stock a form
of written demand to be used by such holder to exercise his right of redemption
(a "Demand Form") and a notice which shall disclose the occurrence of the Share
Acquisition and the right of such holder to require the Corporation to redeem
such Convertible Exchangeable Preferred Stock pursuant to this Section 7, and
shall state the redemption date, the redemption price, the place or places of
payment, that payment will be made upon presentation and surrender of the
shares of Convertible Exchangeable Preferred Stock, the date by which such
holder must notify the Corporation if it elects to require the Corporation to
make such redemption, that on and after the redemption date, dividends will
cease to accumulate on such shares, the then effective conversion rate pursuant
to Section 8, and that the right of holders to convert shall terminate at the
close of business on the fifth business day prior to the redemption date.
Within 15 days after the Corporation has knowledge that such Share Acquisition
has occurred, it also shall deposit in trust with bank having a combined
capital and surplus in excess of $50,000,000, as trustee, for the benefit of
holders of Convertible Exchangeable Preferred Stock which elect to
-5-
<PAGE> 6
require the Corporation to redeem such stock pursuant to this Section 7,
funds sufficient to redeem on the redemption date all of the Convertible
Exchangeable Preferred Stock outstanding on the date of delivery of the notice
referred to above. Each record holder of Convertible Exchangeable Preferred
Stock that elects to require the Corporation to redeem on the redemption date
all of the shares of Convertible Exchangeable Preferred Stock that such holder
owns shall deliver to the Company not later than the redemption date a
completed Demand Form relating to the Convertible Exchangeable Preferred Stock
to be redeemed. After the redemption date, the Corporation shall be entitled to
receive from the funds which it deposited in trust for the redemption of
Convertible Exchangeable Preferred Stock on such redemption date an amount
equal to that portion of such funds which was deposited in respect of shares of
Convertible Exchangeable Preferred Stock which the holders thereof did not
elect to have redeemed pursuant to this Section 7. The term "redemption date",
as used in connection with a redemption resulting from a Share Acquisition,
shall mean the close of business on the 45th day after the date of the Share
Acquisition.
In the event of any business combination meeting the conditions
specified in clauses (i) and (ii) of the first paragraph of this Section 7, the
Corporation shall immediately prior to the effectiveness of such business
combination, upon the demand of any record holder of Convertible Exchangeable
Preferred Stock that so requests, redeem all of the shares of Convertible
Exchangeable Preferred Stock owned by each such holder at $25 per share plus
accrued and unpaid dividends to the date on which such business combination
occurs. Not later than 35 days prior to the effectiveness of any such business
combination, the Corporation shall mail to each record holder of Convertible
Exchangeable Preferred Stock a Demand Form and a notice which shall disclose
such business combination and the right of such holder of Convertible
Exchangeable Preferred Stock to require the Corporation to redeem such
Convertible Exchangeable Preferred Stock pursuant to this Section 7 and shall
state the anticipated redemption date, the redemption price, the place or
places of payment, that payment will be made upon presentation and surrender of
the shares of Convertible Exchangeable Preferred Stock, the date by which such
holder must notify the Corporation if it elects to require the Corporation to
make such redemption, that on and after the redemption date, dividends will
cease to accumulate on such shares, the then-effective conversion rate pursuant
to Section 8, and that the right of holders to convert shall terminate at the
close of business on the fifth business day prior to the redemption date,.
Prior to the effectiveness of such business combination, the Corporation also
shall deposit in trust with a bank having a combined capital and surplus in
excess of $50,000,000, as trustee, for the benefit of holders of Convertible
Exchangeable Preferred Stock which elect to require the Corporation to redeem
such stock pursuant to this Section 7, immediately available funds sufficient
to redeem on the redemption date all of the Convertible Exchangeable Preferred
Stock which, pursuant to this Section 7, holders have elected to require the
Corporation to redeem. Each record holder of Convertible Exchangeable Preferred
Stock that elects to require the Corporation to redeem on the redemption date
all of the Convertible Exchangeable Preferred Stock which it owns must submit
to the Corporation not later than the redemption date a completed Demand Form
relating to the Convertible Exchangeable Preferred Stock to be redeemed. The
Corporation agrees that it will not complete any business combination
described in this Section 7 unless proper provision has been made to satisfy
its obligations under this Section 7. The term "redemption date" as used in
connection with a redemption upon the occurrence of a business combination
under this Section 7, shall mean the time immediately prior to the
effectiveness of such business combination referred to herein.
-6-
<PAGE> 7
Any notice by the Corporation which is mailed as herein provided shall
be conclusively presumed to have been duly given, whether or not the holder of
Convertible Exchangeable Preferred Stock receives such Notice; and failure to
give such notice by mail, or any defect in such notice, to the holders of any
shares shall not affect the validity of the proceedings for the redemption of
any other shares of Convertible Exchangeable Preferred Stock. An election by a
holder of Convertible Exchangeable Preferred Stock to have the Corporation
redeem such stock pursuant to this Section 7 shall become irrevocable on the
relevant redemption date. On or after the date fixed for redemption as stated
in any notice delivered by the Corporation, each holder of the shares called
for redemption shall surrender the certificates evidencing such shares to the
Corporation at the place designated in such notice and shall thereupon be
entitled to receive payment of the relevant redemption price in accordance with
the terms of this Section 7. If any such certificates shall be so surrendered
in connection with a redemption required to be made as a result of any business
combination will not become effective, then the Corporation shall cause such
certificates to be returned promptly to the respective holders thereof. If less
than all the shares represented by any such surrendered certificates are
redeemed, a new certificate shall be issued representing the unredeemed shares.
If, on the date fixed for redemption under any provision of this Section 7,
funds necessary for the redemption shall be available therefor and shall have
been deposited in trust as required by this Section 7, then in the case of any
shares of Convertible Exchangeable Preferred Stock to be redeemed as a result
of a Share Acquisition, after the close of business on the redemption date and,
in the case of any shares of Convertible Exchangeable Preferred Stock to be
redeemed as a result of a business combination described in the first paragraph
of this Section 7, after the effectiveness of the business combination,
notwithstanding that the certificates evidencing any shares which the holders
thereof had elected to have redeemed shall not have been surrendered, the
dividends with respect to such shares shall cease to accrue, such shares shall
no longer be deemed outstanding, the holders thereof shall cease to be
stockholders, and all rights whatsoever with respect to such shares (except the
right of the holders to receive the relevant redemption price without interest
upon surrender of their certificates therefor) shall terminate.
8. CONVERSION PRIVILEGE.
(a) RIGHT OF CONVERSION. Each share of Convertible Exchangeable
Preferred Stock shall be convertible at the option of the holder thereof, at
any time prior to the close of business on the date fixed for redemption of
such share as herein provided, into fully paid and nonassessable shares of
Common Stock and such other securities and property as hereinafter provided,
initially at the rate of 1.89394 shares of Common Stock for each full share of
Convertible Exchangeable Preferred Stock.
For the purpose of this Section 8, the term "Common Stock" shall
initially mean the class designated as Common Stock, par value $.01 per share,
of the Corporation as of September 20, 1988, subject to adjustment as
hereinafter provided.
(b) CONVERSION PROCEDURES. Any holder of shares of Convertible
Exchangeable Preferred Stock desiring to convert such shares into
Common Stock shall surrender the certificate or certificates for such shares of
Convertible Exchangeable Preferred Stock at the office of the transfer agent
for the Convertible Exchangeable Preferred Stock, which certificate or
certificates,
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<PAGE> 8
if the Corporation shall so require, shall be duly endorsed to
the Corporation or in blank, or accompanied by proper instruments of transfer
to the Corporation or in blank, accompanied by irrevocable written notice to
the Corporation that the holder elects so to convert such shares of Convertible
Exchangeable Preferred Stock and specifying the name or names (with address) in
which a certificate or certificates for Common Stock are to be issued.
No adjustments in respect of dividends on shares surrendered for
conversion or any dividend on the Common Stock issued upon conversion shall be
made upon the conversion of any shares of Convertible Exchangeable Preferred
Stock.
The Corporation will, as soon as practicable after such deposit of
certificates for Convertible Exchangeable Preferred Stock accompanied by the
written notice and compliance with any other conditions herein contained,
deliver at such office of such transfer agent to the person for whose account
such shares of Convertible Exchangeable Preferred Stock were so surrendered, or
to his nominee or nominees, certificates for the number of full shares of
Common Stock to which he shall be entitled as aforesaid, together with a cash
adjustment of any fraction of a share as hereinafter provided. Subject to the
following provisions of this paragraph, such conversion shall be deemed to have
been made as of the date of such surrender of the shares of Convertible
Exchangeable Preferred Stock to be converted, and the person or person entitled
to receive the Common Stock deliverable upon conversion of such Convertible
Exchangeable Preferred Stock shall be treated for all purposes as the record
holder or holders of such Common Stock on such date; provided, however, that
the Corporation shall not be required to convert any shares of Convertible
Exchangeable Preferred Stock while the stock transfer books of the Corporation
are closed for any purpose, but the surrender of Convertible Exchangeable
Preferred Stock for conversion during any period while such books are so closed
shall become effective for conversion immediately upon the reopening of such
books as if the surrender had been made on the date of such reopening, and the
conversion shall be at the conversion rate in effect on such date.
(c) ADJUSTMENT OF CONVERSION RATE. The number of shares of
Common Stock and number or amount of any other securities and property as
hereinafter provided into which a share of Convertible Exchangeable Preferred
Stock is convertible (the "conversion rate") shall be subject to adjustment
from time to time as follows:
(i) In case the Corporation shall (1) pay a dividend or make a
distribution on its Common Stock that is paid or made (A) in other
shares of stock of the Corporation or (B) in rights to purchase stock
or other securities if such rights are not separable from the Common
Stock except upon the occurrence of a contingency, (2) subdivide its
outstanding shares of Common Stock into a greater number of shares or
(3) combine its outstanding shares of Common Stock into a smaller
number of shares, then in each such case the conversion rate in effect
immediately prior thereto shall be adjusted retroactively as provided
below so that the holder of any shares of Convertible Exchangeable
Preferred Stock thereafter surrendered for conversion shall be
entitled to receive the number of shares of Common Stock of the
Corporation and other shares and rights to purchase stock or other
securities (or, in the event of the redemption of any such shares or
rights, any cash, property or securities paid in respect of such
redemption) which such holder would have owned or have been entitled
to receive after the happening of any
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<PAGE> 9
of the events described above had such shares of Convertible
Exchangeable Preferred Stock been converted immediately prior to the
happening of such event. An adjustment made pursuant to this
subparagraph (i) shall become effective immediately after the record
date in the case of a dividend or distribution and shall become
effective immediately after the effective date in the case of a
subdivision or combination.
(ii) In case the Corporation shall issue rights or warrants to
all holders of its Common Stock entitling them (for a period expiring
within 45 days after the date fixed for determination mentioned below)
to subscribe for or purchase shares of Common Stock at a price per
share less than the current market price per share (determined as
provided below) of the Common Stock on the date fixed for the
determination of stockholders entitled to receive such rights or
warrants, then the conversion rate in effect at the opening of
business on the day following the date fixed for such determination
shall be increased by multiplying such conversion rate by a fraction
of which the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such
determination plus the number of shares of Common Stock so offered for
subscription or purchase and the denominator shall be the number of
shares of Common Stock outstanding at the close of business on the
date fixed for such determination plus the number of shares of Common
Stock which the aggregate of the offering price of the total number of
shares of Common Stock so offered for subscription or purchase would
purchase at such current market price, such increase to become
effective immediately after the opening of business on the day
following the date fixed for such determination; provided, however, in
the event that all the shares of Common Stock offered for subscription
or purchase are not delivered upon the exercise of such rights or
warrants, upon the expiration of such rights or warrant the conversion
rate shall be readjusted to the conversion rate which would have been
in effect had the numerator and the denominator of the foregoing
fraction and the resulting adjustment been made based upon the number
of shares of Common Stock actually delivered upon the exercise of such
rights or warrants rather than upon the number of shares of Common
Stock offered for subscription or purchase. For the purposes of this
subparagraph (ii), the number of shares of Common Stock at any time
outstanding shall not include shares held in the treasury of the
Corporation.
(iii) In case the Corporation shall, by dividend or
otherwise, distribute to all holders of its Common Stock evidences of
its indebtedness, cash (excluding ordinary cash dividends paid out of
retained earnings of the Corporation), other assets or rights or
warrants to subscribe for or purchase any security (excluding those
referred to in subparagraphs (i) and (ii) above), then in each such
case the conversion rate shall be adjusted retroactively so that the
same shall equal the rate determined by multiplying the conversion
rate in effect immediately prior to the close of business on the date
fixed for the determination of stockholders entitled to receive such
distribution by a fraction of which the numerator shall be the current
market price per share (determined as provided below) of the Common
Stock on the date fixed for such determination and the denominator
shall be such current market price per share of the Common Stock less
the amount of cash and the then fair market value (as determined by
the Board of Directors, whose determination shall be conclusive and
described in a resolution of the Board of Directors)
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<PAGE> 10
of the portion of the assets, right or evidences of indebtedness so
distributed applicable to one share of Common Stock, such adjustment
to become effective immediately prior to the opening of business on
the day following the date fixed for the determination of stockholders
entitled to receive such distribution.
(iv) For the purpose of any computation under subparagraphs
(ii) and (iii), the current market price per share of Common Stock on
any date shall be deemed to be the average of the daily closing prices
for the 30 consecutive trading days commencing with the 45th trading
day before the day in question. The closing price for each day shall
be the reported last sales price regular way or, in case no such
reported sale takes place on such day, the average of the reported
closing bid and asked prices regular way, in either case on the New
York Stock Exchange or, if the Common Stock is not listed or admitted
to trading on such Exchange, on the principal national securities
exchange on which the Common Stock is listed or admitted to trading
(based on the aggregate dollar value of all securities listed or
admitted to trading) or, if not listed or admitted to trading on any
national securities exchange, on the NASDAQ National Market System or,
if the Common Stock is not listed or admitted to trading on any
national securities exchange or quoted on the NASDAQ National Market
System, the average of the closing bid and asked prices in the
over-the-counter market as furnished by any New York Stock Exchange
member firm selected from time to time by the Corporation for that
purpose, or, if such prices are not available, the fair market value
set by, or in a manner established by, the Board of Directors of the
Corporation in good faith. "Trading day" shall mean a day on which the
national securities exchange or the NASDAQ National Market System used
to determine the closing price is open for the transaction of business
or the reporting of trades or, if the closing price is not so
determined, a day on which the New York Stock Exchange is open for the
transaction of business.
(v) No adjustment in the conversion rate shall be
required unless such adjustment would require an increase or decrease
of at least 1% in such rate; provided, however, that the Corporation
may make any such adjustment at its election; and provided, further,
that any adjustments which by reason of this subparagraph (v) are not
required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations under this Section 8 shall
be made to the nearest cent or to the nearest one-hundredth of a
share, as the case may be.
(vi) Whenever the conversion rate is adjusted as provided
in any provision of this Section 8:
(1) the Corporation shall compute the adjusted
conversion rate in accordance with this Section 8 and shall
prepare a certificate signed by the principal financial officer
of the Corporation setting forth the adjusted conversion rate
and showing in reasonable detail the facts upon which such
adjustment is based, and such certificate shall forthwith be
filed with the transfer agent of the Convertible Exchangeable
Preferred Stock; and
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<PAGE> 11
(2) a notice stating that the conversion rate
has been adjusted and setting forth the adjusted conversion
rate shall forthwith be required, and as soon as practicable
after it is required, such notice shall be mailed by the
Corporation to all record holders of Convertible Exchangeable
Preferred Stock at their last addresses as they shall appear in
the stock transfer books of the Corporation.
(vii) In the event that at any time, as a result of any
adjustment made pursuant to this Section 8, the holder of any shares
of Convertible Exchangeable Preferred Stock thereafter surrendered for
conversion shall become entitled to receive any shares of the
Corporation other than shares of Common Stock or to receive any other
securities, the number of such other shares or securities so
receivable upon conversion of any share of Convertible Exchangeable
Preferred Stock shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the
provisions contained in this Section 8 with respect to the Common
Stock.
(d) NO FRACTIONAL SHARES. No fractional shares or scrip
representing fractional shares of Common Stock shall be issued upon conversion
of Convertible Exchangeable Preferred Stock. If more than one certificate
representing shares of Convertible Exchangeable Preferred Stock shall be
surrendered for conversion at one time by the same holder, the number of full
shares issuable upon conversion thereof shall be computed on the basis of the
aggregate number of shares of Convertible Exchangeable Preferred Stock so
surrendered. Instead of any fractional share of Common Stock which would
otherwise be issuable upon conversion of any shares of Convertible Exchangeable
Preferred Stock, the Corporation will pay a cash adjustment in respect of such
fractional interest in an amount equal to the same fraction of the market price
per share of Common Stock (as determined by the Board of Directors or in any
manner prescribed by the Board of Directors, which, so long as the Common Stock
is listed on the NASDAQ National Market System, shall be the reported last sale
price on the NASDAQ National Market System) at the close of business on the day
of conversion.
(e) RECLASSIFICATION, CONSOLIDATION, MERGER OR SALE OF
ASSETS. In case of any reclassification of the Common Stock, any consolidation
of the Corporation with, or merger of the Corporation into, any other person,
any merger of another person into the Corporation (other than a merger which
does not result in any reclassification, conversion, exchange or cancellation
of outstanding shares of Common Stock of the Corporation), any sale or transfer
of all or substantially all of the assets of the Corporation or any compulsory
share exchange pursuant to which share exchange the Common Stock is converted
into other securities, cash or other property, then lawful provision shall be
made as part of the terms of such transaction whereby the holder of each share
of Convertible Exchangeable Preferred Stock then outstanding shall have the
right thereafter, during the period such share shall be convertible, to convert
such share only into the kind and amount of securities, cash and other property
receivable upon such reclassification, consolidation, merger, sale, transfer or
share exchange by a holder of the number of shares of Common Stock of the
Corporation into which such share of Convertible Exchangeable Preferred Stock
might have been converted immediately prior to such reclassification,
consolidation, merger, sale, transfer or share exchange assuming such holder of
Common Stock of the Corporation (I)
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<PAGE> 12
is not a person with which the Corporation consolidated or into which the
Corporation merged or which merged into the Corporation, to which such sale or
transfer was made or a party to such share exchange, as the case be
("constituent person"), or an affiliate of a constituent person and (ii) failed
to exercise his rights of election if any, as to the kind or amount of
securities, cash and other property receivable upon such reclassification,
consolidation, merger, sale, transfer or share exchange (provided that if the
kind or amount of securities, cash and other property receivable upon such
reclassification, consolidation, merger, sale, transfer or share exchange is
not the same for each share of Common Stock of the Corporation held immediately
prior to such consolidation, merger, sale or transfer by others than a
constituent person or an affiliate thereof and in respect of which such rights
of election shall not have been exercised ("non-electing share"), then the kind
and amount of securities, cash and other property receivable upon such
reclassification, consolidation, merger, sale, transfer or share exchange by
each non-electing share shall be deemed to be the kind and amount so receivable
per share by a plurality of the non-electing shares). The Corporation, the
person formed by such consolidation or resulting from such merger or which
acquires such assets or which acquires the Corporation's shares, as the case
may be, shall make provisions in its certificate or articles of incorporation
or other constituent document to establish such right. Such certificate or
articles of incorporation or other constituent document shall provide for
adjustments which, for events subsequent to the effective date of such
certificate or articles of incorporation or other constituent document, shall
be as nearly equivalent as may be practicable to the adjustments provided for
in this Section 8. The above provisions shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or share
exchanges.
(f) RESERVATION OF SHARES; TRANSFER TAXES; ETC. The Corporation
shall at all times reserve and keep available, out of its authorized and
unissued stock, solely for the purpose of effecting the conversion of the
Convertible Exchangeable Preferred Stock, such number of shares of its Common
Stock free of preemptive rights as shall from time to time be sufficient to
effect the conversion of all shares of Convertible Exchangeable Preferred Stock
from time to time outstanding. The Corporation shall from time to time, in
accordance with the laws of the State of Delaware, increase the authorized
number of shares of Common Stock if at any time the number of shares of Common
Stock not outstanding shall not be sufficient to permit the conversion of all
the then-outstanding shares of Convertible Exchangeable Preferred Stock.
If any shares of Common Stock required to be reserved for
purposes of conversion of the Convertible Exchangeable Preferred Stock
hereunder require registration with or approval of any governmental authority
under any Federal or State law before such shares may be issued upon
conversion, the Corporation will in good faith and as expeditiously as possible
endeavor to cause such shares to be duly registered or approved, as the case
may be. If the Common Stock is listed on the New York Stock Exchange or any
other national securities exchange, the Corporation will, if permitted by the
rules of such exchange, list and keep listed on such exchange, upon official
notice of issuance, all shares of Common Stock issuable upon conversion of the
Convertible Exchangeable Preferred Stock.
The Corporation will pay any and all issue or other taxes
that may be payable in respect of any issue or delivery of shares of Common
Stock on conversion of the Convertible Exchangeable Preferred Stock. The
Corporation shall not, however, be required to pay any tax which may be payable
in respect of any transfer involved in the issue or delivery of Common
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<PAGE> 13
Stock (or other securities or assets) in a name other than that in which the
shares of Convertible Exchangeable Preferred Stock so converted were
registered, and no such issue or delivery shall be made unless and until the
person requesting such issue has paid to the Corporation the amount of such tax
or has established, to the satisfaction of the Corporation, that such tax has
been paid.
Before taking any action which would cause an adjustment
reducing the conversion rate such that the effective conversion price (for all
purposes an amount equal to $25 divided by the conversion rate applicable to
one share of Convertible Exchangeable Preferred Stock as in effect at such
time) would be below the then stated value of the Common Stock, the Corporation
will take any corporate action which may, in the opinion of its counsel, be
necessary in order that the Corporation may validly and legally issue fully
paid and nonassessable shares of Common Stock at the conversation rate as so
adjusted.
(g) PRIOR NOTICE OF CERTAIN EVENTS. In case:
(i) the Corporation shall (1) declare any dividend
(or any other distribution) on its Common Stock, other than (A)
a dividend payable in shares of Common Stock or (B) a dividend
payable in cash out of its retained earnings other than any
special or non-recurring or other extraordinary dividend or (2)
declare or authorize a redemption or repurchase of in excess of
10% of the then-outstanding shares of Common Stock; or
(ii) the Corporation shall authorize the granting to
the holders of Common Stock of rights or warrants to subscribe
for or purchase any shares of stock of any class or of any
other rights or warrants (other than any rights specified in
paragraph (c) (i) (1) (B) of this Section 8); or
(iii) of any reclassification of Common Stock (other
than a subdivision or combination of the outstanding Common
Stock, or a change in par value, or from par value to no par
value, or from no par value to par value), or any consolidation
or merger to which the Corporation is a party and for which
approval of any stockholders of the Corporation shall be
required, or of the sale or transfer of all or substantially
all of the assets of the Corporation or of any compulsory share
exchange whereby the Common Stock is converted into other
securities, cash or other property; or
(iv) of the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then the Corporation shall cause to be filed with the transfer agent for the
Convertible Exchangeable Preferred Stock, and shall cause to be mailed to the
holders of record of the Convertible Exchangeable Preferred Stock, at their
last address as they shall appear upon the stock transfer books of the
Corporation, at least 15 days prior to the applicable record date hereinafter
specified, a notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, redemption or granting of rights or
warrants or, if a record is not to be taken, the date as of which the holders
of Common Stock of record to be entitled to such dividend,
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<PAGE> 14
distribution, redemption, rights or warrants are to be determined, or (y)
the date on which such reclassification, consolidation, merger, sale, transfer,
share exchange, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up (but no failure to mail such notice or any defect therein or in
the mailing thereof shall affect the validity of the corporate action required
to be specified in such notice).
(h) OTHER CHANGES IN CONVERSION RATE. The Corporation from
time to time may increase the conversion rate by any amount for any period of
time if the period is at least 20 days and if the increase is irrevocable
during the period. Whenever the conversion rate is so increased, the
Corporation shall mail to holders of record of the Convertible Exchangeable
Preferred Stock a notice of the increase at least 15 days before the date the
increased conversion rate takes effect and such notice shall state the
increased conversion rate and the period it will be in effect.
The Corporation may make such increases in the conversion
rate, in addition to those required or allowed by this Section 8, as shall be
determined by it, as evidenced by a resolution of the Board of Directors, to be
advisable in order to avoid or diminish any income tax to holders of Common
Stock resulting from any dividend or distribution of stock or issuance of
rights or warrants to purchase or subscribe for stock or from any event treated
as such for income tax purposes.
1. VOTING RIGHTS.
(a) GENERAL. The holders of Convertible Exchangeable Preferred Stock
will not have any voting rights except as set forth below or as otherwise
from time to time required by law. In connection with any right to vote, each
holder of Convertible Exchangeable Preferred Stock will have one vote for each
share held.
(b) DEFAULT VOTING RIGHTS. Whenever dividends on the Convertible
Exchangeable Preferred Stock or any other class or series of Parity Dividend
Stock shall be in arrears in an amount equal to at least six quarterly
dividends (whether or not consecutive), (i) the number of members of the Board
of Directors of the Corporation shall be increased by two, effective as of the
time of election of such directors as hereinafter provided, and (ii) the
holders of the Convertible Exchangeable Preferred Stock (voting separately as a
class with all other affected classes or series of the Parity Dividend Stock
upon which like voting rights have been conferred and are exercisable) will
have the exclusive right to vote for and elect such two additional directors of
the Corporation at any meeting of stockholders of the Corporation at which
directors are to be elected held during the period such dividends remain in
arrears. The right of the holders of the Convertible Exchangeable Preferred
Stock to vote for such two additional directors shall terminate when all
accrued and unpaid dividends on the Convertible Exchangeable Preferred Stock
have been declared and paid or set apart for payment. The term of office of all
directors so elected shall terminate immediately upon the termination of the
right of the holders
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<PAGE> 15
of the Convertible Exchangeable Preferred Stock and such Parity Dividend
Stock to vote for such two additional directors.
The foregoing right of the holders of the Convertible Exchangeable
Preferred Stock with respect to the election of two directors may be exercised
at any annual meeting of stockholders or, at any special meeting of
stockholders held for such purpose. If the right to elect directors shall have
accrued to the holders of the Convertible Exchangeable Preferred Stock more
than 90 days preceding the date established for the next annual meeting of
stockholders, the President of the Corporation shall, within 20 days after the
delivery to the Corporation at its principal office of a written request for a
special meeting signed by the holders of at least 10% of the Convertible
Exchangeable Preferred Stock then outstanding, call a special meeting of the
holders of the Convertible Exchangeable Preferred Stock to be held within 60
days after the delivery of such request for the purpose of electing such
additional directors.
The holders of the Convertible Exchangeable Preferred Stock and any Parity
Dividend Stock referred to above voting as a class shall have the right to
remove without cause at any time and replace any directors such holders have
elected pursuant to this Section 9.
(c) CLASS VOTING RIGHTS. So long as the Convertible
Exchangeable Preferred Stock is outstanding, the Corporation shall not, without
the affirmative vote or consent of the holders of at least 662/3% all
outstanding Convertible Exchangeable Preferred Stock voting separately as a
class, (i) amend, alter or repeal (by merger or otherwise) any provision of the
Certificate of Incorporation or the By-Laws of the Corporation, as amended, so
as adversely to affect the relative rights, preferences, qualifications,
limitations or restrictions of the Convertible Exchangeable Preferred Stock,
(ii) authorize or issue, or increase the authorized amount of any additional
class or series of stock, or any security convertible into stock of such class
or series, ranking prior to the Convertible Exchangeable Preferred Stock in
respect of the payment of dividends or upon liquidation, dissolution or winding
up of the Corporation or (iii) effect any reclassification of the Convertible
Exchangeable Preferred Stock. A class vote on the part of the Convertible
Exchangeable Preferred Stock shall, without limitation, specifically not be
deemed to be required (except as otherwise required by law or resolution of the
Corporation's Board of Directors) in connection with: (a) the authorization,
issuance or increase in the authorized amount of any shares of any other
class or series of stock which ranks junior to, or on a parity with, the
Convertible Exchangeable Preferred Stock in respect of the payment of dividends
and distributions upon liquidation, dissolution or winding up of the
Corporation; or (b) the authorization, issuance or increase in the amount of
any bonds, mortgages, debentures or other obligations of the Corporation.
The affirmative vote or consent of the holders of a majority of the
outstanding Convertible Exchangeable Preferred Stock, voting or consenting
separately as a class, shall be required to (a) authorize any sale, lease or
conveyance of all or substantially all of the assets of the Company, or (b)
approve any merger, consolidation or compulsory share exchange of the
Corporation with or into any other person unless (i) the terms of such merger,
consolidation or compulsory share exchange do not provide for a change in the
terms of the Convertible Exchangeable Preferred Stock and (ii) the Convertible
Exchangeable Preferred Stock is, after such merger, consolidation or compulsory
share exchange, on a parity with or prior to any other class or series of
capital
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<PAGE> 16
stock authorized by the surviving corporation as to dividends and upon
liquidation, dissolution or winding up other than any class or series of stock
of the Corporation prior to the Convertible Exchangeable Preferred Stock as may
have been created with the affirmative vote or consent of the holders of at
least 662/3% of the Convertible Exchangeable Preferred Stock (or other than a
class or series into which such prior stock is converted as a result of such
merger, consolidation or share exchange).
10. EXCHANGE. The shares of Convertible Exchangeable Preferred Stock are
exchangeable at the option only of the Corporation in whole, but not in part,
on any dividend payment date beginning September 15, 1990 for the Corporation's
9 1/2% Convertible subordinated Debentures due 2013 (the "Debentures"), to be
issued under an Indenture (the "Indenture") between the Corporation and MTrust
Corp, National Association, as trustee, or such other party as may then act as
trustee under the Indenture (the "Trustee"), which shall be in substantially
the form filed as an exhibit to the Corporation's Registration Statement on
Form S-1 (Registration No. 33-23508) as filed with the Securities and Exchange
Commission and as amended as of September 15, 1988, completed as set forth
therein and with such changes as may be required by law or usage. Such
exchange, if any, shall be a redemption of the Convertible Exchangeable
Preferred Stock in exchange for the Debentures. Holders of the outstanding
shares of Convertible Exchangeable Preferred Stock will be entitled to receive
$25 principal amount of the Debentures in exchange for each share of
Convertible Exchangeable Preferred Stock held by them at the time of exchange
plus an amount in cash equal to all dividends on the Convertible Exchangeable
Preferred Stock accrued and unpaid to the date of such exchange.
No such exchange of Debentures for shares of Convertible Exchangeable
Preferred Stock shall be made unless on or prior to the dividend payment date
on which such exchange is to be made (i) the Indenture shall have been executed
and delivered by the Corporation and the Trustee and (ii) the Trustee shall
have received an Opinion of Counsel (as such term is defined in the Indenture),
dated such dividend payment date, substantially to the following effect, with
such changes therein as such Trustee shall approve:
(1) the Corporation has duly authorized the exercise of its
right to redeem the Convertible Exchangeable Preferred Stock in exchange
for the Debentures and has exercised such option; (2) the Corporation has
full corporate power and authority to enter into the Indenture and to
perform its obligations under the Indenture and to issue and deliver the
Debentures; (3) the Indenture has been duly authorized, executed and
delivered and is a legal, valid and binding obligation of the Corporation
enforceable against the Corporation in accordance with its terms (subject,
as to enforcement of remedies, to applicable bankruptcy, reorganization,
insolvency, moratorium or other laws affecting creditors' rights generally
from time to time in effect); (4) the Debentures will, when issued in
accordance with the terms of the Indenture, constitute legal, valid and
binding obligations of the Company enforceable against the Company in
accordance with their terms (subject, as to enforcement of remedies, to
applicable bankruptcy, reorganization, insolvency, moratorium or other
laws affecting creditors' rights generally from time to time in effect)
and entitled to the benefits of the Indenture; (5) no consent, approval,
authorization or order of any court or governmental agency or body is
required in connection with the issuance of the Debentures, except such as
may be required under the
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<PAGE> 17
blue sky laws of any jurisdiction and such other approvals (specified in
such opinion) as have been obtained; and (6) the issuance of the
Debentures and the performance by the Corporation of its obligations under
the Indenture will not be in conflict with or constitute a breach of or a
default (with the passage of time or otherwise) under (w) the Certificate
of Incorporation or By-Laws of the Corporation in effect at the date of
such opinion, (x) the certificate of incorporation or by-laws of any
subsidiary of the Corporation (which conflict, breach or default is
material to the Corporation and its subsidiaries taken as a whole) in
effect at the date of such opinion, (y) any agreement or instrument (which
is, individually or in the aggregate, material to the Corporation and its
subsidiaries taken as a whole) to which the Corporation or any of its
subsidiaries is a party or by which it or any of its subsidiaries is bound
or (z) any statute, law or regulation in effect at the date of such
opinion to which the Corporation or any of its subsidiaries or any of their
respective, properties may be subject to or any judgment, decree or order,
known to such counsel, of any court or governmental agency or authority
then in effect and applicable to the Corporation or any of its
subsidiaries (which conflict, breach or default is, in the case of this
clause (z), individually or in the aggregate, material to the Corporation
and its subsidiaries taken as a whole).
Upon such exchange, the rights of the holders of Convertible
Exchangeable Preferred Stock as stockholders of the Corporation shall cease
(except the right to receive on the date of exchange an amount equal to the
amount of accrued and unpaid dividends on the Convertible Exchangeable
Preferred Stock to the date of exchange and the Debentures), and the person or
persons entitled to receive the Debentures issuable upon such redemption and
exchange shall be treated for all purposes as the registered holder or holders
of such Debentures. The Corporation will mail to each record holder of the
Convertible Exchangeable Preferred Stock written notice of its intention to
exchange the Convertible Exchangeable Preferred Stock not less than 30 nor more
than 60 days prior to the exchange date. Such notice shall state: (i) the
exchange date; (ii) the place or places where certificates for such shares are
to be surrendered for exchange for Debentures; and (iii) that dividends on the
shares to be exchanged will cease to accrue on such exchange date. Upon
surrender in accordance with said notice of the certificates for any
shares so exchanged (property endorsed or assigned for transfer, if the
Corporation shall so require and the notice shall so state), the Corporation
will cause the Debentures to be authenticated and issued in exchange for such
shares of Convertible Exchangeable Preferred Stock to be mailed to the holder
of the shares of Convertible Exchangeable Preferred Stock at such holder's
address of record or such other address as the holder shall specify upon such
surrender of such certificates.
If on the exchange date the Corporation shall be in default in the
payment of any dividends (including cumulative dividends, if applicable on
Convertible Exchangeable Preferred Stock or on any shares of Preferred Stock
ranking, as to dividends, prior to or on a parity wit the Convertible
Exchangeable Preferred Stock, or if such exchange shall on such date be
prohibited by applicable) on Convertible Exchangeable Preferred Stock or on any
shares of Preferred Stock ranking, as to dividends, prior to or on a parity
with the Convertible Exchangeable Preferred Stock, or is such exchange shall on
such date be prohibited by applicable law, then no shares of the Convertible
Exchangeable Preferred Stock shall be exchanged.
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<PAGE> 18
11. OUTSTANDING SHARES. For purposes of this Certificate of Designations,
all shares of Convertible Exchangeable Preferred Stock shall be deemed
outstanding except (i) from the date fixed for redemption pursuant to Section 6
or 7 hereof, all shares of Convertible Exchangeable Preferred Stock that have
been so called for redemption under Section 6 or have been required to be
redeemed by the holder thereof under Section 7 if funds necessary for the
redemption of such shares are available and, in the case of a redemption under
Section 7, have been deposited in trust with a bank having a combined capital
and surplus in excess of $50,000,000, as trustee, for the benefit of the
holders of such shares to be redeemed for payment of the relevant redemption
price; (ii) from the date of exchange determined pursuant to Section 10 hereof,
all shares of Convertible Exchangeable Preferred Stock so called for exchange
for Debentures if an amount equal to all accrued and unpaid dividends on such
shares has been set apart for payment and the Debentures are issuable upon
surrender of such shares; (iii) from the date of surrender of certificates
representing shares of Convertible Exchangeable Preferred Stock, all shares of
Convertible Exchangeable Preferred Stock into Common Stock; and (iv) from the
date of registration of transfer, all shares of Convertible Exchangeable
Preferred Stock held of record by the Corporation or any subsidiary of the
Corporation.
12. PARTIAL PAYMENTS. If at any time the Corporation does not pay amounts
sufficient to redeem all Convertible Exchangeable Preferred Stock required to
be redeemed by the Corporation at such time pursuant to Section 7 hereof, then
such funds which are paid shall be applied to redeem such as the Corporation
may designate by lot.
13. STATUS OF ACQUIRED SHARES. Shares of Convertible Exchangeable
Preferred Stock redeemed by the Corporation, received upon conversion pursuant
to Section 8 or upon exchange pursuant to Section 10 or otherwise acquired by
the Corporation will be restored to the status of authorized but unissued
shares of Preferred Stock, without designation as to class, and may thereafter
be issued, but not as shares of Convertible Exchangeable Preferred Stock.
14. PREEMPTIVE RIGHTS. The Convertible Exchangeable Preferred Stock is not
entitled to any preemptive or subscription rights in respect of any securities
of the corporation.
15. SEVERABILITY OF PROVISIONS. Whenever possible, each provision hereof
shall be interpreted in a manner as to be effective and valid under applicable
law, but if any provision hereof is held to be prohibited by or invalid under
applicable law, such provision shall be ineffective only to the extent of such
prohibition or invalidity, without invalidating or otherwise adversely
affecting the remaining provisions hereof. If a court of competent jurisdiction
should determine that a provision hereof would be valid or enforceable if a
period of time were extended or shortened or a particular percentage were
increased or decreased, then such court may make such change as shall be
necessary to render the provision in question effective and valid under
applicable law.
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<PAGE> 19
IN WITNESS WHEREOF, Cliffs Drilling Company has caused this
certificate to be signed by Douglas E. Swanson, its Executive Vice
President, and is corporate seal to be hereunder affixed and attested by James
E. Mitchell, Jr., its Secretary, this 20th day of September, 1988.
CLIFFS DRILLING COMPANY
BY: /S/ DOUGLAS E. SWANSON
--------------------------------
DOUGLAS E. SWANSON
EXECUTIVE VICE PRESIDENT
Attest:
/S/ JAMES E. MITCHELL JR.
- ----------------------------------
James E. Mitchell, Jr.
Secretary
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<PAGE> 1
Exhibit 3.1.4
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
CLIFFS DRILLING COMPANY
CLIFFS DRILLING COMPANY, a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Company"), does hereby
certify as follows:
FIRST: That at a meeting of the Company's Board of Directors, resolutions
were adopted setting forth a proposed amendment to the Company's Certificate of
Incorporation declaring said amendment to be advisable and submitting same to
the Company's stockholders for consideration thereof. The resolutions setting
forth the proposed amendment are as follows:
RESOLVED, that subject to approval by the stockholders of the
Company, the first paragraph of Article FOURTH of the Company's
Certificate of Incorporation, as filed on April 14, 1988, and amended on
June 21, 1988, be amended by deleting the existing text in its entirety
and substituting the following therefor:
"FOURTH. The total number of shares of stock which the
Corporation shall have authority to issue is 33 million, consisting
of 3 million shares of Preferred Stock, without par value
(hereinafter called "Preferred Stock"), and 30 million shares of
Common Stock, of the par value $.01 per share (hereinafter called
"Common Stock")."
and FURTHER RESOLVED, that the Company's Certificate of
Incorporation, including the remaining paragraphs of Article FOURTH, shall
remain unchanged in all other respects.
SECOND: That pursuant to the resolutions of the Company's Board of
Directors, an annual meeting of the stockholders was duly called and held, upon
notice in accordance with Section 222 of the General Corporation Law of the
State of Delaware, at which meeting the proposed amendment was submitted to the
Company's stockholders for approval, and the proposed amendment was approved by
the affirmative vote of the holders of a majority of the outstanding common
stock of the Company.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
FOURTH: That the aforesaid amendment is to become effective at 5:00 p.m.
on May 22, 1997.
<PAGE> 2
IN WITNESS WHEREOF, Cliffs Drilling Company has caused this Certificate of
Amendment to be signed by Edward A. Guthrie, its Vice President - Finance, and
attested by James E. Mitchell Jr., its Secretary, this 21st day of May, 1997.
CLIFFS DRILLING COMPANY
By: /S/ EDWARD A. GUTHRIE
--------------------------------
Edward A. Guthrie, Vice President - Finance
ATTEST:
By: /S/ JAMES E. MITCHELL JR.
---------------------------------------
James E. Mitchell Jr., Secretary
THE STATE OF TEXAS )
)
COUNTY OF HARRIS )
BEFORE ME, the undersigned authority, on this day personally appeared
Edward A. Guthrie, Vice President - Finance of Cliffs Drilling Company, a
Delaware corporation, known to me to be the person whose name is subscribed to
the foregoing instrument and who acknowledged to me that he executed the same
for the purposes and consideration therein expressed, in the capacity stated,
and as the act and deed of said corporation.
Given under my hand and seal of office this 21st day of May, 1997.
/S/ KIMBERLY M. O'BRIEN
-------------------------------------
Notary Public in and for
the State of Texas
-2-
<PAGE> 1
Exhibit 3.1.5
CERTIFICATE OF ELIMINATION
OF
$2.3125 CONVERTIBLE EXCHANGEABLE PREFERRED STOCK
OF
CLIFFS DRILLING COMPANY
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
CLIFFS DRILLING COMPANY, a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify:
FIRST: That, in accordance with Section 151 of the General Corporation
Law of the State of Delaware, the Board of Directors of the Corporation adopted
the following resolutions setting forth the proposed elimination of the series
of 1,150,000 shares of Preferred Stock of the Corporation designated as
"$2.3125 Convertible Exchangeable Preferred Stock" (the "$2.3125 Series"):
RESOLVED, that no shares of the series of 1,150,000 shares of
preferred stock of the Corporation designated as "$2.3125 Convertible
Exchangeable Preferred Stock" are outstanding and none will be issued in
the future; and further
RESOLVED, that the Board of Directors hereby adopts and approves a
Certificate of Elimination, which shall have the effect when filed with
the Secretary of State of Delaware of eliminating from the Certificate of
Incorporation of the Corporation all reference to the series of 1,150,000
shares of preferred stock of the Corporation designated as "$2.3125
Convertible Exchangeable Preferred Stock"; and further
RESOLVED, that the President, any Vice President, the Secretary
and/or the Treasurer of the Company be and they hereby are authorized for
and on behalf of the Company to execute and file with the Secretary of
State of Delaware a Certificate of Elimination and any and all such other
documents as may be desired or required in connection with the Certificate
of Elimination and containing such terms and conditions as may be
acceptable or agreeable to any of said officers, such acceptance and
agreement to be conclusively evidenced by any of said officers' execution
and delivery thereof; and further
<PAGE> 2
SECOND: None of the authorized shares of the $2.3125 Series are
outstanding and none will be issued in the future.
THIRD: In accordance with the provisions of Section 151 of the
General Corporation Law of the State of Delaware, the Certificate of
Incorporation of the Corporation is hereby amended to eliminate all
reference to the $2.3125 Series of Preferred Stock.
IN WITNESS WHEREOF, Cliffs Drilling Company has caused this
certificate to be signed by Edward A. Guthrie, its Vice President-Finance,
and its corporate seal to be hereunto affixed and attested by James E.
Mitchell Jr., its Secretary, this 17th day of June, 1997.
CLIFFS DRILLING COMPANY
By: /S/ EDWARD A. GUTHRIE
---------------------------------
Edward A. Guthrie
Vice President-Finance
Attest:
/S/ JAMES E. MITCHELL JR.
- ---------------------------------
James E. Mitchell Jr., Secretary
THE STATE OF TEXAS )
)
COUNTY OF HARRIS )
THIS INSTRUMENT was acknowledged before me on this 17th day of June,
1997, by Edward A. Guthrie, Vice President-Finance of CLIFFS DRILLING COMPANY,
a Delaware corporation, on behalf of said corporation.
/S/ SHIRLEY L. RIDINGS
------------------------------------
Notary Public in and for
the State of Texas
2
<PAGE> 1
Exhibit 3.1.6
FORM
OF
CERTIFICATE OF DESIGNATIONS
OF
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
OF
CLIFFS DRILLING COMPANY
--------------------------------
PURSUANT TO SECTION 151 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
--------------------------------
CLIFFS DRILLING COMPANY, a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify that, pursuant to the authority conferred on the Board of
Directors of the Corporation by the Certificate of Incorporation, as amended,
of the Corporation (the "Certificate of Incorporation") and in accordance with
Section 151 of the General Corporation Law of the State of Delaware, the Board
of Directors of the Corporation on May 21, 1997, adopted the following
resolution establishing and creating a series of Preferred Stock, no par value,
of the Corporation designated as Series A Junior Participating Preferred Stock:
RESOLVED, that, pursuant to the authority vested in the Board
of Directors of the Corporation in accordance with the
provisions of the Certificate of Incorporation, as amended,
of the Corporation, a series of Preferred Stock, no par
value, of the Corporation is hereby established and created,
and that the designation and number of shares thereof and the
voting and other powers, preferences and relative,
participating, optional and other special rights of the
shares of such series, and the qualifications, limitations
and restrictions thereof, are as follows:
<PAGE> 2
SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
Section 1. Designation and Amount. The shares of such series shall be
designated as "Series A Junior Participating Preferred Stock" (the "Series A
Preferred Stock"). The number of shares initially constituting the Series A
Preferred Stock shall be 500,000; provided, however, that if more than a total
of 500,000 shares of Series A Preferred Stock shall be issuable upon the
exercise of Rights (the "Right") issued pursuant to the Rights Agreement dated
as of June 17, 1997 between the Corporation and Harris Trust and Savings Bank,
as Rights Agent (the "Rights Agreement"), the Board of Directors of the
Corporation, pursuant to Section 151(g) of the General Corporation Law of the
State of Delaware, shall direct by resolution or resolutions that a certificate
be properly executed, acknowledged, filed and recorded, in accordance with the
provisions of Section 103 thereof, providing for the total number of shares of
Series A Preferred Stock authorized to be issued to be increased (to the extent
that the Certificate of Incorporation then permits) to the largest number of
whole shares (rounded up to the nearest whole share) issuable upon exercise of
such Rights.
Section 2. Dividends and Distributions.
(a) Subject to the prior and superior rights of the holders of shares of
any other series of Preferred Stock or other class of stock of the Corporation
ranking prior and superior to the Series A Preferred Stock with respect to
dividends, the holders of shares of Series A Preferred Stock shall be entitled
to receive, when, as and if declared by the Board of Directors, out of the
assets of the Corporation legally available therefor, (i) quarterly dividends
payable in cash on the last day of each fiscal quarter in each year, or such
other dates as the Board of Directors of the Corporation shall approve (each
such date being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the first
issuance of a share or a fraction of a share of Series A Preferred Stock, in
the amount of $.01 per whole share (rounded to the nearest cent) less the
amount of all cash dividends declared on the Series A Preferred Stock pursuant
to the following clause (ii) since the immediately preceding Quarterly Dividend
Payment Date or, with respect to the first Quarterly Dividend Payment Date,
since the first issuance of any share or fraction of a share of Series A
Preferred Stock (the total of which shall not, in any event, be less than zero)
and (ii) dividends payable in cash on the payment date for each cash dividend
declared on the Common Stock in an amount per whole share (rounded to the
nearest cent) equal to the Formula Number (as hereinafter defined) then in
effect multiplied times the cash dividends then to be paid on each share of
Common Stock. In addition, if the Corporation shall pay any dividend or make
any distribution on the Common Stock payable in assets, securities or other
forms of noncash consideration (other than dividends or distributions solely in
shares of Common Stock), then, in each such case, the Corporation shall
simultaneously pay or make on each outstanding whole share of Series A
Preferred Stock a dividend or distribution in like kind equal to the Formula
Number then in effect multiplied times such dividend or distribution on each
share of the Common Stock. As used herein, the "Formula Number" shall be 1000;
provided, however, that, if at any time after June 17, 1997, the Corporation
shall (x) declare or pay any dividend on the Common Stock payable in shares of
Common Stock or make
2
<PAGE> 3
any distribution on the Common Stock in shares of Common Stock, (y)
subdivide (by a stock split or otherwise) the outstanding shares of Common
Stock into a larger number of shares of Common Stock or (z) combine (by a
reverse stock split or otherwise) the outstanding shares of Common Stock into a
smaller number of shares of Common Stock, then in each such event the Formula
Number shall be adjusted to a number determined by multiplying the Formula
Number in effect immediately prior to such event by a fraction, the numerator
of which is the number of shares of Common Stock that are outstanding
immediately after such event and the denominator of which is the number of
shares of Common Stock that are outstanding immediately prior to such event
(and rounding the result to the nearest whole number); and provided further,
that, if at any time after June 17, 1997, the Corporation shall issue any
shares of its stock in a merger, reclassification, or change of the outstanding
shares of Common Stock, then in each such event the Board of Directors (or, if
the Corporation is not the surviving corporation in any such transaction, the
board of directors of the surviving corporation) shall make adjustments,
determined by the Board of Directors in its discretion to be appropriate, to
the Formula Number to reflect such merger, reclassification or change.
(b) The Corporation shall declare a dividend or distribution on the Series
A Preferred Stock as provided in paragraph (a) of this Section immediately
prior to or at the same time it declares a dividend or distribution on the
Common Stock (other than a dividend or distribution solely in shares of Common
Stock); provided, however, that, in the event no dividend or distribution
(other than a dividend or distribution solely in shares of Common Stock) shall
have been declared on the Common Stock during the period between any Quarterly
Dividend Payment Date and the next subsequent Quarterly Dividend Payment Date,
a dividend of $.01 per share on the Series A Preferred Stock shall nevertheless
be payable on such subsequent Quarterly Dividend Payment Date. The Board of
Directors may fix a record date for the determination of holders of shares of
Series A Preferred Stock entitled to receive a dividend or distribution
declared thereon, which record date shall be not more than 60 days prior to the
date fixed for the payment thereof.
(c) Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Preferred Stock from and after the Quarterly Dividend
Payment Date next preceding the date of original issue of such shares of Series
A Preferred Stock; provided, however, that dividends on such shares which are
originally issued after the record date for the determination of holders of
shares of Series A Preferred Stock entitled to receive a quarterly dividend and
on or prior to the next succeeding Quarterly Dividend Payment Date shall begin
to accrue and be cumulative from and after such Quarterly Dividend Payment
Date. Notwithstanding the foregoing, dividends on shares of Series A Preferred
Stock which are originally issued prior to the record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive a quarterly dividend on the first Quarterly Dividend Payment Date shall
be calculated as if cumulative from and after the last day of the fiscal
quarter next preceding the date of original issuance of such shares. Accrued
but unpaid dividends shall not bear interest. Dividends paid on the shares of
Series A Preferred Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be allocated
pro rata on a share-by-share basis among all such shares at the time
outstanding.
3
<PAGE> 4
(d) So long as any shares of the Series A Preferred Stock are outstanding,
no dividends or other distributions shall be declared, paid or distributed, or
set aside for payment or distribution, on the Common Stock unless, in each
case, the dividend required by this Section 2 to be declared on the Series A
Preferred Stock shall have been declared.
(e) The holders of the shares of Series A Preferred Stock shall not be
entitled to receive any dividends or other distributions except as provided
herein.
Section 3. Voting Rights. The holders of shares of Series A Preferred
Stock shall have the following voting rights:
(a) Each holder of Series A Preferred Stock shall be entitled to a number
of votes equal to the Formula Number then in effect, for each share of Series A
Preferred Stock held of record on each matter on which holders of the Common
Stock or stockholders generally are entitled to vote, multiplied times the
maximum number of votes per share which any holder of the Common Stock or
stockholders generally then have with respect to such matter (assuming any
holding period or other requirement to vote a greater number of shares is
satisfied).
(b) Except as otherwise provided herein or by applicable law, the holders
of shares of Series A Preferred Stock and the holders of shares of Common Stock
shall vote together as one class for the election of directors of the
Corporation and on all other matters submitted to a vote of stockholders of the
Corporation.
(c) If, at the time of any annual meeting of stockholders for the election
of directors, the equivalent of six quarterly dividends (whether or not
consecutive) payable on any share or shares of Series A Preferred Stock are in
default, the number of directors constituting the Board of Directors of the
Corporation shall be increased by two. In addition to voting together with the
holders of Common Stock for the election of other directors of the Corporation,
the holders of record of the Series A Preferred Stock, voting separately as a
class to the exclusion of the holders of Common Stock, shall be entitled at
said meeting of stockholders (and at any subsequent annual meeting of
stockholders), unless all dividends in arrears have been paid or declared and
set apart for payment prior thereto, to vote for the election of two directors
of the Corporation, the holders of any Series A Preferred Stock being entitled
to cast a number of votes per share of Series A Preferred Stock equal to the
Formula Number. Until the default in payments of all dividends which permitted
the election of said directors shall cease to exist, any director who shall
have been so elected pursuant to the next preceding sentence may be removed at
any time, either with or without cause, only by the affirmative vote of the
holders of the shares of Series A Preferred Stock at the time entitled to cast
a majority of the votes entitled to be cast for the election of any such
director at a special meeting of such holders called for that purpose, and any
vacancy thereby created may be filled by the vote of such holders. If and when
such default shall cease to exist, the holders of the Series A Preferred Stock
shall be divested of the foregoing special voting rights, subject to
revesting in the event of each and every subsequent like default in payments of
dividends. Upon the termination of the foregoing special voting rights, the
terms of office of all persons who have been elected directors pursuant to said
special voting rights shall forthwith
4
<PAGE> 5
terminate, and the number of directors constituting the Board of Directors
shall be reduced by two. The voting rights granted by this Section 3(c) shall
be in addition to any other voting rights granted to the holders of the Series
A Preferred Stock in this Section 3.
(d) Except as provided herein, in Section 11 or by applicable law, holders
of Series A Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are entitled to vote
with holders of Common Stock as set forth herein) for authorizing or taking any
corporate action.
Section 4. Certain Restrictions.
(a) Whenever quarterly dividends or other dividends or distributions
payable on the Series A Preferred Stock as provided in Section 2 are in
arrears, thereafter and until all accrued and unpaid dividends and
distributions, whether or not declared, on shares of Series A Preferred Stock
outstanding shall have been paid in full, the Corporation shall not:
(i) declare or pay dividends on, make any other distributions on, or
redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation,
dissolution or winding up) to the Series A Preferred Stock;
(ii) declare or pay dividends, or make any other distributions, on
any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock,
except dividends paid ratably on the Series A Preferred Stock and all such
parity stock on which dividends are payable or in arrears in proportion to
the total amounts to which the holders of all such shares are then
entitled;
(iii) redeem or purchase or otherwise acquire for consideration
shares of any stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Preferred Stock;
provided that the Corporation may at any time redeem, purchase or
otherwise acquire shares of any such parity stock in exchange for shares
of any stock of the Corporation ranking junior (either as to dividends or
upon dissolution, liquidation or winding up) to the Series A Preferred
Stock; or
(iv) purchase or otherwise acquire for consideration any shares of
Series A Preferred Stock, or any shares of stock ranking on a parity with
the Series A Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the Board of Directors)
to all holders of such shares upon such terms as the Board of
Directors, after consideration of the respective annual dividend rates and
other relative rights and preferences of the respective series and
classes, shall determine in good faith will result in fair and equitable
treatment among the respective series or classes.
5
<PAGE> 6
(b) The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares
of stock of the Corporation unless the Corporation could, under paragraph
(a) of this Section 4, purchase or otherwise acquire such shares at such
time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A Preferred Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
shall be retired and canceled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but unissued shares of
Preferred Stock, without designation as to series, and may thereafter be issued
as part of a new series of Preferred Stock subject to the conditions and
restrictions on issuance set forth herein, in the Certificate of Incorporation,
or in any other Certificate of Designations creating a series of Preferred
Stock or any similar stock of the Corporation or as otherwise required by law.
Section 6. Liquidation, Dissolution or Winding Up. Upon the liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
no distribution shall be made (i) to the holders of shares of stock ranking
junior (either as to dividends or upon liquidation, dissolution or winding up)
to the Series A Preferred Stock unless, prior thereto, the holders of shares of
Series A Preferred Stock shall have received an amount equal to accrued and
unpaid dividends and distributions thereon, whether or not declared, to the
date of such payment, plus an amount equal to the greater of (x) $1.00 per
whole share and (y) an aggregate amount per share equal to the Formula Number
then in effect multiplied times the aggregate amount to be distributed per
share to holders of Common Stock, or (ii) to the holders of stock ranking on a
parity (either as to dividends or upon liquidation, dissolution or winding up)
with the Series A Preferred Stock, except distributions made ratably on the
Series A Preferred Stock and all such parity stock in proportion to the total
amounts to which the holders of all such shares are entitled upon such
liquidation, dissolution or winding up.
Section 7. Consolidation, Merger, etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
shares of Common Stock are exchanged for or changed into other stock or
securities, cash or any other property, or any combination thereof, then in any
such case the then outstanding shares of Series A Preferred Stock shall at the
same time be similarly exchanged for or changed into an amount per share equal
to the Formula Number then in effect multiplied times the aggregate amount of
stock, securities, cash or any other property (payable in kind), as the case
may be, into which or for which each share of Common Stock is exchanged or
changed. In the event both this Section 7 and Section 2 appear to apply to a
transaction, this Section 7 shall control.
Section 8. No Redemption; No Sinking Fund.
(a) The shares of Series A Preferred Stock shall not be subject to
redemption by the Corporation; provided, however, that the Corporation may
purchase or otherwise acquire
6
<PAGE> 7
outstanding shares of Series A Preferred Stock in the open market or by
offer to any holder or holders of shares of Series A Preferred Stock.
(b) The shares of Series A Preferred Stock shall not be subject to or
entitled to the operation of a retirement or sinking fund.
Section 9. Ranking. The Series A Preferred Stock shall rank, with respect
to the payment of dividends and as to distributions of assets upon liquidation,
dissolution or winding up of the Corporation, junior to all other series of
Preferred Stock of the Corporation, if any, unless the Board of Directors shall
specifically determine otherwise in fixing the powers, preferences and
relative, participating, optional and other special rights of the shares of any
such other series and the qualifications, limitations and restrictions thereof.
Section 10. Fractional Shares. The Series A Preferred Stock shall be
issuable upon exercise of the Rights issued pursuant to the Rights Agreement in
whole shares or in any fraction of a share that is one one-thousandth of a
share or any integral multiple of such fraction which shall entitle the holder,
in proportion to such holder's fractional shares, to receive dividends,
exercise voting rights, participate in distributions and to have the benefit of
all other rights of holders of Series A Preferred Stock. In lieu of fractional
shares, the Corporation, prior to the first issuance of a share or a fraction
of a share of Series A Preferred Stock, may elect (i) to make a cash payment as
provided in the Rights Agreement for fractions of a share other than one
one-thousandth of a share or any integral multiple thereof or (ii) to issue
depository receipts evidencing such authorized fraction of a share of Series A
Preferred Stock pursuant to an appropriate agreement between the Corporation
and a depository selected by the Corporation; provided that such agreement
shall provide that the holders of such depository receipts shall have all the
rights, privileges and preferences to which they are entitled as holders of the
Series A Preferred Stock.
Section 11. Amendment. None of the powers, preferences or relative,
participating, optional or other special rights of the Series A Preferred Stock
as provided herein or in the Certificate of Incorporation of the Corporation
shall be amended in any manner that would alter or change the powers,
preferences, rights or privileges of the holders of Series A Preferred Stock so
as to affect them adversely without the affirmative vote of the holders of at
least 66-2/3 percent of the outstanding shares of Series A Preferred Stock,
voting as a separate class.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designations to be duly executed in its corporate name on this 17th day of
June, 1997.
CLIFFS DRILLING COMPANY
By: /S/ EDWARD A. GUTHRIE
---------------------------------
Edward A. Guthrie
Vice President - Finance & CFO
7
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statements of Operations and the Consolidated Balance Sheets and is
qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,702
<SECURITIES> 0
<RECEIVABLES> 53,254
<ALLOWANCES> 716
<INVENTORY> 6,060
<CURRENT-ASSETS> 79,826
<PP&E> 372,321
<DEPRECIATION> 89,865
<TOTAL-ASSETS> 372,627
<CURRENT-LIABILITIES> 43,810
<BONDS> 150,000
0
0
<COMMON> 157
<OTHER-SE> 163,154
<TOTAL-LIABILITY-AND-EQUITY> 372,627
<SALES> 121,346
<TOTAL-REVENUES> 121,346
<CGS> 71,885
<TOTAL-COSTS> 84,403
<OTHER-EXPENSES> (2,514)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,786
<INCOME-PRETAX> 31,671
<INCOME-TAX> 11,085
<INCOME-CONTINUING> 20,586
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,586
<EPS-PRIMARY> 1.34
<EPS-DILUTED> 1.34
</TABLE>
