THIS PROSPECTUS SUPPLEMENT RELATES TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933. THE INFORMATION IN THIS PROSPECTUS SUPPLEMENT IS NOT
COMPLETE AND MAY BE CHANGED. WE WILL DELIVER TO PURCHASERS OF THESE SECURITIES A
FINAL PROSPECTUS SUPPLEMENT AND PROSPECTUS. WE ARE NOT USING THIS PROSPECTUS
SUPPLEMENT AND THE PROSPECTUS TO OFFER TO SELL THESE SECURITIES OR TO SOLICIT
OFFERS TO BUY THESE SECURITIES IN ANY PLACE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
Rule 424(b)(2)
Registration No. 333-44925
SUBJECT TO COMPLETION, DATED MAY 14, 1999
PRELIMINARY PROSPECTUS SUPPLEMENT
(To Prospectus Dated March 23, 1998)
$200,000,000
[LOGO] PRIDE INTERNATIONAL, INC.
% SENIOR NOTES DUE 2009
------------------------
The notes will bear interest at the rate of % per year. We will pay
interest on the notes on and of each year, beginning
, 1999. The notes will mature on , 2009.
We may redeem the notes at any time after , 2004 at the
redemption prices listed on page S-40. Before , 2002, we may
redeem up to $ million of the notes with the proceeds of qualified
offerings of our equity. In addition, if we experience specific kinds of changes
in control, we must offer to repurchase the notes.
The notes will be our senior obligations and will rank equally with all our
other unsecured senior debt. The notes will be effectively subordinated to all
existing and future liabilities of our subsidiaries that do not become
guarantors of the notes, to our secured debt and to any secured debt of a
subsidiary guarantor.
------------------------
INVESTING IN THE NOTES INVOLVES CERTAIN RISKS. SEE "RISK FACTORS"
BEGINNING ON PAGE S-10.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus supplement or the accompanying prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
------------------------
PER NOTE TOTAL
-------- -----------
Public Offering Price % $
Underwriting Discount % $
Proceeds to Pride (before expenses) % $
Interest on the notes will accrue from , 1999 to the date
of delivery.
------------------------
The underwriters are offering the notes subject to various conditions. The
underwriters expect to deliver the notes to purchasers on or about
, 1999.
------------------------
SALOMON SMITH BARNEY DONALDSON, LUFKIN & JENRETTE
, 1999
<PAGE>
[Picture of the PRIDE ANGOLA]
The PRIDE ANGOLA, an ultra-deepwater drillship, currently under construction in
South Korea, is expected to commence operations in late 1999 under a three-year
contract offshore West Africa.
<TABLE>
<CAPTION>
<S> <C> <C>
[Picture of AMETHYST 1] [Picture of the NYMPHEA] [Picture of the SOUTH SEAS
DRILLER]
The AMETHYST 1, a dynamically
positioned, self-propelled
semisubmersible rig capable of The NYMPHEA, a third- The SOUTH SEAS DRILLER, a
working in water depths of up to generation semisubmersible rig, is moored semisubmersible rig, is
4,000 feet, is operating under a currently operating under a long- working under a long-term contract
long-term contract offshore Brazil. term contract offshore Brazil. offshore South Africa.
</TABLE>
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION WE HAVE INCLUDED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. WE HAVE
NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH ADDITIONAL OR DIFFERENT INFORMATION.
IF YOU RECEIVE ANY UNAUTHORIZED INFORMATION, YOU MUST NOT RELY ON IT. WE ARE
OFFERING TO SELL THE NOTES ONLY IN PLACES WHERE SALES ARE PERMITTED. YOU SHOULD
NOT ASSUME THAT THE INFORMATION WE HAVE INCLUDED IN THIS PROSPECTUS SUPPLEMENT
OR THE ACCOMPANYING PROSPECTUS IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE OF
THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING PROSPECTUS OR THAT ANY
INFORMATION WE HAVE INCORPORATED BY REFERENCE IS ACCURATE AS OF ANY DATE OTHER
THAN THE DATE OF THE DOCUMENT INCORPORATED BY REFERENCE.
------------------------
TABLE OF CONTENTS
PROSPECTUS SUPPLEMENT
PAGE
----
Summary ................................................................. S-4
Risk Factors ............................................................ S-10
Forward-Looking Information ............................................. S-15
Use of Proceeds ......................................................... S-15
Capitalization .......................................................... S-16
Selected Financial Data ................................................. S-17
Management's Discussion and Analysis of Financial Condition and Results
of Operations ......................................................... S-19
Description of Business ................................................. S-28
Management .............................................................. S-36
Description of Notes .................................................... S-38
Underwriting ............................................................ S-72
Legal Matters ........................................................... S-73
Experts ................................................................. S-73
Independent Accountants ................................................. S-73
PROSPECTUS
Available Information ................................................... 3
Incorporation of Certain Documents by Reference ......................... 3
The Company ............................................................. 4
Risk Factors ............................................................ 4
Use of Proceeds ......................................................... 6
Ratio of Earnings to Fixed Charges ...................................... 7
Description of Debt Securities .......................................... 7
Description of Capital Stock ............................................ 15
Plan of Distribution .................................................... 18
Legal Matters ........................................................... 19
Independent Public Accountants .......................................... 19
S-3
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS
SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS, BUT DOES NOT CONTAIN ALL INFORMATION
THAT MAY BE IMPORTANT TO YOU. THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING
PROSPECTUS INCLUDE SPECIFIC TERMS OF THE OFFERING OF THE NOTES, INFORMATION
ABOUT OUR BUSINESS AND FINANCIAL DATA. WE ENCOURAGE YOU TO READ THIS PROSPECTUS
SUPPLEMENT, THE ACCOMPANYING PROSPECTUS AND THE DOCUMENTS WE INCORPORATE BY
REFERENCE IN THEIR ENTIRETY BEFORE MAKING AN INVESTMENT DECISION.
IN THIS PROSPECTUS SUPPLEMENT, WE REFER TO PRIDE INTERNATIONAL, INC. AND
ITS SUBSIDIARIES AS "WE" OR "PRIDE," UNLESS THE CONTEXT CLEARLY INDICATES
OTHERWISE.
ABOUT PRIDE
Pride is a leading international provider of contract drilling and related
services, operating both offshore and on land. In recent years, we have focused
our growth strategy on the higher margin offshore and international drilling
markets. Offshore and international markets generally have greater profit
potential than domestic land-based markets, primarily as a result of less
competition, higher utilization rates and stronger demand resulting from a
general trend by oil and gas companies to shift expenditures to exploration and
development activities offshore and abroad. Currently, we operate a global fleet
of 307 rigs, including three semisubmersible rigs, 17 jackup rigs, nine
tender-assisted rigs, four barge rigs, 23 offshore platform rigs and 251
land-based drilling and workover rigs. We operate in more than 20 countries and
marine provinces. The significant diversity of our rig fleet and areas of
operations enables us to provide a broad range of services and to take advantage
of market upturns while reducing our exposure to sharp downturns in any
particular market sector or geographic region.
Most recently, we have focused on increasing the size of our fleet capable
of drilling in deeper waters. The deepwater market generally supports
longer-term, higher-rate contracts, and we believe that our experience in
deepwater markets positions us to compete effectively in this sector. Through
our subsidiary Pride-Foramer S.A. (which we acquired in 1997), we have drilled
since 1977 a total of 43 wells in water depths greater than 1,300 feet and have
participated in the design and construction of four drillships and two
semisubmersible rigs. We have recently completed or are participating in the
following additional offshore rig acquisition and construction projects:
o AMETHYST 1 PURCHASE. In October 1998, we purchased for $85 million
the AMETHYST 1, a dynamically positioned, self-propelled
semisubmersible drilling rig capable of working in water depths of up
to 4,000 feet. The AMETHYST 1 is currently working offshore Brazil
under a charter and service contract that expires in 2001.
o DRILLSHIP JOINT VENTURES. We have entered into joint ventures to
construct, own and operate the PRIDE AFRICA and the PRIDE ANGOLA, two
ultra-deepwater drillships that are currently under construction in
South Korea. The drillships, which will be capable of operating in
water depths of up to 10,000 feet, are contracted to work for Elf
Exploration Angola for initial terms of five and three years,
respectively. We expect the PRIDE AFRICA to commence operations in
mid-1999 and the PRIDE ANGOLA to commence operations in late 1999 or
early 2000. Pride and the joint ventures have entered into financing
arrangements with a group of banks that are providing approximately
$400 million of the drillships' total estimated construction cost of
$470 million. Upon commencement of operations of the drillships, the
loans will become nonrecourse to the joint venture participants. We
have a 51% ownership interest in each joint venture and estimate that
our total equity investment in the projects will be approximately $38
million.
o AMETHYST JOINT VENTURES. We have a 30% equity interest in a joint
venture company organized to construct, own and operate four
Amethyst-class dynamically positioned
S-4
<PAGE>
semisubmersible drilling rigs. The rigs, which will be larger,
enhanced versions of the AMETHYST 1, are currently under construction
at shipyards in South Korea and the United States. Upon their
completion, the rigs will be operated under charter and service
contracts with Petroleo Brasilerio S.A. having initial terms of six to
eight years. Delivery of the rigs is expected in mid-2000. The
estimated total cost of the rigs is $700 million, $540 million of
which is being provided by loans from third-party lenders. Pride has
made aggregate equity contributions to the joint venture of
approximately $46 million as of March 31, 1999.
RECENT DEVELOPMENTS
FIRST RESERVE TRANSACTION. We have entered into an agreement with a fund
managed by First Reserve Corporation under which First Reserve will invest
approximately $55 million in the common equity of Pride and an additional $25
million in the common equity of the Amethyst joint venture company. In
connection with the investment, William E. Macaulay, Chairman and Chief
Executive Officer of First Reserve, will become a director of Pride. Under the
terms of the agreement, First Reserve will purchase approximately 4.7 million
shares of our common stock for $25 million in cash and the delivery of
approximately $77 million principal amount at maturity of our Zero Coupon
Convertible Subordinated Debentures Due 2018 that First Reserve has previously
acquired. Those debentures have an accreted value of approximately $31.6
million.
First Reserve's $25 million investment in the Amethyst joint venture
company would be exchangeable after three years (or earlier in certain events)
at First Reserve's option for an additional approximately 2.1 million shares of
our common stock. We would have an option to purchase the stock of the joint
venture company for cash or our common stock once that stock becomes
exchangeable for our common stock. The investment in the joint venture company
is subject to negotiation of acceptable documentation among the parties
(including the other owners of the joint venture). If the investment is not
completed, First Reserve will purchase from us approximately 2.1 million shares
of our common stock for $25 million in cash.
The transaction is subject to Hart-Scott-Rodino clearance and other
customary conditions and is expected to be completed by the end of June 1999. We
can give you no assurance, however, that the transaction will be completed.
FIRST QUARTER RESULTS OF OPERATIONS. We reported a net loss for the first
quarter of 1999 of $39.5 million on revenues of $153.8 million. Results for the
quarter include charges totaling $28.9 million, net of estimated income taxes,
for current and future cash expenditures related to the restructuring plan
described below. Excluding these nonrecurring charges, the net loss was $10.6
million. For the same period in 1998, we reported net earnings of $21.4 million
on revenues of $213.7 million. The decline in both revenues and earnings
primarily resulted from a decline in global drilling and workover activity and a
corresponding decline in pricing. We experienced continued weakness in the Gulf
of Mexico and depressed land drilling and workover activity levels in South
America, particularly Venezuela. In the Gulf of Mexico, we operated only six of
our 11 jackup rigs. In Venezuela, our land drilling and workover operations have
been negatively affected by reductions in private-sector exploration and
production activity levels. We expect to realize substantially less revenue from
the assets working in these areas in the near term than in recent periods. Our
operating costs will not, however, decrease proportionately. This revenue
decrease will adversely affect our results of operations for at least the near
term, substantially reducing our revenues, cash flows, EBITDA and earnings and
likely resulting in losses in 1999 and potentially beyond.
RESTRUCTURING. To address the dramatic decline in drilling and workover
activity, we have undertaken significant restructuring over the past several
months, including measures aimed at reducing operating costs through regional
base consolidations, downsizing administrative staffs and other reductions in
personnel. Cumulatively, these measures have resulted in reductions of more than
4,000 personnel, or 38% from the peak in 1998. We expect these measures to
result in annual cost savings in excess of $25 million.
S-5
<PAGE>
THE OFFERING
SECURITIES OFFERED....... $200 million aggregate principal amount
of % Senior Notes due 2009. We may
issue up to an additional $100 million
principal amount of the notes from time
to time after this offering closes,
subject to debt incurrence restrictions
contained in certain of our debt
arrangements, including the indenture
for the notes.
MATURITY DATE............ , 2009.
INTEREST PAYMENT DATES... and of each year, beginning
, 1999.
OPTIONAL REDEMPTION...... On or after , 2004, we may
redeem some or all of the notes at any
time at the redemption prices listed
under the heading "Description of
Notes -- Optional Redemption" on page
S-40.
Before , 2002, we may redeem
up to $
million of the notes with the proceeds
from qualified offerings of our equity
at a redemption price equal to % of
the principal amount of the redeemed
notes, plus accrued interest to the
redemption date.
MANDATORY OFFER TO
PURCHASE............... If we experience specific kinds of
changes in control, we must offer to
repurchase the notes at a purchase price
equal to % of the total principal
amount of the notes, plus accrued
interest to the date we repurchase the
notes. Please read "Description of
Notes -- Change of Control" beginning
on page S-40. If a change of control
occurs, however, we may not be able to
repurchase notes tendered by holders.
Please read "Risk Factors -- We may not
be able to repurchase notes upon a
change of control" on page S-13.
RANKING.................. The notes:
o are unsecured
o rank equally with all our senior
debt that is unsecured and not
subordinated
o are senior to all our subordinated
debt and
o are effectively junior to our
secured debt, including debt we may
incur under our credit facility,
and to all debt and other
liabilities of our subsidiaries
If any of our subsidiaries guarantees
any of our other debt, that subsidiary
generally will be required to guarantee
the notes. Initially, we expect that
there will be no subsidiary guarantors.
S-6
<PAGE>
COVENANTS................ We will issue the notes under an
indenture containing covenants for your
benefit. These covenants restrict our
ability and the ability of our
subsidiaries, with certain exceptions,
to:
o pay dividends or make other
restricted payments
o incur additional debt or issue
preferred stock
o create or permit to exist liens
o incur dividend or other payment
restrictions affecting subsidiaries
o consolidate, merge or transfer all
or substantially all our assets
o sell assets
o enter into transactions with
affiliates and
o engage in sale and leaseback
transactions
USE OF PROCEEDS.......... We expect the net proceeds from the
offering to be approximately $194.7
million. We intend to use approximately
$150 million of the net proceeds to
repay debt and the remainder for general
corporate purposes.
NO TRADING MARKET........ The notes will not be listed for trading
on any national securities exchange.
S-7
<PAGE>
SUMMARY FINANCIAL DATA
We have provided summary consolidated financial data in the table below. We
have derived the statement of operations data for each of the years in the
five-year period ended December 31, 1998, and the balance sheet data as of
December 31, 1998, 1997, 1996, 1995 and 1994, from our audited consolidated
financial statements. We have derived the financial data for the three-month
periods ended March 31, 1999 and 1998 and as of March 31, 1999 and 1998 from
unaudited financial statements we have incorporated by reference in the
accompanying prospectus. In the opinion of our management, the unaudited
financial data reflect all adjustments (consisting only of normal, recurring
adjustments) necessary for a fair presentation of the financial data for the
interim periods. We caution you that the results for the three-month periods are
not necessarily indicative of the results expected for a full year or any other
interim period. You should read the following financial information in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" beginning on page S-19 and with our consolidated
financial statements and related notes that we have incorporated by reference in
the accompanying prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT RATIOS)
STATEMENT OF OPERATIONS DATA:
Revenues............................. $ 182,336 $ 263,599 $ 407,174 $ 699,788 $ 835,563 $ 213,686 $ 153,819
Operating costs...................... 139,653 187,203 292,599 458,861 529,844 136,493 114,112
Depreciation and amortization........ 9,550 16,657 29,065 58,661 79,931 18,815 23,392
Selling, general and
administrative..................... 25,105 32,418 45,368 73,881 84,825 20,857 21,893
Restructuring charges(1)............. -- -- -- -- -- -- 38,517
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) from operations...... 8,028 27,321 40,142 108,385 140,963 37,521 (44,095)
Other income (expense), net(2)....... 106 (4,898) (9,323) 47,249 (38,720) (9,338) (10,739)
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) before income
taxes(2)........................... 8,134 22,423 30,819 155,634 102,243 28,183 (54,834)
Income tax provision (benefit)....... 1,920 7,064 8,091 51,639 24,726 6,749 (15,377)
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss)(1)(2)(3)......... $ 6,214 $ 15,359 $ 22,728 $ 103,995 $ 77,517 $ 21,434 $ (39,457)
========= ========= ========= ========= ========= ========= =========
OTHER DATA:
EBITDA(4)............................ $ 17,273 $ 44,616 $ 71,109 $ 161,337 $ 222,100 $ 56,170 $ (20,127)
Capital expenditures................. 59,171 40,636 61,711 268,307 574,257 92,299 72,464
Cash flow from (used in) operating
activities......................... 8,371 27,169 21,217 60,564 174,965 25,400 (2,380)
Cash flow from (used in) investing
activities......................... (79,482) (41,513) (161,338) (506,053) (621,215) (92,023) 23,653
Cash flow from financing
activities......................... 69,572 17,669 141,136 509,574 458,395 40,380 33,415
Ratio of EBITDA to interest
expense(4)......................... 83.4x 7.1x 5.2x 4.7x 4.9x 5.4x --
Ratio of earnings to fixed
charges(5)......................... 6.2x 4.0x 2.7x 4.5x 2.2x 2.4x --
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital...................... $ 26,640 $ 31,302 $ 62,722 $ 103,733 $ 84,603 $ 86,042 $ 112,758
Property and equipment, net.......... 139,899 178,488 375,249 1,171,647 1,725,787 1,263,812 1,677,619
Total assets......................... 205,193 257,605 542,062 1,541,501 2,192,167 1,629,007 2,164,072
Long-term debt and capital leases,
net of current portion............. 42,096 61,136 106,508 435,100 630,520 470,741 655,692
Zero coupon convertible subordinated
debentures......................... -- -- -- -- 237,327 -- 240,123
6 1/4% convertible subordinated
debentures......................... -- -- 80,500 52,500 52,480 52,500 52,480
Shareholders' equity................. 111,385 131,239 201,797 685,157 763,402 707,001 724,206
</TABLE>
(FOOTNOTES ON FOLLOWING PAGE)
S-8
<PAGE>
- ------------
(1) Restructuring charges consist of cash costs incurred and to be incurred for
regional base consolidations, down-sizing of administrative staffs and other
reductions in personnel. Charges include the cost of involuntary employee
termination benefits, including severance, wage continuation, medical and
other benefits, facility closures and related personnel relocation costs and
other costs in connection with the restructuring plan.
(2) Other income (expense), net, earnings (loss) before income taxes and net
earnings (loss) for the year ended December 31, 1997 include a pretax gain
of $83.6 million ($53.5 million, net of income tax) on the divestiture of
our U.S. land-based well servicing business. The gain was partially offset
by nonrecurring charges totaling $4.2 million, net of income taxes, relating
principally to the induced conversion of $28.0 million principal amount of
our 6 1/4% convertible subordinated debentures. Excluding such non-recurring
items, net earnings for the year ended December 31, 1997 were $54.7 million.
(3) Net earnings (loss) for the year ended December 31, 1998 include charges
totaling $3.8 million, net of income taxes, related to local work force
reductions primarily in response to decreased activity levels.
(4) EBITDA means earnings (loss) before interest, taxes, depreciation and
amortization. EBITDA is not a generally accepted accounting principles
measure and may not be comparable to similarly titled items of other
companies. You should not consider EBITDA as an alternative to net income
(loss) or any other generally accepted accounting principles measure of
performance as an indicator of our operating performance or as a measure of
liquidity. EBITDA does not represent funds available for management's
discretionary use because certain future cash expenditures are not reflected
in the EBITDA presentation. Some investors use these data as an indicator of
a company's ability to service debt. For the three months ended March 31,
1999, EBITDA was inadequate to cover interest expense by $32.7 million.
EBITDA for the year ended December 31, 1997 excludes the non-recurring items
described in note (2).
(5) We have computed the ratios of earnings to fixed charges by dividing
earnings by fixed charges. For this purpose, "earnings" consist of
earnings before income taxes plus fixed charges less capitalized interest.
"Fixed charges" consist of interest expense, capitalized interest and that
portion of operating lease rental expense we have deemed to represent the
interest factor. For the three months ended March 31, 1999, earnings were
inadequate to cover fixed charges by $62.5 million.
S-9
<PAGE>
RISK FACTORS
IN CONSIDERING WHETHER TO PURCHASE THE NOTES, YOU SHOULD CAREFULLY CONSIDER
ALL THE INFORMATION WE HAVE INCLUDED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS. IN PARTICULAR, YOU SHOULD
CAREFULLY CONSIDER THE RISK FACTORS DESCRIBED BELOW. IN ADDITION, PLEASE READ
"FORWARD-LOOKING INFORMATION" ON PAGE S-15, WHERE WE DESCRIBE ADDITIONAL
UNCERTAINTIES ASSOCIATED WITH OUR BUSINESS AND THE FORWARD-LOOKING STATEMENTS IN
THIS PROSPECTUS SUPPLEMENT AND THE ACCOMPANYING PROSPECTUS.
LOW OIL AND GAS PRICES HAVE NEGATIVELY AFFECTED OUR FINANCIAL RESULTS AND MAY
RESULT IN A LOSS THIS YEAR AND CONTINUE TO AFFECT OUR RESULTS IN 2000 AND
BEYOND.
Depressed market conditions may adversely affect our ability to make
payments on the notes by affecting our results of operations and our liquidity.
The profitability of our operations depends significantly upon conditions in the
oil and gas industry and, specifically, the level of ongoing exploration and
production expenditures of oil and gas company customers. The demand for
contract drilling and related services is directly influenced by many factors
beyond our control, including:
o oil and gas prices
o expectations about future prices
o the cost of producing and delivering oil and gas
o government regulations
o local and international political and economic conditions
o the ability of the Organization of Petroleum Exporting Countries to
set and maintain production levels and prices
o the level of production by non-OPEC countries and
o the policies of the various governments regarding exploration and
development of their oil and gas reserves
The continuing weakness in worldwide oil and gas prices, which began in the
fourth quarter of 1997, is depressing both offshore drilling activity,
particularly in the U.S. Gulf of Mexico, and international land-based activity.
As product prices have declined, companies exploring for oil and gas have
curtailed or canceled some of their drilling programs, thereby reducing demand
for drilling services. This reduction in demand has significantly eroded
dayrates and utilization of our rigs, particularly in our offshore Gulf of
Mexico and our onshore South American operations. This erosion in dayrates and
utilization is currently having a negative impact on our financial results. In
addition, there are a number of deepwater rigs currently under construction,
some of which are not under contract. If demand for deepwater drilling services
does not increase to meet this increased capacity, we could face competition
from these and other rigs for future deepwater contracts. Although oil and gas
prices improved in the late first quarter and early second quarter of 1999,
these improved prices have not resulted in increased drilling activity or demand
for our services. We cannot assure you that prices will remain at these levels.
As of May 1, 1999, five of our 11 mat-supported jackup rigs in the Gulf of
Mexico were idle, and nearly all of the remainder were working under contracts
that expire by the end of the year. Approximately 60% of our platform rigs in
that area were idle, with the remainder working at substantially lower dayrates
than during 1998. We also are continuing to experience weakness in our land
drilling and workover operations in South America, particularly Venezuela where
private-sector exploration and production activity levels have been reduced. As
a result, our EBITDA in the first quarter of 1999 was insufficient to cover our
interest expense in that quarter, and our earnings (consisting of earnings
before income taxes plus fixed charges less capitalized interest) were
insufficient to cover our fixed charges (consisting of interest expense,
capitalized interest and that portion of operating lease rental expense we have
deemed to represent the interest factor) for the
S-10
<PAGE>
quarter. We expect to realize substantially less revenue from the assets working
in these areas in the near term than in recent periods. Our operating costs will
not, however, decrease proportionately. This revenue decrease will adversely
affect our results of operations for at least the near term, substantially
reducing our revenues, cash flows, EBITDA and earnings and likely resulting in
losses in 1999 and potentially beyond. In addition, earnings in future quarters
may be insufficient to cover our fixed charges in those quarters, and further
deterioration in market conditions may result in EBITDA being insufficient to
cover our interest expense in those quarters.
INTERNATIONAL EVENTS MAY HURT OUR OPERATIONS.
We derive a significant portion of our revenues from operations in South
America, the Middle East, Southeast Asia and other international areas. Risks
associated with operating in international markets include the following:
o foreign exchange restrictions and currency fluctuations
o changes in foreign tax rates
o political instability
o foreign and domestic monetary and tax policies
o expropriation
o nationalization
o nullification or modification of contracts and
o war and civil disturbances
Additionally, our ability to compete in international contract drilling
markets may be adversely affected by foreign governmental regulations that favor
or require the awarding of contracts to local contractors or by regulations
requiring foreign contractors to employ citizens of, or purchase supplies from,
a particular jurisdiction. Furthermore, our foreign subsidiaries may face
governmentally imposed restrictions from time to time on their ability to
transfer funds to us.
DELAYS OR COST OVERRUNS IN OUR CONSTRUCTION AND REFURBISHMENT PROJECTS COULD
MATERIALLY AFFECT OUR RESULTS OF OPERATIONS.
We have expended, and in 1999 will continue to expend, significant amounts
to complete construction of new rigs, including our two drillships, and, to a
lesser extent, to upgrade and refurbish other rigs. In addition, we have made
and may continue to make equity contributions to the Amethyst joint ventures,
which are constructing four new semisubmersible rigs. The joint venture
originally intended to build two additional Amethyst-class rigs. Construction
contracts with respect to those two rigs were terminated, however, after the
shipyard at which the rigs were to be constructed filed for protection from its
creditors. The joint venture partners are currently evaluating alternatives
relating to these two contracts, which include: (a) chartering other rigs
currently available in the market to fulfill the related Petrobras charter and
service contracts, (b) constructing these two additional Amethyst-class rigs at
another shipyard or (c) undertaking other mutually acceptable arrangements. We
can give you no assurance that any of these efforts will be successful.
All of these construction projects are subject to the risks of delay or
cost overruns inherent in construction projects. These risks include:
o unforeseen engineering problems
o work stoppages
o weather interference
o unanticipated cost increases
o delays in receipt of necessary equipment and
S-11
<PAGE>
o inability to obtain the requisite permits or approvals
Significant construction cost overruns could have a material adverse effect
on our financial position and cash flows. Significant delays could also have a
material adverse effect on our contract commitments for such rigs.
OUR CUSTOMERS MAY SEEK TO CANCEL OR RENEGOTIATE SOME OF OUR DRILLING CONTRACTS
DURING DEPRESSED MARKET CONDITIONS OR IF WE EXPERIENCE OPERATIONAL DIFFICULTIES.
During depressed market conditions, a customer may no longer need a rig
that is currently under contract or may be able to obtain a comparable rig at a
lower dayrate. As a result, customers may seek to renegotiate the terms of their
existing drilling contracts or avoid their obligations under those contracts. In
addition, customers may seek to terminate existing contracts if we experience
operational problems. The deepwater markets in which we operate require the use
of floating rigs with sophisticated positioning, subsea and related systems
designed for drilling in deep water. If this equipment fails to function
properly, the rig cannot engage in drilling operations, and our customers may
have the right to terminate the drilling contracts. The likelihood that a
customer may seek to terminate a contract for operational difficulties is
increased during market downturns like the one currently being experienced. The
cancellation of a number of our drilling contracts could adversely affect our
results of operations.
OUR SIGNIFICANT DEBT LEVELS AND OUR DEBT AGREEMENT RESTRICTIONS MAY LIMIT OUR
FLEXIBILITY IN OBTAINING ADDITIONAL FINANCING AND IN PURSUING OTHER BUSINESS
OPPORTUNITIES.
As of March 31, 1999, as adjusted to give effect to the offering of the
notes and the application of the net proceeds, we would have had approximately
$1,094.2 million in long-term debt and capital lease obligations. The level of
our indebtedness will have several important effects on our future operations,
including:
o a significant portion of our cash flow from operations will be
dedicated to the payment of interest and principal on our debt and
will not be available for other purposes
o covenants contained in some of our existing debt arrangements require
us to meet certain financial tests, which may affect our flexibility
in planning for, and reacting to, changes in our business and may
limit our ability to fund capital expenditures, dispose of assets,
withstand current or future economic or industry downturns and compete
with others in our industry for strategic opportunities
o our ability to obtain additional financing for working capital,
capital expenditures, acquisitions, general corporate and other
purposes may be limited
Our ability to meet our debt service obligations, including making payments
on the notes, and to reduce our total indebtedness will be dependent upon our
future performance, which will be subject to general economic conditions,
industry cycles and financial, business and other factors affecting our
operations, many of which are beyond our control.
THE NOTES WILL BE EFFECTIVELY SUBORDINATED TO ALL OUR EXISTING AND FUTURE
SECURED DEBT AND TO ALL DEBT OF OUR SUBSIDIARIES.
The notes will be effectively subordinated in right of payment to all of
our existing and future secured debt, including debt we may incur under our
credit facilities. If we are involved in any dissolution, liquidation or
reorganization, our secured debt holders would be paid before you receive any
amounts due under the notes to the extent of the value of the assets securing
their debt. In that event, you may not be able to recover any interest or
principal you are due under the notes.
In addition, the notes are effectively subordinated to all of the
creditors, including trade creditors and tort claimants, of our subsidiaries
that are not subsidiary guarantors of the notes as described under "Description
of Notes -- Subsidiary Guarantees of Notes" beginning on page S-38, as well as
to any secured creditors of the subsidiary guarantors. Initially, we expect that
there will be no
S-12
<PAGE>
subsidiary guarantors. We conduct substantially all our operations through both
U.S. and foreign subsidiaries, and substantially all our assets consist of
equity in such subsidiaries. Accordingly, we are and will be dependent on our
ability to obtain funds from our subsidiaries to service our debt, including the
notes. Financing arrangements that our subsidiaries are party to impose
restrictions on our ability to gain access to the cash flow or assets of our
subsidiaries. In addition, our foreign subsidiaries may face governmentally
imposed restrictions on their ability to transfer funds to us.
As of March 31, 1999, as adjusted to give effect to the offering of the
notes and the application of the net proceeds, Pride would have had $236.8
million of secured debt and our subsidiaries would have had $372.1 million of
debt and other liabilities outstanding to creditors other than Pride. In
addition, we would have had another $40 million of borrowing availability under
our revolving credit facility.
WE MAY NOT BE ABLE TO REPURCHASE NOTES UPON A CHANGE OF CONTROL.
If specified change of control events occur, each holder of the notes will
have the right to require us, subject to certain conditions, to repurchase all
or any part of that holder's notes. See "Description of Notes -- Change of
Control" beginning on page S-40. Prior to repurchasing the notes, however, we
may be required to repay all or some of our debt under our other debt
arrangements or to obtain consents from the lenders to permit the repurchase. If
we cannot repay that debt or obtain the consents necessary under those debt
arrangements, we may not be able to repurchase the notes. Also, we may not have
sufficient funds available or be able to obtain the financing necessary to make
any of the debt payments, including repurchases of the notes, described above.
If a change of control occurred and we did not have the funds or financing
available to make the debt payments and to repurchase the notes, an event of
default would be triggered under the indenture governing the notes and certain
other debt instruments. Each of these defaults could have a material adverse
effect on us and the holders of the notes.
FEDERAL AND STATE STATUTES ALLOW COURTS, UNDER SPECIFIC CIRCUMSTANCES, TO VOID
SUBSIDIARY GUARANTEES.
The indenture governing the notes does not require any subsidiary to
guarantee the notes unless that subsidiary guarantees any of our other debt.
Initially, we expect that there will be no subsidiary guarantors. Various
fraudulent conveyance laws have been enacted for the protection of creditors,
and a court may use these laws to subordinate or avoid any subsidiary guarantee
that may be delivered in the future. A court could avoid or subordinate a
subsidiary guarantee in favor of that subsidiary guarantor's other creditors if
the court found that either:
o the guarantee was incurred with the intent to hinder, delay or defraud
any present or future creditor or the subsidiary guarantor
contemplated insolvency with a design to favor one or more creditors
to the exclusion in whole or in part of others or
o the subsidiary guarantor did not receive fair consideration or
reasonably equivalent value for issuing its subsidiary guarantee
and, in either case, the subsidiary guarantor, at the time it issued the
subsidiary guarantee:
o was insolvent or rendered insolvent by reason of the issuance of the
subsidiary guarantee
o was engaged or about to engage in a business or transaction for which
its remaining assets constituted unreasonably small capital or
o intended to incur, or believed that it would incur, debts beyond its
ability to pay such debts as they matured
Among other things, a legal challenge of the subsidiary guarantee on fraudulent
conveyance grounds may focus on the benefits, if any, realized by the subsidiary
guarantor as a result of our issuance of the notes or the delivery of the
subsidiary guarantee. To the extent the subsidiary guarantee was avoided as a
fraudulent conveyance or held unenforceable for any other reason, the holders of
the
S-13
<PAGE>
notes would cease to have any claim against that subsidiary guarantor and would
be solely creditors of the parent company and of any subsidiary guarantors whose
subsidiary guarantees were not avoided or held unenforceable. In that event, the
claims of the holders of the notes against the issuer of an invalid subsidiary
guarantee would be subject to the prior payment of all liabilities of that
subsidiary guarantor.
WE ARE SUBJECT TO HAZARDS CUSTOMARY IN THE OILFIELD SERVICE INDUSTRY AND TO
THOSE MORE SPECIFIC TO MARINE OPERATIONS. WE MAY NOT HAVE INSURANCE TO COVER ALL
THESE HAZARDS.
Our operations are subject to the many hazards customary in the oilfield
services industry. Contract drilling and well servicing require the use of heavy
equipment and exposure to hazardous conditions, which may subject us to
liability claims by employees, customers and third parties. These hazards can
cause personal injury or loss of life, severe damage to or destruction of
property and equipment, pollution or environmental damage and suspension of
operations. Our offshore fleet is also subject to hazards inherent in marine
operations, either while on site or during mobilization, such as capsizing,
sinking and damage from severe weather conditions. In certain instances,
contractual indemnification of customers or others is required of us.
We maintain workers' compensation insurance for our employees and other
insurance coverage for normal business risks, including general liability
insurance. Although we believe our insurance coverage to be adequate and in
accordance with industry practice against normal risks in our operations, any
insurance protection may not be sufficient or effective under all circumstances
or against all hazards to which we may be subject. The occurrence of a
significant event against which we are not fully insured, or of a number of
lesser events against which we are insured, but subject to substantial
deductibles, could materially and adversely affect our operations and financial
condition. Moreover, we may not be able to maintain adequate insurance in the
future at rates or on terms we consider reasonable or acceptable.
GOVERNMENTAL REGULATIONS AND ENVIRONMENTAL LIABILITIES MAY ADVERSELY AFFECT OUR
OPERATIONS.
Many aspects of our operations are subject to numerous governmental
regulations that may relate directly or indirectly to the contract drilling and
well servicing industries, including those relating to the protection of the
environment. Laws and regulations protecting the environment have become more
stringent in recent years and may impose strict liability, rendering us liable
for environmental damage without regard to negligence or fault on our part.
These laws and regulations may expose us to liability for the conduct of, or
conditions caused by, others or for acts that were in compliance with all
applicable laws at the time the acts were performed. The application of these
requirements or the adoption of new requirements could have a material adverse
effect on us. In addition, the modification of existing laws or regulations or
the adoption of new laws or regulations curtailing exploratory or development
drilling for oil and gas could have a material adverse effect on our operations
by limiting future contract drilling opportunities.
From time to time, certain of our foreign subsidiaries operate in countries
such as Libya and Iran that are subject to sanctions and embargoes imposed by
the U.S. Government. Although these sanctions and embargoes do not prohibit
those subsidiaries from completing existing contracts or from entering into new
contracts to provide drilling services in such countries, they do prohibit us
and our domestic subsidiaries, as well as employees of our foreign subsidiaries
who are U.S. citizens, from participating in or approving any aspect of the
business activities in those countries. These constraints on our ability to have
U.S. persons provide managerial oversight and supervision may adversely affect
the financial or operating performance of such business activities.
THERE IS NO PUBLIC MARKET FOR THE NOTES, AND WE DO NOT INTEND TO LIST THEM ON
ANY SECURITIES EXCHANGE OR DEALER QUOTATION SYSTEM.
There is no existing market for the notes. We cannot provide any assurance
about:
o the liquidity of any markets that may develop for the notes
S-14
<PAGE>
o your ability to sell your notes or
o the prices at which you will be able to sell your notes
Future trading prices of the notes will depend on many factors, including
prevailing interest rates, our operating results, ratings of the notes and the
market for similar securities. The underwriters have advised us that they intend
to make a market in the notes after completion of the offering. The underwriters
do not, however, have any obligation to do so, and they may discontinue any
market-making activities at any time without any notice. In addition, we do not
intend to apply for the listing of the notes on any securities exchange or for
quotation of the notes in any dealer quotation system.
FORWARD-LOOKING INFORMATION
This prospectus supplement and the accompanying prospectus, including the
information we incorporate by reference, includes "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. All statements, other than statements of
historical facts, included in this prospectus supplement or the accompanying
prospectus, including the information we incorporate by reference, that address
activities, events or developments that we expect, project, believe or
anticipate will or may occur in the future are forward-looking statements. These
include such matters as:
o future capital expenditures and investments in the construction,
acquisition and refurbishment of rigs (including the amount and nature
and the timing of completion)
o repayment of debt
o expansion and other development trends in the contract drilling
industry
o business strategies
o expansion and growth of operations
o utilization rates and contract rates for rigs and
o future operating results and financial condition
We have based these statements on assumptions and analyses made by our
management in light of its experience and its perception of historical trends,
current conditions, expected future developments and other factors it believes
are appropriate in the circumstances. These statements are subject to a number
of assumptions, risks and uncertainties, including:
o general economic and business conditions
o prices of oil and gas and industry expectations for future prices
o foreign exchange controls and currency fluctuations
o the business opportunities (or lack thereof) that may be presented to
and pursued by us and
o changes in laws or regulations
Most of these factors are beyond our control. Please read "Risk Factors." We
caution you that any forward-looking statements are not guarantees of future
performance and that actual results or developments may differ materially from
those projected in these statements.
USE OF PROCEEDS
We expect the net proceeds from the offering of the notes to be
approximately $194.7 million, after deducting discounts to the underwriters and
estimated expenses of the offering that we will pay. We expect to use
approximately $150 million of the net proceeds to repay debt and the remainder
for general corporate purposes. The debt to be repaid bears interest at rates
ranging from 5.4% to 8.7% (with a weighted average interest rate of 7.9%) as of
March 31, 1999, and matures at dates ranging from May 1999 to December 2003.
After the application of the net proceeds as described above, we will have
reduced the aggregate amount of our debt payable over the next three years by
approximately $116.2 million, thereby lengthening the average maturity of our
debt from 5.9 years to 7.1 years. In addition, after the offering we will have
approximately $186 million of cash and cash equivalents and $40 million of
borrowing availability under our revolving credit facility.
S-15
<PAGE>
CAPITALIZATION
We have provided in the table below our consolidated cash and cash
equivalents, short-term debt and capitalization (1) as of March 31, 1999, (2) as
adjusted to give effect to the issuance of the notes and the application of the
net proceeds as described in "Use of Proceeds" and (3) on a pro forma basis to
give effect to First Reserve's $55 million investment in our common stock
described above under "Summary -- Recent Developments" and as adjusted to give
effect to the issuance of the notes and the application of the net proceeds. We
can give you no assurance that the First Reserve transaction will be completed.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1999
--------------------------------------------
AS PRO FORMA,
ACTUAL ADJUSTED AS ADJUSTED(1)
------------ ------------ --------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS)
CASH AND CASH EQUIVALENTS............ $ 141,228 $ 185,928 $ 210,928
============ ============ ==============
SHORT-TERM DEBT AND CURRENT
MATURITIES OF LONG-TERM DEBT AND
CAPITAL LEASE OBLIGATIONS.......... $ 61,292 $ 14,753 $ 14,753
============ ============ ==============
LONG-TERM DEBT AND CAPITAL LEASE
OBLIGATIONS (EXCLUDING CURRENT
MATURITIES):
Bank credit facility(2)......... $ 35,000 $ -- $ --
Collateralized term loans....... 40,937 -- --
9 3/8% Senior Notes due 2007.... 325,000 325,000 325,000
% Senior Notes due 2009...... -- 200,000 200,000
Limited-recourse collateralized
term loans.................... 25,406 25,406 25,406
Drillship construction loans.... 184,512 184,512 184,512
Notes payable and other......... 23,587 1,882 1,882
Capital lease obligations....... 49,334 43,515 43,515
Senior convertible note......... 21,250 21,250 21,250
Zero Coupon Convertible
Subordinated Debentures
Due 2018...................... 240,123 240,123 208,530
6 1/4% Convertible Subordinated
Debentures
Due 2006...................... 52,480 52,480 52,480
------------ ------------ --------------
Total long-term debt and
capital lease obligations. 997,629 1,094,168 1,062,575
------------ ------------ --------------
SHAREHOLDERS' EQUITY:
Preferred Stock, no par value,
5,000,000 shares authorized;
no shares issued or
outstanding................... -- -- --
Common Stock, no par value,
100,000,000 shares authorized;
50,437,261 shares issued and
50,383,041 shares outstanding,
actual and as adjusted;
55,118,407 shares issued and
55,064,187 shares outstanding,
pro forma, as adjusted(3)..... 1 1 1
Paid-in capital................. 523,935 523,935 579,816
Treasury stock.................. (191) (191) (191)
Retained earnings............... 200,461 200,461 201,173
------------ ------------ --------------
Total shareholders'
equity.................. 724,206 724,206 780,799
------------ ------------ --------------
Total capitalization and
short-term debt......... $ 1,783,127 $ 1,833,127 $1,860,432
============ ============ ==============
</TABLE>
- ------------
(1) Does not give effect to First Reserve's $25 million investment in the
Amethyst joint venture company as described above under "Summary -- Recent
Developments" or the alternative purchase of our common stock if that
investment is not completed.
(2) At March 31, 1999, as adjusted to give effect to the issuance of the notes
and the application of the net proceeds, we would have had borrowing
availability of $40 million under our revolving credit facility.
(3) Does not include 13,376,630 shares of common stock initially issuable upon
conversion of our convertible debt or reserved for issuance upon exercise of
outstanding stock options and warrants.
S-16
<PAGE>
SELECTED FINANCIAL DATA
We have provided selected consolidated financial data in the table below.
We have derived the statement of operations data for each of the years in the
five-year period ended December 31, 1998, and the balance sheet data as of
December 31, 1998, 1997, 1996, 1995 and 1994, from our audited consolidated
financial statements. We have derived the financial data for the three-month
periods ended March 31, 1999 and 1998 and as of March 31, 1999 and 1998 from
unaudited financial statements we have incorporated by reference in the
accompanying prospectus. In the opinion of our management, the unaudited
financial data reflect all adjustments (consisting only of normal, recurring
adjustments) necessary for a fair presentation of the financial data for the
interim periods. We caution you that the results for the three-month periods are
not necessarily indicative of the results expected for a full year or any other
interim period. You should read the following financial information in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and with our consolidated financial statements and
related notes that we have incorporated by reference in the accompanying
prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
----------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT RATIOS)
STATEMENT OF OPERATIONS DATA:
Revenues............................. $ 182,336 $ 263,599 $ 407,174 $ 699,788 $ 835,563 $ 213,686 $ 153,819
Operating costs...................... 139,653 187,203 292,599 458,861 529,844 136,493 114,112
Depreciation and amortization........ 9,550 16,657 29,065 58,661 79,931 18,815 23,392
Selling, general and
administrative..................... 25,105 32,418 45,368 73,881 84,825 20,857 21,893
Restructuring charges(1)............. -- -- -- -- -- -- 38,517
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) from operations...... 8,028 27,321 40,142 108,385 140,963 37,521 (44,095)
Other income (expense), net(2)....... 106 (4,898) (9,323) 47,249 (38,720) (9,338) (10,739)
--------- --------- --------- --------- --------- --------- ---------
Earnings (loss) before income
taxes(2)........................... 8,134 22,423 30,819 155,634 102,243 28,183 (54,834)
Income tax provision (benefit)....... 1,920 7,064 8,091 51,639 24,726 6,749 (15,377)
--------- --------- --------- --------- --------- --------- ---------
Net earnings (loss)(1)(2)(3)......... $ 6,214 $ 15,359 $ 22,728 $ 103,995 $ 77,517 $ 21,434 $ (39,457)
========= ========= ========= ========= ========= ========= =========
OTHER DATA:
EBITDA(4)............................ $ 17,273 $ 44,616 $ 71,109 $ 161,337 $ 222,100 $ 56,170 $ (20,127)
Capital expenditures................. 59,171 40,636 61,711 268,307 574,257 92,299 72,464
Cash flow from (used in) operating
activities......................... 8,371 27,169 21,217 60,564 174,965 25,400 (2,380)
Cash flow from (used in) investing
activities......................... (79,482) (41,513) (161,338) (506,053) (621,215) (92,023) 23,653
Cash flow from financing
activities......................... 69,572 17,669 141,136 509,574 458,395 40,380 33,415
Ratio of EBITDA to interest
expense(4)......................... 83.4x 7.1x 5.2x 4.7x 4.9x 5.4x --
Ratio of earnings to fixed
charges(5)......................... 6.2x 4.0x 2.7x 4.5x 2.2x 2.4x --
BALANCE SHEET DATA (AT END OF
PERIOD):
Working capital...................... $ 26,640 $ 31,302 $ 62,722 $ 103,733 $ 84,603 $ 86,042 $ 112,758
Property and equipment, net.......... 139,899 178,488 375,249 1,171,647 1,725,787 1,263,812 1,677,619
Total assets......................... 205,193 257,605 542,062 1,541,501 2,192,167 1,629,007 2,164,072
Long-term debt and capital leases,
net of current portion............. 42,096 61,136 106,508 435,100 630,520 470,741 655,692
Zero coupon convertible subordinated
debentures......................... -- -- -- -- 237,327 -- 240,123
6 1/4% convertible subordinated
debentures......................... -- -- 80,500 52,500 52,480 52,500 52,480
Shareholders' equity................. 111,385 131,239 201,797 685,157 763,402 707,001 724,206
</TABLE>
- ------------
(1) Restructuring charges consist of cash costs incurred and to be incurred for
regional base consolidations, down-sizing of administrative staffs and other
reductions in personnel. Charges include the cost of involuntary employee
termination benefits, including severance, wage continuation, medical and
other benefits, facility closures and related personnel relocation costs and
other costs in connection with the restructuring plan.
(FOOTNOTES CONTINUED ON FOLLOWING PAGE)
S-17
<PAGE>
(2) Other income (expense), net, earnings (loss) before income taxes and net
earnings (loss) for the year ended December 31, 1997 include a pretax gain
of $83.6 million ($53.5 million, net of income tax) on the divestiture of
our U.S. land-based well servicing business. The gain was partially offset
by nonrecurring charges totaling $4.2 million, net of income taxes, relating
principally to the induced conversion of $28.0 million principal amount of
our 6 1/4% convertible subordinated debentures. Excluding such non-recurring
items, net earnings for the year ended December 31, 1997 were $54.7 million.
(3) Net earnings (loss) for the year ended December 31, 1998 include charges
totaling $3.8 million, net of income taxes, related to local work force
reductions primarily in response to decreased activity levels.
(4) EBITDA means earnings (loss) before interest, taxes, depreciation and
amortization. EBITDA is not a generally accepted accounting principles
measure and may not be comparable to similarly titled items of other
companies. You should not consider EBITDA as an alternative to net income
(loss) or any other generally accepted accounting principles measure of
performance as an indicator of our operating performance or as a measure of
liquidity. EBITDA does not represent funds available for management's
discretionary use because certain future cash expenditures are not reflected
in the EBITDA presentation. Some investors use these data as an indicator of
a company's ability to service debt. For the three months ended March 31,
1999, EBITDA was inadequate to cover interest expenses by $32.7 million.
EBITDA for the year ended December 31, 1997 excludes the non-recurring items
described in note (2).
(5) We have computed the ratios of earnings to fixed charges by dividing
earnings by fixed charges. For this purpose, "earnings" consist of
earnings before income taxes plus fixed charges less capitalized interest.
"Fixed charges" consist of interest expense, capitalized interest and that
portion of operating lease rental expense we have deemed to represent the
interest factor. For the three months ended March 31, 1999, earnings were
inadequate to cover fixed charges by $62.5 million.
S-18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion and analysis in conjunction with
the financial information we have included or incorporated by reference in this
prospectus supplement or the accompanying prospectus. The following information
contains forward-looking statements. Please read "Forward-Looking Information"
for a discussion of limitations inherent in such statements.
GENERAL
Our operations have been, and our future results will be, significantly
affected by a series of strategic transactions that have transformed us from
solely a provider of land-based workover and related well services in the United
States into a diversified international drilling contractor operating both
offshore and on land. With the sale of our domestic land-based well servicing
operations in February 1997, we have ceased to provide rig services onshore in
the United States.
Since 1996, we have completed several transactions that have significantly
expanded our international and offshore operations, including the following:
o Through three acquisitions completed in 1996, we significantly
expanded our South American operations, principally in Argentina,
Venezuela and Colombia. We have continued to expand these operations
by deploying rigs from our former U.S. land-based fleet and by
acquiring other rigs in the region.
o In February 1997, we completed the divestiture of our domestic
land-based well servicing operations, which included 407 workover rigs
operating in Texas, California, New Mexico and Louisiana.
o In March 1997, we completed the acquisition of the operating
subsidiaries of Forasol-Foramer N.V., adding two semisubmersible rigs,
three jackup rigs, seven tender-assisted rigs, four barge rigs and 29
land-based rigs operating in various locations in South America,
Africa, the Middle East and Southeast Asia.
o In May 1997, we purchased 13 mat-supported jackup drilling rigs, 11 of
which are currently located in the Gulf of Mexico, one of which is
located in West Africa and one of which is located in Southeast Asia.
o In July 1998, we acquired 60% of a Bolivian company, Compania
Boliviana de Perforacion S.A.M., in a joint initiative with the
Bolivian national oil company, Yacimientos Petroliferos Fiscales
Bolivianos. CBP was capitalized through the contribution of 13
land-based drilling and workover rigs, oilfield trucks and other
related drilling assets by YPFB and $17 million in cash by us.
o In October 1998, we purchased the AMETHYST 1, a dynamically
positioned, self-propelled semisubmersible drilling rig. The rig is
currently working offshore Brazil under a charter and service contract
that expires in 2001.
Most recently, we have focused on increasing the size of our fleet capable
of drilling in deeper waters. We are currently participating in the construction
of two ultra-deepwater drillships, the PRIDE AFRICA and the PRIDE ANGOLA, which
are expected to commence operations under long-term contracts in mid-1999 and
late 1999, respectively, and four fourth-generation Amethyst class
semisubmersible rigs, which also are committed under long-term contracts and are
expected to be delivered in mid-2000.
OUTLOOK
With industry conditions at depressed levels, management anticipates that
we will experience a continuation of relatively low dayrates and utilization in
the near term. We expect our aggregate dayrates and utilization to continue to
decrease as higher margin long-term contracts now ongoing expire. In addition,
we currently have five jackup rigs and nine platform rigs idle in the Gulf of
S-19
<PAGE>
Mexico, where our contracts have traditionally been and continue to be
short-term. We are continuing to experience weakness in our land drilling and
workover operations in South America, particularly Venezuela where
private-sector exploration and production activity levels have been reduced. As
a result, we expect to realize substantially less revenue from the assets
working in these areas in the near term than in recent periods. Our operating
costs will not, however, decrease proportionately. This revenue decrease will
adversely affect our results of operations for at least the near term,
substantially reducing our revenues, cash flows, EBITDA and earnings and likely
resulting in losses in 1999 and potentially beyond. Due to the short-term nature
of many of our contracts, primarily in the Gulf of Mexico, and the unpredictable
nature of oil and gas prices, which affect the demand for drilling activity, we
cannot predict the extent of such adverse change accurately. The duration of
this market downturn also depends on many factors that cannot be accurately
predicted. Management anticipates that drilling markets will be unsettled for at
least the balance of 1999, and possibly longer, but remains positive on the
long-term outlook for the industry and for us.
The deteriorating industry conditions over the latter part of 1998 and the
first quarter of 1999 have led us to reduce our workforce significantly. In the
fourth quarter of 1998, we recorded charges totaling $3.8 million, net of income
taxes, related to local workforce reductions primarily in response to decreased
activity levels. In the first quarter of 1999, we recorded charges of $28.9
million, net of income taxes, for current and future cash expenditures related
to a company-wide restructuring plan implemented to address the dramatic decline
in drilling and workover activity. We expect the restructuring to result in
annual cost savings in excess of $25 million.
RESULTS OF OPERATIONS
We have presented in the following table selected consolidated financial
information by operating segment for the periods indicated. Operating costs for
the three months ended March 31, 1999 include restructuring charges.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
---------------------------------------------------------------- --------------------
1996 1997 1998 1998
-------------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN MILLIONS)
REVENUES:
United States land.................. $ 117.1 28.8% $ 16.5 2.4% $ -- -- % $ -- -- %
United States offshore.............. 57.5 14.1 135.3 19.3 160.8 19.2 45.3 21.2
International land.................. 218.6 53.7 385.6 55.1 401.9 48.1 108.6 50.8
International offshore.............. 14.0 3.4 162.4 23.2 272.9 32.7 59.8 28.0
--------- --------- --------- --------- --------- --------- --------- ---------
Total revenues.................. $ 407.2 100.0% $ 699.8 100.0% $ 835.6 100.0% $ 213.7 100.0%
========= ========= ========= ========= ========= ========= ========= =========
OPERATING COSTS:
United States land.................. $ 88.9 30.4% $ 12.8 2.8% $ -- -- % $ -- -- %
United States offshore.............. 41.8 14.3 72.9 15.9 90.3 17.1 25.3 18.6
International land.................. 156.8 53.6 276.2 60.2 293.1 55.3 77.6 56.8
International offshore.............. 5.1 1.7 97.0 21.1 146.4 27.6 33.6 24.6
--------- --------- --------- --------- --------- --------- --------- ---------
Total operating costs........... $ 292.6 100.0% $ 458.9 100.0% $ 529.8 100.0% $ 136.5 100.0%
========= ========= ========= ========= ========= ========= ========= =========
GROSS MARGIN:
United States land.................. $ 28.2 24.6% $ 3.7 1.5% $ -- -- % $ -- -- %
United States offshore.............. 15.7 13.7 62.3 25.9 70.5 23.1 20.0 25.9
International land.................. 61.7 53.9 109.4 45.4 108.8 35.6 31.1 40.3
International offshore.............. 9.0 7.8 65.5 27.2 126.4 41.3 26.1 33.8
--------- --------- --------- --------- --------- --------- --------- ---------
Total gross margin.............. $ 114.6 100.0% $ 240.9 100.0% $ 305.7 100.0% $ 77.2 100.0%
========= ========= ========= ========= ========= ========= ========= =========
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
--------------------
1999
--------------------
<S> <C> <C>
REVENUES:
United States land.................. $ -- -- %
United States offshore.............. 28.4 18.5
International land.................. 67.2 43.7
International offshore.............. 58.2 37.8
--------- ---------
Total revenues.................. $ 153.8 100.0%
========= =========
OPERATING COSTS:
United States land.................. $ -- -- %
United States offshore.............. 22.4 17.7
International land.................. 63.1 49.7
International offshore.............. 41.4 32.6
--------- ---------
Total operating costs........... $ 126.9 100.0%
========= =========
GROSS MARGIN:
United States land.................. $ -- -- %
United States offshore.............. 6.1 22.7
International land.................. 4.1 15.2
International offshore.............. 16.7 62.1
--------- ---------
Total gross margin.............. $ 26.9 100.0%
========= =========
</TABLE>
FIRST QUARTER 1999 COMPARED WITH FIRST QUARTER 1998
REVENUES. Revenues for the three months ended March 31, 1999 decreased
$59.9 million, or 28.0%, as compared to the corresponding period in 1998. Of
this decrease, $41.4 million was a result of significantly reduced rig
utilization of our international land-based fleet in Argentina, Colombia and
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Eastern Venezuela. Domestic offshore operations accounted for $16.9 million of
the decrease due to the continuation of low dayrates and lower utilization of
our Gulf of Mexico jackup and platform rigs.
OPERATING COSTS. Operating costs for the three months ended March 31, 1999
decreased $9.6 million, or 7.0%, as compared to the corresponding period in
1998. Operating costs attributable to international land-based operations
decreased $23.4 million as a result of lower rig utilization, as discussed
above, offset by $8.9 million of non-recurring costs, primarily employee
termination benefits, in connection with the restructuring of such operations.
Operating costs attributable to domestic offshore operations decreased $2.9
million due to lower rig utilization, as discussed above. International offshore
operating costs increased by $7.8 million, $3.9 million of which represents non-
recurring restructuring charges, primarily employee termination benefits, and
$3.6 million of which is attributable to the expansion and operation of
international offshore assets.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the three
months ended March 31, 1999 increased $4.6 million, or 24.5%, as compared to the
corresponding period in 1998, primarily due to the expansion of our
international offshore assets.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses for the three months ended March 31, 1999 increased $26.7 million, or
127.8%, as compared to the corresponding period in 1998. Of this increase, $25.7
million consists of non-recurring costs in connection with the base
consolidations and overall down-sizing of administrative staff.
OTHER INCOME (EXPENSE). Other income (expense) for the three months ended
March 31, 1999 increased $1.4 million, or 15.1%, as compared to the
corresponding period in 1998, primarily as a result of higher interest expense
due to increased borrowings.
INCOME TAX PROVISION. Our consolidated effective income tax rate for the
three months ended March 31, 1999 was approximately 28.0%, as compared to
approximately 24.0% for the corresponding period in 1998. The increase in the
effective income tax rate for the three months ended March 31, 1999 resulted
primarily from the effect of a significant portion of the provision for
restructuring being subject to taxation in higher effective tax rate
jurisdictions, such as the United States, Argentina and Venezuela.
1998 COMPARED WITH 1997
REVENUES. Revenues for 1998 increased $135.8 million, or 19%, as compared
to 1997. Of this increase, approximately $73.0 million was due to a full year of
operations for the Forasol acquisition completed in March 1997 and the 13
mat-supported jackup rigs acquired in May 1997. Also, during 1998, we placed
four previously idle jackup rigs into service accounting for approximately $53.0
million of the increase. Additionally, $28.0 million of the increase in revenues
is related to increased contract dayrates and utilization for our two
semisubmersible rigs. In South America, we had a 29% increase in average
dayrates, or approximately $10 million, offset by a 16% decrease in overall
utilization, or approximately $8 million. Of the remaining amount, $16 million
relates to the sale of our domestic land-based well servicing operations in
February 1997.
OPERATING COSTS. Operating costs for 1998 increased $71.0 million, or 15%,
as compared to 1997. Of this increase, approximately $52.0 million was due to a
full year of operations for the assets acquired in the Forasol acquisition
completed in March 1997 and the 13 mat-supported jackup rigs acquired in May
1997. We also incurred charges of $3.8 million, net of income taxes, related to
workforce reductions primarily in response to decreased activity levels. Also,
during 1998, we placed four jackup rigs into service accounting for
approximately $20.0 million of the increase. These increases were partially
offset by $12.8 million in reduced costs due to the sale of the domestic land-
based servicing operations.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for 1998
increased $21.3 million, or 36%, as compared to 1997, primarily as a result of a
full year of depreciation for the Forasol assets
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acquired in March 1997 and the 13 mat-supported jackup rigs acquired in May 1997
and four jackup rigs placed into service during 1998.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
costs in 1998 increased $10.9 million, or 15%, as compared to 1997, primarily as
a result of a full year of operations for the Forasol acquisition completed in
March 1997 and the 13 mat-supported jackup rigs acquired in May 1997. As a
percentage of revenues, total selling, general and administrative costs
decreased to 10.2% for 1998 from 10.6% for 1997.
OTHER INCOME (EXPENSE). Interest expense for 1998 increased $11.4 million,
or 33%, as compared to 1997. This increase is due to higher debt levels in 1998,
resulting primarily from the issuance of $230 million of Zero Coupon Convertible
Subordinated Debentures in April 1998 and from recognition of a full year of
interest expense in 1998 on $325 million of 9 3/8% Senior Notes issued in May
1997. During 1998 we capitalized approximately $16.3 million in interest expense
related to capital projects, as compared to approximately $5.7 million in 1997.
INCOME TAX PROVISION (BENEFIT). Our consolidated effective income tax rate
for 1998 was approximately 24%, as compared to approximately 33% for 1997. The
decrease was attributable to the significant increase in income from foreign
operations, which is taxed at lower statutory rates, and the reduction in U.S.
income, which is taxed at a higher statutory rate. In addition, the effective
tax rate for 1997 was significantly impacted by the gain from the sale of our
U.S. land-based well servicing operations, which was taxed at an effective rate
of 36%.
1997 COMPARED WITH 1996
REVENUES. Revenues for 1997 increased $292.6 million, or 72%, as compared
to 1996. This increase was due primarily to the expansion of our Gulf of Mexico
and international operations as follows: (1) $201.3 million was related to the
operations acquired in the Forasol acquisition in March 1997, (2) $70.2 million
was related to the operations of the mat-supported jackup rigs acquired in May
1997 and (3) $50.0 million was related to the incremental full-year effect of
the operations acquired in the April 1996 acquisition of Quitral-Co. The
remaining increase in revenue was due to the net addition of five land-based
drilling rigs and two barge rigs in South America combined with increased
contract drilling dayrates from ongoing operations. This increase was partially
offset by a reduction of $100.0 million in revenue related to the divestiture of
our domestic land-based well servicing operations.
OPERATING COSTS. Operating costs for 1997 increased $166.3 million, or
57%, as compared to 1996. This increase was due primarily to the acquisitions
and asset purchases discussed above as follows: (1) $130.4 million was related
to the operations acquired in the Forasol acquisition in March 1997, (2) $30.1
million was related to the operations of the mat-supported jackup rigs acquired
in May 1997 and (3) $20.0 million was related to the incremental full-year
effect of the operations acquired in the April 1996 acquisition of Quitral-Co.
The remaining increase in operating costs was due to the net addition of four
land-based drilling rigs and two barge rigs in South America combined with
increased labor costs from ongoing operations in Venezuela. This increase in
operating costs was partially offset by a reduction of $90.0 million related to
the divestiture of our domestic land-based well servicing operations.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for 1997
increased $29.6 million, or 102%, as compared to 1996, primarily as a result of
the acquisitions of Forasol, Quitral-Co and the mat-supported jackup rigs, and
depreciation of new, refurbished and upgraded rigs placed in service during the
year, which increase was partially offset by the sale of our domestic land-based
well servicing operations.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
costs in 1997 increased approximately $28.5 million, or 63%, as compared to
1996, primarily as a result of the acquisitions of Forasol, Quitral-Co and the
mat-supported jackup rigs, which increase was partially offset by the sale
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of our domestic land-based well servicing operations. As a percentage of
revenues, total selling, general and administrative costs decreased from 11.1%
for 1996 to 10.5% for 1997.
OTHER INCOME (EXPENSE). Other income (expense) resulted in income of $47.2
million in 1997 as compared to expense of $9.3 million in 1996. Other income and
expense included interest income, interest expense, net gains or losses from
sale of assets, minority interests, foreign exchange gains or losses and other
sources. We incurred a gain of $83.6 million from the sale of our domestic land-
based well servicing operations in February 1997. This gain was partially offset
by a charge of approximately $3.7 million relating to the induced conversion of
$28.0 million of our 6 1/4% Convertible Subordinated Debentures and other
charges. Interest expense for 1997 increased $20.7 million, or 152%, as compared
to 1996. This increase was due primarily to our issuance of $325 million in
senior notes in May 1997. During 1997 we capitalized approximately $5.7 million
in interest expense related to capital projects, as compared to approximately
$2.0 million in 1996.
INCOME TAX PROVISION (BENEFIT). Our consolidated effective income tax rate
for 1997 was approximately 33%, as compared to approximately 26% for 1996. The
increase in the effective tax rate resulted from the effects of (1) certain
non-deductible amounts, primarily $3.7 million of costs related to the induced
conversion of $28.0 million of our 6 1/4% Convertible Subordinated Debentures,
(2) an estimated effective combined U.S. federal and state income tax rate of
36% on the gain from the sale of our U.S. land-based well servicing operations
and (3) an estimated effective income tax rate of 29% on ongoing operations.
LIQUIDITY AND CAPITAL RESOURCES
We had working capital of $112.8 million and $84.6 million as of March 31,
1999 and December 31, 1998, respectively. Our current ratio was 1.4 as of March
31, 1999 and 1.3 as of December 31, 1998. The increase in the current ratio was
attributable primarily to the increase in cash and cash equivalents from the
sale and leaseback of the AMETHYST 1 in February 1999 and a decrease in other
current assets and accounts payable, partially offset by a decrease in trade
receivables and an increase in accrued expenses and short-term borrowings.
During the three months ended March 31, 1999, our capital expenditures
primarily consisted of approximately $50 million attributable to the PRIDE
AFRICA and the PRIDE ANGOLA, approximately $12 million attributable to certain
other construction and refurbishment projects begun in 1998 and approximately
$10 million of other enhancement and sustaining capital expenditures.
We expect to spend approximately $200 million during the remainder of 1999
to complete construction of the PRIDE AFRICA and the PRIDE ANGOLA and
approximately $3 million to complete certain other construction and
refurbishment projects begun in 1998. We expect enhancement and sustaining
capital expenditures in 1999 to be substantially lower than in 1998.
We have a senior secured revolving credit facility with a group of banks
under which up to $50 million (including $30 million for letters of credit) is
available. Availability under the credit facility is limited to a borrowing base
based on the value of collateral. The credit facility is collateralized by our
accounts receivable, inventory and other assets and those of our domestic
subsidiaries, two-thirds of the stock of our foreign subsidiaries, the stock of
our domestic subsidiaries and certain other assets. The credit facility
terminates in December 2000. Borrowings under the credit facility bear interest
at a variable rate based on either the prime rate or LIBOR, which was 9.00% at
March 31, 1999.
The credit facility limits our ability to incur additional indebtedness,
create liens, enter into mergers and consolidations, pay cash dividends on our
capital stock, make acquisitions, sell assets or change our business without
prior consent of the lenders. Under the credit facility, we must maintain
certain financial ratios, including (1) funded debt to EBITDA, (2) funded debt
to capitalization, (3) adjusted EBITDA to debt service and (4) minimum tangible
net worth. As of March 31, 1999, advances totaling $35 million were outstanding
under the credit facility.
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In May 1997, we issued $325.0 million of 9 3/8% Senior Notes due 2007.
Those notes contain provisions that limit our ability to pay dividends or make
other restricted payments, incur additional indebtedness, issue preferred stock,
create or permit to exist liens, incur dividend and other payment restrictions
affecting subsidiaries, consolidate, merge or transfer all or substantially all
our assets, sell assets, enter into transactions with affiliates and engage in
sale and leaseback transactions.
In connection with the construction of two new ultra-deepwater drillships,
the PRIDE AFRICA and the PRIDE ANGOLA, Pride and the two joint venture companies
in which we have a 51% interest have entered into financing arrangements with a
group of banks that are providing approximately $400 million of the drillships'
total estimated construction cost of $470 million. Upon commencement of
operations of the drillships, the loans will become nonrecourse to the joint
venture participants. During the construction period, the lenders could have
recourse to us with respect to an aggregate of up to $310 million of such loans.
As of March 31, 1999, $185 million was outstanding under the construction period
loans. We estimate that our total equity investment in the joint ventures will
be approximately $38 million. We can give no assurance, however, that additional
capital will not be required to complete construction of the drillships.
A joint venture company in which we have a 30% interest has entered into a
financing arrangement with a group of foreign lenders to provide up to $240
million of the $360 million estimated cost of the two Amethyst rigs under
construction in South Korea. Previous equity contributions by us and our joint
venture partner will provide an additional $20 million of such cost. Pride has
provided the lenders with certain commitments and guarantees, including (1) a
commitment (not exceeding $30 million) to provide 30% of the funds needed to
complete the rigs if third-party funding cannot be obtained by October 30, 1999;
(2) a guarantee of payment of up to $32.4 million of the loans; (3) a guarantee
of cost overruns of up to an aggregate of $6 million; (4) a guarantee of the
cost of the two rigs in excess of related refund guarantees supporting their
construction contracts and (5) certain other financial and operating-related
guarantees.
In addition, the joint venture has received a guarantee from the United
States Maritime Administration of obligations for both construction period and
mortgage period financing relating to the construction of the two Amethyst rigs
under construction in the United States. The MARAD guarantee covers
approximately $300 million of the estimated $340 million cost of the vessels.
The joint venture has completed the construction period financing and has
engaged a placement agent for the mortgage period financing. In connection with
the MARAD financing, we have agreed to guarantee payment of up to $20.5 million
of late delivery penalties that are accruing and may be payable under the
charter and service contracts related to these two rigs.
The joint venture has contracts with Petrobras to provide two additional
deepwater rigs. The joint venture originally intended to build two additional
Amethyst-class rigs. Construction contracts with respect to those two rigs were
terminated, however, after the shipyard at which the rigs were to be constructed
filed for protection from its creditors. The joint venture partners are
currently evaluating alternatives relating to these two contracts, which
include: (a) chartering other rigs currently available in the market to fulfill
the related Petrobras charter and service contracts, (b) constructing these two
additional Amethyst-class rigs at another shipyard or (c) undertaking other
mutually acceptable arrangements. We can give no assurance, however, that any of
these efforts will be successful.
In April 1998, we completed a public sale of Zero Coupon Convertible
Subordinated Debentures. The net proceeds from the sale, after deducting
underwriting discounts and offering expenses, amounted to approximately $223.1
million. The debentures, which mature on April 24, 2018, are convertible into
our common stock at a conversion rate of 13.794 shares of common stock per
$1,000 principal amount at maturity. At maturity, the amortized aggregate amount
payable under the debentures including accrued original issue discount would be
approximately $588.1 million.
In October 1998, we purchased the semisubmersible rig AMETHYST 1 for $85
million. The purchase price consisted of $63.7 million in cash, with the balance
financed by a $21.3 million senior note convertible into our common stock at a
conversion price of $28.50 per share for the first year and
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<PAGE>
decreasing $1.00 per share annually thereafter until maturity. The convertible
note also bears interest at 6% per annum for the first year and escalates 1% per
annum annually commencing December 1, 1998. The note matures on September 1,
2001, and no principal payments are required until maturity.
In February 1999, we completed the sale and leaseback of the AMETHYST 1,
pursuant to which we received $97 million in cash. The lease is for a maximum
term of 13.5 years, and we have options to purchase the rig exercisable at the
end of eight and one-half years and at the end of the maximum term. Annual
rentals on this transaction range from $11.7 million to $15.9 million. The
proceeds from this transaction are being used to fund our current capital
projects.
We have entered into an agreement with a fund managed by First Reserve
Corporation under which First Reserve will invest approximately $55 million in
the common equity of Pride and an additional $25 million in the common equity of
the Amethyst joint venture company. Under the terms of the agreement, First
Reserve will purchase approximately 4.7 million shares of our common stock for
$25 million in cash and the delivery of approximately $77 million principal
amount at maturity of our Zero Coupon Convertible Subordinated Debentures Due
2018 that First Reserve has previously acquired. These debentures have an
accreted value of approximately $31.6 million. First Reserve's $25 million
investment in the joint venture company is subject to negotiation of acceptable
documentation among the parties (including the other owners of the joint
venture). If the investment is not completed, First Reserve will purchase from
us approximately 2.1 million shares of our common stock for $25 million in cash.
The transaction is subject to Hart-Scott-Rodino clearance and other customary
conditions and is expected to be completed by the end of June 1999. We can give
you no assurance, however, that the transaction will be completed.
We are offering the notes pursuant to a "shelf" registration statement
under the Securities Act of 1933 that permits us to issue the notes and up to an
additional $70 million of securities consisting of any combination of our debt
securities, common stock and preferred stock. Management believes that the cash
generated from our operations, together with the net proceeds of the offering of
the notes, the proceeds from the First Reserve transaction and borrowings under
the credit facility, will be adequate to fund normal ongoing capital
expenditure, working capital and debt service requirements for the foreseeable
future.
From time to time, we may review possible expansion and acquisition
opportunities relating to our business segments. While we have no definitive
agreements to acquire additional equipment, suitable opportunities may arise in
the future. The timing, size or success of any acquisition effort and the
associated potential capital commitments are unpredictable. From time to time,
we have one or more bids outstanding for contracts that could require
significant capital expenditures and mobilization costs. We expect to fund
acquisitions and project opportunities primarily through a combination of
working capital, cash flow from operations and full or limited recourse debt or
equity financing.
YEAR 2000 ISSUE
BACKGROUND. The "Year 2000" problem refers to the inability of certain
computer systems and other equipment with embedded chips or processors to
correctly interpret dates after December 31, 1999. Business systems that are not
Year 2000 compliant would not be able to correctly process some date-sensitive
data or, in extreme situations, could cause the entire system to be disabled.
OVERALL GOALS AND OBJECTIVES. Our goal is to have all of our significant
systems functioning properly with respect to the Year 2000 problem and to
develop contingency plans in the event of disruptions caused by the Year 2000
problem before December 31, 1999. We have established a global task force of key
employees at each location to ensure the goal is met. We expect that we will
upgrade or replace a majority of our existing significant systems during this
process. The task force will also develop the contingency plans as required.
These overall goals and objectives are referred to as our "Year 2000 Project
Plan."
YEAR 2000 PROJECT PLAN. The phases of our Year 2000 Project Plan include:
o identifying, inventorying and assigning priorities to existing
significant systems
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<PAGE>
o determining and implementing the new Year 2000 compliant systems that
we will use throughout the company
o assessing all remaining Year 2000 risks
o resolving and correcting remaining Year 2000 problems with upgrades or
replacements
o testing the Year 2000 upgrades or replacements
o conducting Year 2000 surveys of significant customers, suppliers and
business partners
o developing and testing Year 2000 contingency plans
Currently, each phase is in various stages of completion. We estimate that
our Year 2000 Project Plan is at least 75% complete.
BUSINESS SYSTEMS. Part of the Year 2000 Project Plan includes performing
an inventory of each drilling rig's critical systems. We are in the process of
fully developing and evaluating this inventory, and compiling written
documentation regarding compliance. We believe that most of our rigs are Year
2000 compliant, but a full assessment is currently being performed. At this
time, we are not able to reasonably assess a likely worst case Year 2000
scenario related to our drilling rigs.
In addition, we are implementing an enterprise resource planning system
("ERP") primarily for accounting and purchasing systems. The ERP system is 90%
operational and is Year 2000 compliant. We expect to complete the conversion to
the new ERP system by September 30, 1999.
KEY BUSINESS PARTNERS. We have initiated communication with our key
business partners to seek Year 2000 readiness assurances and to determine the
extent to which their failure to correct their own Year 2000 problems could
affect us. Our key business partners include suppliers whose critical function
is to provide drilling rig equipment essential to the operation of a rig. In the
event replacement parts that we do not have in inventory are required for a rig
and we are unsuccessful in purchasing the equipment from our suppliers, the rig
could experience idle time resulting in loss of revenue.
Key business partners also include our customers. Any disruption in the
revenue stream generated by our customers could impact our cash flow, results of
operations and financial position. Other key business partners also include
strategic suppliers whose critical function is to provide systems that are Year
2000 compliant and consultants who can advise and assist us in the
implementation of the systems. Any Year 2000 problems with these systems could
affect us adversely in terms of lost time or even loss of revenues.
We cannot guarantee that any Year 2000 problems in other key business
partners' systems on which we rely will be timely resolved, nor can we inspect
the companies' Year 2000 efforts or independently verify their representations
to us. In addition, we cannot predict the effect on our business operations from
the failure of systems owned by others, from the delivery of inaccurate
information from other companies or from the inability of their systems to
interface with our systems. Accordingly, we cannot guarantee that other
companies' failure to resolve their Year 2000 problems would not have a material
adverse effect on us. We are, however, in the process of assessing these risks.
COSTS. As of May 10, 1999, we had incurred approximately $8.4 million in
costs primarily for the new ERP system, new hardware, new software licenses and
outside consultants. Such equipment and systems, including the new ERP system,
which were planned for installation regardless of Year 2000 considerations, are
Year 2000 compliant. We estimate that we will incur approximately $5 million of
such additional costs during the remainder of 1999.
RISKS. Our expectations regarding the Year 2000 are subject to
uncertainties that could affect our results of operations or financial
condition. Success depends on many factors, some of which are outside our
control. Despite reasonable efforts, we cannot assure that we will not
experience any disruptions or otherwise be adversely affected by Year 2000
problems. While we presently do not expect any catastrophic failures of any of
our systems, we cannot provide any assurances that such failures will not occur.
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<PAGE>
CONTINGENCY PLANS. We are developing contingency plans for systems and
certain processes that are highly and moderately critical to the business
operations. The contingency plans will encompass alternative courses of action,
with limited reliance on computer software and hardware, in the event that
certain of our systems or processes are not Year 2000 compliant.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to certain market risks arising from the use of financial
instruments in the ordinary course of business. These risks arise primarily as a
result of potential changes in the fair market value of financial instruments
that would result from adverse fluctuations in interest rates and foreign
currency exchange rates as discussed below. We entered into these instruments
other than for trading purposes.
INTEREST RATE RISK. We are exposed to interest rate risk through our
convertible and fixed rate long-term debt. The fair market value of fixed rate
debt will increase as prevailing interest rates decrease. The fair value of our
long-term debt is estimated based on quoted market prices, where applicable, or
based on the present value of expected cash flows relating to the debt
discounted at rates currently available to us for long-term borrowings with
similar terms and maturities. The estimated fair value of our long-term debt as
of March 31, 1999 was approximately $914 million, which is less than its
carrying value of $975 million. A hypothetical 10% decrease in interest rates
would increase the fair market value of our long-term debt by approximately $49
million.
FOREIGN CURRENCY EXCHANGE RATE RISK. We operate in a number of
international areas and are involved in transactions denominated in currencies
other than U.S. dollars, which expose us to foreign exchange rate risk. We
utilize forward exchange contracts, local currency borrowings and the payment
structure of customer contracts to selectively hedge our exposure to exchange
rate fluctuations in connection with monetary assets, liabilities and cash flows
denominated in certain foreign currencies. A hypothetical 10% decrease in the
U.S. dollar relative to the value of all foreign currencies as of March 31, 1999
would result in an approximate $2.4 million decrease in the fair value of our
forward exchange contracts. We do not hold or issue forward exchange contracts
or other derivative financial instruments for speculative purposes.
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DESCRIPTION OF BUSINESS
Pride is a leading international provider of contract drilling and related
services, operating both offshore and on land. In recent years, we have focused
our growth strategy on the higher margin offshore and international drilling
markets. Offshore and international markets generally have greater profit
potential than domestic land-based markets, primarily as a result of less
competition, higher utilization rates and stronger demand resulting from a
general trend by oil and gas companies to shift expenditures to exploration and
development activities offshore and abroad. Currently, we operate a global fleet
of 307 rigs, including three semisubmersible rigs, 17 jackup rigs, nine
tender-assisted rigs, four barge rigs, 23 offshore platform rigs and 251
land-based drilling and workover rigs. We operate in more than 20 countries and
marine provinces. The significant diversity of our rig fleet and areas of
operations enables us to provide a broad range of services and to take advantage
of market upturns while reducing our exposure to sharp downturns in any
particular market sector or geographic region.
Most recently, we have focused on increasing the size of our fleet capable
of drilling in deeper waters. The deepwater market generally supports
longer-term, higher-rate contracts, and we believe that our experience in
deepwater markets positions us to compete effectively in this sector. Through
our subsidiary Pride-Foramer S.A. (which we acquired in 1997), we have drilled
since 1977 a total of 43 wells in water depths greater than 1,300 feet and have
participated in the design and construction of four drillships and two
semisubmersible rigs. We have recently completed or are participating in the
following additional offshore rig acquisition and construction projects:
o AMETHYST 1 PURCHASE. In October 1998, we purchased for $85 million
the AMETHYST 1, a dynamically positioned, self-propelled
semisubmersible drilling rig capable of working in water depths of up
to 4,000 feet. The AMETHYST 1 is currently working offshore Brazil
under a charter and service contract that expires in 2001.
o DRILLSHIP JOINT VENTURES. We have entered into joint ventures to
construct, own and operate the PRIDE AFRICA and the PRIDE ANGOLA, two
ultra-deepwater drillships that are currently under construction in
South Korea. The drillships, which will be capable of operating in
water depths of up to 10,000 feet, are contracted to work for Elf
Exploration Angola for initial terms of five and three years,
respectively. We expect the PRIDE AFRICA to commence operations in
mid-1999 and the PRIDE ANGOLA to commence operations in late 1999 or
early 2000. Pride and the joint ventures have entered into financing
arrangements with a group of banks that are providing approximately
$400 million of the drillships' total estimated construction cost of
$470 million. Upon commencement of operations of the drillships, the
loans will become nonrecourse to the joint venture participants. We
have a 51% ownership interest in each joint venture and estimate that
our total equity investment in the projects will be approximately $38
million.
o AMETHYST JOINT VENTURES. We have a 30% equity interest in a joint
venture company organized to construct, own and operate four
Amethyst-class dynamically positioned semisubmersible drilling rigs.
The rigs, which will be larger, enhanced versions of the AMETHYST 1,
are currently under construction at shipyards in South Korea and the
United States. Upon their completion, the rigs will be operated under
charter and service contracts with Petroleo Brasilerio S.A. having
initial terms of six to eight years. Delivery of the rigs is expected
in mid-2000. The estimated total cost of the rigs is $700 million,
$540 million of which is being provided by loans from third-party
lenders. Pride has made aggregate equity contributions to the joint
venture of approximately $46 million as of March 31, 1999.
The joint venture has contracts with Petrobras to provide two
additional deepwater rigs. The joint venture originally intended to
build two additional Amethyst-class rigs. Construction contracts with
respect to those two rigs were terminated, however, after the shipyard
at which the rigs were to be constructed filed for protection from its
creditors. The joint venture partners are currently evaluating
alternatives relating to these two contracts, which include: (a)
chartering other rigs currently available in the market to fulfill the
related Petrobras charter
S-28
<PAGE>
and service contracts, (b) constructing these two additional
Amethyst-class rigs at another shipyard or (c) undertaking other
mutually acceptable arrangements. We can give no assurance, however,
that any of these efforts will be successful.
OPERATIONS
SOUTH AMERICA
Through a series of acquisitions and the deployment of underutilized
domestic assets, we have significantly expanded our South American operations
and now operate two semisubmersible rigs, three jackup rigs, two tender-assisted
rigs, three floating barge rigs and 230 land-based rigs in the region.
BRAZIL. In September 1997, our semisubmersible rig NYMPHEA began drilling
offshore Brazil for Petrobras. The rig is working under a contract expiring in
2001. In October 1998, we purchased the AMETHYST 1 for approximately $85
million. The rig, which is equipped to provide offshore drilling, subsea well
intervention, well tie-back and related construction services, is currently
working offshore Brazil under a charter and service contract that expires in
2001.
VENEZUELA. Our offshore fleet in Venezuela includes three jackup rigs, two
tender-assisted rigs and three barge rigs operating on Lake Maracaibo. Two of
the jackup rigs that we operate under contracts expiring in 1999 are owned by
Petroleos de Venezuela, S.A. The other jackup rig is owned by us and operates
under a contract expiring in December 2000. In 1995, we placed two floating
barge rigs into service on Lake Maracaibo that are working under ten-year
contracts with PDVSA. We also operate one other floating barge rig and two
tender-assisted rigs under management contracts with PDVSA that expire in 2000.
Our land-based fleet in Venezuela currently consists of 48 rigs, of which 14 are
drilling rigs and 34 are workover rigs.
ARGENTINA. In Argentina, we believe our 142 land-based rigs represent
approximately 50% of the land-based rigs in the Argentine market. Of these rigs,
36 are drilling rigs and 106 are workover rigs. Argentine rig operations are
generally conducted in remote regions of the country and require substantial
fixed infrastructure and operating support costs. We believe that our
established infrastructure and scale of operations provide us with a competitive
advantage in this market.
COLOMBIA. In Colombia, we currently operate 13 land-based drilling rigs
and eight land-based workover rigs under contracts with the national oil company
and with major international oil operators. We believe we are well positioned to
capitalize on opportunities in Colombia.
BOLIVIA. Demand for rig services has increased in Bolivia as a result of
the privatization of components of the Bolivian national oil company, as well as
significant sales of exploration blocks to private-sector operators. In
addition, exploration activity for natural gas in Bolivia has increased as a
result of the recent construction of a major gas pipeline from Bolivia to
markets in Brazil. In July 1998, we acquired a 60% interest in Compania
Boliviana de Perforacion S.A.M., which operates seven land-based drilling and
six land-based workover rigs in Bolivia. In addition, we have recently mobilized
three land-based drilling and three land-based workover rigs from Argentina for
jobs in Bolivia.
GULF OF MEXICO
In May 1997, we acquired 13 mat-supported jackup rigs, 11 of which are
currently located in the Gulf of Mexico. The remaining two rigs are located in
West Africa and Southeast Asia. This acquisition positioned us as the second
largest operator in the Gulf of Mexico of mat-supported jackup rigs capable of
operating in water depths of 200 feet or greater.
We also operate a fleet of 22 offshore modular platform rigs in the Gulf of
Mexico. We believe our fleet is one of the most technologically advanced fleets
in the industry.
S-29
<PAGE>
The recent declines experienced in the offshore drilling markets have had
their greatest impact on demand for our platform and jackup fleets. For further
discussion, please read "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Outlook."
OTHER INTERNATIONAL
OFFSHORE. Our semisubmersible rig, SOUTH SEAS DRILLER, is currently
operating offshore South Africa under a contract extending through April 2000,
with a three-well option thereafter. We also operate seven tender-assisted rigs.
The BARRACUDA is currently located in the Middle East. The ILE DE SEIN is under
contract in Indonesia through the end of 1999, with a one-year option, and the
PIRANHA is contracted in Brunei through the end of November 1999, with a
two-well option. Through a joint venture, we own a 12.5% interest in the
self-erecting Tender AL BARAKA I. In addition to our ownership interest, we also
manage the rig. The ALLIGATOR is currently idle. The CORMORANT and the ILE DE LA
MARTINIQUE are stacked. We operate one swamp barge rig, the BINTANG KALIMANTAN,
which is located in Nigeria. We have one platform rig operating in Indonesia.
LAND. We currently operate six land-based rigs in North Africa and four in
the Middle East.
S-30
<PAGE>
RIG FLEET
OFFSHORE RIGS
We have presented in the table below information about our offshore rig
fleet as of May 1, 1999:
OFFSHORE RIGS
<TABLE>
<CAPTION>
BUILT/ WATER DRILLING
UPGRADED OR DEPTH DEPTH
EXPECTED RATING RATING
RIG NAME RIG TYPE/DESIGN COMPLETION (FEET) (FEET) LOCATION
- ------------------------------------- ---------------------------- ------------ ------- --------- ---------------
<S> <C> <C> <C> <C> <C>
DRILLSHIPS -- 2
Pride Africa(1) Gusto 10,000 1999 10,000 30,000 Korea
Pride Angola(1) Gusto 10,000 1999 10,000 30,000 Korea
SEMISUBMERSIBLE RIGS -- 7
Nymphea F&G Pacesetter 1987 1,500 25,000 Brazil
South Seas Driller Aker H-3 1977/1997 1,000 20,000 South Africa
Amethyst 1(2) Amethyst Class 1989 4,000 20,000 Brazil
Amethyst 4(3) Amethyst Class 2000 5,000 25,000 Mississippi
Amethyst 5(3) Amethyst Class 2000 5,000 25,000 Mississippi
Amethyst 6(3) Amethyst Class 2000 5,000 25,000 Korea
Amethyst 7(3) Amethyst Class 2000 5,000 25,000 Korea
JACKUP RIGS -- 17
Pride Pennsylvania Independent leg cantilever 1973/1998 300 20,000 India
Ile du Levant Independent leg cantilever 1991 270 20,000 Venezuela
GP-19(4) Independent leg cantilever 1987 150 20,000 Venezuela
GP-20(4) Independent leg cantilever 1987 200 20,000 Venezuela
Pride Alabama Mat-supported cantilever 1982 200 25,000 Gulf of Mexico
Pride Alaska Mat-supported cantilever 1982 250 25,000 Gulf of Mexico
Pride Arkansas Mat-supported cantilever 1982 200 25,000 Gulf of Mexico
Pride Colorado Mat-supported cantilever 1982 200 25,000 Gulf of Mexico
Pride Kansas Mat-supported cantilever 1999 250 25,000 Gulf of Mexico
Pride Mississippi Mat-supported cantilever 1990 200 25,000 Gulf of Mexico
Pride New Mexico Mat-supported cantilever 1982 200 25,000 Gulf of Mexico
Pride Texas Mat-supported cantilever 1999 300 20,000 Gulf of Mexico
Pride California Mat-supported slot 1997 250 20,000 Malaysia
Pride Louisiana Mat-supported slot 1981 250 25,000 Gulf of Mexico
Pride Oklahoma Mat-supported slot 1996 250 20,000 Gulf of Mexico
Pride Wyoming Mat-supported slot 1976 250 25,000 Gulf of Mexico
Pride Utah Mat-supported slot 1990/1998 45 20,000 Nigeria
TENDER-ASSISTED RIGS -- 9
Alligator Self-erecting barge 1992/1998 330 20,000 Cabinda
Barracuda Self-erecting barge 1992 330 20,000 Middle East
Al Baraka I(5) Self-erecting barge 1994 650 20,000 Middle East
Ile de Sein Self-erecting barge 1990/1997 450 16,000 Indonesia
Piranha Self-erecting barge 1978/1998 600 20,000 Brunei
Cormorant Converted ship 1991 300 16,400 Angola
Ile de la Martinique Converted ship 1985 400 16,000 UAE
GP-14(4) Tender barge 1985 150 20,000 Venezuela
GP-18(4) Tender barge 1985 150 20,000 Venezuela
BARGE RIGS -- 4
Pride I Floating cantilever 1995 150 20,000 Venezuela
Pride II Floating cantilever 1995 150 20,000 Venezuela
Galileo II(4) Floating cantilever 1992/1997 150 20,000 Venezuela
Bintang Kalimantan Posted swamp barge 1995 N/A 16,000 Nigeria
<CAPTION>
RIG NAME STATUS
- ------------------------------------- --------------
<S> <C>
DRILLSHIPS -- 2
Pride Africa(1) Shipyard
Pride Angola(1) Shipyard
SEMISUBMERSIBLE RIGS -- 7
Nymphea Working
South Seas Driller Working
Amethyst 1(2) Working
Amethyst 4(3) Shipyard
Amethyst 5(3) Shipyard
Amethyst 6(3) Shipyard
Amethyst 7(3) Shipyard
JACKUP RIGS -- 17
Pride Pennsylvania Working
Ile du Levant Working
GP-19(4) Working
GP-20(4) Working
Pride Alabama Available
Pride Alaska Available
Pride Arkansas Working
Pride Colorado Working
Pride Kansas Working
Pride Mississippi Working
Pride New Mexico Working
Pride Texas Available
Pride California Available
Pride Louisiana Working
Pride Oklahoma Available
Pride Wyoming Available
Pride Utah Available
TENDER-ASSISTED RIGS -- 9
Alligator Available
Barracuda Working
Al Baraka I(5) Working
Ile de Sein Working
Piranha Working
Cormorant Stacked
Ile de la Martinique Stacked
GP-14(4) Working
GP-18(4) Working
BARGE RIGS -- 4
Pride I Working
Pride II Working
Galileo II(4) Working
Bintang Kalimantan Available
</TABLE>
(TABLE CONTINUED ON FOLLOWING PAGE)
S-31
<PAGE>
<TABLE>
<CAPTION>
BUILT/ WATER DRILLING
UPGRADED OR DEPTH DEPTH
EXPECTED RATING RATING
RIG NAME RIG TYPE/DESIGN COMPLETION (FEET) (FEET) LOCATION
- ------------------------------------- ---------------------------- ------------ ------- --------- ---------------
<S> <C> <C> <C> <C> <C>
PLATFORM RIGS -- 23
Rig 1501E Heavy electrical 1996 N/A 25,000 Gulf of Mexico
Rig 1502E Heavy electrical 1998 N/A 25,000 Gulf of Mexico
Rig 1002E Heavy electrical 1996 N/A 20,000 Gulf of Mexico
Rig 1003E Heavy electrical 1996 N/A 20,000 Gulf of Mexico
Rig 1004E Heavy electrical 1997 N/A 20,000 Gulf of Mexico
Rig 1005E Heavy electrical 1998 N/A 20,000 Indonesia
Rig 750E Heavy electrical 1992 N/A 16,500 Gulf of Mexico
Rig 751E Heavy electrical 1995 N/A 16,500 Gulf of Mexico
Rig 650E Intermediate electrical 1994 N/A 15,000 Gulf of Mexico
Rig 651E Intermediate electrical 1995 N/A 15,000 Gulf of Mexico
Rig 653E Intermediate electrical 1995 N/A 15,000 Gulf of Mexico
Rig 951 Heavy mechanical 1995 N/A 18,000 Gulf of Mexico
Rig 952 Heavy mechanical 1995 N/A 18,000 Gulf of Mexico
Rig 30 Intermediate mechanical 1986 N/A 15,000 Gulf of Mexico
Rig 100 Intermediate mechanical 1990 N/A 15,000 Gulf of Mexico
Rig 110 Intermediate mechanical 1990 N/A 15,000 Gulf of Mexico
Rig 130 Intermediate mechanical 1991 N/A 15,000 Gulf of Mexico
Rig 170 Intermediate mechanical 1991 N/A 15,000 Gulf of Mexico
Rig 200 Intermediate mechanical 1993 N/A 15,000 Gulf of Mexico
Rig 210 Intermediate mechanical 1996 N/A 15,000 Gulf of Mexico
Rig 220 Intermediate mechanical 1995 N/A 15,000 Gulf of Mexico
Rig 14 Light mechanical 1994 N/A 10,000 Gulf of Mexico
Rig 15 Light mechanical 1994 N/A 10,000 Gulf of Mexico
<CAPTION>
RIG NAME STATUS
- ------------------------------------- --------------
<S> <C>
PLATFORM RIGS -- 23
Rig 1501E Working
Rig 1502E Working
Rig 1002E Working
Rig 1003E Working
Rig 1004E Available
Rig 1005E Working
Rig 750E Available
Rig 751E Available
Rig 650E Available
Rig 651E Available
Rig 653E Working
Rig 951 Working
Rig 952 Available
Rig 30 Stacked
Rig 100 Stacked
Rig 110 Stacked
Rig 130 Available
Rig 170 Stacked
Rig 200 Available
Rig 210 Available
Rig 220 Available
Rig 14 Working
Rig 15 Stacked
</TABLE>
- ------------
(1) Currently under construction. These rigs will be owned by joint ventures in
which we have a 51% interest.
(2) In February 1999, we completed a transaction in which we sold the rig to a
third party and leased the rig back under a charter expiring in 2012.
(3) Currently under construction. These rigs will be owned by a joint venture in
which we have a 30% interest.
(4) Operated but not owned by us.
(5) Owned by a joint venture in which we have a 12.5% interest.
DRILLSHIPS. The PRIDE AFRICA and PRIDE ANGOLA, currently under
construction, are ultra-deepwater self-propelled drillships that can be
positioned over a drill site through the use of a computer-controlled thruster
(dynamic positioning) system. Drillships normally require water depths of at
least 200 feet to conduct operations. Drillships are suitable for deepwater
drilling in moderate weather environments and in remote locations because of
their mobility and large load-carrying capacity.
SEMISUBMERSIBLE RIGS. Our semisubmersible rigs are floating platforms
that, by means of a water ballasting system, can be submerged to a predetermined
depth so that a substantial portion of the lower hulls, or pontoons, are below
the water surface during drilling operations. The rig is "semisubmerged,"
remaining afloat in a position where the lower hull is about 60 to 80 feet below
the water line and the upper deck protrudes well above the surface. This type of
rig maintains its position over the well through the use of either an anchoring
system or a computer-controlled thruster system similar to those described
above.
JACKUP RIGS. The jackup rigs we operate are mobile, self-elevating
drilling platforms equipped with legs that can be lowered to the ocean or lake
floor until a foundation is established to support the drilling platform. The
rig legs may have a lower hull or mat attached to the bottom to provide a more
stable foundation in soft bottom areas. Independent leg rigs are better suited
for harsher or uneven seabed conditions. Jackup rigs are generally subject to a
maximum water depth of approximately 350 to 400 feet, while some jackup rigs may
drill in water depths as shallow as ten feet. The water depth limit of a
particular rig is determined by the length of the rig's legs and the operating
environment. Moving a rig from one drill site to another involves lowering the
hull into the
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<PAGE>
water until it is afloat and then jacking up its legs with the hull floating on
the surface of the water. The hull is then towed to the new drilling site. A
cantilever jackup has a feature that allows the drilling platform to be extended
out from the hull, allowing it to perform drilling or workover operations over a
preexisting platform or structure. Certain cantilever jackup rigs have
"skid-off" capability, which allows the derrick equipment to be skidded onto
an adjacent platform, thereby increasing the operational capacity of the rig.
Slot type jackup rigs are configured for drilling operations to take place
through a slot in the hull. Slot type rigs are usually used for exploratory
drilling because their configuration makes them difficult to position over
existing platforms or structures.
TENDER-ASSISTED RIGS. Our tender-assisted rigs are generally
non-self-propelled barges moored alongside a platform and containing crew
quarters, mud pits, mud pumps and power generation systems. The only equipment
transferred to the platform for drilling or workover operations is the derrick
equipment set consisting of the substructure, drillfloor, derrick and drawworks.
As a result, tender-assisted rigs are less hazardous and allow smaller, less
costly platforms to be used for development projects. Self-erecting tenders
carry their own derrick equipment set and have a crane capable of erecting the
derrick on the platform, thereby eliminating the cost associated with a separate
derrick barge and related equipment.
BARGE RIGS. We operate barge rigs on Lake Maracaibo, Venezuela that have
been designed to work in a floating mode with a cantilever feature and a mooring
system that enables the rig to operate in waters up to 150 feet deep. In
Nigeria, we operate a posted swamp barge rig. This rig is held on location by
legs or posts that are jacked down into the sea floor before commencement of
work.
PLATFORM RIGS. Our platform rigs consist of drilling equipment and
machinery arranged in modular packages that are transported to and assembled and
installed on fixed offshore platforms owned by the customer. Fixed offshore
platforms are steel, tower-like structures that stand on the ocean floor, with
the top portion, or platform, above the water level, providing the foundation
upon which the platform rig is placed. Platform rigs are often used to provide
drilling and horizontal reentry services using top drives, enhanced pumps and
solids control equipment for drilling fluids, as well as for workover services.
LAND-BASED RIGS
We have presented in the table below information about our land-based rig
fleet as of May 1, 1999:
LAND-BASED RIGS
<TABLE>
<CAPTION>
COUNTRY TOTAL DRILLING WORKOVER
- ------------------------------------- ----- -------- --------
<S> <C> <C> <C>
SOUTH AMERICA -- 230
Argentina....................... 142 36 106
Venezuela....................... 48 14 34
Colombia........................ 21 13 8
Bolivia......................... 19 10 9
AFRICA/MIDDLE EAST -- 10
Algeria......................... 4 4 --
Libya........................... 2 1 1
Oman............................ 3 3 --
Bahrain......................... 1 1 --
OTHER -- 11 11 3 8
--
----- ---
Total Land-Based Rigs...... 251 85 166
===== == ===
</TABLE>
A land-based drilling rig consists of engines, drawworks, a mast
substructure, pumps to circulate the drilling fluid, blowout preventers, drill
string and related equipment. The engines power a rotary
S-33
<PAGE>
table that turns the drill string, causing the drill bit to bore through the
subsurface rock layers. Rock cuttings are carried to the surface by the
circulating drilling fluid. The intended well depth and the drilling site
conditions are the principal factors that determine the size and type of rig
most suitable for a particular drilling job.
A land-based well servicing rig consists of a mobile carrier, engine,
drawworks and derrick. The primary function of a well servicing rig is to act as
a hoist so that pipe, rods and down-hole equipment can be run into and out of a
well. All of our well servicing rigs can be readily moved between well sites and
between geographic areas of operations.
SERVICES PROVIDED
DRILLING SERVICES
We provide contract drilling services to oil and gas exploration and
production companies through the use of mobile offshore and land-based drilling
rigs. Generally, land-based rigs and offshore platform rigs operate with crews
of six to 17 persons while semisubmersible rigs, jackup rigs, tender-assisted
rigs and barge rigs operate with crews of 15 to 25 persons. We provide the rig
and drilling crew and are responsible for the payment of operating and
maintenance expenses.
MAINTENANCE AND WORKOVER SERVICES
Maintenance services are required on producing oil and gas wells to ensure
efficient, continuous operation. These services consist of mechanical repairs
necessary to maintain production from the well, such as repairing parted sucker
rods, replacing defective down-hole pumps in an oil well or replacing defective
tubing in a gas well. We provide the rigs, equipment and crews for these
maintenance services, which are performed on both oil and gas wells but which
are more often required on oil wells. Many of our rigs also have pumps and tanks
that can be used for circulating fluids into and out of the well. Typically,
maintenance jobs are performed on a series of wells in geographic proximity to
each other, take less than 48 hours per well to complete and require little, if
any, revenue-generating equipment other than a rig.
In addition to periodic maintenance, producing oil and gas wells
occasionally require major repairs or modifications, called "workovers."
Workover services include the opening of new producing zones in an existing
well, recompletion of a well in which production has declined, drilling out
plugs and packers and the conversion of a producing well to an injection well
during enhanced recovery operations. These extensive workover operations are
normally performed by a well servicing rig with additional specialized accessory
equipment, which may include rotary drilling equipment, mud pumps, mud tanks and
blowout preventers, depending upon the particular type of workover operation.
Most of our rigs are designed and equipped to handle the more complex workover
operations. A workover may last from a few days to several weeks.
ENGINEERING SERVICES
We employ a technical staff dedicated to industry research and development
and to designing specialized drilling equipment to fulfill specific customer
requirements. The engineering staff has designed and managed the fabrication of
several of the rigs in our offshore rig fleet and is actively involved in our
newbuild projects. We also provide turnkey, project management and other
engineering services, which enhance our contract drilling services.
COMPETITION
Competition in the international markets in which we operate ranges from
large multinational competitors offering a wide range of well servicing and
drilling services to smaller, locally owned businesses. We believe that we are
competitive in terms of pricing, performance, equipment, safety, availability of
equipment to meet customer needs and availability of experienced, skilled
personnel in the international areas in which we operate.
S-34
<PAGE>
Drilling contracts are generally awarded on a competitive bid basis and,
while an operator may consider quality of service and equipment, intense price
competition is the primary factor in determining which contractor, among those
with suitable rigs, is awarded a job. Certain of our competitors have greater
financial resources than us, which may enable them to better withstand periods
of low utilization, to compete more effectively on the basis of price, to build
new rigs or to acquire existing rigs.
CUSTOMERS
We work for large multinational oil and gas companies, government-owned oil
companies and independent oil and gas producers. In 1998, we had two customers,
PDVSA and Perez Companc S.A., that accounted for more than 10% of our
consolidated revenues.
CONTRACTS
Our drilling contracts are awarded through competitive bidding or on a
negotiated basis. The contract terms and rates vary depending on competitive
conditions, the geographical area, the geological formation to be drilled, the
equipment and services to be supplied, the on-site drilling conditions and the
anticipated duration of the work to be performed.
Oil and gas well drilling contracts are carried out on either a dayrate,
footage or turnkey basis. Under dayrate contracts, we charge the customer a
fixed charge per day regardless of the number of days needed to drill the well.
In addition, dayrate contracts usually provide for a reduced day rate (or lump
sum amount) for mobilizing the rig to the well location and for assembling and
dismantling the rig. Under dayrate contracts, we ordinarily bear no part of the
costs arising from down-hole risks (such as time delays for various reasons,
including a stuck or broken drill string or blowouts). Most of our contracts are
on a dayrate basis. Other contracts provide for payment on a footage basis,
whereby we are paid a fixed amount for each foot drilled regardless of the time
required or the problems encountered in drilling the well. We may also enter
into turnkey contracts, whereby we agree to drill a well to a specific depth for
a fixed price and to bear some of the well equipment costs. Compared to dayrate
contracts, footage and turnkey contracts involve a higher degree of risk to us
and, accordingly, normally provide greater profit potential.
In international offshore markets, contracts generally provide for longer
terms than contracts in domestic offshore markets. When contracting abroad, we
are faced with the risks of currency fluctuation and, in certain cases, exchange
controls. Typically, we limit these risks by obtaining contracts providing for
payment in U.S. dollars or freely convertible foreign currency. To the extent
possible, we seek to limit our exposure to potentially devaluating currencies by
matching our acceptance thereof to our expense requirements in such local
currencies. We can give no assurance that we will be able to continue to take
such actions in the future, thereby exposing us to foreign currency fluctuations
that could have a material adverse effect upon our results of operations and
financial condition. Currently, foreign exchange in the countries where we
operate is carried out on a free-market basis. We can give no assurances,
however, that the local monetary authorities in these countries will not
implement exchange controls in the future. Please read "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Quantitative
and Qualitative Disclosure About Market Risk."
SEASONALITY
In general, our business activities are not significantly affected by
seasonal fluctuations. Our rigs are located in geographical areas that are not
subject to severe weather that would halt operations for prolonged periods.
EMPLOYEES
We currently employ approximately 6,500 employees. Approximately 1,000 of
our employees are located in the United States and 5,500 are located abroad.
Hourly rig crew members constitute the
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<PAGE>
vast majority of employees. None of our international employees are subject to
industry-wide labor contracts within their respective countries. Management
believes that our employee relations are good.
LEGAL PROCEEDINGS
We are routinely involved in litigation incidental to our business, which
often involves claims for significant monetary amounts, some of which would not
be covered by insurance. In the opinion of management, none of the existing
litigation will have a material adverse effect on our financial position or
results of operations.
MANAGEMENT
We have presented below information about our directors and executive
officers as of May 1, 1999. Directors are elected at our annual meeting of
shareholders and serve for five-year terms or until their successors are elected
and qualified or until their earlier resignation or removal in accordance with
our bylaws. The term of each director listed below will continue until the 2003
annual meeting of shareholders. Officers are elected annually by the Board of
Directors and serve until their successors are chosen or until their resignation
or removal. In March 1999, Ray H. Tolson retired from his positions as our
Chairman of the Board and Chief Executive Officer. In connection with the First
Reserve transaction, William E. Macaulay, Chairman and Chief Executive Officer
of First Reserve, will become a director of Pride.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------- --- -----------------------------------
<S> <C> <C>
Paul A. Bragg............ 43 President, Chief Executive Officer
and Director
James W. Allen........... 55 Senior Vice President -- Operations
and Chief Operating Officer
Gerard Godde............. 56 Senior Vice President -- Business
Development
Gary W. Casswell......... 46 Vice President -- Eastern
Hemisphere Operations
John O'Leary............. 43 Vice President -- Marketing
Earl W. McNiel........... 40 Vice President, Chief Financial
Officer and Treasurer
Robert W. Randall........ 56 Vice President -- General Counsel
and Secretary
James B. Clement......... 53 Director
Remi Dorval.............. 48 Director
Jorge E. Estrada M....... 51 Director
Christian J. Boon 52 Director
Falleur................
Ralph D. McBride......... 52 Director
James T. Sneed........... 67 Director
</TABLE>
PAUL A. BRAGG was appointed Chief Executive Officer and director of Pride
in March 1999 upon the retirement of Ray H. Tolson. He has been our President
and Chief Operating Officer since February 1997. He joined Pride in July 1993 as
its Vice President and Chief Financial Officer. From 1988 until he joined Pride,
Mr. Bragg was an independent business consultant and managed private
investments. He previously served as Vice President and Chief Financial Officer
of Energy Service Company, Inc. (now ENSCO International, Inc.), an oilfield
services company, from 1983 through 1987.
JAMES W. ALLEN was named Senior Vice President -- Operations in February
1996 and Chief Operating Officer in April 1999. He joined Pride in January 1993
as its Vice President -- International Operations (Latin America). From 1988
through 1992, Mr. Allen was an independent business consultant and managed
private investments. From 1984 to 1988, he was Vice President Latin America for
ENSCO. Mr. Allen has approximately 30 years of oilfield experience with several
different companies.
GERARD GODDE was appointed Senior Vice President -- Business Development in
September 1998. Mr. Godde joined Pride as a Senior Vice President in March 1997
in connection with the
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Forasol transaction. Mr. Godde served as Senior Vice President and Chief
Operating Officer of Forasol from April 1996 until September 1998. He was
Managing Director of Forasol from 1987 until September 1998. Mr. Godde joined
Forasol in 1968 and has been involved with the management of its various
offshore and land operations in Africa, the Middle East and North America.
GARY W. CASSWELL was named Vice President -- Eastern Hemisphere Operations
in May 1999. He joined Pride in August 1998 and has approximately 21 years of
oilfield drilling experience. From 1974 through 1998, Mr. Casswell was
Operations Manager and Technical Development Manager of Santa Fe International
Corporation.
JOHN O'LEARY was named Vice President -- International Marketing in March
1997 in connection with the Forasol transaction. Mr. O'Leary had been Manager,
Marketing and Business Development of Forasol since June 1993, with primary
responsibility for worldwide business development. Mr. O'Leary joined Forasol
S.A. in August 1985.
EARL W. MCNIEL has been Vice President and Chief Financial Officer of Pride
since February 1997. He joined Pride in September 1994 as its Chief Accounting
Officer. From 1990 to 1994, Mr. McNiel served as Chief Financial Officer of
several publicly owned waste management companies. From 1987 to 1990, he was
employed by ENSCO as Manager, Finance.
ROBERT W. RANDALL has been Vice President and General Counsel of Pride
since May 1991. He was elected Secretary in 1993. Prior to 1991, he was Senior
Vice President, General Counsel and Secretary for Tejas Gas Corporation, a
natural gas transmission company.
JAMES B. CLEMENT has been a director of Pride since November 1993. From
1977 until October 1997, he was an executive officer of Offshore Logistics,
Inc., a publicly traded company engaged in helicopter transportation services,
serving as its President, Chief Executive Officer and a director since 1988. He
is currently serving as a consultant to Offshore Logistics and manages personal
investments. In March 1999, he was elected Chairman of the Board of Pride.
REMI DORVAL became a director of Pride in March 1997 in connection with the
Forasol transaction. From that time until March 1999, he served as Vice Chairman
of the Board of Pride. For more than five years prior to becoming a director,
Mr. Dorval was a Supervisory Director and Chief Executive Officer of Forasol and
its predecessors. Since 1990, he has been a supervisory director of Soletanche
Group, a privately held French company, and is in charge of its interests in the
oil and gas sector.
JORGE E. ESTRADA M. has been a director of Pride since October 1993. For
more than five years, Mr. Estrada has been President and Chief Executive Officer
of JEMPSA Media and Entertainment, a company specializing in the Spanish and
Latin American entertainment industry. Previously, Mr. Estrada served as
President -- Worldwide Drilling Division of Geosource and Vice President of
Geosource Exploration Division -- Latin America.
CHRISTIAN J. BOON FALLEUR became a director of Pride in March 1997 in
connection with the Forasol transaction. For more than five years prior to
becoming a director, Mr. Boon Falleur was a Supervisory Director and Executive
Vice President of Forasol and its predecessors. He has been affiliated since
1972 with Ackermans & van Haaren Group, a publicly traded company listed on the
Brussels Stock Exchange, and is currently in charge of its energy services and
construction sections.
RALPH D. MCBRIDE has been a director of Pride since September 1995. Mr.
McBride has been a partner with the law firm of Bracewell & Patterson, L.L.P. in
Houston, Texas, since 1980. In March 1999, he was elected Vice Chairman of the
Board of Pride.
JAMES T. SNEED has been a director of Pride since October 1992. In 1991 he
retired after 37 years of employment with Mobil Oil Corporation where he was
Production Manager USA.
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DESCRIPTION OF NOTES
We will issue the notes under an Indenture dated as of May 1, 1997 between
us and The Chase Manhattan Bank, as trustee. We have summarized selected
provisions of the indenture and the notes below. The notes are a separate series
of "Senior Debt Securities" described in the accompanying prospectus, and this
summary supplements that description. We encourage you to read that description
for provisions that may be important to you.
In this summary description of the notes, all references to "we" or
"Pride" are to Pride International, Inc., excluding its subsidiaries, unless
the context clearly indicates otherwise. We have used in this summary
description capitalized terms that we have defined below under "-- Glossary."
GENERAL
The notes will mature on , 2009 and will bear interest at
% per year. The notes will be limited in aggregate principal amount to $300
million, $200 million of which we will issue in this offering (the "Offered
Notes"). We may issue additional amounts of the notes from time to time after
the closing date of this offering, subject to the limitations described below
under "-- Restrictive Covenants -- Limitation on Indebtedness" and
restrictions contained in our credit facility and other agreements to which we
are a party at the time of any such issuance. We:
o will pay interest semiannually on and
of each year, commencing , 1999
o will pay interest to the person in whose name a note is registered at
the close of business on the or
preceding the interest payment date
o will compute interest on the basis of a 360-day year consisting of
twelve 30-day months
o will make payments on the notes at the offices of the trustee
o may make payments by wire transfer for notes held in book-entry form
or by check mailed to the address of the person entitled to the
payment as it appears in the note register
We will issue the notes only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple thereof.
The notes will be our senior unsecured obligations and will rank equally in
right of payment with all our other senior unsecured and unsubordinated debt and
senior to all our subordinated debt.
Holders of our secured debt (including lenders under our credit facility)
will have claims to the assets constituting collateral for this debt. If we are
involved in any dissolution, liquidation or reorganization, our secured debt
holders would be paid before you receive any amounts due under the notes to the
extent of the value of the assets securing their debt. If the value of the
collateral is not enough to pay off the secured debt, secured creditors would be
entitled to share claims with holders of notes with respect to any other of our
assets.
The notes will be subordinated to all of the creditors, including trade
creditors and tort claimants, of our subsidiaries that do not guarantee the
notes, and to all secured creditors of any subsidiary guarantors. These
creditors and claimants have a claim to the assets of our subsidiaries which is
prior to that of holders of the notes.
As of March 31, 1999, as adjusted to give effect to the offering of the
Offered Notes and the application of the net proceeds, Pride would have had
$236.8 million of secured debt and our subsidiaries would have had $372.1
million of debt and other liabilities outstanding to creditors other than Pride.
SUBSIDIARY GUARANTEES OF NOTES
Under the circumstances described below, our payment obligations under the
notes may in the future be jointly and severally guaranteed by our existing or
future subsidiaries as subsidiary guarantors. Initially, we expect that there
will be no subsidiary guarantors. Although the indenture
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does not contain any requirement that any subsidiary execute and deliver a
subsidiary guarantee, covenants described below may require a subsidiary in the
future to execute and deliver a subsidiary guarantee prior to its guarantee of
our other Indebtedness. See "-- Restrictive Covenants -- Limitation on
Non-Guarantor Subsidiaries."
Under its subsidiary guarantee, each subsidiary guarantor will guarantee,
jointly and severally, to each holder of notes and the trustee, the full and
prompt performance of our obligations under the indenture and the notes,
including the payment of principal of (or premium, if any, on) and interest on
the notes.
The subsidiary guarantees will be unsecured senior obligations of each
subsidiary guarantor and will rank:
o equally in right of payment with all senior Indebtedness of that
subsidiary guarantor and
o senior in right of payment to all Subordinated Indebtedness of that
subsidiary guarantor
o effectively subordinated to secured Indebtedness of the subsidiary
guarantor with respect to the assets securing that Indebtedness
The obligations of each subsidiary guarantor will be limited to the maximum
amount that will result in the obligations of that subsidiary guarantor under
its subsidiary guarantee not constituting a fraudulent conveyance or fraudulent
transfer under federal or state law, after giving effect to the following:
o all other contingent and fixed liabilities of that subsidiary
guarantor and
o any collections from or payments made by or on behalf of any other
subsidiary guarantor for the obligations of that other subsidiary
guarantor under its subsidiary guarantee or under its contribution
obligations contained in the indenture
Each subsidiary guarantor that makes a payment or distribution under a
subsidiary guarantee will be entitled to a contribution from each other
subsidiary guarantor in a pro rata amount based on the Adjusted Net Assets of
each subsidiary guarantor.
Each subsidiary guarantor may consolidate with or merge into or sell or
otherwise dispose of all or substantially all of its property and assets to us
or another subsidiary guarantor without limitation, except to the extent any
transaction is subject to the "-- Consolidation, Merger and Sale of Assets"
covenant described below. Each subsidiary guarantor may consolidate with or
merge into or sell all or substantially all of its property and assets to a
person other than us or another subsidiary guarantor (whether or not affiliated
with the subsidiary guarantor) only if:
o the surviving entity, if not the subsidiary guarantor, agrees to
assume the subsidiary guarantor's subsidiary guarantee and all its
obligations under the indenture, except to the extent the subsidiary
guarantee and obligations are released as described below and
o the transaction does not either violate any of the covenants described
below under "-- Restrictive Covenants" or result in a default or
event of default that is continuing
A subsidiary guarantor will be released from its subsidiary guarantee and
all of its obligations under the indenture upon:
o the sale or other disposition, by merger or otherwise, of a subsidiary
guarantor or all or substantially all of its property and assets to a
person other than us or another subsidiary guarantor and in a
transaction that is otherwise in compliance with the indenture or
o the release of all guarantees by a subsidiary guarantor of our
Indebtedness
Any such release will occur, however, only to the extent that all obligations of
the subsidiary guarantor under all of its guarantees of, and under all of its
pledges of assets or other security interests that secure, our other
Indebtedness or other Indebtedness of any other subsidiary also terminate or are
released upon the sale or other disposition.
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OPTIONAL REDEMPTION
We may not redeem the notes prior to , 2004. On or after that date,
we may redeem some or all of the notes from time to time at our option at the
following prices, which are expressed in percentages of the principal amount, if
redeemed during the 12 months beginning of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ------------------------------------- ----------
<S> <C>
2004................................. %
2005................................. %
2006................................. %
2007 and thereafter.................. 100.000%
</TABLE>
In each case, we will pay accrued interest to the date of redemption (subject to
the right of holders of record on the relevant record date to receive interest
due on the relevant interest payment date).
If we redeem fewer than all the notes, the trustee will select the notes
for redemption by lot or by any other means it determines to be fair and
appropriate.
Notwithstanding the foregoing, at any time on or prior to , 2002, we
may redeem up to an aggregate of $ principal amount of notes at a
redemption price of % of the principal amount of the notes we redeem, plus
accrued and unpaid interest to the redemption date, with the net proceeds from a
Qualified Equity Offering. At least $ in aggregate principal amount of
notes must, however, remain outstanding immediately after the redemption. Any
such redemption must occur within 60 days of the closing date of the Qualified
Equity Offering.
In the event that we become or would become obligated to pay any Additional
Amounts (as defined herein) and we are unable to avoid the requirement to pay
such Additional Amounts by taking reasonable measures available to us, then we
may redeem all, but not less than all, of the notes at any time at 100% of the
principal amount thereof on the redemption date, together with accrued interest
thereon, if any, to but excluding the redemption date. Prior to the publication
of the notice of redemption in accordance with the foregoing, we will deliver to
the trustee an officer's certificate stating that we are entitled to effect such
redemption based on a written opinion of independent tax counsel or accounting
firm reasonably satisfactory to the trustee. Please read "-- Additional
Amounts."
CHANGE OF CONTROL
Upon a Change of Control, each holder of notes may require us to repurchase
all or any part of that holder's notes (the "Change of Control Offer") at a
purchase price in cash equal to 101% of the aggregate principal amount of those
notes, plus any accrued and unpaid interest to the Change of Control payment
date, on the terms described below.
Within 30 days following any Change of Control, we will announce the Change
of Control Offer via Dow Jones News Service and mail a notice to each holder of
notes and to the trustee stating, among other things:
o that a Change of Control has occurred
o that we are making a Change of Control Offer
o that, although holders are not required to tender their notes, we will
accept all notes that are timely tendered for payment
o the purchase price and the repurchase date, which will be no earlier
than 30 days and no later than 60 days after the date the notice is
mailed
o the circumstances and relevant facts regarding the Change of Control
(including information with respect to pro forma historical income,
cash flow and capitalization)
o that any note accepted for payment will cease to accrue interest after
the Change of Control payment date and
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o the instructions and any other information necessary to enable holders
to tender their notes and have such notes purchased in the Change of
Control Offer
We will comply with any applicable tender offer rules, including any applicable
requirements of Rule 14e-1 under the Securities Exchange Act of 1934, in the
event that the Change of Control Offer is triggered under the circumstances
described in this section and in the definition of Change of Control.
Except as we have described above, the indenture does not contain
provisions that permit the holders to require us to repurchase or redeem the
notes in the event of a takeover, recapitalization or similar restructuring.
One of the events that constitutes a Change of Control under the indenture
is a sale, conveyance, transfer or lease of all or substantially all of our and
our subsidiaries' assets, taken as a whole. New York law will govern the
indenture and the notes, and there is no established quantitative definition
under New York law of "substantially all" of the assets of a corporation.
Accordingly, if we engaged in a transaction in which we disposed of less than
all of our assets, a question or interpretation could arise as to whether that
disposition was of "substantially all" of our assets and whether we were
required to make a Change of Control Offer.
The indenture may not afford holders protection in the event of a highly
leveraged transaction, reorganization, restructuring, merger or similar
transaction affecting us that may adversely affect holders, if that transaction
is not the type of transaction included within the definition of Change of
Control. A transaction involving our management or the management of our
Affiliates, or a transaction involving a recapitalization of us, will result in
a Change of Control only if it is the type of transaction specified in the
definition.
The source of funds for the repurchase of notes upon a Change of Control
will be our cash or cash generated from operations or other sources, including
borrowings or sales of assets. A "change of control" under our credit facility
constitutes an event of default under that facility that relieves the lenders
from any obligation to make loans and allows them to accelerate the indebtedness
outstanding under the credit facility. Sufficient funds may not be available at
the time of any Change of Control under the notes to repay all Indebtedness
owing under other senior Indebtedness or to make the required payments of the
notes. Any failure by us to repurchase notes tendered pursuant to a Change of
Control Offer will constitute an event of default under the indenture. See
"Risk Factors -- We may not be able to repurchase notes upon a change of
control."
RESTRICTIVE COVENANTS
TRANSACTIONS WITH AFFILIATES. Pride will, and will permit any Subsidiary
to, conduct any business, enter into or permit to exist any transaction or
series of related transactions, including the purchase, sale or exchange of
Property, the making of any Investment, the giving of any guarantee or the
rendering of any service with any Affiliate of Pride (other than transactions
among Pride and any Wholly Owned Subsidiaries) only if:
(1) the transaction or series of related transactions is on terms set
forth in writing which are no less favorable to Pride or the
Subsidiary than those that could be obtained in a comparable arm's
length transaction with a person that is not such an Affiliate and
(2) either
o with respect to a transaction or series of related transactions
that has a Fair Market Value in excess of $2 million but less than
$5 million, Pride certifies to the trustee that the transaction or
series of related transactions complies with clause (1) above or
o with respect to a transaction or series of related transactions
that has a Fair Market Value equal to or in excess of $5 million,
the transaction or series of related transactions is approved by a
majority of Pride's Board of Directors, including a majority of the
disinterested directors, which approval is evidenced by a board
resolution that the transaction or series of related transactions
complies with clause (1) above
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These provisions will not apply to the following:
o reasonable compensation (including amounts paid pursuant to employee
benefit plans) and indemnification paid or made available to an
officer, director or employee of Pride or a Subsidiary for services
rendered in that person's capacity as an officer, director or employee
or
o the making of any Restricted Payment otherwise permitted by the
indenture
LIMITATION ON RESTRICTED PAYMENTS. Pride will, and will permit any
Subsidiary to, make any Restricted Payment only if, at the time of and after
giving effect to the proposed Restricted Payment:
(1) no default or event of default has occurred and is continuing or would
result from the payment
(2) Pride could incur at least $1.00 of additional Indebtedness under the
tests described in the first sentence under the caption
" -- Limitation on Indebtedness" and
(3) the aggregate amount of such Restricted Payment and all Restricted
Payments (the amount of any Restricted Payment not made in cash will
be based on Fair Market Value) declared or made on or after the issue
date of the Offered Notes by Pride or any Subsidiary does not exceed
the sum of:
o 50% of the aggregate Consolidated Net Income accrued during the
period beginning on the first day of the fiscal quarter in which
the issue date of the Offered Notes falls and ending on the last
day of the fiscal quarter ending immediately prior to the date of
such proposed Restricted Payment (or if such Consolidated Net
Income is a deficit, minus 100% of the deficit) plus
o an amount equal to the aggregate net cash proceeds Pride
receives, after the issue date of the Offered Notes, from the
issuance or sale (other than to a Subsidiary or an employee stock
ownership plan or trust established by Pride for the benefit of
its employees) of shares of its Capital Stock, excluding
Redeemable Stock but including the Capital Stock issued upon the
exercise of options, warrants or rights to purchase the Capital
Stock (other than Redeemable Stock) of Pride, and the liability
(expressed as a positive number) in accordance with GAAP for any
of Pride's Indebtedness or carrying value of Redeemable Stock,
which has been converted into, exchanged for or satisfied by the
issuance of shares of the Capital Stock (other than Redeemable
Stock) of Pride, after the issue date of the Offered Notes plus
o to the extent not otherwise included in Consolidated Net Income,
the net reduction in Investments in Non-Recourse Subsidiaries or
joint ventures resulting from dividends, repayments of loans or
advances, releases or discharges of guarantees, or other
transfers of assets, in each case to Pride or a Subsidiary after
the issue date of the Offered Notes from any Non-Recourse
Subsidiary or joint venture or from the redesignation of a
Non-Recourse Subsidiary as a Subsidiary (valued in each case as
provided in the definition of Investment), not to exceed in the
case of any Non-Recourse Subsidiary or joint venture the total
amount of Investments (other than Permitted Investments) in such
Non-Recourse Subsidiary or joint venture made by Pride and its
Subsidiaries in such Non-Recourse Subsidiary or joint venture
existing on or made after the issue date of the Offered Notes,
plus
o to the extent not otherwise included in Consolidated Net Income
or in the previous bullet point, the total amount of Investments
in joint ventures (calculated as of the issue date of the Offered
Notes) which have become Wholly Owned Subsidiaries of Pride
subsequent to the issue date of the Offered Notes, plus
o $25 million.
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These provisions will not prevent:
(A) the payment of any dividend on the Capital Stock of any class within
60 days after the date of its declaration if at the date of
declaration the payment would be permitted by the indenture; PROVIDED
that at the time of the declaration of such dividend, no default shall
have occurred and be continuing,
(B) any repurchase or redemption of the Capital Stock or Subordinated
Indebtedness of Pride made by exchange for the Capital Stock of Pride
(other than Redeemable Stock), or out of the net cash proceeds from
the substantially concurrent issuance or sale (other than to a
Subsidiary) of the Capital Stock of Pride (other than Redeemable
Stock), if the net cash proceeds from the sale are excluded from
computations under the second bullet point under (3) above to the
extent such proceeds are applied to purchase or redeem such Capital
Stock or Subordinated Indebtedness, and
(C) any repurchase or redemption of Subordinated Indebtedness of Pride
solely in exchange for, or out of the net cash proceeds from the
substantially concurrent sale of, new Subordinated Indebtedness of
Pride, so long as the Subordinated Indebtedness:
o is subordinated to the notes at least to the same extent as the
Subordinated Indebtedness so exchanged, purchased or redeemed
o has a stated maturity later than the stated maturity of the
Subordinated Indebtedness so exchanged, purchased or redeemed and
o has an Average Life at the time incurred that is greater than the
remaining Average Life of the Subordinated Indebtedness so
exchanged, purchased or redeemed
Restricted Payments permitted to be made as described in (B) and (C) above will
be excluded in calculating the amount of Restricted Payments thereafter;
Restricted Payments made as described in (A) above will be included.
LIMITATION ON INDEBTEDNESS. Pride will, and will permit any Subsidiary to,
create, incur, assume, suffer to exist, guarantee or otherwise become liable
with respect to the payment of (collectively, "incur") any Indebtedness (other
than Non-Recourse Indebtedness) only if, after giving pro forma effect to the
incurrence of that Indebtedness, no default or event of default would occur, the
Consolidated Interest Coverage Ratio for the Determination Period preceding the
applicable transaction date is at least 2.5 to 1.0. Pride or any Subsidiary may,
however, incur Permitted Indebtedness. Any Indebtedness of a person existing at
the time that person becomes a Subsidiary will be deemed to be incurred by that
Subsidiary at the time it becomes a Subsidiary.
LIMITATION ON SUBSIDIARY INDEBTEDNESS AND PREFERRED STOCK. Pride will not
permit any Subsidiary to incur any Indebtedness (other than Indebtedness of
Non-Recourse Subsidiaries) or issue any preferred stock except:
(a) Indebtedness or preferred stock issued to and held by Pride or a
Wholly Owned Subsidiary, so long as any transfer of such Indebtedness
or preferred stock to a person other than Pride or a Wholly Owned
Subsidiary will be deemed to constitute the issuance of such
Indebtedness or preferred stock by the issuer
(b) Indebtedness or preferred stock of a Subsidiary issued and outstanding
prior to the date on which Pride acquires that Subsidiary (other than
Indebtedness or preferred stock issued in connection with or in
anticipation of the acquisition)
(c) Indebtedness or preferred stock outstanding on the issue date of the
Offered Notes
(d) Indebtedness described in clauses (2), (3), (4), (6) and (7) under the
definition of "Permitted Indebtedness"
(e) Permitted Subsidiary Refinancing Indebtedness of that Subsidiary
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(f) preferred stock issued in exchange for, or the proceeds of which are
used to refinance, repurchase or redeem, Indebtedness or preferred
stock described in clauses (b) and (c) of this paragraph (the
"Retired Indebtedness or Stock"), if the preferred stock so issued
has
o a liquidation value not in excess of the principal amount or
liquidation value of the Retired Indebtedness or Stock plus related
expenses for redemption and issuance and
o a redemption date later than the stated maturity or redemption date
(if any) of the Retired Indebtedness or Stock
(g) Indebtedness of a Subsidiary that represents the assumption by that
Subsidiary of Indebtedness of another Subsidiary (other than
Non-Recourse Indebtedness) in connection with a merger of those
Subsidiaries, if no Subsidiary or any successor existing on the issue
date of the Offered Notes assumes or otherwise becomes responsible for
any Indebtedness of an entity that is not a Subsidiary on the issue
date of the Offered Notes, except to the extent that a Subsidiary
would be permitted to incur such Indebtedness under this paragraph
(h) Indebtedness to finance the construction and operation of the
drillships PRIDE AFRICA and PRIDE ANGOLA pursuant to the credit
agreements among Pride, certain of its subsidiaries, and lenders
thereunder, as in effect on the issue date of the Offered Notes, and
any refinancings or replacements thereof and
(i) Indebtedness or preferred stock of any Subsidiary, which when taken
together with all other Indebtedness and preferred stock of the
Subsidiaries (except Indebtedness or preferred stock incurred pursuant
to clauses (a), (b) and (d) of this covenant and clauses (e) and (f)
of this covenant to the extent relating to debt incurred pursuant to
clauses (a), (b) and (d) of this convenant), does not exceed at any
one time outstanding the greater of
o $100 million and
o 15% of Consolidated Net Tangible Assets determined as of the date
of incurrence of such Indebtedness
LIMITATIONS ON DIVIDENDS AND OTHER PAYMENT RESTRICTIONS AFFECTING
SUBSIDIARIES. Pride will not, and will not permit any Subsidiary to, create,
enter into any agreement with any person or otherwise cause or suffer to exist
or become effective any consensual encumbrance or restriction of any kind that
by its terms restricts the ability of any Subsidiary to:
o pay dividends or make any other distributions on its Capital Stock to
Pride or any Subsidiary
o pay any Indebtedness owed to Pride or any Subsidiary
o make loans or advances to Pride or any Subsidiary or
o transfer any of its Property or assets to Pride or any Subsidiary
This restriction will not apply to any encumbrance or restriction contained in
any agreement or instrument:
(1) existing on the issue date of the Offered Notes
(2) relating to any Property acquired after the issue date, so long as
the encumbrance or restriction relates only to the Property or asset
so acquired
(3) relating to any Indebtedness of any Subsidiary at the date on which
the Subsidiary was acquired by Pride or any Subsidiary (other than
Indebtedness incurred in connection with or in anticipation of the
acquisition)
(4) effecting a refinancing of Indebtedness issued under an agreement
referred to in clauses (1) through (3) above, so long as the
encumbrances and restrictions contained in any such refinancing
agreement, taken as a whole, are no more restrictive than the
encumbrances and restrictions contained in the agreements
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(5) constituting customary provisions restricting subletting or
assignment of any lease of Pride or any Subsidiary or provisions in
agreements that restrict the assignment of such agreement or any
rights thereunder
(6) constituting restrictions on the sale or other disposition of any
Property securing Indebtedness as a result of a Permitted Lien on
such Property
(7) constituting any temporary encumbrance or restriction with respect to
a Subsidiary under an agreement that has been entered into for the
sale or disposition of all or substantially all of the outstanding
Capital Stock of or Property and assets of each Subsidiary provided
that such sale or disposition is otherwise permitted under the
Indenture
(8) constituting customary restrictions on cash, other deposits or assets
imposed by customers and other persons under contracts entered into
in the ordinary course of business or
(9) constituting provisions contained in agreements or instruments
relating to Indebtedness that prohibit the transfer of all or
substantially all of the assets of the obligor under that agreement
or instrument unless the transferee assumes the obligations of the
obligor under such agreement or instrument or such assets may be
transferred subject to such prohibition
LIMITATION ON ASSET SALES. Pride will engage in, and will permit any
Subsidiary to engage in, any Asset Sale only if:
(1) Pride or the Subsidiary, as the case may be, receives consideration at
the time of the Asset Sale at least equal to the Fair Market Value of
the Property subject to such Asset Sale, except in the case of:
o an Asset Sale resulting from the requisition of title to, seizure
or forfeiture of any Property or assets or any actual or
constructive total loss or an agreed or compromised total loss or
o a Bargain Purchase Contract
(2) except in the case of an Asset Sale described in the two bullet points
in clause (1), at least 75% of the consideration consists of Cash
Proceeds or the assumption of Indebtedness (other than Subordinated
Indebtedness) of Pride or the Subsidiary relating to the Capital Stock
or Property that was the subject of such Asset Sale and the release of
Pride or the Subsidiary from Indebtedness
(3) after giving effect to such Asset Sale, the total non-cash
consideration Pride holds from all such Asset Sales does not exceed
$10 million and
(4) Pride certifies to the trustee that such Asset Sale complies with (1),
(2) and (3) above
The requirement described in (2) does not, however, apply to an Asset Sale in
which Pride exchanges assets for assets that constitute Replacement Assets.
Pride or such Subsidiary, as the case may be, may apply the Net Available
Proceeds from each Asset Sale:
o to the acquisition of one or more Replacement Assets or
o to repurchase or repay Senior Debt (other than Indebtedness owed to
Pride or an Affiliate of Pride) (with a permanent reduction of
availability in the case of revolving credit borrowings)
Such acquisition or such repurchase or repayment must, however, be made within
365 days after the consummation of the relevant Asset Sale. The following
amounts will be deemed to be cash for purposes of this provision:
o any liabilities of Pride or any Subsidiary (as shown on Pride's or
such Subsidiary's most recent balance sheet or in the notes thereto),
other than liabilities that by their terms are subordinated to the
notes or the applicable subsidiary guarantee that are assumed by the
transferee of any such assets as a result of which Pride and its
subsidiaries are no longer obligated with respect to such liabilities
and
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o any debt or other obligations received by Pride or any such Subsidiary
from such transferee that are converted by Pride or such Subsidiary
into cash (to the extent of the cash received) within 120 days of such
Asset Sale
Any Net Available Proceeds from any Asset Sale that are not used to acquire
Replacement Assets or to repurchase or repay Senior Debt within 365 days after
consummation of the relevant Asset Sale constitute "Excess Proceeds." When the
aggregate amount of Excess Proceeds exceeds $10 million, Pride will, or at any
time after receipt of Excess Proceeds, Pride may, at its option, make a pro rata
offer to all holders of notes and other Indebtedness (excluding Pride's 9 3/8%
Senior Notes due 2007) that ranks by its terms equally in right of payment with
the notes and the terms of which contain substantially similar requirements with
respect to the application of net proceeds from asset sales as are contained in
the indenture (an "Asset Sale Offer") to purchase on a pro rata basis the
maximum principal amount of the notes and other such Indebtedness in integral
multiples of $1,000 that may be purchased out of the Excess Proceeds, at an
offer price in cash equal to 100% of the outstanding principal amount thereof
plus any accrued interest to the purchase date. Upon completion of any Asset
Sale Offer, the amount of Excess Proceeds will be reset to zero and Pride may
use any remaining amount for general corporate purposes.
Within five business days after Pride is obligated to make an Asset Sale
Offer, Pride will send a written notice to holders of Notes, accompanied by such
information as Pride in good faith believes will enable holders to make an
informed decision with respect to the Asset Sale Offer.
Pride will comply with any applicable tender offer rules, including any
applicable requirements of Rule 14e-1 under the Securities Exchange Act of 1934,
in the event that an Asset Sale Offer is required under the circumstances
described above.
LIMITATION ON SALE AND LEASE-BACK TRANSACTIONS. Pride will, and will
permit any Subsidiary to, enter into, assume, guarantee or otherwise become
liable with respect to any Sale and Lease-Back Transaction only if:
o the proceeds from the Sale and Lease-Back Transaction are at least
equal to the Fair Market Value of the Property being transferred and
o Pride or the Subsidiary would have been permitted to enter into the
transaction under the covenants described under the caption
"-- Limitation on Indebtedness" and under the captions
"-- Limitation on Subsidiary Indebtedness and Preferred Stock" and
"-- Limitation on Liens"
LIMITATION ON LIENS. Pride will not, and will not permit any Subsidiary
to, create, affirm, incur, assume or suffer to exist any Liens on or with
respect to any Property of Pride or that Subsidiary or any interest in that
Property or any income or profits from that Property, without effectively
securing the notes equally and ratably with (or prior to) the Indebtedness so
secured. This restriction will not apply to Permitted Liens.
LIMITATION ON NON-GUARANTOR SUBSIDIARIES. Pride will permit any Subsidiary
that is not a subsidiary guarantor to guarantee the payment of any of
Indebtedness of Pride only if:
(1) both
o such Subsidiary simultaneously executes and delivers a supplemental
indenture providing for a subsidiary guarantee of the notes by such
Subsidiary and
o with respect to any guarantee of Subordinated Indebtedness by a
Subsidiary, any such guarantee will be subordinated to that
Subsidiary's guarantee of the notes at least to the same extent as
such Subordinated Indebtedness is subordinated to the notes
(2) such Subsidiary waives, and agrees not in any manner whatsoever to
exercise any right or claim or take the benefit or advantage of, any
rights of reimbursement, indemnity or subrogation or any other rights
against Pride or any other Subsidiary as a result of any
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payment by such Subsidiary under its subsidiary guarantee of the notes
until such time as the obligations guaranteed thereby are paid in full
and
(3) such Subsidiary delivers to the trustee an opinion of independent
legal counsel to the effect that such subsidiary guarantee of the
notes has been duly executed and authorized and constitutes a valid,
binding and enforceable obligation of the Subsidiary, except insofar
as enforcement may be:
o limited by bankruptcy, insolvency or similar laws (including all
laws relating to fraudulent transfers) and
o subject to general principles of equity
This covenant will not, however, apply to any guarantee of any Subsidiary that
either:
o existed at the time such person became a Subsidiary of Pride and
o was not incurred in connection with, or in contemplation of, that
person becoming a Subsidiary of Pride
In addition, a pledge of assets to secure any Indebtedness for which the
pledgor is not otherwise liable will not be considered a guarantee.
CONSOLIDATION, MERGER AND SALE OF ASSETS
Pride will consolidate with or merge into any other entity (other than a
merger of a Subsidiary into Pride in which Pride is the continuing entity), or
sell, convey, assign, transfer, lease or otherwise dispose of all or
substantially all of the Property and assets of Pride and its Subsidiaries,
taken as a whole, to any person, only if:
(1) either
o Pride is the continuing entity or
o the resulting entity is organized under the laws of the United
States of America or any State thereof or the District of Columbia,
the Bahamas, Barbados, Bermuda, the British Virgin Islands, the
Cayman Islands, any of the Channel Islands, France, the
Netherlands, or the Netherlands Antilles and assumes by a
supplemental indenture the due and punctual payments on the notes
and the performance of Pride's covenants and obligations under the
indenture
(2) immediately after giving effect to the transaction on a pro forma
basis (including any Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such transaction):
o no default or event of default under the indenture has occurred and
is continuing or would result from the transaction and
o Pride or the resulting entity will have a Consolidated Net Worth
equal to or greater than the Consolidated Net Worth of Pride
immediately prior to the transaction
(3) immediately after giving effect to the transaction on a pro forma
basis as if the transaction had occurred on the first day of the
Determination Period, Pride or the resulting entity would be permitted
to incur $1.00 of additional Indebtedness under the tests described in
the first sentence under the caption " -- Restrictive
Covenants -- Limitation on Indebtedness" and
(4) in the event that Pride or the resulting entity is organized in a
jurisdiction other than the United States or the jurisdiction in which
such entity was incorporated immediately prior to such transaction:
o such continuing entity delivers to the trustee under the
indenture an opinion of counsel stating that (i) the obligations
of the continuing entity under the indenture are enforceable
under the
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laws of the new jurisdiction of its formation subject to
customary exceptions and (ii) the holders of notes will not
recognize any income, gain or loss for U.S. federal income tax
purposes as a result of the transaction and will be subject to
U.S. federal income tax on the same amount and in the same manner
and at the same times as would have been the case if such
transaction had not occurred
o the continuing entity agrees in writing to submit to jurisdiction
and appoints an agent for the service of process, each under
terms substantially similar to the terms contained in the
Indenture with respect to Pride
o the continuing entity agrees in writing to pay "additional
amounts" as provided under the indenture with respect to Pride,
except that such "additional amounts" shall relate to any
withholding tax whatsoever regardless of any change of law
subject to exceptions substantially similar to those contained in
the indenture and
o the board of directors of the continuing entity determines in
good faith that such transaction will have no material adverse
effect on any holder of the notes and a board resolution to that
effect is delivered to the trustee
The provision with respect to Consolidated Net Worth described in clause
(2) above and the provision described in clause (3) above will not apply to any
merger or consolidation into or with, or any transfer of all or substantially
all of the Property and assets of Pride and its Subsidiaries taken as a whole
into, Pride or a Wholly Owned Subsidiary.
In connection with any consolidation, merger, asset transfer or other
transaction contemplated by this restriction, Pride will deliver or cause to be
delivered to the trustee an officers' certificate and an opinion of counsel,
each stating that such consolidation, merger, asset transfer or transaction and
the supplemental indenture in respect thereto comply with the provisions of the
indenture and that all conditions precedent in the Indenture relating to such
transactions have been complied with.
Upon any transaction of the type described in and effected in accordance
with this section, the resulting entity will succeed to and be substituted for
and may exercise every right and power of Pride under the indenture and the
notes with the same effect as if the resulting entity had been named as Pride in
the indenture. When the resulting entity assumes all the obligations and
covenants of Pride under the indenture and the notes, except in the case of a
lease, the Pride will be relieved of all such obligations.
EVENTS OF DEFAULT
In addition to the Events of Default described in the accompanying
prospectus, each of the following is an "event of default" with respect to the
notes under the indenture:
(a) our failure to comply with any of our covenants or agreements
contained in " -- Consolidation, Merger or Sale of Assets" or our
failure to make a Change of Control Offer or an Asset Sale Offer in
accordance with " -- Change of Control" and " -- Restrictive
Covenants -- Limitation on Asset Sales"
(b) the failure in the performance or breach of any covenant or agreement
by Pride or any subsidiary guarantor contained in the notes, any
subsidiary guarantee of the notes or the indenture (other than a
covenant or agreement a default in performance or breach of which is
specifically dealt with) for 30 days after written notice has been
mailed to Pride or such subsidiary guarantor by the trustee or to
Pride and the trustee by the holders of at least 25% of the aggregate
principal amount of the outstanding notes
(c) the failure by Pride or any Subsidiary to pay its Indebtedness when
due within the applicable grace period or the acceleration of such
Indebtedness by the holders thereof and, in either case, the aggregate
principal amount of the due and unpaid or accelerated Indebtedness
exceeds $10 million
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(d) the entry by a court of competent jurisdiction of one or more
judgments or orders against Pride or any Subsidiary in an uninsured or
unindemnified aggregate amount in excess of $10 million that remain
undischarged or unsatisfied for 30 consecutive days after the right to
appeal them has expired
(e) any subsidiary guarantee for any reason ceases to be, or is asserted
by Pride or any subsidiary guarantor, as applicable, not to be, in
full force and effect (except pursuant to the release of any such
subsidiary guarantee in accordance with the indenture) and
(f) bankruptcy, insolvency or reorganization events involving any
Subsidiary that constitutes a Significant Subsidiary
AMENDMENT, SUPPLEMENT AND WAIVER
We, the subsidiary guarantors and the trustee may enter into one or more
indentures supplemental to the indenture without notice to or consent of any
holder of the notes:
o to evidence the assumption by a successor of our covenants under the
indenture and the notes
o to add to our covenants for the benefit of the holders of the notes or
to surrender any right or power conferred upon us by the indenture
o to add events of default
o to provide for uncertificated notes in addition to or in place of
certificated notes (provided that the uncertificated notes are issued
in registered form for purposes of Section 163(f) of the Internal
Revenue Code of 1986 (the "Code"), or in a manner such that the
uncertificated notes are described in Section 163(f)(2)(b) of the
Code)
o to change or eliminate any provision of the indenture effective only
when there is not outstanding any note created prior to the execution
of such supplemental indenture entitled to the benefit of such
provision
o to comply with any requirement of the SEC in connection with
qualifying the Indenture under the Trust Indenture Act
o to secure the notes
o to cure any ambiguity, to correct or supplement any provision in the
indenture which may be inconsistent with any other provision in the
indenture or to add any other provisions with respect to matters or
questions arising under the indenture if such action will not
adversely affect the interests of the holders of the notes in any
material respect or
o to add guarantees with respect to the notes or release any guarantor
pursuant to the terms of the indenture
We, the subsidiary guarantors and the trustee may enter into one or more
indentures supplemental to the indenture with the consent of the holders of a
majority in aggregate principal amount of the outstanding notes, for the purpose
of adding any provisions to or changing in any manner or eliminating any of the
provisions of the indenture or of modifying in any manner the rights of the
holders. Without the consent of the holder of each outstanding note, however, no
supplemental indenture may:
o change the stated maturity of the principal of, or any installment of
interest on, any note
o reduce the principal amount of, any premium on or interest on any note
that would be due and payable upon maturity or the acceleration of
maturity
o change the place of payment where, or the coin or currency in which,
any note or interest thereon is payable
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o impair the right of any holder of notes to receive payment of
principal and interest on or after the due dates therefor or to
institute suit for the enforcement of any payment on or after the
stated maturity of the note
o release any security interest that may have been granted in favor of
holders of notes other than pursuant to the terms of such security
interest
o reduce the percentage in principal amount of the outstanding notes
whose holders must consent to any supplemental indenture or waiver
o modify our obligations to make a Change of Control Offer (including
reducing the premium payable thereon) or Asset Sale Offer
o subordinate in right of payment, or otherwise subordinate, the notes
or any Subsidiary Guaranty to any other Indebtedness or
o modify this provision for modification, except to increase any
percentage described above
The holders of a majority in principal amount of the outstanding notes may
on behalf of the holders of all the notes waive any past default under the
indenture and its consequences. Those holders may not, however, waive any
default in any payment on any note or in respect of a covenant or provision that
cannot be modified or amended without the consent of the holder of each
outstanding note affected.
DEFEASANCE
When we use the term defeasance, we mean discharge from some or all of our
obligations under the indenture. If we deposit with the trustee funds or U.S.
Government Obligations sufficient to make payments on the notes on the dates
those payments are due and payable, then, at our option, either of the following
will occur:
o we and the subsidiary guarantors will be discharged from our and their
obligations with respect to the notes and the subsidiary guarantees
("legal defeasance") or
o we and the subsidiary guarantors will no longer have any obligation to
comply with the restrictive covenants under the indenture, the related
events of default will no longer apply, but the other obligations
under the indenture and the notes, including the obligation to make
payments on the notes, will survive ("covenant defeasance")
If we elect legal defeasance, the holders of the notes will not be entitled
to the benefits of the indenture, except for our obligations relating to:
o registration of transfer or exchange of notes
o replacement of stolen, lost or mutilated notes
o maintenance of paying agencies and
o holding of monies for payment in trust
Holders of notes would be entitled to look only to the trust fund for
payments on their notes until maturity.
We will be required to deliver to the trustee an opinion of counsel that
the deposit and related defeasance would not cause the holders of the notes to
recognize income, gain or loss for federal income tax purposes and that the
holders would be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if the deposit and
related defeasance had not occurred. If we elect legal defeasance and discharge,
that opinion of counsel must be based upon a ruling from the United States
Internal Revenue Service or a change in law to that effect.
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GLOSSARY
"ADJUSTED NET ASSETS" of a subsidiary guarantor at any date means the
amount by which the fair value of the properties and assets of such subsidiary
guarantor exceeds the total amount of liabilities, including contingent
liabilities (after giving effect to all other fixed and contingent liabilities
incurred or assumed on such date), but excluding liabilities under its
subsidiary guarantee, of such subsidiary guarantor at such date.
"AFFILIATE" of any specified person means another person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled
by" and "under common control with"), as used with respect to any person,
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management or policies of that person, whether through the
ownership of voting securities, by agreement or otherwise. Beneficial ownership
of 10% or more of the voting securities of a person will, however, be deemed to
be control.
"ASSET SALE" means any direct or indirect sale, conveyance, transfer,
lease or other disposition (including any disposition by means of a merger,
consolidation or similar transaction) by Pride or any Subsidiary to any person
other than Pride or a Wholly Owned Subsidiary, in one transaction or a series of
related transactions, of
(1) any Capital Stock of any Subsidiary, except for directors' qualifying
shares or certain minority interests sold to other persons solely due
to local law requirements that there be more than one stockholder, but
which are not in excess of what is required for such purpose, or
(2) any other Property of Pride or any Subsidiary other than:
(A) sales of drill-string components or obsolete or worn out
equipment in the ordinary course of business or other assets
that, in Pride's reasonable judgment, are no longer used or
useful in the conduct of the business of Pride and its
Subsidiaries
(B) any drilling contract, charter (bareboat or otherwise) or other
lease of Property or other asset entered into by Pride or any
Subsidiary in the ordinary course of business, other than any
Bargain Purchase Contract
(C) a Restricted Payment or Permitted Investment permitted under "--
Restrictive Covenants -- Limitation on Restricted Payments"
(D) a Change of Control
(E) a consolidation, merger or the disposition of all or
substantially all of the assets of Pride in compliance with the
provision of the indenture described in "-- Consolidation, Merger
and Sale of Assets"
(F) any trade or exchange by Pride or any Subsidiary of one or more
drilling rigs or other vessels or equipment for one or more other
Replacement Assets owned or held by another person, if:
o the Fair Value of the Property traded or exchanged by Pride
or such Subsidiary (including cash or cash equivalents to be
delivered by Pride or such Subsidiary) is reasonably
equivalent to the fair value of the asset (together with
cash or cash equivalents to be received by Pride or such
Subsidiary) acquired, as determined by written appraisal by
a nationally (or industry) recognized investment banking
firm or appraisal firm and
o such exchange is approved by a majority of Pride's
disinterested directors and
(G) any transfers that, but for this clause (G), would be Asset
Sales, if:
o Pride elects to designate such transfers as not constituting
Asset Sales and
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o after giving effect to such transfers, the aggregate Fair Market
Value of the Property transferred in such transaction or any
such series of related transactions so designated does not
exceed $1,000,000
An Asset Sale includes dispositions by way of merger or consolidation or by
means of a Sale and Lease-Back Transaction other than a Sale and Lease-Back
Transaction that results in the creation or incurrence of:
o a Capital Lease Obligation of Pride or any Subsidiary or
o a lease of newly acquired, improved, upgraded or constructed assets,
which lease is treated as an operating lease in accordance with GAAP
and entered into within 180 days of the earlier of commencement of
commercial operations of such assets and completion of such
improvement, upgrade or construction
An Asset Sale also includes the requisition of title to, seizure of or
forfeiture of any Property or assets, or any actual or constructive total loss
or an agreed or compromised total loss of any Property or assets.
"ATTRIBUTABLE INDEBTEDNESS" in respect of a Sale and Lease-Back
Transaction means (1) if the Sale and Lease-Back Transaction is a Capital Lease
Obligation, the amount of Indebtedness represented thereby according to the
definition of "Capital Lease Obligation" and (2) in all other instances, the
present value (discounted at the interest rate borne by the notes, compounded
annually) of the total obligations of the lessee for rental payments during the
remaining term of the lease (or to the first date on which the lessee is
permitted to terminate such lease without the payment of a penalty) included in
the applicable Sale and Lease-Back Transaction, including any extension periods.
"AVERAGE LIFE" means, as of any date, the quotient obtained by dividing:
(1) the sum of the products of
o the number of years from such date to the date of each scheduled
principal payment (including any sinking fund or mandatory
redemption payment requirements) of the applicable debt security or
preferred stock multiplied in each case by
o the amount of such principal payment by
(2) the sum of all such principal payments
"BARGAIN PURCHASE CONTRACT" means a drilling contract, charter (bareboat
or otherwise) or lease that provides for acquisition of Property by the other
party to the agreement during or at the end of its term for less than Fair
Market Value of the Property at the time such right to acquire the Property is
granted.
"CAPITAL LEASE OBLIGATION" means, at any time as to any person with
respect to any Property leased by that person as lessee, the amount of the
liability with respect to the lease that would be required at such time to be
capitalized and accounted for as a capital lease on the balance sheet of such
person prepared in accordance with GAAP. For purposes of "-- Certain
Covenants -- Limitation on Liens," a Capital Lease Obligation shall be deemed
secured by a Lien on the Property being leased.
"CAPITAL STOCK" in any entity means any and all shares, interests,
partnership interests, participations or other equivalents in the equity
interest (however designated) in such entity and any rights (other than debt
securities convertible into an equity interest), warrants or options to acquire
an equity interest in such entity.
"CASH PROCEEDS" means, with respect to any Asset Sale by any person, the
aggregate consideration received for such Asset Sale by such person in the form
of cash or cash equivalents (including any amounts of insurance or other
proceeds received in connection with an Asset Sale of the type described in the
last sentence of the definition of Asset Sale), including payments for deferred
payment obligations when received in the form of cash or cash equivalents
(except to the extent that
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such obligations are financed or sold with recourse to such person or any
subsidiary thereof). For purposes of this definition, "cash or cash
equivalents" are deemed to include, for a period not to exceed 12 months from
the related Asset Sale, noncash consideration received with respect to an Asset
Sale to the extent that such noncash consideration consists of:
(1) publicly traded debt securities rated as "BBB-" or higher by
Standard & Poor's Ratings Service and "Baa3" or higher by Moody's
Investors Service, Inc. or
(2) other Indebtedness of a person if:
o the lowest rated long-term, unsecured debt obligation issued by
such person is rated "BBB-" or higher by S&P and "Baa3" or
higher by Moody's or
o in the case of other Indebtedness, the payment of such other
Indebtedness is secured by an irrevocable letter of credit issued
by a commercial bank having capital and surplus in excess of $100
million and long-term unsecured debt obligations rated at least
"A-" by S&P and "A3" by Moody's
"CHANGE OF CONTROL" means:
(1) a determination by Pride that any person or group (as defined in
Section 13(d)(3) or 14(d)(2) of the Exchange Act) has become the
direct or indirect beneficial owner (as defined in Rule 13d-3 under
the Exchange Act) of more than 50% of the Voting Stock of Pride
(2) Pride is merged with or into or consolidated with another corporation
and, immediately after giving effect to the merger or consolidation,
less than 50% of the outstanding voting securities entitled to vote
generally in the election of directors or persons who serve similar
functions of the surviving or resulting entity are then beneficially
owned (within the meaning of Rule 13d-3 of the Exchange Act) in the
aggregate by:
o the stockholders of Pride immediately prior to such merger or
consolidation or
o if the record date has been set to determine the stockholders of
Pride entitled to vote on such merger or consolidation, the
stockholders of Pride as of such record date
(3) Pride, either individually or in conjunction with one or more
Subsidiaries, sells, conveys, transfers or leases, or the Subsidiaries
sell, convey, transfer or lease, all or substantially all of the
assets of Pride and the Subsidiaries, taken as a whole (either in one
transaction or a series of related transactions), including Capital
Stock of the Subsidiaries, to any person or entity (other than a
Wholly Owned Subsidiary or a newly formed entity having substantially
the same shareholders, directly or indirectly, as Pride with holdings
in substantially the same proportion as such shareholders' holdings in
Pride)
(4) the liquidation or dissolution of Pride or
(5) the first day on which a majority of the individuals who constitute
the Board of Directors are not Continuing Directors
"CONSOLIDATED CURRENT LIABILITIES" of any entity means, as of any date,
the total liabilities (including tax and other proper accruals) of such entity
and its subsidiaries (other than Non-Recourse Subsidiaries) on a consolidated
basis at such date which may properly be classified as current liabilities in
accordance with GAAP, after eliminating (1) all intercompany items between such
entity and its subsidiaries or between subsidiaries and (2) all current
maturities of long-term Indebtedness.
"CONSOLIDATED INTEREST COVERAGE RATIO" means, as of the date of the
transaction giving rise to the need to calculate the Consolidated Interest
Coverage Ratio, the ratio of:
(1) the aggregate amount of EBITDA of Pride for the latest four fiscal
quarters for which financial information is available immediately
prior to the applicable transaction date (the "Determination
Period") to
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(2) the aggregate Consolidated Interest Expense of Pride that is
anticipated to accrue during a period consisting of the fiscal quarter
in which the transaction date occurs and the three subsequent fiscal
quarters (based upon the pro forma amount and maturity of, and
interest payments on, Indebtedness of Pride and its consolidated
Subsidiaries expected by Pride to be outstanding on the transaction
date and reasonably anticipated by Pride to be outstanding from time
to time during such period), assuming for the purposes of this
measurement the continuation of market interest rates prevailing on
the transaction date and base interest rates on floating interest rate
obligations equal to the base interest rates on such obligations in
effect as of the transaction date
This calculation is subject to the following qualifications:
o if Pride or any of its consolidated Subsidiaries is a party to any
Interest Swap Obligation that would have the effect of changing the
interest rate on any Indebtedness of Pride or any of its consolidated
Subsidiaries for such four-quarter period (or a portion thereof), the
resulting rate will be used for such four-quarter period or portion
thereof
o any Consolidated Interest Expense of Pride with respect to
Indebtedness incurred or retired by Pride or any of its Subsidiaries
during the fiscal quarter in which the transaction date occurs will be
calculated as if such Indebtedness was so incurred or retired on the
first day of the fiscal quarter in which the transaction date occurs
o if the transaction giving rise to the need to calculate the
Consolidated Interest Coverage Ratio would have the effect of
increasing or decreasing EBITDA in the future and if such increase or
decrease is readily quantifiable and is directly attributable to such
transaction, EBITDA will be calculated on a pro forma basis as if the
transaction had occurred on the first day of the four fiscal quarters
referred to in clause (1) of this definition, and if, during the same
four fiscal quarters:
o Pride or any of its consolidated Subsidiaries engage in any Asset
Sale, EBITDA for such period will be reduced by an amount equal to
the EBITDA (if positive), or increased by an amount equal to the
EBITDA (if negative), directly attributable to the assets that are
the subject of the Asset Sale for such period calculated on a pro
forma basis as if such Asset Sale and any related retirement of
Indebtedness had occurred on the first day of such period or
o Pride or any of its consolidated Subsidiaries acquires any material
assets other than in the ordinary course of business, EBITDA and
Consolidated Interest Expense (if Indebtedness is incurred or
assumed in connection with such acquisition) will be calculated on
a pro forma basis as if such acquisition and related financing had
occurred on the first day of the period
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any person for any
period, without duplication, the sum of:
(1) the aggregate amount of cash and noncash interest expense (including
capitalized interest) of such person and its subsidiaries (other than
Non-Recourse Subsidiaries) for such period as determined on a
consolidated basis in accordance with GAAP for Indebtedness,
including, without limitation:
o any amortization of debt discount
o net costs associated with Interest Swap Obligations (including any
amortization of discounts)
o the interest portion of any deferred payment obligation
o all accrued interest and
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o all commissions, discounts and other fees and charges owed with
respect to letters of credit, bankers acceptances or similar
facilities paid or accrued, or scheduled to be paid or accrued,
during such period other than for Non-Recourse Indebtedness
(2) dividends on preferred stock of such person (and preferred stock of
its subsidiaries (other than Non-Recourse Subsidiaries) if paid to a
person other than such person or its subsidiaries) declared and
payable in cash
(3) the portion of any rental obligation of such person or its
subsidiaries (other than Non-Recourse Subsidiaries) for any Capital
Lease Obligation allocable to interest expense in accordance with GAAP
(4) the portion of any rental obligation of such person or its
subsidiaries (other than Non-Recourse Subsidiaries) in respect of any
Sale and Lease-Back Transaction allocable to interest expense
(determined as if such were treated as a Capital Lease Obligation) and
(5) to the extent any debt of any other person is guaranteed by such
person or any of its subsidiaries (other than Non-Recourse
Subsidiaries), the aggregate amount of interest paid, accrued or
scheduled to be paid or accrued, by such other person during such
period attributable to any such debt
We will exclude from the calculation of Consolidated Interest Expense, to the
extent included above, amortization or writeoff of deferred financing costs of
such person and its subsidiaries during such period and any charge related or
any premium or penalty paid in connection with redeeming or retiring any
Indebtedness of such person and its subsidiaries prior to its stated maturity.
In each case, we will calculate Consolidated Interest Expense after elimination
of intercompany accounts among such person and its subsidiaries and as
determined in accordance with GAAP.
"CONSOLIDATED NET INCOME" of any person means, for any period, the
aggregate net income (or net loss, as the case may be) of such person and its
subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP. We will exclude from the calculation the following, without
duplication:
(1) any net income of any Non-Recourse Subsidiary, except that Pride's or
any Subsidiary's equity in the net income of such Non-Recourse
Subsidiary for such period will be included in such Consolidated Net
Income up to the aggregate amount of cash or cash equivalents actually
distributed by such Non-Recourse Subsidiary during such period to
Pride or such subsidiary as a dividend or other distribution
(2) gains and losses from Asset Sales or reserves relating thereto
(3) items classified as extraordinary (other than the tax benefit, if any,
of the utilization of net operating loss carryforwards or alternative
minimum tax credits)
(4) in the case of any computation of Consolidated Net Income for purposes
of determining compliance with the covenants described under the
caption "-- Restrictive Covenants -- Limitation on Restricted
Payments," the net income of any person acquired by such specified
person (other than a Non-Recourse Subsidiary) or any of its
subsidiaries in a pooling-of-interests transaction for any period
prior to the date of such acquisition
(5) any gain or loss, net of taxes, realized on the termination of any
employee pension benefit plan
(6) the net income of any subsidiary of such specified person to the
extent that the transfer to that person of that income is not at the
time permitted, directly or indirectly, by any means (including by
dividend, distribution, advance or loan or otherwise), by operation of
the terms of its charter or any agreement with a person other than
with such specified person, instrument held by a person other than by
such specified person, judgment, decree, order, statute, law, rule or
governmental regulations applicable to such subsidiary or its
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stockholders, except for any dividends or distributions actually paid
during such period by such subsidiary to such person
(7) the cumulative effect of changes in accounting principles and
(8) non-cash compensation expense for management stock options and other
incentive or benefit plans
"CONSOLIDATED NET TANGIBLE ASSETS" of any person means, as of any date,
Consolidated Tangible Assets of such person at such date, after deducting
(without duplication of deductions) all Consolidated Current Liabilities of such
person at such date.
"CONSOLIDATED NET WORTH" of any person means, as of any date, the sum of
the Capital Stock and additional paid-in capital plus retained earnings (or
minus accumulated deficit) of such person and its subsidiaries on a consolidated
basis at such date, each item determined in accordance with GAAP, less amounts
attributable to Redeemable Stock of such person or any of its subsidiaries.
"CONSOLIDATED TANGIBLE ASSETS" of any person means, as of any date, the
consolidated assets of such person and its subsidiaries (other than Non-Recourse
Subsidiaries) at such date, after eliminating intercompany items and after
deducting
(1) the net book value of all assets that would be classified as
intangibles under GAAP (including, without limitation, goodwill,
organizational expenses, trademarks, trade names, copyrights, patents,
licenses and any rights in any thereof) and
(2) any prepaid expenses, deferred charges and unamortized debt discount
and expense, each such item determined in accordance with GAAP
"CONTINUING DIRECTOR" means an individual who is a member of the Board of
Directors of Pride and either:
(1) who was a member of the Board of Directors on the issue date of the
Offered Notes or
(2) whose nomination for election or election to the Board of Directors
was approved by vote of at least 66 2/3% of the directors then still
in office who were either directors on the issue date of the notes or
whose election or nomination for election was previously so approved
"CURRENCY HEDGE OBLIGATIONS" means, at any time as to any person, the
obligations of such person at such time incurred in the ordinary course of
business pursuant to any foreign currency exchange agreement, option or future
contract or other similar agreement or arrangement designed to protect against
or manage such person's or any of its subsidiaries' exposure to fluctuations in
foreign currency exchange rates.
"DETERMINATION PERIOD" has the meaning specified under clause (1) of the
definition of "Consolidated Interest Coverage Ratio."
"EBITDA" means, with respect to any person for any period, the
Consolidated Net Income of such person, for such period, plus to the extent
reflected in the income statement of such person for such period from which
Consolidated Net Income is determined, without duplication:
(1) Consolidated Interest Expense
(2) income tax expense
(3) depreciation expense
(4) amortization expense
(5) any other non-cash charges
"FAIR MARKET VALUE" means the fair market value as determined in good
faith by the Board of Directors of Pride.
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"FAIR VALUE" means the price that could be negotiated in an arm's-length
free market transaction, for cash, between a willing seller and a willing buyer,
neither of whom is under undue pressure or compulsion to complete the
transaction.
"FUNDED INDEBTEDNESS" means all Indebtedness incurred under any revolving
credit, letter of credit or working capital facility that matures by its terms,
or that is renewable at the option of any obligor to a date more than, one year
after the date on which such Indebtedness is originally incurred.
"GAAP" means United States generally accepted accounting principles,
consistently applied, as set forth in the opinions of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
of the Financial Accounting Standards Board, or in such other statements by such
other entity as may be designated by the AICPA, that are applicable to the
circumstances as of the date of determination. All calculations made for
purposes of determining compliance with the provisions set forth in
"Consolidation, Merger and Sale of Assets" and with the terms of the covenants
set forth in "Restrictive Covenants" will, however, use GAAP in effect at the
issue date of the Offered Notes.
"INDEBTEDNESS" as applied to any person means, at any time, without
duplication:
(1) any obligation of such person, contingent or otherwise, for borrowed
money
(2) any obligation of such person evidenced by bonds, debentures, notes
or other similar instruments
(3) any obligation of such person for all or any part of the purchase
price of Property or for the cost of Property constructed or of
improvements thereto (including any obligation under or in connection
with any letter of credit related thereto), other than accounts
payable included in current liabilities incurred in respect of
Property and services purchased in the ordinary course of business
(4) any obligation of such person upon which interest charges are
customarily paid (other than accounts payable incurred in the
ordinary course of business)
(5) any obligation of such person under conditional sale or other title
retention agreements relating to purchased Property (other than
accounts payable incurred in the ordinary course of business)
(6) any obligation of such person issued or assumed as the deferred
purchase price of Property (other than accounts payable incurred in
the ordinary course of business)
(7) any Capital Lease Obligation
(8) any obligation of any other person secured by (or for which the
obligee thereof has an existing right, contingent or otherwise, to be
secured by) any Lien on Property owned or acquired, whether or not
any obligation secured thereby has been assumed, by such person, the
amount of such obligation being deemed to be the lesser of the value
of such Property or the amount of the obligation so secured
(9) any obligation of such person in respect of any letter of credit
supporting any obligation of any other person
(10) the maximum fixed repurchase price of any Redeemable Stock of such
person (or if such person is a subsidiary, any preferred stock of
such person)
(11) any Interest Swap Obligation or Currency Hedge Obligation of such
person and
(12) any obligation that is in economic effect a guarantee, regardless of
its characterization (other than an endorsement in the ordinary
course of business or any performance guarantee), with respect to any
Indebtedness of another person, to the extent guaranteed
For purposes of this definition, the maximum fixed repurchase price of any
Redeemable Stock or subsidiary preferred stock that does not have a fixed
repurchase price will be calculated in accordance
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with the terms of such Redeemable Stock or subsidiary preferred stock as if such
Redeemable Stock or subsidiary preferred stock were repurchased on any date on
which Indebtedness will be required to be determined pursuant to the indenture.
If, however, such Redeemable Stock or subsidiary preferred stock is not then
permitted to be repurchased, the repurchase price will be the book value of such
Redeemable Stock or subsidiary preferred stock. The amount of Indebtedness of
any person at any date will be:
(1) the outstanding book value at such date of all unconditional
obligations as described above and
(2) the maximum liability of any such contingent obligation at such date
"INTEREST SWAP OBLIGATIONS" means the obligation pursuant to any interest
rate swap agreement, interest rate cap, collar or floor agreement or other
similar agreement or arrangement designed to protect against or manage exposure
to fluctuations in interest rates.
"INVESTMENT" means, with respect to any person, any investment in another
person, whether by means of:
o a share purchase
o a capital contribution
o a loan
o an advance (other than advances to employees for moving and travel
expenses, drawing accounts and similar expenditures or prepayments or
deposits in the ordinary course of business) or similar credit
extension constituting Indebtedness of such other person or
o any guarantee of Indebtedness of any other person
The term "Investment" will not, however, include any transaction involving the
purchase or other acquisition (including by way of merger) of Property
(including Capital Stock) by Pride or any Subsidiary in exchange for Capital
Stock (other than Redeemable Stock) of Pride. The amount of any person's
Investment will be the original cost of such Investment to such person, PLUS the
cost of all additions thereto paid by such person, MINUS the amount of any
portion of such Investment repaid to such person in cash as a repayment of
principal or a return of capital, as the case may be, but without any other
adjustments for increases or decreases in value, or writeups, writedowns or
writeoffs with respect to such Investment in determining the amount of any
investment involving a transfer of any Property other than cash, such Property
to be valued at its Fair Value at the time of such transfer as determined in
good faith by the board of directors (or comparable body) of the person making
such transfer.
"LIEN" means:
o any mortgage
o pledge
o hypothecation
o charge
o assignment
o deposit arrangement
o encumbrance
o security interest
o lien (statutory or other) or
o preference, priority or other security or similar agreement or
preferential arrangement of any kind or nature whatsoever
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The definition of "Lien" includes any agreement to give or grant a Lien or any
lease, conditional sale or other title retention agreement having substantially
the same economic effect as any of the above.
"LIMITED RECOURSE INDEBTEDNESS" means
(1) Indebtedness with respect to the two drilling/workover barge rigs
owned by Pride's Venezuelan Subsidiary as in effect on the issue date
of the Offered Notes (the "Venezuelan Barge Financing")
(2) Indebtedness with respect to two drillships owned by certain
Non-Recourse Subsidiaries as in effect on the issue date of the
Offered Notes (the "Angola/Africa Drillship Financing") and
(3) Indebtedness incurred to finance the purchase, acquisition, renovation
or construction of capital assets and related items (including
interest added to principal), or refinancings thereof,
o for which the recourse of the holder of such Indebtedness is
effectively limited to such capital assets and related items or
o in which the recourse and security are similar to (or more
favorable to Pride and its Subsidiaries than) the Venezuelan Barge
Financing or the Angola/Africa Drillship Financing
"NET AVAILABLE PROCEEDS" means
(1) as to any Asset Sale (other than a Bargain Purchase Contract), the
Cash Proceeds from that sale, net of:
o all legal and title expenses, commissions and other fees and
expenses incurred
o all taxes payable as a consequence of such Asset Sale
o all payments made to any person other than Pride or a Subsidiary on
any Indebtedness secured by such assets, in accordance with the
terms of any Lien upon or with respect to such assets, or which
must by its terms, or in order to obtain a necessary consent to
such Asset Sale, or by applicable law, be repaid out of the
proceeds from such Asset Sale
o with respect to any Asset Sale by a Subsidiary, the equity interest
in such Cash Proceeds of any holder of Capital Stock of such
Subsidiary (other than Pride or any other Subsidiary) and
o appropriate amounts to be provided by Pride or any Subsidiary, as
the case may be, as a reserve required in accordance with GAAP
against any liabilities associated with such Asset Sale and
retained by Pride or any Subsidiary, as the case may be, after such
Asset Sale including pension and other post-employment benefit
liabilities, liabilities related to environmental matters and
liabilities under any indemnification obligations associated with
such Asset Sale
(2) as to any Bargain Purchase Contract, an amount equal to:
o that portion of the rental or other payment stream arising under a
Bargain Purchase Contract that represents an amount in excess of
the Fair Market Value of the rental or other payments with respect
to the pertinent Property or other asset and
o the Cash Proceeds from the sale of such Property or other asset,
net of the amounts set forth in clause (1) above, in each case as
and when received
"NON-RECOURSE INDEBTEDNESS" means Indebtedness or that portion of
Indebtedness of a Non-Recourse Subsidiary as to which:
(1) neither Pride nor any Subsidiary
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o provides credit support constituting Indebtedness of Pride or any
Subsidiary (other than Indebtedness permitted to be incurred under
the definition of Non-Recourse Subsidiary) or
o is directly or indirectly liable for such Indebtedness and
(2) no default with respect to such Indebtedness (including any rights
which the holders thereof may have to take enforcement action against
a Non-Recourse Subsidiary) would permit any holder of any other
Indebtedness of Pride or its Subsidiaries to declare a default on such
other Indebtedness or cause the payment thereof to be accelerated or
payable prior to its stated maturity
"NON-RECOURSE SUBSIDIARY" means:
o any subsidiary of Pride that at the time of determination will be
designated a Non-Recourse Subsidiary by the Board of Directors of
Pride as provided below and
o any subsidiary of a Non-Recourse Subsidiary
The Board of Directors of Pride may designate any subsidiary of Pride as a
Non-Recourse Subsidiary so long as:
(1) neither Pride nor any Subsidiary is directly or indirectly liable
pursuant to the terms of any Indebtedness of such Subsidiary, subject
to the proviso described below
(2) no default with respect to any Indebtedness of such Subsidiary would
permit any holder of any other Indebtedness of Pride or any Subsidiary
to declare a default on such other Indebtedness or cause the payment
thereof to be accelerated or payable prior to its stated maturity
(3) neither Pride nor any Subsidiary has made an Investment in such
Subsidiary unless such Investment was made pursuant to, and in
accordance with, the "Limitation on Restricted Payments" covenant
(other than Investments of the type described in clause (1) of the
definition of "Permitted Investments") and
(4) such designation does not result in the creation or imposition of any
Lien on any Property of Pride or any Subsidiary (other than any
Permitted Lien or any Lien the creation or imposition of which is in
compliance with the "Limitation on Liens" covenant)
With respect to clause (1), however, Pride or a Subsidiary may be liable for
Indebtedness of a Non-Recourse Subsidiary if:
o such liability constituted a Permitted Investment or a Restricted
Payment permitted by the "Limitation on Restricted Payments"
covenant, in each case at the time of incurrence, or
o the liability would be a Permitted Investment at the time of
designation of such Subsidiary as a Non-Recourse Subsidiary
The Board of Directors of Pride may designate any Non-Recourse Subsidiary as a
Subsidiary if, immediately after giving effect to such designation:
o no default or event of default has occurred and is continuing
o Pride could incur $1.00 of additional Indebtedness (not including the
incurrence of Permitted Indebtedness) under the first paragraph of the
"Limitation on Indebtedness" covenant and
o if any Property of Pride or any of its Subsidiaries would upon such
designation become subject to any Lien (other than a Permitted Lien),
the creation or imposition of such Lien is in compliance with the
"Limitation on Liens" covenant
"PERMITTED INDEBTEDNESS" means
(1) Indebtedness of Pride under the Offered Notes
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(2) Indebtedness (and any guarantee or pledge) under one or more bank
facilities, as amended, extended, replaced or refunded from time to
time, in an aggregate principal amount at any one time outstanding
not to exceed the greater of
o $100 million and
o an amount equal to 10% of Consolidated Net Tangible Assets
determined as of the date of the incurrence of such Indebtedness
(plus interest and fees under such facilities), less
any amounts derived from Asset Sales and applied to the permanent
reduction of Indebtedness thereunder (and a permanent reduction of the
related commitment to lend thereunder) as contemplated by the
"Limitation on Asset Sales" covenant
(3) Indebtedness of Pride or any Subsidiary under Interest Swap
Obligations if:
o such Interest Swap Obligations are related to payment obligations
on Indebtedness otherwise permitted under the covenants described
in "-- Restrictive Covenants -- Limitation on Indebtedness" and
o the notional principal amount of such Interest Swap Obligations
does not exceed the principal amount of the Indebtedness to which
such Interest Swap Obligations relate
(4) Indebtedness of Pride or any Subsidiary under Currency Hedge
Obligations if
o such Currency Hedge Obligations are related to payment obligations
on Indebtedness otherwise permitted under the covenants described
in "-- Restrictive Covenants -- Limitation on Indebtedness" or to
the foreign currency cash flows reasonably expected to be generated
by Pride and the Subsidiaries and
o the notional principal amount of such Currency Hedge Obligations
does not exceed the principal amount of the Indebtedness and the
amount of the foreign currency cash flows to which such Currency
Hedge Obligations relate
(5) Indebtedness of Pride or any Subsidiary outstanding on the issue date
of the Offered Notes
(6) any subsidiary guarantees of the notes (and any assumption of the
obligations guaranteed thereby)
(7) Indebtedness of Pride or any Subsidiary for bid performance bonds,
surety bonds, appeal bonds and letters of credit or similar
arrangement issued for the account of Pride or any Subsidiary, in
each case in the ordinary course of business
(8) Indebtedness of Pride to any Wholly Owned Subsidiary, but only so
long as it remains a Wholly Owned Subsidiary
(9) Indebtedness of any Subsidiary to Pride or any Wholly Owned
Subsidiary, but only so long as it remains a Wholly Owned Subsidiary
(10) Indebtedness of Pride in connection with a purchase of the notes
pursuant to a Change of Control Offer if:
o the aggregate principal amount of such Indebtedness does not exceed
101% of the aggregate principal amount of the notes purchased
pursuant to such Change of Control Offer plus the related expenses
of such purchase and
o such Indebtedness has an Average Life equal to or greater than the
remaining Average Life of the notes and does not mature prior to
one year following the stated maturity of the notes
(11) Permitted Refinancing Indebtedness incurred with respect to debt
incurred pursuant to clause (1), (2), (5), (6) or (10) above and
(12) Permitted Subsidiary Refinancing Indebtedness incurred with respect
to debt incurred pursuant to clause (1), (2), (5), (6) or (10) above
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To avoid duplication in determining the amount of Permitted Indebtedness under
any clause of this definition, guarantees of, or obligations for letters of
credit supporting, Indebtedness otherwise included in the determination of such
amount will not also be included.
"PERMITTED INVESTMENTS" means
(1) certificates of deposit, bankers acceptances, time deposits,
Eurocurrency deposits and similar types of Investments routinely
offered by commercial banks with final maturities of one year or less
issued by commercial banks having capital and surplus in excess of
$100 million
(2) commercial paper issued by any corporation, if such commercial paper
has credit ratings of at least "A-l" by S&P and at least "P-1" by
Moody's
(3) U.S. Government Obligations with a maturity of four years or less
(4) repurchase obligations for instruments of the type described in
clause (3)
(5) shares of money market mutual or similar funds having assets in
excess of $100 million
(6) payroll advances in the ordinary course of business
(7) other advances and loans to officers and employees of Pride or any
Subsidiary, so long as the aggregate principal amount of such
advances and loans does not exceed $500,000 at any one time
outstanding
(8) Investments represented by that portion of the proceeds from Asset
Sales that is:
o not Cash Proceeds or
o deemed to be Cash Proceeds pursuant to the second sentence of the
definition of Cash Proceeds
(9) Investments made by Pride in its Subsidiaries (or any person that
will be a Subsidiary as a result of such Investment) or by a
Subsidiary in Pride or in one or more Subsidiaries (or any person
that will be a Subsidiary as a result of such Investment) and
(10) Investments in stock, obligations or securities received in
settlement of debts owing to Pride or any Subsidiary as a result of
bankruptcy or insolvency proceedings or upon the foreclosure,
perfection or enforcement of any Lien in favor of Pride or any
Subsidiary, in each case as to debt owing to Pride or any Subsidiary
that arose in the ordinary course of business of Pride or any such
Subsidiary; for these purposes, any stocks, obligations or securities
received in settlement of debts that arose in the ordinary course of
business (and received other than as a result of bankruptcy or
insolvency proceedings or upon foreclosure, perfection or enforcement
of any Lien) that are, within 30 days of receipt, converted into cash
or cash equivalents will be treated as having been cash or cash
equivalents at the time received
"PERMITTED LIENS" means
(1) Liens in existence on the issue date of the Offered Notes
(2) Liens created for the benefit of the notes
(3) Liens on Property of a person existing at the time such person is
merged or consolidated with or into Pride or a Subsidiary (and not
incurred as a result of, or in anticipation of, such transaction), if
such Lien relates solely to such Property and the proceeds thereof
and accessories and upgrades thereto
(4) Liens on Property existing at the time of the acquisition thereof
(and not incurred as a result of, or in anticipation of, such
transaction), if such Liens relate solely to such Property and the
proceeds thereof and accessories and upgrades thereto
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(5) Liens incurred or pledges and deposits made in connection with
worker's compensation, unemployment insurance and other social
security benefits, statutory obligations, bid, surety or appeal
bonds, performance bonds or other obligations of a like nature
incurred in the ordinary course of business
(6) Liens imposed by law or arising by operation of law and incurred in
the ordinary course of business
(7) zoning restrictions, easements, licenses, covenants, reservations,
restrictions on the use of property and defects, irregularities and
deficiencies in title to property that do not, individually or in the
aggregate, materially affect the ability of Pride and its
Subsidiaries, taken as a whole, to conduct the business presently
conducted
(8) Liens for taxes or assessments or other governmental charges or
levies not yet due and payable, or the validity of which is being
contested by Pride or a Subsidiary in good faith appropriate
proceedings upon stay of execution or the enforcement thereof and for
which adequate reserves in accordance with GAAP or other appropriate
provision has been made
(9) Liens to secure Indebtedness incurred for the purpose of financing
all or a part of the purchase price or construction cost of Property
(including the cost of upgrading or refurbishing rigs or drillships)
acquired or constructed after the issue date of the Offered Notes,
if:
o the principal amount of Indebtedness secured by such Liens does not
exceed 100% of the lesser of cost or Fair Market Value of the
Property so acquired, upgraded or constructed plus transaction
costs related thereto
o such Liens do not encumber any other Property of Pride or any
Subsidiary (other than the proceeds thereof and improvements,
accessions and upgrades thereto) and
o such Liens attach to such Property within 180 days of the earlier
of commencement of commercial operations of such assets and
completion of the construction, acquisition, upgrade or improvement
of such Property
(10) Liens securing Capital Lease Obligations and other obligations, if
such Liens secure Capital Lease Obligations and other obligations
that do not exceed 10% of Pride's Consolidated Net Tangible Assets
when combined with
o the outstanding secured Indebtedness of Pride and it Subsidiaries
(other than Indebtedness secured by Liens described under clauses
(2) and (9) of this definition) and
o the aggregate amount of all other Capital Lease Obligations and
other obligations of Pride and Subsidiaries
(11) Liens to secure any extension, renewal, refinancing or refunding (or
successive extensions, renewals, refinancings or refundings), in
whole or in part, of any Indebtedness secured by Liens referred to in
the foregoing clauses (1), (2), (3), (4) and (9) if such Liens do not
extend to any other Property of Pride or any Subsidiary (other than
the proceeds thereof and accessions and upgrades thereto) and the
principal amount of the Indebtedness secured by such Liens is not
increased
(12) any charter or lease of drilling rigs in the ordinary of course of
business
(13) leases or subleases of property to other persons in the ordinary
course of business
(14) Liens securing Non-Recourse Indebtedness
(15) Liens securing Permitted Indebtedness described in clause (2) of the
definition of Permitted Indebtedness
(16) judgment liens not giving rise to an event of default under the
indenture so long as any appropriate legal proceedings which may have
been only initiated for the review of such
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judgment shall not have been finally terminated or the period within
which such proceedings may be initiated shall not have expired
(17) rights of set-off of banks and other persons
(18) other deposits made in the ordinary course of business to secure
liability to insurance carriers under insurance or self insurance
arrangements
(19) Liens securing reimbursement obligations under letters of credit,
entered into in the ordinary course of business if in each case such
Liens cover only the title documents and related goods (and any
proceeds thereof) covered by the related letter of credit and
(20) Liens or equitable encumbrances deemed to exist by reason of
fraudulent conveyance or transfer laws or negative pledge or similar
agreements to refrain from permitting Liens
"PERMITTED NON-RECOURSE SUBSIDIARY REFINANCING INDEBTEDNESS" means
Non-Recourse Indebtedness of any Non-Recourse Subsidiary incurred in exchange
for, or the net proceeds of which are used to renew, extend, refinance, refund
or repurchase, outstanding Non-Recourse Indebtedness of such Subsidiary, which
outstanding Non-Recourse Indebtedness was incurred in accordance with, or is
otherwise permitted by, the terms of the indenture.
"PERMITTED REFINANCING INDEBTEDNESS" means Indebtedness of Pride incurred
in exchange for, or the net proceeds of which are used to renew, extend,
refinance, refund or repurchase, outstanding Indebtedness of Pride, which
outstanding Indebtedness was incurred in accordance with or is otherwise
permitted by the terms of the indenture (excluding any Permitted Indebtedness),
if:
(1) if the Indebtedness being renewed, extended, refinanced, refunded or
repurchased is equal or subordinated in right of payment to the notes,
then such new Indebtedness is equal or subordinated, as the case may
be, in right of payment (without regard to its being secured) to the
notes at least to the same extent as the Indebtedness being renewed,
extended, refinanced, refunded or repurchased
(2) such new Indebtedness is scheduled to mature later than the
Indebtedness being renewed, extended, refinanced, refunded or
repurchased
(3) such new Indebtedness has an Average Life at the time such
Indebtedness is incurred that is greater than the Average Life of the
Indebtedness being renewed, extended, refinanced, refunded or
repurchased and
(4) such new Indebtedness is in an aggregate principal amount (or, if such
Indebtedness is issued at a price less than the principal amount
thereof, the aggregate amount of gross proceeds therefrom is) not in
excess of the aggregate principal amount of the then outstanding
Indebtedness being renewed, extended, refinanced, refunded or
repurchased (or if the Indebtedness being renewed, extended,
refinanced, refunded or repurchased was issued at a price less than
the principal amount thereof, then not in excess of the amount of
liability in respect thereof determined in accordance with GAAP) plus
the amount of reasonable fees, expenses and any premium incurred by
Pride or any Subsidiary in connection therewith
"PERMITTED SUBSIDIARY REFINANCING INDEBTEDNESS" means Indebtedness of any
Subsidiary (other than a Non-Recourse Subsidiary) incurred in exchange for, or
the net proceeds of which are used to renew, extend, refinance, refund or
repurchase, outstanding Indebtedness of such Subsidiary, which outstanding
Indebtedness was incurred in accordance with or is otherwise permitted by the
terms of the indenture, if:
(1) if the Indebtedness being renewed, extended, refinanced, refunded or
repurchased is equal or subordinated in right of payment to the notes,
then such new Indebtedness is equal or subordinated, as the case may
be, in right of payment (without regard to its being secured) to the
notes at least to the same extent as the Indebtedness being renewed,
extended, refinanced, refunded or repurchased
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(2) such new Indebtedness is scheduled to mature later than the
Indebtedness being renewed, extended, refinanced, refunded or
repurchased
(3) such new Indebtedness has an Average Life at the time such
Indebtedness is incurred that is greater than the Average Life of the
Indebtedness being renewed, extended, refinanced, refunded or
repurchased and
(4) such new Indebtedness is in an aggregate principal amount (or, if such
indebtedness is issued at a price less than the principal amount
thereof, the aggregate amount of gross proceeds therefrom is) not in
excess of the aggregate principal amount then outstanding of the
Indebtedness being renewed, extended, refinanced, refunded or
repurchased (or if the Indebtedness being renewed, extended,
refinanced, refunded or repurchased was issued at a price less than
the principal amount thereof, then not in excess of the amount of
liability in respect thereof determined in accordance with GAAP) plus
the amount of reasonable fees, expenses and any premium incurred by
Pride or such Subsidiary in connection therewith
"PROPERTY" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
"QUALIFIED EQUITY OFFERING" means any public offering or private
placement of Capital Stock (other than Redeemable Stock) of Pride consummated
after the issue date of the Offered Notes (other than an offering pursuant to a
registration statement on Form S-8 or any successor form or otherwise relating
to equity securities issuable under any employee benefit plan of Pride).
"REDEEMABLE STOCK" means, with respect to any person, any equity security
that by its terms or otherwise is required to be redeemed, or is redeemable at
the option of the holder thereof, at any time prior to one year following the
stated maturity of the notes or is exchangeable into Indebtedness of such person
or any of its subsidiaries.
"RELATED BUSINESS" means any business related, ancillary or complementary
to the business of Pride and its Subsidiaries on the issue date of the Offered
Notes.
"REPLACEMENT ASSET" means any Property that, as determined by the Board
of Directors of Pride evidenced by a board resolution, is used or is useful in a
Related Business.
"RESTRICTED INVESTMENT" means any Investment other than a Permitted
Investment.
"RESTRICTED PAYMENT" means to
(1) declare or pay any dividend on, or make any distribution in respect
of, or purchase, redeem, retire or otherwise acquire for value any
Capital Stock of Pride or any Affiliate of Pride, or warrants, rights
or options to acquire such Capital Stock, other than:
o dividends payable solely in the Capital Stock (other than
Redeemable Stock) of Pride, or in warrants, rights or options to
acquire such Capital Stock and
o dividends or distributions by a Subsidiary to Pride or to a Wholly
Owned Subsidiary
(2) make any principal payment on, or redeem, repurchase, defease or
otherwise acquire or retire for value, prior to any scheduled
principal payment, scheduled sinking fund payment or other stated
maturity, Indebtedness of Pride or any Subsidiary that is subordinated
in right of payment to the notes or
(3) make any Restricted Investment in any person
"SALE AND LEASE-BACK TRANSACTION" means, with respect to any person, any
direct or indirect arrangement pursuant to which Property is sold or transferred
by such person or a subsidiary of such person and is thereafter leased back from
the purchaser or transferee thereof by such person or one of its subsidiaries.
S-65
<PAGE>
"SENIOR DEBT" means any Indebtedness incurred by Pride, unless the
instrument under which such Indebtedness is incurred expressly provides that it
is subordinate in right of payment to the notes. Senior Debt will not include:
(1) any liability for taxes owed or owing by the Company
(2) any Indebtedness owing to any Subsidiaries of Pride
(3) any obligations with respect to Capital Stock of Pride
(4) any trade payables or
(5) any Indebtedness that is incurred in violation of the indenture
"SIGNIFICANT SUBSIDIARY" means any Subsidiary that would be a
"significant subsidiary" as defined in Rule 1-02 of Regulation S-X promulgated
by the SEC, as such Regulation is in effect on the issue date of the Offered
Notes.
"SUBORDINATED INDEBTEDNESS" means any Indebtedness of Pride or any
subsidiary guarantor that is subordinated in right of payment to the notes or
the subsidiary guarantees of the notes pursuant to a written agreement to that
effect, as the case may be, and does not mature prior to one year following the
stated maturity of the notes.
The term "SUBSIDIARY" means, with respect to any person:
(1) any corporation more than 50% of the outstanding Voting Stock of which
is owned, directly or indirectly, by such person, or by one or more
other subsidiaries or such person, or by such person and one or more
other subsidiaries of such person
(2) any general partnership, joint venture or similar entity more than 50%
of the outstanding partnership or similar interests of which is owned,
directly or indirectly, by such person, or by one or more other
subsidiaries of such person, or by such person and one or more other
subsidiaries of such person and
(3) any limited partnership of which such person or any subsidiary of such
person is a general partner
The term "SUBSIDIARY" means a subsidiary of Pride other than a
Non-Recourse Subsidiary.
"U.S. GOVERNMENT OBLIGATIONS" means securities that are:
(1) direct obligations of the United States of America for the payment of
which its full faith and credit is pledged
(2) obligations of a person controlled or supervised by and acting as an
agency or instrumentality of the United States of America the payment
of which is unconditionally guaranteed as a full faith and credit
obligation by the United States of America or
(3) depository receipts issued by a bank or trust company as custodian
with respect to any such U.S. Government Obligations or a specific
payment of interest on or principal of any such U.S. Government
Obligation held by such custodian for the account of the holder of a
depository receipt, if (except as required by law) such custodian is
not authorized to make any deduction from the amount payable to the
holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation evidenced by
such depository receipt
In either case under clauses (1) or (2) above, "U.S. Government Obligations"
includes only those obligations that are not callable or redeemable at the
option of the issuer thereof.
"VOTING STOCK" means, with respect to any person, securities of any class
or classes of Capital Stock or other interests (including partnership interests)
in such person entitling the holders thereof (whether at all times or at the
times that such class of Capital Stock has voting power by reason of the
happening of any contingency) to vote in the election of members of the board of
directors or comparable body of such person.
S-66
<PAGE>
"WHOLLY OWNED SUBSIDIARY" means any Subsidiary to the extent
(1) all of the Voting Stock or other ownership interests in such
Subsidiary, other than any director's qualifying shares mandated by
applicable law, is owned directly or indirectly by Pride or
(2) such Subsidiary is organized in a foreign jurisdiction and is required
by the applicable laws and regulations of such foreign jurisdiction to
be partially owned by the government of such foreign jurisdiction or
individual or corporate citizens of such foreign jurisdiction in order
for such Subsidiary to transact business in such foreign jurisdiction,
if Pride:
o directly or indirectly owns the remaining Capital Stock or
ownership interest in such Subsidiary and
o by contract or otherwise, controls the management and business of
such Subsidiary and derives the economic benefits of ownership of
such Subsidiary to substantially the same extent as if such
Subsidiary were a wholly owned Subsidiary
ADDITIONAL AMOUNTS
The indenture provides that the "Payment of Additional Amounts" provision
in the indenture, relating to withholding and other taxes of any of the
countries in which Pride may become or a successor to Pride may be organized, as
described in "-- Consolidation, Merger and Sale of Assets" (a "Permitted
Country"), and the "Optional Tax Redemption" provision in the indenture,
relating to our option to redeem the notes under specified circumstances if
Additional Amounts are payable, apply to the notes in specified circumstances.
The provisions of the indenture relating to payment of Additional Amounts will
apply in the event we become, or a successor to us is, a corporation organized
or existing under the laws of any Permitted Country. In such circumstances, all
payments made by us on the notes will be made without deduction or withholding,
for or on account of, any and all present or future taxes, duties, assessments,
or governmental charges of whatever nature imposed, levied, collected or
assessed by or on behalf of any taxing authority in such Permitted Country,
unless the deduction or withholding of such taxes, duties, assessments or
governmental charges is then required by law. If any deduction or withholding
for or on account of any present or future taxes, assessments or other
governmental charges of such Permitted Country, or any political subdivision or
taxing authority thereof or therein, shall at any time be required in respect of
any amounts to be paid by us under the notes, we will pay or cause to be paid
such Additional Amounts as may be necessary in order that every net payment of
the principal of and interest on the notes, after deduction for withholding for
or on account of any future tax, assessment or other governmental charge will
not be less than the amount provided for in the notes to be then due and
payable; PROVIDED, HOWEVER, that the foregoing obligation to pay Additional
Amounts shall not apply in respect of:
(a) any tax, withholding, assessment or other governmental charge
which would not have been imposed but for (i) the existence of any present
or former connection between such holder (or between a fiduciary, settlor,
beneficiary, member or shareholder of, or possessor of a power over, such
holder, if such holder is an estate, trust, partnership or corporation) and
a Permitted Country, or any political subdivision or taxing authority
thereof including, without limitation, such holder (or such fiduciary,
settlor, beneficiary, member, shareholder or possessor) being or having
been a citizen or resident thereof or being or having been present or
engaged in trade or business therein or having or having had a permanent
establishment therein or (ii) the presentation of a note (where
presentation is required) for payment on a date more than 30 days after the
date on which such payment became due and payable or the date on which
payment thereof is duly provided for, whichever occurs later, except for
Additional Amounts with respect to taxes that would have been imposed had
the holder presented the note for payment within such 30-day period;
(b) any estate, inheritance, gift, sale, transfer or personal
property tax;
S-67
<PAGE>
(c) any tax, assessment or other governmental charge that is withheld
by reason of the failure to timely comply by the holder or the beneficial
owner of the note with a request in writing of us (which request shall be
furnished to the trustee) (i) to provide information concerning the
nationality, residence or identity of the holder or such beneficial owner
or (ii) to make any declaration or other similar claim or satisfy any
information or reporting requirement, which, in the case of (i) or (ii), is
required or imposed by a statute, treaty, regulation or administrative
practice of the taxing or domicile jurisdiction as a precondition to
exemption from or reduction of all or part of such tax, assessment or other
governmental charge; PROVIDED, HOWEVER, that this clause (c) shall not
apply to limit our obligation to pay Additional Amounts if the completing
and filing of the information described in subclause (i) or the declaration
or other claim described in subclause (ii) would be materially more onerous
in form, in procedure or in substance of information disclosed, in
comparison to the information reporting requirements imposed under U.S. tax
law with respect to Forms 1001, W-8 and W-9;
(d) any tax which is payable otherwise than by withholding by us or
our paying agent; or
(e) any combination of items (a), (b), and (c) above; nor shall
Additional Amounts be paid with respect to any payment of the principal of,
or any interest on, any note to any holder who is not the sole beneficial
owner of such note or is a fiduciary or partnership, but only to the extent
that a beneficial owner, a beneficiary or a settlor with respect to a
fiduciary or a member of the partnership would not have been entitled to
the payment of the Additional Amount had the beneficial owner, beneficiary,
settlor or member of such partnership received directly its beneficial or
distributive share of the payment.
At least 30 days prior to each date on which any payment under or with
respect to the notes is due and payable, if we will be obligated to pay
Additional Amounts with respect to such payment, we will deliver to the trustee
an Officer's Certificate stating the fact that such Additional Amounts will be
payable and the amounts so payable and will set forth such other information
necessary to enable the trustee to pay such Additional Amounts to holders on the
payment date. Whenever in the indenture or in this prospectus supplement there
is mentioned, in any context, the payment of principal (and premium, if any),
redemption price, interest or any other amount payable under or with respect to
any note, such mention shall be deemed to include mention of the payment of
Additional Amounts to the extent that, in such context, Additional Amounts are,
were or would be payable in respect thereof. Please read "-- Optional
Redemption."
We will also (i) make (or cause to be made) such withholding or deduction
and (ii) remit (or cause to remitted) the full amount deducted or withheld to
the relevant authority in accordance with applicable law. We will make
reasonable efforts to obtain certified copies of tax receipts evidencing the
payment of any taxes so deducted or withheld from each taxing authority imposing
such taxes. We will furnish to the trustee as promptly as practicable after the
payment of any taxes so deducted or withheld is due pursuant to applicable law,
either certified copies of tax receipts evidencing such payment or, if the
receipts are not obtainable, other evidence of such payments by us.
BOOK-ENTRY DELIVERY AND SETTLEMENT
We will issue the notes in the form of one or more permanent global notes
in definitive, fully registered, book-entry form. The global notes will be
deposited with or on behalf of The Depository Trust Company and registered in
the name of Cede & Co., as nominee of DTC, or will remain in the custody of the
trustee in accordance with the FAST Balance Certificate Agreement between DTC
and the trustee.
S-68
<PAGE>
GLOBAL NOTES
DTC has advised us as follows:
o DTC is a limited-purpose trust company organized under the New York
Banking Law, a "banking organization" within the meaning of the New
York Banking Law, a member of the Federal Reserve System, a "clearing
corporation" within the meaning of the New York Uniform Commercial
Code and a "clearing agency" registered under Section 17A of the
Securities Exchange Act of 1934
o DTC holds securities that its participants deposit with DTC and
facilitates the settlement among participants of securities
transactions, such as transfers and pledges, in deposited securities
through electronic computerized book-entry changes in participants'
accounts, thereby eliminating the need for physical movement of
securities certificates
o Direct participants include securities brokers and dealers, banks,
trust companies, clearing corporations and other organizations
o Access to the DTC system is also available to others such as
securities brokers and dealers, banks and trust companies that clear
through or maintain a custodial relationship with a direct
participant, either directly or indirectly
o The rules applicable to DTC and its participants are on file with the
SEC
DTC has also advised us that:
o DTC's management is aware that some computer applications, systems and
the like for processing data that are dependent upon calendar dates,
including dates before, on and after January 1, 2000, may encounter
"Year 2000 problems." DTC has informed its participants and other
members of the financial community that it has developed and is
implementing a program so that its systems, as the same relate to the
timely payment of distributions (including principal and income
payments) to securityholders, book-entry deliveries and settlement of
trades within DTC, continue to function appropriately. This program
includes a technical assessment and a remediation plan, each of which
is complete. Additionally, DTC's plan includes a testing phase, which
is expected to be completed within appropriate time frames.
o DTC's ability to perform its services properly also is dependent upon
other parties, including issuers and their agents, as well as
third-party vendors from whom DTC licenses software and hardware, and
third-party vendors on whom DTC relies for information or the
provision of services, including telecommunication and electrical
utility service providers, among others. DTC has informed the
financial community that it is contacting, and will continue to
contact, third-party vendors from whom DTC acquires services to
impress upon them the importance of such services being Year 2000
compliant and to determine the extent of their efforts for Year 2000
remediation and, as appropriate, testing of their services. In
addition, DTC is in the process of developing such contingency plans
as it deems appropriate.
o The foregoing information with respect to DTC has been provided to the
financial community for informational purposes only and is not
intended to serve as a representation, warranty or contract
modification of any kind.
We have provided the following descriptions of the operations and
procedures of DTC solely as a matter of convenience. These operations and
procedures are solely within the control of DTC and are subject to change by
them from time to time. Neither Pride, the underwriters nor the trustee takes
any responsibility for these operations or procedures, and you are urged to
contact DTC or its participants directly to discuss these matters.
S-69
<PAGE>
We expect that under procedures established by DTC:
o upon deposit of the global notes with DTC or its custodian, DTC will
credit on its internal system the accounts of direct participants
designated by the underwriters with portions of the principal amounts
of the global notes
o ownership of the notes will be shown on, and the transfer of ownership
thereof will be effected only through, records maintained by DTC or
its nominee, with respect to interests of direct participants, and the
records of direct and indirect participants, with respect to interests
of persons other than participants
The laws of some jurisdictions may require that purchasers of securities
take physical delivery of those securities in definitive form. Accordingly, the
ability to transfer interests in the notes represented by a global note to those
persons may be limited. In addition, because DTC can act only on behalf of its
participants, who in turn act on behalf of persons who hold interests through
participants, the ability of a person having an interest in notes represented by
a global note to pledge or transfer those interests to persons or entities that
do not participate in DTC's system, or otherwise to take actions in respect of
such interest, may be affected by the lack of a physical definitive security in
respect of such interest.
So long as DTC or its nominee is the registered owner of a global note, DTC
or that nominee will be considered the sole owner or holder of the notes
represented by that global note for all purposes under the indenture and under
the notes. Except as provided below, owners of beneficial interests in a global
note:
o will not be entitled to have notes represented by that global note
registered in their names
o will not receive or be entitled to receive physical delivery of
certificated notes and
o will not be considered the owners or holders thereof under the
indenture or under the notes for any purpose, including with respect
to the giving of any direction, instruction or approval to the trustee
Accordingly, each holder owning a beneficial interest in a global note must rely
on the procedures of DTC and, if that holder is not a direct or indirect
participant, on the procedures of the participant through which that holder owns
its interest, to exercise any rights of a holder of notes under the indenture or
the global note.
Neither we nor the trustee will have any responsibility or liability for
any aspect of the records relating to or payments made on account of notes by
DTC, or for maintaining, supervising or reviewing any records of DTC relating to
the notes.
Payments on the notes represented by the global notes will be made to DTC
or its nominee, as the case may be, as the registered owner thereof. We expect
that DTC or its nominee, upon receipt of any payment on the notes represented by
a global note, will credit participants' accounts with payments in amounts
proportionate to their respective beneficial interests in the global note as
shown in the records of DTC or its nominee. We also expect that payments by
participants to owners of beneficial interests in the global note held through
such participants will be governed by standing instructions and customary
practice as is now the case with securities held for the accounts of customers
registered in the names of nominees for such customers. The participants will be
responsible for those payments.
Transfers between participants in DTC are expected to be effected in
accordance with DTC rules and settled in immediately available funds.
S-70
<PAGE>
CERTIFICATED SECURITIES
We will issue certificated notes to each person that DTC identifies as the
beneficial owner of the notes represented by the global notes upon surrender by
DTC of the global notes if either:
o DTC notifies us that it is no longer willing or able to act as a
depositary for the global notes, and we have not appointed a successor
depositary within 90 days of that notice
o an event of default has occurred and is continuing, and DTC requests
the issuance of certificated notes or
o we determine not to have the notes represented by a global note
Neither we nor the trustee will be liable for any delay by DTC, its nominee
or any direct or indirect participant in identifying the beneficial owners of
the related notes. We and the trustee may conclusively rely on, and will be
protected in relying on, instructions from DTC or its nominee for all purposes,
including with respect to the registration and delivery, and the respective
principal amounts, of the notes to be issued.
S-71
<PAGE>
UNDERWRITING
Subject to the terms and conditions stated in the underwriting agreement
dated the date hereof, each underwriter named below has severally agreed to
purchase, and we have agreed to sell to that underwriter, the principal amount
of notes set forth opposite the name of that underwriter.
<TABLE>
<CAPTION>
PRINCIPAL
UNDERWRITER AMOUNT
- ------------------------------------- ---------------
<S> <C>
Salomon Smith Barney Inc............. $
Donaldson, Lufkin & Jenrette
Securities Corporation.............
---------------
Total........................... $ 200,000,000
===============
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase the notes included in this offering are subject to
approval of certain legal matters by counsel and to certain other conditions.
The underwriters are obligated to purchase all the notes if they purchase any of
the notes.
The underwriters, for whom Salomon Smith Barney Inc. and Donaldson, Lufkin
& Jenrette Securities Corporation are acting as representatives, propose
initially to offer some of the notes directly to the public at the public
offering price set forth on the cover page of this prospectus supplement and to
offer some of the notes to certain dealers at the public offering price less a
concession not in excess of % of the principal amount of the notes. The
underwriters may allow, and such dealers may reallow, a concession not in excess
of % of the principal amount of the notes on sales to certain other dealers.
After the initial offering of the notes to the public, the public offering price
and such concessions may be changed by the representative at any time without
notice.
The notes are a new issue of securities with no established trading market.
We do not currently intend to list the notes on any national securities
exchange. The underwriters have advised us that one or more of them intends to
make a market in the notes. They are not obligated to do so, however, and may
discontinue any market-making activities at any time without notice. We can give
no assurance as to the liquidity of the trading market for the notes.
The underwriting discounts to be paid by us to the underwriters in
connection with this offering will be % per note, for a total of
$ . In addition, we estimate that our total expenses of the offering,
excluding underwriting discounts, will be approximately $550,000.
In connection with the offering, Salomon Smith Barney Inc. and Donaldson,
Lufkin & Jenrette Securities Corporation, on behalf of the underwriters, may
purchase and sell notes in the open market. These transactions may include
over-allotment, syndicate covering transactions and stabilizing transactions.
Over-allotment involves syndicate sales of notes in excess of the principal
amount of notes to be purchased by the underwriters in the offering, which
creates a syndicate short position. Syndicate covering transactions involve
purchases of the notes in the open market after the distribution has been
completed in order to cover syndicate short positions. Stabilizing transactions
consist of certain bids or purchases of notes made for the purpose of preventing
or retarding a decline in the market price of the notes while the offering is in
progress.
S-72
<PAGE>
The underwriters also may impose a penalty bid. Penalty bids permit the
underwriters to reclaim a selling concession from a syndicate member when
Salomon Smith Barney Inc. and Donaldson, Lufkin & Jenrette Securities
Corporation, in covering syndicate short positions or making stabilizing
purchases, repurchase notes originally sold by that syndicate member.
Any of these activities may cause the price of the notes to be higher than
the price that otherwise would exist in the open market in the absence of such
transactions. These transactions may be effected in the over-the-counter market
or otherwise and, if commenced, may be discontinued at any time.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments the underwriters may be required to make in respect of any of those
liabilities.
Some of the underwriters or their respective affiliates have performed and
may in the future perform various financial advisory, commercial banking and
investment banking services for us from time to time, for which they have
received or will receive customary fees. An affiliate of Salomon Smith Barney
Inc. is the arranger for the construction period financing guaranteed by the
United States Maritime Administration for the Amethyst joint venture company.
Pride and Ray A. Tolson, its former Chairman and Chief Executive Officer,
are currently involved in litigation with Donaldson, Lufkin & Jenrette
Securities Corporation arising from a 1997 capital market transaction among the
parties. Pride seeks approximately $4 million in compensatory damages.
LEGAL MATTERS
Baker & Botts, L.L.P., Houston, Texas, our outside counsel, will issue an
opinion about certain legal matters in connection with the offering of the notes
for us. Cravath, Swaine & Moore, New York, New York, will issue an opinion about
certain legal matters in connection with the offering for the underwriters. Sher
Garner Cahill Richter Klein McAlister & Hilbert, L.L.P., New Orleans, Louisiana,
will issue an opinion on all matters of Louisiana law in this connection.
EXPERTS
The financial statements as of December 31, 1998 and 1997 and for each of
the three years in the period ended December 31, 1998, incorporated by reference
in this prospectus, have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
INDEPENDENT ACCOUNTANTS
With respect to the unaudited consolidated financial information of Pride
for the three-month periods ended March 31, 1999 and 1998 incorporated by
reference in this prospectus, PricewaterhouseCoopers LLP reported that they have
applied limited procedures in accordance with professional standards for a
review of such information. However, their separate report dated May 14, 1999
incorporated by reference herein states that they did not audit and they do not
express an opinion on that unaudited consolidated financial information.
Accordingly, the degree of reliance on their report on such information should
be restricted in light of the limited nature of the review procedures applied.
PricewaterhouseCoopers LLP is not subject to the liability provisions of Section
11 of the Securities Act of 1933 for their report on the unaudited consolidated
financial information because that report is not a "report" or a "part" of
the registration statement prepared or certified by PricewaterhouseCoopers LLP
within the meaning of Sections 7 and 11 of the Securities Act of 1933.
S-73
<PAGE>
[Picture of the PRIDE AFRICA]
The PRIDE AFRICA, a newly constructed ultra-deepwater drillship, is expected to
commence work for Elf Angola under a five-year contract offshore West Africa in
mid-1999.
PRIDE'S WORLDWIDE OPERATIONS
[Map depicting the worldwide operations of Pride]
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SOUTH AMERICA GULF OF MEXICO AFRICA/MIDDLE ASIA
EAST
2 Semisubmersible Rigs 11 Jackup Rigs 1 Semisubmersible Rig 2 Jackup Rigs
3 Jackup Rigs 22 Platform Rigs 1 Jackup Rig 2 Tender-Assisted Rigs
2 Tender-Assisted Rigs 5 Tender-Assisted Rig 1 Platform Rigs
3 Lake Barge Rigs 1 Swamp Barge Rig 2 Land Drilling Rigs
74 Land Drilling Rigs 8 Land Drilling Rigs
155 Land Workover Rigs 1 Land Workover Rig
4 Semisubmersible Rigs 2 Drillships under
under Construction Construction
</TABLE>
Pride operates a diversified fleet of 307 rigs located in major oil and gas
producing areas worldwide.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
$200,000,000
[LOGO]
Pride International, Inc.
% Senior Notes due 2009
------------
PROSPECTUS SUPPLEMENT
MAY , 1999
(Including Prospectus dated March 23, 1998)
------------
SALOMON SMITH BARNEY
DONALDSON, LUFKIN & JENRETTE
================================================================================
