<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 0-18437
---------------------
POOL ENERGY SERVICES CO.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
TEXAS 76-0263755
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
10375 RICHMOND AVENUE
HOUSTON, TEXAS 77042
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (713) 954-3000
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED SINCE LAST
REPORT)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES X NO
---- ----
The number of shares outstanding of each of the issuer's classes of
common stock, as of June 30, 1996: Common Stock, no par value -- 14,234,688
shares
================================================================================
<PAGE> 2
PART I
ITEM 1. FINANCIAL STATEMENTS
POOL ENERGY SERVICES CO.
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
(UNAUDITED)
(IN THOUSANDS EXCEPT NUMBER OF SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30
--------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 82,988 $ 63,805
Earnings Attributable to Unconsolidated Affiliates . . . . . . . . . . . . . 524 643
------------ ------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 83,512 64,448
------------ ------------
Costs and Expenses:
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . 64,521 49,379
Selling, general and administrative expenses . . . . . . . . . . . . 10,982 9,584
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 4,260 3,489
GPC acquisition related costs . . . . . . . . . . . . . . . . . . . -- 600
------------ ------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,763 63,052
------------ ------------
Other Income (Expense) - Net . . . . . . . . . . . . . . . . . . . . . . . . 367 153
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 739 267
------------ ------------
Income Before Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 3,377 1,282
Income Tax Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,544 727
------------ ------------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,833 $ 555
============ ============
Earnings Per Share of Common Stock . . . . . . . . . . . . . . . . . . . . . $ .13 $ .04
============ ============
Average Common Shares Outstanding . . . . . . . . . . . . . . . . . . . . . . 14,162,530 13,663,571
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE> 3
POOL ENERGY SERVICES CO.
CONDENSED STATEMENTS OF CONSOLIDATED OPERATIONS
(UNAUDITED)
(IN THOUSANDS EXCEPT NUMBER OF SHARES AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 164,670 $ 126,659
Earnings Attributable to Unconsolidated Affiliates . . . . . . . . . . . . . 1,182 1,418
------------ ------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 165,852 128,077
------------ ------------
Costs and Expenses:
Operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . 128,102 100,557
Selling, general and administrative expenses . . . . . . . . . . . . 22,280 18,946
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 8,513 6,824
GPC acquisition related costs . . . . . . . . . . . . . . . . . . . -- 600
------------ ------------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 158,895 126,927
------------ ------------
Other Income (Expense) - Net . . . . . . . . . . . . . . . . . . . . . . . . 531 634
Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,384 418
------------ ------------
Income Before Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 6,104 1,366
Income Tax Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,848 596
------------ ------------
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,256 $ 770
============ ============
Earnings Per Share of Common Stock . . . . . . . . . . . . . . . . . . . . . $ .23 $ .06
============ ============
Average Common Shares Outstanding . . . . . . . . . . . . . . . . . . . . . . 14,118,223 13,612,787
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE> 4
POOL ENERGY SERVICES CO.
CONDENSED STATEMENTS OF CONSOLIDATED CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30
-----------------------------
1996 1995
--------- ----------
<S> <C> <C>
Operating Activities:
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 3,256 $ 770
Noncash items included above:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 8,513 6,824
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . 453 302
Undistributed earnings of unconsolidated affiliates . . . . . . . . (1,125) (1,213)
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . (105) (295)
Payment for lease of manufacturing facility . . . . . . . . . . . . . (1,074) (1,074)
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (498) (390)
Net effect of changes in operating working capital . . . . . . . . . (6,209) (1,548)
--------- ----------
Net Cash Flows Provided by Operating Activities . . . . . . . . . 3,211 3,376
--------- ----------
Investing Activities:
Property additions . . . . . . . . . . . . . . . . . . . . . . . . . (13,046) (13,915)
Expenditures for the purchase of the operating assets of Western Oil (3,950) --
Expenditures for the acquisition of GPC, including acquisition costs,
less cash acquired . . . . . . . . . . . . . . . . . . . . . . . . (123) (2,695)
Expenditures for the acquisition of Pool Santana, including
acquisition costs, less cash acquired . . . . . . . . . . . . . (613) --
Proceeds from disposition of property, plant and equipment . . . . . 845 860
Cash dividends received from unconsolidated affiliates . . . . . . . 101 180
Other - net . . . . . . . . . . . . . . . . . . . . . . . . . . . . 370 187
--------- ----------
Net Cash Flows Used in Investing Activities . . . . . . . . . . . (16,416) (15,383)
--------- ----------
Financing Activities:
Proceeds and repayments of short-term borrowings - net . . . . . . . 10,455 6,600
Proceeds from exercise of stock options . . . . . . . . . . . . . . 1,562 51
Retirement of debt assumed in GPC acquisition . . . . . . . . . . . -- (1,962)
Payments for debt financing costs . . . . . . . . . . . . . . . . . (199) (93)
Proceeds from long-term debt . . . . . . . . . . . . . . . . . . . . 6,500 10,000
Principal payments on long-term debt . . . . . . . . . . . . . . . . (4,234) (937)
--------- ----------
Net Cash Flows Provided by Financing Activities . . . . . . . . . 14,084 13,659
--------- ----------
Net Increase in Cash and Cash Equivalents . . . . . . . . . . . . . . . . . . 879 1,652
Cash and Cash Equivalents at January 1, . . . . . . . . . . . . . . . . . . . 5,492 2,560
--------- ----------
Cash and Cash Equivalents at June 30, . . . . . . . . . . . . . . . . . . . . $ 6,371 $ 4,212
========= ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE> 5
POOL ENERGY SERVICES CO.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT NUMBER OF SHARES)
<TABLE>
<CAPTION>
JUNE 30 DECEMBER 31
1996 1995
---------- -----------
(UNAUDITED)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . $ 6,371 $ 5,492
Restricted cash . . . . . . . . . . . . . . . . . . . . . . . . . . . 168 163
Accounts and notes receivable (net of allowance for doubtful accounts of
$1,384 and $1,059) . . . . . . . . . . . . . . . . . . . . . . . 58,801 54,984
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,857 10,516
Deferred income tax asset (net of $231 and $407 allowance) . . . . . . 3,708 3,469
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . 8,193 3,525
---------- ----------
Total current assets . . . . . . . . . . . . . . . . . . . . . . 88,098 78,149
Property, Plant and Equipment - Net . . . . . . . . . . . . . . . . . . . . . 134,194 124,024
Investment in and Noncurrent Receivables from Unconsolidated Affiliates . . . 25,554 26,001
Goodwill, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,855 11,174
Noncurrent Deferred Income Tax Asset (net of $5,928 and $6,314 allowance) . . 3,997 5,528
Noncurrent Receivables (net of allowance for doubtful accounts of
$1,942 and $2,824) and Other Assets . . . . . . . . . . . . . . . . . 2,571 2,594
Noncurrent Restricted Cash . . . . . . . . . . . . . . . . . . . . . . . . . 888 973
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 267,157 $ 248,443
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term bank loans . . . . . . . . . . . . . . . . . . . . . . . . $ 10,455 $ --
Current portion of long-term debt . . . . . . . . . . . . . . . . . . 5,325 4,785
Trade accounts payable . . . . . . . . . . . . . . . . . . . . . . . . 22,433 24,123
Accrued liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 22,562 19,615
Accrued taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,249 2,647
---------- ----------
Total current liabilities . . . . . . . . . . . . . . . . . . . . . 65,024 51,170
Long-Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17,510 15,784
Deferred Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,598 2,323
Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42,169 43,139
Shareholders' Equity:
Common stock, no par value:
40,000,000 and 25,000,000 shares authorized; 14,234,688 and
14,063,983 shares issued and outstanding . . . . . . . . . . . . 136,069 134,438
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 5,167 1,911
Unearned compensation related to outstanding restricted stock . . . . (58) --
Cumulative foreign currency translation adjustments . . . . . . . . . (322) (322)
---------- ----------
Total shareholders' equity . . . . . . . . . . . . . . . . . . . 140,856 136,027
---------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 267,157 $ 248,443
========== ==========
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
5
<PAGE> 6
POOL ENERGY SERVICES CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The condensed consolidated financial statements included in this report
are unaudited but in the opinion of management include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
presentation of the financial information for the periods indicated. All
dollar amounts in the tabulations in the notes to the financial statements are
stated in thousands unless otherwise indicated. Certain reclassifications have
been made in the 1995 financial statements to conform with the 1996
presentation. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted.
2. UNCONSOLIDATED AFFILIATES
The following table sets forth certain summarized financial information of
the Company's unconsolidated affiliates as shown by the financial statements of
the affiliates.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
------------------------------
1996 1995
--------- ---------
<S> <C> <C>
Revenues:
Pool Arabia, Ltd. . . . . . . . . . . . . . . . . $ 13,610 $ 14,764
Antah Drilling Sdn. Bhd. . . . . . . . . . . . . 2,099 2,089
Pool Santana, Limited . . . . . . . . . . . . . . 960(b) 2,495
Intairdril Oman L.L.C. . . . . . . . . . . . . . 274 265
--------- ---------
Total . . . . . . . . . . . . . . . . . . . . $ 16,943 $ 19,613
========= =========
Gross profit (a):
Pool Arabia, Ltd. . . . . . . . . . . . . . . . . $ 4,632 $ 5,461
Antah Drilling Sdn. Bhd. . . . . . . . . . . . . 1,195 1,085
Pool Santana, Limited . . . . . . . . . . . . . . 333(b) 1,003
Intairdril Oman L.L.C. . . . . . . . . . . . . . 112 150
-------- ---------
Total . . . . . . . . . . . . . . . . . . . . $ 6,272 $ 7,699
========= =========
Net income (loss):
Pool Arabia, Ltd. . . . . . . . . . . . . . . . . $ (660) $ 91
Antah Drilling Sdn. Bhd. . . . . . . . . . . . . (98) (657)
Pool Santana, Limited . . . . . . . . . . . . . . 89(b) 319
Intairdril Oman L.L.C. . . . . . . . . . . . . . (14) (282)
--------- ---------
Total . . . . . . . . . . . . . . . . . . . . $ (683) $ (529)
========= =========
</TABLE>
(a) Gross profit is computed as revenues less operating expenses (which
excludes depreciation and amortization and selling, general and
administrative expenses).
(b) In April 1996, the Company acquired the 51% interest not already owned
by the Company in Pool Santana, Limited ("Pool Santana"), a Trinidad
corporation, for $1.2 million in cash. Pool Santana's results have been
included in the accompanying consolidated financial statements since the
date of such acquisition.
6
<PAGE> 7
POOL ENERGY SERVICES CO.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(UNAUDITED)
Earnings attributable to unconsolidated affiliates is summarized below:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
-----------------------
1996 1995
-------- ---------
<S> <C> <C>
The Company's portion of net loss . . . . . . . . . . . . . . . . . . . . . . . . $ (348) $ (258)
Adjustment to depreciation recorded by affiliates to the Company's basis . . . . 712 614
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 761 857
-------- ---------
Equity in income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,125 1,213
Management fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 5
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 24
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 176
-------- ---------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,182 $ 1,418
======== =========
</TABLE>
3. PUBLIC OFFERING
On July 9, 1996, the Company completed the sale to the public of
4,600,000 shares of its common stock, no par value, from which it realized
proceeds of approximately $47.8 million (net of underwriting discounts and
commissions). The Company intends to use the net proceeds as follows: (i)
$10.9 million in connection with the acquisition of a 51% interest in a newly
formed corporation which will provide well-servicing, workover and drilling
services in Argentina, (ii) $9.1 million in connection with the acquisition of
the 51% interest that the Company does not already own in its Malaysia
affiliate, Antah Drilling Sdn. Bhd. ("Antah Drilling"), (iii) $4.5 million in
connection with the June 1996 purchase of the operating assets of Western Oil
Well Service Co. ("Western Oil"), (iv) approximately $4.4 million to fund
remaining refurbishment costs of, and provide working capital for, Rig 18, a
previously idle platform drilling rig in the Gulf of Mexico, and (v)
approximately $5.3 million to replenish working capital reserves previously
used to fund costs of refurbishment of Rig 18 and the Pool Santana acquisition
completed in April 1996. The Company intends to use remaining net proceeds for
repayment of debt under its syndicated bank revolving line of credit and for
general corporate purposes.
4. LETTERS OF INTENT
In May 1996, the Company entered into a letter of intent to acquire a 51%
interest in a newly formed Argentina corporation which will provide
well-servicing, workover and drilling services in Argentina. This new
corporation will own and operate nine land drilling rigs and 11 land workover
rigs. The Company's initial investment in this corporation will be
approximately $8.7 million, and it will provide an additional $2.2 million for
working capital.
In May 1996, the Company entered into a letter of intent to acquire the
51% interest that it does not already own in Antah Drilling for approximately
$3.7 million in cash. In addition, approximately $5.4 million will be used to
repay indebtedness of Antah Drilling owed to the Company's partner in that
venture. Antah Drilling's assets include a new state-of-the-art 2,000
horsepower platform drilling rig and a platform workover rig.
These proposed transactions are subject to negotiation of definitive
agreements and/or to other contingencies and there can be no assurance that
either transaction will be consummated.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
On July 9, 1996, the Company completed the sale to the public of
4,600,000 shares of its common stock, no par value, from which it realized
proceeds of approximately $47.8 million (net of underwriting discounts and
commissions). The Company intends to use the net proceeds as follows: (i)
$10.9 million in connection with the acquisition of a 51% interest in a newly
formed corporation which will provide well-servicing, workover and drilling
services in Argentina, (ii) $9.1 million in connection with the acquisition of
the 51% interest that the Company does not already own in Antah Drilling, (iii)
$4.5 million in connection with the June 1996 purchase of the operating assets
of Western Oil, (iv) approximately $4.4 million to fund remaining refurbishment
costs of, and provide working capital for, Rig 18, and (v) approximately $5.3
million to replenish working capital reserves previously used to fund
refurbishment costs of Rig 18 and the Pool Santana acquisition completed in
April 1996. The Company intends to use remaining net proceeds for repayment of
debt under its syndicated bank revolving line of credit and for general
corporate purposes.
In June 1996, the Company purchased the operating assets (including
approximately 23 land well-servicing rigs) of Western Oil for approximately
$4.0 million in cash. These assets are anticipated to require an additional
$0.5 million in working capital.
In April 1996, the Company acquired the 51% interest not already owned
by the Company in Pool Santana for $1.2 million in cash. Pool Santana's
assets consist primarily of a platform workover rig and its related equipment.
In May 1996, the Company entered into separate letters of intent with
respect to the following:
o the acquisition of a 51% interest in a newly formed Argentina
corporation which will provide well-servicing, workover and
drilling services in Argentina. This new corporation will own and
operate nine land drilling rigs and 11 land workover rigs. The
Company's initial investment in this corporation will be
approximately $8.7 million, and it will provide an additional $2.2
million for working capital.
o the acquisition of the 51% interest that it does not already own
in Antah Drilling for approximately $3.7 million in cash. In
addition, approximately $5.4 million will be used to repay
indebtedness of Antah Drilling owed to the Company's partner in
that venture. Antah Drilling's assets include a new state-of-
the-art 2,000 horsepower platform drilling rig and a platform
workover rig.
These proposed transactions are subject to negotiation of definitive
agreements and/or to other contingencies and there can be no assurance that
either transaction will be consummated.
RESULTS OF OPERATIONS - QUARTERS ENDED JUNE 30, 1996 AND 1995
For the quarter ended June 30, 1996, the Company had consolidated net
income of $1.8 million, reflecting stronger overall market conditions than
those prevailing in the second quarter of 1995, for which the Company reported
net income of $0.6 million, which included a $0.4 million after-tax charge for
costs related to the Golden Pacific Corp. ("GPC") acquisition. The average
price of crude oil was higher by approximately 12% in the second quarter of
1996 than in the second quarter of 1995, and average natural gas prices
increased approximately 50% comparing the same periods. Results from the
Company's domestic operations improved primarily due to the inclusion of
results from rigs and equipment acquired in the June 1995 GPC acquisition,
higher activity and increased rates for the Company's jackup rigs in the Gulf
of Mexico and increased land drilling activity and higher rates in Alaska. The
Company's domestic onshore operation reported second quarter well-servicing rig
hours 25% higher than in the corresponding quarter of 1995, primarily due to
the inclusion of rigs acquired in the GPC acquisition. The Company's offshore
operation in the Gulf of Mexico experienced rig utilization of 67% in the
second quarter of 1996, compared to 68% during the comparable period of 1995;
however, average rig rates were 23% higher in the 1996 period. The operating
results from the Company's international operations increased due to higher
land drilling activity in Ecuador and Tunisia and a new offshore platform
workover rig in Australia which did not begin to contribute until the second
half of 1995.
8
<PAGE> 9
Revenues. Revenues were $83.0 million in the second quarter
of 1996, a 30% increase compared with revenues of $63.8 million in the
second quarter of 1995. This increase was attributable to (i) the inclusion of
revenues from rigs and equipment acquired in the GPC acquisition for the entire
second quarter of 1996, compared to only 17 days in the second quarter of 1995,
(ii) higher activity and increased rates for the jackup rigs, increased rates
for the platform rigs and increased labor contract activity in the Gulf of
Mexico, (iii) revenues attributable to the new offshore platform workover rig
in Australia, (iv) increased land drilling rig activity in Ecuador and Tunisia
and (v) greater land drilling activity and higher rates in Alaska. Domestic
onshore well-servicing and related services revenues increased $10.3 million or
23% in the second quarter of 1996 from the corresponding quarter of 1995,
chiefly as a result of the GPC acquisition. Domestic onshore rig utilization
was 53% in the second quarter of 1996, compared to 52% in the second quarter of
1995. Gulf of Mexico offshore workover and drilling revenues increased $3.4
million or 35%, international operations revenues increased $4.4 million or
90%, and Alaska operations revenues increased $1.1 million or 23%. Revenues
for international operations do not include revenues from the Company's foreign
joint ventures, which are unconsolidated affiliates.
Earnings Attributable to Unconsolidated Affiliates. Earnings
attributable to unconsolidated affiliates were $0.5 million in the second
quarter of 1996 compared to $0.6 million in the second quarter of 1995.
Earnings from Pool Santana were $0.1 million in the second quarter of 1995.
Earnings from Pool Santana ceased to be included in earnings attributable to
unconsolidated affiliates immediately following the Company's purchase of its
venture partner's interest in Pool Santana in April 1996.
Costs and Expenses. The Company's costs and expenses were $79.8
million in the second quarter of 1996, a 27% increase compared to costs and
expenses of $63.1 million in the corresponding quarter of 1995. This increase
was chiefly attributable to the inclusion of costs and expenses related to the
rigs and equipment obtained in the GPC acquisition for the entire second
quarter of 1996, compared to only 17 days in the second quarter of 1995. In
addition, costs and expenses were higher due to the operation of the new
offshore platform workover rig in Australia and costs associated with higher
jackup rig and labor contract activity in the Gulf of Mexico. Costs and
expenses in the second quarter of 1995 included $0.6 million of expenses
related to the GPC acquisition, primarily for yard closings.
Interest Expense. Interest expense was $0.5 million higher in the
second quarter of 1996 than in the corresponding quarter of 1995 primarily due
to the notes payable related to the GPC acquisition and the term loan used to
refinance the construction costs of the new offshore platform workover rig in
Australia.
Income Taxes. The Company recorded income tax expense of $1.5 million
in the second quarter of 1996 on income before income taxes of $3.4 million,
compared to income tax expense of $0.7 million on income before income taxes of
$1.3 million in the second quarter of 1995. The increase in income tax expense
was primarily due to stronger domestic operating results in the second quarter
of 1996 compared to the second quarter of 1995. The Company's interim period
tax expense is determined by utilizing the aggregate of estimated annual
effective tax rates for each of the Company's domestic and foreign locations.
RESULTS OF OPERATIONS - SIX MONTHS ENDED JUNE 30, 1996 AND 1995
The Company had consolidated net income of $3.3 million for the first
six months of 1996, compared to net income of $0.8 million for the first six
months of 1995, which included a $0.4 million after-tax charge for costs
related to the GPC acquisition. Results from the Company's domestic operations
improved primarily due to the higher activity and increased rates for the
Company's jackup rigs in the Gulf of Mexico, the inclusion of results from rigs
and equipment acquired in the June 1995 GPC acquisition and increased land
drilling activity and higher rates in Alaska. The Company's domestic onshore
operation reported rig hours 28% higher for the first six months of 1996 than
for the corresponding period of 1995, primarily due to the inclusion of rigs
acquired in the GPC acquisition. The Company's offshore operation in the Gulf
of Mexico experienced rig utilization of 67% in the first six months of 1996,
compared to 63% during the comparable period of 1995; also, average rig rates
were 24% higher in the 1996 period. The operating results from the Company's
international operations increased primarily due to higher land drilling
activity in Ecuador and the new offshore platform workover rig in Australia
which did not begin to contribute until the second half of 1995, offset partly
by lower rig activity by its unconsolidated affiliate in Saudi Arabia and
reduced rig activity in Oman.
9
<PAGE> 10
Revenues. Revenues were $164.7 million in the first six
months of 1996, a 30% increase compared with revenues of $126.7 million
in the first six months of 1995. This increase was attributable to (i) the
inclusion of revenues from rigs and equipment acquired in the June 1995 GPC
acquisition, (ii) higher activity and increased rates for the jackup rigs,
increased rates for the platform rigs and increased labor contract activity in
the Gulf of Mexico, (iii) revenues attributable to the new offshore platform
workover rig in Australia, (iv) higher land drilling activity and increased rig
rates in Alaska and (v) higher land drilling activity in Ecuador. Domestic
onshore well-servicing and related services revenues increased $21.1 million or
24% in the first six months of 1996 from the corresponding period of 1995,
chiefly as a result of the June 1995 GPC acquisition. Gulf of Mexico workover
and drilling revenues increased $8.8 million or 53%, international operations
revenues increased $4.4 million or 35%, and Alaska operations revenues
increased $3.7 million or 33%. Revenues for international operations do not
include revenues from the Company's foreign joint ventures, which are
unconsolidated affiliates.
Earnings Attributable to Unconsolidated Affiliates. Earnings
attributable to unconsolidated affiliates were $1.2 million in the first six
months of 1996 compared to $1.4 million in the first six months of 1995.
Earnings attributable to Pool Arabia, Ltd. decreased $0.5 million from the
first six months of 1995 primarily as a result of the completion in March 1995
of a land drilling contract in Saudi Arabia. The decrease in the earnings of
Pool Arabia, Ltd. was partially offset by better operating results from Antah
Drilling.
Costs and Expenses. The Company's costs and expenses were $158.9
million in the first six months of 1996, a 25% increase compared to costs and
expenses of $126.9 million in the corresponding period of 1995. This increase
was chiefly attributable to the inclusion of costs and expenses related to the
rigs and equipment obtained in the June 1995 acquisition of GPC. In addition,
costs and expenses increased due to the new offshore platform workover rig
operating in Australia, the higher jackup rig and labor contract activity in
the Gulf of Mexico and the higher land drilling activity in Alaska. Costs and
expenses in 1995 included $0.6 million of expenses related to the GPC
acquisition, primarily for yard closings.
Interest Expense. Interest expense was $1.0 million higher in the
first six months of 1996 than in the corresponding period of 1995 primarily due
to the notes payable related to the GPC acquisition, the term loan used to
refinance the construction costs of the new offshore platform workover rig in
Australia and borrowing related to the term loan entered into in April 1995
that was used to refinance the 1994 acquisition of the 60.7% partnership
interest in Pool Arctic Alaska, offset partly by lower average borrowings in
1996 under the Company's syndicated bank revolving line of credit.
Income Taxes. The Company recorded income tax expense of $2.8 million
in the first six months of 1996 on income before income taxes of $6.1 million,
compared to income tax expense of $0.6 million on income before income taxes of
$1.4 million in the first six months of 1995. The increase in income tax
expense was primarily due to stronger operating results in the first six months
of 1996 compared to the first six months of 1995. The Company's interim period
tax expense is determined by utilizing the aggregate of estimated annual
effective tax rates for each of the Company's domestic and foreign locations.
FINANCIAL CONDITION AND LIQUIDITY
Cash Flows. The Company had cash and cash equivalents of $6.4 million
at June 30, 1996 compared to $5.5 million at December 31, 1995. Working
capital was $23.1 million and $27.0 million at June 30, 1996 and December 31,
1995, respectively. The Company used a net $16.4 million for investing
activities in the first six months of 1996, primarily for capital expenditures
of $13.0 million. Cash used for investing activities for this period also
included $4.0 million for the purchase of the operating assets of Western Oil
and $0.6 million, net of cash acquired, for the purchase of 51% of Pool
Santana, offset partly by $0.8 million of proceeds from dispositions of
equipment. The Company used a net $15.4 million for investing activities in
the first six months of 1995, primarily for capital expenditures of $13.9
million, including $6.4 million for the construction of the new offshore
platform workover rig now located in Australia which began contributing in the
second half of 1995. Cash used for investing activities for this period also
included $2.7 million, net of cash acquired, as partial consideration for the
acquisition of GPC and the related direct acquisition costs, offset partly by
$0.9 million of proceeds from dispositions of equipment.
10
<PAGE> 11
The Company anticipates that 1996 capital expenditures other than the
business acquisitions described in "General" will consist of (i) approximately
$17.0 million for capital additions and improvements to its existing rig fleet
and (ii) approximately $7.5 million for the refurbishment of Rig 18. It is
anticipated that these expenditures will be financed chiefly through the net
proceeds of the July 1996 stock offering (see "General" for a description of
the offering) and internally generated funds, although the Company may avail
itself of borrowings as needed.
Credit Facilities and Long-Term Debt. The Company has available a
syndicated bank line of credit ("Line of Credit") to finance temporary working
capital requirements and to support the issuance of letters of credit. The
maximum availability is the lesser of (i) $35 million, or (ii) a calculated
amount based on a percentage of domestic receivables meeting certain criteria.
At June 30, 1996, the maximum availability was $34.5 million, of which $10.5
million had been drawn in cash and $13.0 million was being utilized to support
the issuance of letters of credit.
In January 1996 the Company borrowed $6.5 million under a four-year
term loan agreement in order to refinance the construction costs incurred
during 1995 to build the new offshore platform workover rig for a contract in
Australia. The rig construction costs were initially funded from the Company's
cash resources and borrowings under its Line of Credit. During the first six
months of 1996 the Company made scheduled principal payments of $1.0 million on
this debt.
During the first six months of 1996, the Company made scheduled
principal payments of $3.2 million on other long-term debt.
11
<PAGE> 12
PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- ----------- --------
<S> <C>
1.1(*) -- Underwriting Agreement dated July 2, 1996
10.1 -- First Amendment and Waiver to $35 million Restated Revolving Credit Agreement and
$10 million Restated Term Loan Agreement (incorporated by reference to Exhibit 10.1
to the Company's Registration Statement on Form S-3 No. 333-5229)
27 (*) -- Financial Data Schedule
</TABLE>
- --------------
(*) Filed herewith
(b) Reports on Form 8-K - There were no reports on Form 8-K filed during
the quarter ended June 30, 1996. The Company filed a Current Report
on Form 8-K dated July 10, 1996 (Date of event: July 9, 1996), in
respect of the sale to the public of 4,600,000 shares of the Company's
common stock, no par value, from which it realized proceeds of
approximately $47.8 million (net of underwriting discounts and
commissions). The item reported in such Current Report was Item 5,
Other Events.
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
POOL ENERGY SERVICES CO.
(Registrant)
AUGUST 12, 1996 /s/ E. J. SPILLARD
- ----------------------- ----------------------------------------
(Date) E. J. Spillard
Senior Vice President, Finance
(principal financial officer)
AUGUST 12, 1996 /s/ B. G. GORDON
- ----------------------- ----------------------------------------
(Date) B. G. Gordon
Controller
(principal accounting officer)
13
<PAGE> 14
POOL ENERGY SERVICES CO.
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. DOCUMENT
- ----------- --------
<S> <C>
1.1 (*) -- Underwriting Agreement dated July 2, 1996
10.1 -- First Amendment and Waiver to $35 million Restated Revolving Credit Agreement and $10 million
Restated Term Loan Agreement (incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-3 No. 333-5229)
27 (*) -- Financial Data Schedule
</TABLE>
- ----------------
(*) Filed herewith
14
<PAGE> 1
EXHIBIT 1.1
POOL ENERGY SERVICES CO.
4,000,000 Shares
Common Stock
(No Par Value)
UNDERWRITING AGREEMENT
July 2, 1996
<PAGE> 2
UNDERWRITING AGREEMENT
July 2, 1996
DILLON, READ & CO. INC.
SALOMON BROTHERS INC
JOHNSON RICE & COMPANY L.L.C.
as Managing Underwriters
535 Madison Avenue
New York, New York 10022
Dear Sirs:
Pool Energy Services Co., a Texas corporation (the "Company"),
proposes to issue and sell to the underwriters named in Schedule A annexed
hereto (the "Underwriters") an aggregate of 4,000,000 shares (the "Firm
Shares") of Common Stock, no par value (the "Common Stock"), of the Company.
In addition, solely for the purpose of covering over- allotments, the Company
proposes to grant to the Underwriters the option to purchase from the Company
up to an additional 600,000 shares of Common Stock (the "Additional Shares").
The Firm Shares and the Additional Shares are hereinafter collectively
sometimes referred to as the "Shares". The Shares are described in the
Prospectus which is referred to below.
The Company has filed, in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations thereunder
(collectively called the "Act"), with the Securities and Exchange Commission
(the "Commission") a registration statement on Form S-3, including a
prospectus, relating to the Shares, which incorporates by reference documents
which the Company has filed or will file in accordance with the provisions of
the Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder (collectively called the "Exchange Act"). The Company has furnished
to you, for use by the Underwriters and by dealers, copies of one or more
preliminary prospectuses and the documents incorporated by reference therein
(each thereof, including the documents incorporated therein by reference, being
herein called a "Preliminary Prospectus") relating to the Shares. Except where
the context otherwise requires, the registration statement, as amended when it
becomes effective, including all documents filed as a part thereof or
incorporated by reference therein, and including any information contained in a
prospectus subsequently filed with the Commission pursuant to Rule 424(b) under
the Act and deemed to be part of the registration statement at the time of
effectiveness pursuant to Rule 430(A) under the Act, is herein called the
Registration Statement, and the prospectus, including all documents
incorporated therein by
<PAGE> 3
reference, in the form filed by the Company with the Commission pursuant to
Rule 424(b) under the Act or, if no such filing is required, the form of final
prospectus included in the Registration Statement at the time it became
effective, is herein called the "Prospectus."
The Company and the Underwriters agree as follows:
1. Sale and Purchase. Upon the basis of the warranties and
representations and the other terms and conditions herein set forth, the
Company agrees to sell to the respective Underwriters, and each of the
Underwriters, severally and not jointly, agrees to purchase from the Company,
the aggregate number of Firm Shares set forth opposite the name of such
Underwriter in Schedule A attached hereto in each case at a purchase price of
$11.00 per Share. You shall release the Firm Shares for public sale promptly
after this Agreement becomes effective. You may from time to time increase or
decrease the public offering price after the initial public offering to such
extent as you may determine.
In addition, the Company hereby grants to the several Underwriters the
option to purchase, and upon the basis of the warranties and representations
and the other terms and conditions herein set forth, the Underwriters shall
have the right to purchase, severally and not jointly, from the Company,
ratably in accordance with the number of Firm Shares to be purchased by each of
them, all or a portion of the Additional Shares as may be necessary to cover
over-allotments made in connection with the offering of the Firm Shares, at the
same purchase price per share to be paid by the Underwriters to the Company for
the Firm Shares. This option may be exercised at any time (but not more than
once) on or before the thirtieth day following the date hereof, by written
notice to the Company. Such notice shall set forth the aggregate number of
Additional Shares as to which the option is being exercised, and the date and
time when the Additional Shares are to be delivered (such date and time being
herein referred to as the "additional time of purchase"); provided, however,
that the additional time of purchase shall not be earlier than the time of
purchase (as defined below) nor earlier than the second business day1 after the
date on which the option shall have been exercised nor later than the eighth
business day after the date on which the option shall have been exercised. The
number of Additional Shares to be sold to each Underwriter shall be the number
which bears the same proportion to the aggregate number of Additional Shares
being purchased as the number of Firm Shares set forth opposite the name of
such Underwriter on Schedule A hereto bears to the total number of Firm Shares
(subject, in each case, to such adjustment as you
- ---------------
1 As used herein "business day" shall mean a day on which the New York
Stock Exchange is open for trading.
-2-
<PAGE> 4
may determine to eliminate fractional shares).
2. Payment and Delivery. Payment of the purchase price for the Firm
Shares shall be made to the Company by certified or official bank check, in New
York Clearing House funds, at the office of Dillon, Read & Co. Inc. in New York
City, against delivery of the certificates for the Firm Shares to you for the
respective accounts of the Underwriters. Such payment and delivery shall be
made at 10:00 A.M., New York City time, on July 9, 1996 (unless another time
shall be agreed to by you and the Company or unless postponed in accordance
with the provisions of Section 8 hereof). The time at which such payment and
delivery are actually made is hereinafter sometimes called the "time of
purchase". Certificates for the Firm Shares shall be delivered to you in
definitive form in such names and in such denominations as you shall specify on
the second business day preceding the time of purchase. For the purpose of
expediting the checking of the certificates for the Firm Shares by you, the
Company agrees to make such certificates available to you for such purpose at
least one full business day preceding the time of purchase.
Payment of the purchase price for the Additional Shares shall be made
at the additional time of purchase in the same manner and at the same office as
the payment for the Firm Shares. Certificates for the Additional Shares shall
be delivered to you in definitive form in such names and in such denominations
as you shall specify on the second business day preceding the additional time
of purchase. For the purpose of expediting the checking of the certificates for
the Additional Shares by you, the Company agrees to make such certificates
available to you for such purpose at least one full business day preceding the
additional time of purchase.
3. Representations and Warranties of the Company. The Company
represents and warrants to each of the Underwriters that:
(a) When the Registration Statement becomes effective,
the Registration Statement and the Prospectus will fully comply in all
material respects with the provisions of the Act, and the Registration
Statement will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and the
Prospectus will not contain an untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided,
however, that the Company makes no warranty or representation with
respect to any statement contained in the Registration Statement or
the Prospectus in reliance upon and in conformity with information
concerning the Underwriters and
-3-
<PAGE> 5
furnished in writing by or on behalf of any Underwriter through you to
the Company expressly for use in the Registration Statement or the
Prospectus; the documents incorporated by reference in the Prospectus,
at the time they were filed with the Commission, complied in all
material respects with the requirements of the Exchange Act, and did
not contain an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading.
(b) As of the date of this Agreement, the Company has an
authorized capitalization as set forth under the heading entitled
"Actual" in the section of the Registration Statement and the
Prospectus entitled "Capitalization" and, as of the time of purchase
and the additional time of purchase, as the case may be, the Company
shall have an authorized capitalization as set forth under the heading
entitled "As Adjusted" in the section of the Registration Statement
and the Prospectus entitled "Capitalization"; all of the issued and
outstanding shares of capital stock, including Common Stock of the
Company have been duly and validly authorized and issued and are fully
paid and non-assessable; the Company has been duly organized and is
validly existing as a corporation in good standing under the laws of
the State of Texas, with full power and authority to own its
properties and conduct its business as described in the Registration
Statement and the Prospectus, to execute and deliver this Agreement
and to issue and sell the Shares as herein contemplated.
(c) The Company owns, directly or indirectly, all of the
shares of capital stock or similar equity interests (or such
percentage of such outstanding shares or similar equity interests as
is set forth in Exhibit 21 of the Company's Form 10-K for the year
ended December 31, 1995) of each subsidiary named in Exhibit 21 to the
Company's Form 10-K for the year ended December 31, 1995, which
constitute all entities required to be named therein (each a
"Subsidiary" and, collectively, the "Subsidiaries"), free and clear of
any claim, lien, encumbrance, security interest, restriction upon
voting or transfer, preemptive rights or any other claim of any third
party except as disclosed in the Prospectus. All of the outstanding
shares of capital stock of each Subsidiary that is a corporation and
all of the partnership or similar equity interests of each Subsidiary
that is a joint venture have been duly authorized and validly issued
and are fully paid and nonassessable. Except for the Company's
ownership interest in the Subsidiaries, neither the Company nor any
Subsidiary owns any shares of capital stock of, or other ownership
interest in, any corporation or other entity that is material to the
Company.
-4-
<PAGE> 6
(d) The Company and the Subsidiaries are each duly
qualified or licensed by and are in good standing in each jurisdiction
in which they conduct their respective businesses and in which the
failure, individually or in the aggregate, to be so licensed or
qualified could have a material adverse effect on the operations,
business or condition of the Company and its Subsidiaries, taken as a
whole; and the Company and each of its Subsidiaries are in compliance
in all material respects with the laws, orders, rules, regulations and
directives issued or administered by such jurisdictions.
(e) Neither the Company nor any Subsidiary is in breach
of, or in default under (nor has any event occurred which with notice,
lapse of time, or both would constitute a breach of, or default
under), its respective charter or by-laws or in the performance or
observance of any obligation, agreement, covenant or condition
contained in any indenture, mortgage, deed of trust, bank loan or
credit agreement or other agreement or instrument to which the Company
or any of its Subsidiaries is a party or by which any of them is bound
(except where such default or breach would not have a material adverse
effect on the operations, business or condition of the Company and the
Subsidiaries taken as a whole), and the execution, delivery and
performance of this Agreement and the consummation of the transactions
contemplated hereby will not conflict with, or result in any material
breach of or constitute a default under (nor constitute any event
which with notice, lapse of time, or both would constitute a material
breach of, or default under), any provisions of the charter or by-
laws, of the Company or any of its Subsidiaries or under any provision
of any license, indenture, mortgage, deed of trust, bank loan or
credit agreement or other agreement or instrument to which the Company
or any of its Subsidiaries is a party or by which any of them or their
respective properties may be bound or affected, or under any federal,
state, local or foreign law, regulation or rule or any decree,
judgment or order applicable to the Company or any of its
Subsidiaries.
(f) This Agreement has been duly authorized, executed and
delivered by the Company and is a legal, valid and binding agreement
of the Company enforceable in accordance with its terms.
(g) The capital stock of the Company, including the
Shares, conforms in all material respects to the description thereof
contained in the Registration Statement and Prospectus and the
certificates for the Shares are in due and proper form and the holders
of the Shares will not be subject to personal liability by reason of
being such holders.
-5-
<PAGE> 7
(h) No approval, authorization, consent or order of or
filing with any national, state or local governmental or regulatory
commission, board, body, authority or agency is required in connection
with the issuance and sale of the Shares as contemplated hereby other
than registration of the Shares under the Act and any necessary
qualification under the securities or blue sky laws of the various
jurisdictions in which the Shares are being offered by the
Underwriters.
(i) No person has the right, contractual or otherwise, to
cause the Company to issue to it, or register pursuant to the Act, any
shares of capital stock of the Company upon the issue and sale of the
Shares to the Underwriters hereunder, nor does any person have
preemptive rights, rights of first refusal or other rights to purchase
any of the Shares.
(j) Deloitte & Touche LLP, whose reports on the
consolidated financial statements of the Company and its Subsidiaries
are filed with the Commission as part of the Registration Statement
and Prospectus, are independent public accountants as required by the
Act and the applicable published rules and regulations thereunder.
(k) Each of the Company and its Subsidiaries has all
necessary licenses, authorizations, consents and approvals and has
made all necessary filings required under any federal, state, local or
foreign law, regulation or rule, and has obtained all necessary
authorizations, consents and approvals from other persons, in order to
conduct its respective business (except where its failure to obtain
such authorizations, licenses, consents or approvals or to make such
filings would not have a material adverse effect on the operations,
business or condition of the Company and the Subsidiaries taken as a
whole); neither the Company nor any of its Subsidiaries is in
violation of or in default under, any such license, authorization,
consent or approval or any federal, state, local or foreign law,
regulation or rule or any decree, order or judgment applicable to the
Company or any of its Subsidiaries the effect of which could have a
material adverse effect on the Company and its Subsidiaries taken as a
whole.
(l) All legal or governmental proceedings, contracts or
documents of a character required to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the
Registration Statement have been so described or filed as required.
(m) Except as disclosed in the Registration Statement or
the Prospectus, there are no actions, suits or proceedings pending or
threatened against the Company or any of its
-6-
<PAGE> 8
Subsidiaries or any of their respective properties, at law or in
equity, or before or by any federal, state, local or foreign
governmental or regulatory commission, board, body, authority or
agency which could reasonably be expected to result in a judgment,
decree or order having a material adverse effect on the business,
condition, prospects or property of the Company and its Subsidiaries
taken as a whole.
(n) The audited financial statements included in the
Registration Statement and the Prospectus present fairly the
consolidated financial position of the Company and its Subsidiaries as
of the dates indicated and the consolidated results of operations and
changes in financial position of the Company and its Subsidiaries for
the periods specified; such financial statements have been prepared in
conformity with generally accepted accounting principles applied on a
consistent basis during the periods involved.
(o) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, and
except as may be otherwise stated in the Registration Statement or
Prospectus, there has not been (i) any material and unfavorable
change, financial or otherwise, in the business, properties,
prospects, regulatory environment, results of operations or condition
(financial or otherwise), present or prospective, of the Company and
its Subsidiaries taken as a whole, (ii) any transaction, which is
material to the Company and its Subsidiaries taken as a whole,
contemplated or entered into by the Company or any of its Subsidiaries
or (iii) any obligation, contingent or otherwise, directly or
indirectly incurred by the Company or any of its Subsidiaries which is
material to the Company and its Subsidiaries taken as a whole.
(p) The Company has obtained the agreement of each of its
directors, and of G.G. Arms, R.G. Hale, W.J Myers and E.J. Spillard,
not to sell, contract to sell, grant any option to sell or otherwise
dispose of, directly or indirectly, any shares of Common Stock or
securities convertible into or exchangeable for Common Stock or
warrants or other rights to purchase Common Stock for a period of 90
days after the date of the Prospectus without the prior written
consent of Dillon, Read & Co. Inc.
(q) Neither the Company nor any Subsidiary is involved in
any labor dispute which could reasonably be expected to have a
material adverse effect on the Company and the Subsidiaries taken as a
whole nor, to the knowledge of the Company, is any such dispute
threatened.
(r) Neither the Company nor any Subsidiary, nor any
-7-
<PAGE> 9
employee of the Company or any Subsidiary has made any payment of
funds of the Company or the Subsidiary prohibited by applicable law,
and no funds of the Company or the Subsidiary have been set aside to
be used for any payment prohibited by law, except for payments the
making of which would not have a material adverse effect on the
operations, business or condition of the Company and the Subsidiaries
taken as a whole.
(s) The Company and each Subsidiary has timely and
properly prepared and filed all necessary federal, state, local and
foreign tax returns which are required to be filed and have paid all
taxes shown to be due thereon and have paid all other taxes and
assessments to the extent that the same shall have become due. The
Company has no knowledge of any tax deficiency which has been or might
be asserted against the Company or any Subsidiary which, if resolved
in a manner adverse to the Company or any Subsidiary, could have a
material adverse effect on the Company and the Subsidiaries taken as a
whole.
(t) The Company and the Subsidiaries carry insurance that
is consistent with industry standards and that the Company believes is
adequate for the risks associated with the business conducted and to
be conducted by the Company and the Subsidiaries.
(u) The Company has not taken and shall not take,
directly or indirectly, any action designed to cause or result in, or
which has constituted or which might reasonably be expected to
constitute, the stabilization or manipulation of the price of the
shares of Common Stock to facilitate the sale or resale of the Shares.
(v) There has been no storage, disposal, generation,
manufacture, refinement, transportation, handling or treatment of
toxic wastes, medical wastes, hazardous wastes or hazardous substances
by the Company or any of its Subsidiaries (or to the knowledge of the
Company, any of its or their predecessors in interest) by the Company
or any of its Subsidiaries in violation of any applicable law,
ordinance, rule, regulation, order, judgment, decree or permit or
which would require remedial action under any applicable law,
ordinance, rule, regulation, order, judgment, decree or permit, except
for any violation or remedial action which would not result in, or
which could not have singularly or in the aggregate with all such
violations and remedial actions, a material adverse effect on the
operations, business or condition of the Company and its Subsidiaries
taken as a whole; there has been no spill, discharge, leak, emission,
injection, escape, dumping or release of any kind of any toxic wastes,
medical wastes,
-8-
<PAGE> 10
solid wastes, hazardous wastes or hazardous substances due to or
caused by the Company or any of its Subsidiaries or with respect to
which the Company or any of its Subsidiaries have knowledge, except
for any such spill, discharge, leak, emission, injection, escape,
dumping or release which could not have singularly or in the aggregate
with all such spills, discharges, leaks, emissions, a material adverse
effect on the operations, business or condition of the Company and its
Subsidiaries taken as a whole; and the terms "hazardous wastes,"
"toxic wastes," "hazardous substances" and "medical wastes" shall have
the meanings specified in any applicable local, state, federal and
foreign laws or regulations with respect to environmental protection.
4. Certain Covenants of the Company. The Company
hereby agrees:
(a) to furnish such information as may be required and
otherwise to cooperate in qualifying the Shares for offering and sale
under the securities or blue sky laws of such states as you may
designate and to maintain such qualifications in effect so long as
required for the distribution of the Shares, provided that the Company
shall not be required to qualify as a foreign corporation or to
consent to the service of process under the laws of any such state
(except service of process with respect to the offering and sale of
the Shares); and to promptly advise you of the receipt by the Company
of any notification with respect to the suspension of the
qualification of the Shares for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose;
(b) to make available to you in New York City, as soon as
practicable after the Registration Statement becomes effective, and
thereafter from time to time to furnish to the Underwriters, as many
copies of the Prospectus (or of the Prospectus as amended or
supplemented if the Company shall have made any amendments or
supplements thereto after the effective date of the Registration
Statement) as the Underwriters may request for the purposes
contemplated by the Act;
(c) to advise you promptly and (if requested by you) to
confirm such advice in writing, (i) when the Registration Statement
has become effective and when any post-effective amendment thereto
becomes effective and (ii) if Rule 430A under the Act is used, when
the Prospectus is filed with the Commission pursuant to Rule 424(b)
under the Act (which the Company agrees to file in a timely manner
under such Rules);
(d) to advise you promptly, confirming such advice in
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<PAGE> 11
writing, of any request by the Commission for amendments or
supplements to the Registration Statement or Prospectus or for
additional information with respect thereto, or of notice of
institution of proceedings for, or the entry of a stop order
suspending the effectiveness of the Registration Statement and, if the
Commission should enter a stop order suspending the effectiveness of
the Registration Statement, to make every reasonable effort to obtain
the lifting or removal of such order as soon as possible; to advise
you promptly of any proposal to amend or supplement the Registration
Statement or Prospectus, including by filing any documents that would
be incorporated therein by reference, and to file no such amendment or
supplement to which you shall object in writing;
(e) to furnish to you and, upon request, to each of the
other Underwriters for a period of five years from the date of this
Agreement (i) copies of any reports or other communications which the
Company shall send to its stockholders or shall from time to time
publish or publicly disseminate, (ii) copies of all annual, quarterly
and current reports filed with the Commission on Forms 10-K, 10-Q and
8-K, or such other similar form as may be designated by the
Commission, and (iii) such other information as you may reasonably
request regarding the Company or its Subsidiaries;
(f) to advise the Underwriters promptly of the happening
of any event known to the Company within the time during which a
prospectus relating to the Shares is required to be delivered under
the Act which, in the judgment of the Company, would require the
making of any change in the Prospectus then being used, or in the
information incorporated therein by reference, so that the Prospectus
would not include an untrue statement of material fact or omit to
state a material fact necessary to make the statements therein, in the
light of the circumstances under which they are made, not misleading,
and, during such time, to prepare and furnish, at the Company's
expense, to the Underwriters promptly such amendments or supplements
to such Prospectus as may be necessary to reflect any such change and
to furnish you a copy of such proposed amendment or supplement before
filing any such amendment or supplement with the Commission;
(g) to make generally available to its security holders,
and to deliver to you, an earnings statement of the Company (which
need not be audited and which will satisfy the provisions of Section
11(a) of the Act including, at the option of the Company, Rule 158)
covering a period of 12 months beginning after the effective date of
the Registration Statement but ending not later than 15 months after
the date of the Registration Statement, as soon as is reasonably
practicable after the termination of such 12-month period;
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<PAGE> 12
(h) to furnish to you four signed copies of the
Registration Statement, as initially filed with the Commission, and of
all amendments thereto (including all exhibits thereto and documents
incorporated by reference therein) and sufficient conformed copies of
the foregoing (other than exhibits) for distribution of a copy to each
of the other Underwriters;
(i) to furnish to you as early as practicable prior to
the time of purchase and the additional time of purchase, as the case
may be, but not later than two business days prior thereto, a copy of
the latest available unaudited interim consolidated financial
statements, if any, of the Company and its Subsidiaries which have
been read by the Company's independent certified public accountants,
as stated in their letter to be furnished pursuant to Section 6(b) of
this Agreement;
(j) to apply the net proceeds from the sale of the Shares
in the manner set forth under the caption "Use of Proceeds" in the
Prospectus;
(k) to pay all expenses, fees and taxes (other than any
transfer taxes and fees and disbursements of counsel for the
Underwriters except as set forth under Section 5 hereof and (iii) and
(iv) below) in connection with (i) the preparation and filing of the
Registration Statement, each Preliminary Prospectus, the Prospectus,
and any amendments or supplements thereto, and the printing and
furnishing of copies of each thereof to the Underwriters and to
dealers (including costs of mailing and shipment), (ii) the issue,
sale and delivery of the Shares, (iii) the word processing and/or
printing of this Agreement, any Agreement Among Underwriters, any
dealer agreements, any Statements of Information and Powers of
Attorney and the reproduction and/or printing and furnishing of copies
of each thereof to the Underwriters and to dealers (including costs of
mailing and shipment), (iv) the qualification of the Shares for
offering and sale under state laws and the determination of their
eligibility for investment under state law as aforesaid (including the
legal fees and filing fees and other disbursements of counsel for the
Underwriters) and the printing and furnishing of copies of any blue
sky surveys or legal investment surveys to the Underwriters and to
dealers, (v) any listing of the Shares on any securities exchange or
qualification of the Shares for quotation on NASDAQ and any
registration thereof under the Exchange Act, (vi) any filing for
review of the public offering of the Shares by the National
Association of Securities Dealers, Inc. (the NASD) and (vii) the
performance of the Company's other obligations hereunder;
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<PAGE> 13
(l) to furnish to you, before filing with the Commission
subsequent to the effective date of the Registration Statement and
during the period referred to in paragraph (f) above, a copy of any
document proposed to be filed pursuant to Sections 13, 14 or 15(d) of
the Exchange Act;
(m) not to sell, contract to sell, grant any option to
sell or otherwise dispose of, directly or indirectly, any shares of
Common Stock or securities convertible into or exchangeable for Common
Stock or warrants or other rights to purchase Common Stock or permit
the registration under the Act of any shares of Common Stock for a
period of 90 days after the date hereof without the prior written
consent of Dillon Read & Co. Inc., except for the registration of the
Shares and the sales to the Underwriters pursuant to this Agreement
and except for (i) issuances of Common Stock upon the exercise of
options, warrants and debentures outstanding on the date hereof, (ii)
issuances of Common Stock in accordance with the existing terms of the
Company's 1993 Employee Stock Incentive Plan, and (iii) grants of
options to purchase Common Stock in accordance with the existing terms
of the Company's 1990 Employee Stock Option Plan or 1991 Directors'
Stock Option Plan; and
(n) to use its best efforts to cause the Common Stock to
be listed on the Nasdaq National Market.
5. Reimbursement of Underwriters' Expenses. If the Shares are
not delivered for any reason other than the termination of this Agreement
pursuant to the first two paragraphs of Section 8 hereof or the default by one
or more of the Underwriters in its or their respective obligations hereunder,
the Company shall reimburse the Underwriters for all of their out-of-pocket
expenses, including the fees and disbursements of their counsel.
6. Conditions of Underwriters' Obligations. The several
obligations of the Underwriters hereunder are subject to the accuracy of the
representations and warranties on the part of the Company on the date hereof
and at the time of purchase (and the several obligations of the Underwriters at
the additional time of purchase are subject to the accuracy of the
representations and warranties on the part of the Company on the date hereof
and at the time of purchase (unless previously waived) and at the additional
time of purchase, as the case may be), the performance by the Company of its
obligations hereunder and to the following conditions:
(a) The Company shall furnish to you at the time of
purchase and at the additional time of purchase, as the case may be,
an opinion of Covington & Burling, counsel for the Company, addressed
to the Underwriters, and dated the time of
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<PAGE> 14
purchase or the additional time of purchase, as the case may be, with
reproduced copies for each of the other Underwriters and in form
satisfactory to Gardere Wynne Sewell & Riggs, L.L.P., counsel for the
Underwriters, stating as follows:
(i) The Company has been duly organized and is
validly existing as a corporation in good standing under the
laws of the State of Texas, with full corporate power and
authority to own its properties and conduct its business as
described in the Registration Statement and the Prospectus, to
execute and deliver this Agreement and to issue, sell and
deliver the Shares as herein contemplated.
(ii) Each of the Subsidiaries listed on Schedule B (a
"Material Subsidiary") has been duly organized and is validly
existing as a corporation in good standing under the laws of
its respective jurisdiction of incorporation with full
corporate power and authority to own its respective properties
and to conduct its respective business (except where the
failure to so qualify could not reasonably be expected to have
a material adverse effect on the operations, business or
condition of the Company and the Subsidiaries taken as a
whole). The Company is the record owner, directly or
indirectly, of all of the shares of capital stock of each
Material Subsidiary, free and clear of any adverse claim
within the meaning of the Uniform Commercial Code. All of the
outstanding shares of capital stock or similar equity interest
of each Material Subsidiary have been duly authorized and
validly issued and are fully paid and nonassessable. To such
counsel's knowledge, except for the Company's ownership
interest in the Subsidiaries, neither the Company nor any
Subsidiary owns any shares of capital stock of, or other
ownership interest in, any corporation or other entity that is
material to the Company.
(iii) The Company and the Material Subsidiaries are
duly qualified or licensed by each jurisdiction in which they
conduct their respective businesses and in which the failure,
individually or in the aggregate, to be so licensed or
qualified could have a material adverse effect on the
operations, business or condition of the Company and the
Material Subsidiaries taken as a whole, and the Company and
the Material Subsidiaries are duly qualified, and are in good
standing, in the respective jurisdictions listed on Schedule
C.
(iv) This Agreement has been duly authorized,
executed and delivered by the Company.
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<PAGE> 15
(v) The Shares, when issued and delivered to and paid
for by the Underwriters, will be duly and validly authorized
and issued and will be fully paid and non-assessable.
(vi) The Company has an authorized capitalization as
set forth in the Registration Statement and the Prospectus;
the outstanding shares of capital stock of the Company have
been duly and validly authorized and issued and are fully
paid, nonassessable and free of statutory and contractual
preemptive rights; the Shares when issued will be free of
statutory and contractual preemptive rights; the certificates
for the Shares are in due and proper form and the holders of
the Shares will not be subject to personal liability by reason
of being such holders.
(vii) The capital stock of the Company, including the
Shares, conforms in all material respects to the description
thereof contained in the Registration Statement and
Prospectus.
(viii) The Registration Statement and the Prospectus
(except as to the financial statements and schedules and other
financial and statistical data contained or incorporated by
reference therein, as to which such counsel need express no
opinion) comply as to form in all material respects with the
requirements of the Act.
(ix) The Registration Statement has become effective
under the Act and, to the best of such counsel's knowledge, no
stop order proceedings with respect thereto are pending or
threatened under the Act.
(x) No approval, authorization, consent or order of
or filing with any national, state or local governmental or
regulatory commission, board, body, authority or agency is
required in connection with the issuance and sale of the
Shares as contemplated hereby other than registration of the
Shares under the Act (except such counsel need express no
opinion as to any necessary qualification under the state
securities or blue sky laws of the various jurisdictions in
which the Shares are being offered by the Underwriters).
(xi) The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company
of the transactions contemplated hereby do not and will not
conflict with, or result in any breach of, or constitute a
default under (nor constitute any event which with notice,
lapse of time, or both, would
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<PAGE> 16
constitute a breach of or default under), any provisions of
the charter or by-laws of the Company or any of its
Subsidiaries or under any provision of any agreement or
instrument filed or incorporated by reference by the Company
with the Commission as an Exhibit to the Company's Annual
Report on Form 10-K for the year ended December 31, 1995.
(xii) The documents incorporated by reference in the
Registration Statement and Prospectus, when they were filed
(or, if an amendment with respect to any such document was
filed when such amendment was filed), complied as to form in
all material respects with the Exchange Act (except as to the
financial statements and schedules and other financial and
statistical data contained or incorporated by reference
therein as to which such counsel need express no opinion).
(xiii) Such counsel have participated in conferences
with officers and other representatives of the Company,
representatives of the independent public accountants of the
Company and representatives of the Underwriters at which the
contents of the Registration Statement and Prospectus were
discussed and, although such counsel is not passing upon and
does not assume responsibility for the accuracy, completeness
or fairness of the statements contained in the Registration
Statement or Prospectus (except as and to the extent stated in
subparagraphs (vi) and (vii) above), on the basis of such
participation (relying as to materiality to a large extent
upon the opinions of officers and other representatives of the
Company), nothing has come to the attention of such counsel
that causes them to believe that the Registration Statement or
any amendment thereto at the time such Registration Statement
or amendment became effective contained an untrue statement of
a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements
therein not misleading, or that the Prospectus or any
supplement thereto at the date of such Prospectus or such
supplement, and at all times up to and including the time of
purchase or additional time of purchase, as the case may be,
contained an untrue statement of a material fact or omitted to
state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading (it
being understood that such counsel need express no opinion
with respect to the financial statements and schedules and
other financial and statistical data included in the
Registration Statement or Prospectus).
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<PAGE> 17
In rendering its opinion under subparagraph (ii) of this
paragraph (a), Covington & Burling may rely as to matters involving
the application of laws other than the laws of the United States and
the States of New York and Texas, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an
opinion or opinions (in form and substance reasonably satisfactory to
counsel for the Underwriters) of other counsel reasonably acceptable
to counsel for the Underwriters and familiar with the applicable laws.
The opinion of such counsel for the Company shall state that the
opinion of any such other counsel is in form satisfactory to such
counsel for the Company and, in their opinion, you and they are
justified in relying thereon. A copy of the opinion of any such other
counsel shall be attached to the opinion of Covington & Burling.
(b) You shall have received from Deloitte & Touche LLP,
letters dated, respectively, the date of this Agreement and the time
of purchase and additional time of purchase, as the case may be, and
addressed to the Underwriters (with reproduced copies for each of the
Underwriters) in the forms heretofore approved by the Managing
Underwriters.
(c) You shall have received at the time of purchase and at the
additional time of purchase, as the case may be, the favorable opinion
of Gardere Wynne Sewell & Riggs, L.L.P., counsel for the Underwriters,
dated the time of purchase or the additional time of purchase, as the
case may be, as to the matters referred to in subparagraphs (iv), (v),
(vii), (viii) and (ix) of paragraph (a) of this Section 6.
In addition, such counsel shall state that such counsel have
participated in conferences with officers and other representatives of
the Company, counsel for the Company, representatives of the
independent public accountants of the Company and representatives of
the Underwriters at which the contents of the Registration Statement
and Prospectus and related matters were discussed and, although such
counsel is not passing upon and does not assume any responsibility for
the accuracy, completeness or fairness of the statements contained in
the Registration Statement and Prospectus (except as to matters
referred to under subparagraph (vii) of paragraph (a) of this Section
6), on the basis of the foregoing (relying as to materiality to a
large extent upon the opinions of officers and other representatives
of the Company), no facts have come to the attention of such counsel
which lead them to believe that the Registration Statement or any
amendment thereto at the time such Registration Statement or amendment
became effective contained an untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements
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<PAGE> 18
therein not misleading or that the Prospectus as of its date or any
supplement thereto as of its date contained an untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein, in light
of the circumstances under which they were made, not misleading (it
being understood that such counsel need express no comment with
respect to the financial statements and schedules and other financial
and statistical data included in the Registration Statement or
Prospectus).
(d) No amendment or supplement to the Registration Statement
or Prospectus, including documents deemed to be incorporated by
reference therein, shall be filed prior to the time the Registration
Statement becomes effective to which you object in writing.
(e) The Registration Statement shall become effective, or if
Rule 430A under the Act is used, the Prospectus shall have been filed
with the Commission pursuant to Rule 424(b) under the Act, at or
before 5:00 P.M., New York City time, on the date of this Agreement,
unless a later time (but not later than 5:00 P.M., New York City time,
on the second full business day after the date of this Agreement)
shall be agreed to by the Company and you in writing or by telephone,
confirmed in writing; provided, however, that the Company and you and
any group of Underwriters, including you, who have agreed hereunder to
purchase in the aggregate at least 50% of the Firm Shares may from
time to time agree on a later date.
(f) Prior to the time of purchase or the additional time of
purchase, as the case may be, (i) no stop order with respect to the
effectiveness of the Registration Statement shall have been issued
under the Act or proceedings initiated under Section 8(d) or 8(e) of
the Act; (ii) the Registration Statement and all amendments thereto,
or modifications thereof, if any, shall not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading; and (iii) the Prospectus and all amendments or supplements
thereto, or modifications thereof, if any, shall not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they are made, not
misleading.
(g) Between the time of execution of this Agreement and the
time of purchase or the additional time of purchase, as the case may
be, (i) no material and unfavorable change, financial or otherwise
(other than as referred to in the Registration Statement and
Prospectus), in the business, condition or prospects of the Company
and its Subsidiaries
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<PAGE> 19
taken as a whole shall occur or become known and (ii) no transaction
which is material and unfavorable to the Company shall have been
entered into by the Company or any of its Subsidiaries.
(h) The Company will, at the time of purchase or additional
time of purchase, as the case may be, deliver to you a certificate of
two of its executive officers to the effect that the representations
and warranties of the Company as set forth in this Agreement and the
conditions set forth in paragraph (f) and paragraph (g) have been met
and that they are true and correct as of each such date.
(i) You shall have received signed letters, dated the date of
this Agreement, from each of the directors of the Company, and from
G.G. Arms, R.G. Hale, W.J Myers and E.J. Spillard, to the effect that
such persons shall not sell, contract to sell, grant any option to
sell or otherwise dispose of, directly or indirectly, any shares of
Common Stock of the Company or securities convertible into or
exchangeable for Common Stock or warrants or other rights to purchase
Common Stock for a period of 90 days after the date of the Prospectus
without the prior written consent of Dillon Read & Co. Inc.
(j) The Company shall have furnished to you such other
documents and certificates as to the accuracy and completeness of any
statement in the Registration Statement and the Prospectus as of the
time of purchase and the additional time of purchase, as the case may
be, as you may reasonably request.
(k) The Company shall perform such of its obligations under
this Agreement as are to be performed by the terms hereof at or before
the time of purchase and at or before the additional time of purchase,
as the case may be.
(l) The Shares shall have been approved for listing on the
Nasdaq National Market, subject only to notice of issuance at or prior
to the time of purchase.
(m) The Company shall furnish you at the time of purchase and
at the additional time of purchase, as the case may be, an opinion of
G. Geoffrey Arms, Esq., General Counsel of the Company, addressed to
the Underwriters, and dated the time of purchase or the additional
time of purchase, as the case may be, with reproduced copies for each
of the other Underwriters and in form satisfactory to Gardere Wynne
Sewell & Riggs, L.L.P., counsel for the Underwriters, stating as
follows:
(i) To the best of such counsel's knowledge, neither
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<PAGE> 20
the Company nor any of its Subsidiaries is in breach of, or in
default under (nor has any event occurred which with notice,
lapse of time, or both would constitute a breach of, or
default under), any license, indenture, mortgage, deed of
trust, bank loan or any other agreement or instrument to which
the Company or any of its Subsidiaries is a party or by which
any of them or their respective properties may be bound or
affected or under any law, regulation or rule or any decree,
judgment or order applicable to the Company or any of its
Subsidiaries;
(ii) To the best of such counsel's knowledge, there
are no contracts, licenses, agreements, leases or documents of
a character which are required to be filed as exhibits to the
Registration Statement or to be summarized or described in the
Prospectus which have not been so filed, summarized or
described; and
(iii) To the best of such counsel's knowledge, there
are no actions, suits or proceedings pending or threatened
against the Company or any of its Subsidiaries or any of their
respective properties, at law or in equity or before or by any
commission, board, body, authority or agency which are
required to be described in the Prospectus but are not so
described.
7. Effective Date of Agreement; Termination: This Agreement
shall become effective (i) if Rule 430A under the Act is not used, when you
shall have received notification of the effectiveness of the Registration
Statement, or (ii) if Rule 43OA under the Act is used, when the parties hereto
have executed and delivered this Agreement.
The obligations of the several Underwriters hereunder shall be
subject to termination in the absolute discretion of you or any group of
Underwriters (which may include you) which has agreed to purchase in the
aggregate at least 50% of the Firm Shares, if, at any time prior to the time of
purchase or, with respect to the purchase of any Additional Shares, the
additional time of purchase, as the case may be, trading in securities on the
New York Stock Exchange shall have been suspended or minimum prices shall have
been established on the New York Stock Exchange, or if a banking moratorium
shall have been declared either by the United States or New York State
authorities, or if the United States shall have declared war in accordance with
its constitutional processes or there shall have occurred any material outbreak
or escalation of hostilities or other national or international calamity or
crisis of such magnitude in its effect on the financial markets of the United
States is, in your judgment or in the judgment of such group of Underwriters,
to make it impracticable to market the Shares.
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<PAGE> 21
If you or any group of Underwriters elects to terminate this
Agreement as provided in this Section 7, the Company and each other Underwriter
shall be notified promptly by letter or telegram.
If the sale to the Underwriters of the Shares, as contemplated
by this Agreement, is not carried out by the Underwriters for any reason
permitted under this Agreement or if such sale is not carried out because the
Company shall be unable to comply with any of the terms of this Agreement, the
Company shall not be under any obligation or liability under this Agreement
(except to the extent provided in Sections 4(k), 5 and 9 hereof), and the
Underwriters shall be under no obligation or liability to the Company under
this Agreement (except to the extent provided in Section 9 hereof) or to one
another hereunder.
8. Increase in Underwriters' Commitments: If any Underwriter
shall default in its obligation to take up and pay for the Firm Shares to be
purchased by it hereunder and if the number of Firm Shares which all
Underwriters so defaulting shall have agreed but failed to take up and pay for
does not exceed 10% of the total number of Firm Shares, the nondefaulting
Underwriters shall take up and pay for (in addition to the aggregate principal
amount of Firm Shares they are obligated to purchase pursuant to Section 1
hereof) the number of Firm Shares agreed to be purchased by all such defaulting
Underwriters, as hereinafter provided. Such Shares shall be taken up and paid
for by such non- defaulting Underwriter or Underwriters in such amount or
amounts as you may designate with the consent of each Underwriter so designated
or, in the event no such designation is made, such Shares shall be taken up and
paid for by all non-defaulting Underwriters pro rata in proportion to the
aggregate number of Firm Shares set opposite the names of such non-defaulting
Underwriters in Schedule A.
Without relieving any defaulting Underwriter from its
obligations hereunder, the Company agrees with the non-defaulting Underwriters
that it will not sell any Firm Shares hereunder unless all of the Firm Shares
are purchased by the Underwriters (or by substituted Underwriters selected by
you with the approval of the Company or selected by the Company with your
approval).
If a new Underwriter or Underwriters are substituted by the
Underwriters or by the Company for a defaulting Underwriter or Underwriters in
accordance with the foregoing provision, the Company or you shall have the
right to postpone the time of purchase for a period not exceeding five business
days in order that any necessary changes in the Registration Statement and
Prospectus and other documents may be effected.
The term Underwriter as used in this Agreement shall refer to
and include any Underwriter substituted under this Section 8 with like effect
as if such substituted Underwriter had
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<PAGE> 22
originally been named in Schedule A.
9. Indemnity by the Company and the Underwriters.
(a) The Company agrees to indemnify, defend and hold harmless
each Underwriter and any person who controls any Underwriter within the meaning
of Section 15 of the Act or Section 20 of the Exchange Act, from and against
any loss, expense, liability or claim (including the reasonable cost of
investigation) which, jointly or severally, any such Underwriter or any such
controlling person may incur under the Act, the Exchange Act or otherwise
insofar as such loss, expense, liability or claim arises out of or is based
upon any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement (or in the Registration Statement as
amended by any post-effective amendment thereof by the Company) or in a
Prospectus (the term "Prospectus" for the purpose of this Section 9 being
deemed to include any Preliminary Prospectus, the Prospectus and the Prospectus
as amended or supplemented by the Company), or arises out of or is based upon
any omission or alleged omission to state a material fact required to be stated
in either such Registration Statement or Prospectus or necessary to make the
statements made therein not misleading, except insofar as any such loss,
expense, liability or claim arises out of or is based upon any untrue statement
or alleged untrue statement of a material fact contained in and in conformity
with information furnished in writing by any Underwriter through you to the
Company expressly for use with reference to such Underwriter in such
Registration Statement or such Prospectus or arises out of or is based upon any
omission or alleged omission to state a material fact in connection with such
information required to be stated in either such Registration Statement or
Prospectus or necessary to make such information not misleading, provided,
however, that the indemnity agreement contained in this subsection (a) with
respect to any Preliminary Prospectus or amended Preliminary Prospectus shall
not inure to the benefit of any Underwriter (or to the benefit of any person
controlling such Underwriter) from whom the person asserting any such loss,
expense, liability or claim purchased the Shares which is the subject thereof
if the Prospectus corrected any such alleged untrue statement or omission and
if such Underwriter failed to send or give a copy of the Prospectus to such
person at or prior to the written confirmation of the sale of such Shares to
such person.
If any action is brought against an Underwriter or controlling
person in respect of which indemnity may be sought against the Company pursuant
to the foregoing paragraph, such Underwriter shall promptly notify the Company
in writing of the institution of such action and the Company shall assume the
defense of such action, including the employment of counsel and payment of
expenses. Such Underwriter or such controlling person shall have the right to
employ its or their own counsel in any such case, but
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<PAGE> 23
the fees and expenses of such counsel shall be at the expense of such
Underwriter or of such controlling person unless the employment of such counsel
shall have been authorized in writing by the Company in connection with the
defense of such action or the Company shall not have employed counsel to have
charge of the defense of such action or such indemnified party or parties shall
have reasonably concluded that there may be defenses available to it or them
which are different from or additional to those available to the Company (in
which case the Company shall not have the right to direct the defense of such
action on behalf of the indemnified party or parties), in any of which events
such fees and expenses shall be borne by the Company and paid as incurred (it
being understood, however, that the Company shall not be liable for the
expenses of more than one separate counsel in any one action or series of
related actions in the same jurisdiction representing the indemnified parties
who are parties to such action). Anything in this paragraph to the contrary
notwithstanding, the Company shall not be liable for any settlement of any such
claim or action effected without its written consent.
(b) Each Underwriter severally agrees to indemnify, defend and
hold harmless the Company, its directors and officers, and any person who
controls the Company within the meaning of Section 15 of the Act or Section 20
of the Exchange Act from and against any loss, expense, liability or claim
(including the reasonable cost of investigation) which, jointly or severally,
the Company or any such person may incur under the Act or otherwise, insofar as
such loss, expense, liability or claim arises out of or is based upon any
untrue statement or alleged untrue statement of a material fact contained in
and in conformity with information furnished in writing by or on behalf of such
Underwriter through you to the Company expressly for use with reference to such
Underwriter in the Registration Statement (or in the Registration Statement as
amended by any posteffective amendment thereof by the Company) or in a
Prospectus, or arises out of or is based upon any omission or alleged omission
to state a material fact in connection with such information required to be
stated either in such Registration Statement or Prospectus or necessary to make
such information not misleading.
If any action is brought against the Company or any such
person in respect of which indemnity may be sought against any Underwriter
pursuant to the foregoing paragraph, the Company or such person shall promptly
notify such Underwriter in writing of the institution of such action and such
Underwriter shall assume the defense of such action, including the employment
of counsel and payment of expenses. The Company or such person shall have the
right to employ its own counsel in any such case, but the fees and expenses of
such counsel shall be at the expense of the Company or such person unless the
employment of such counsel shall have been authorized in writing by such
Underwriter in connection with the
-22-
<PAGE> 24
defense of such action or such Underwriter shall not have employed counsel to
have charge of the defense of such action or such indemnified party or parties
shall have reasonably concluded that there may be defenses available to it or
them which are different from or additional to those available to such
Underwriter (in which case such Underwriter shall not have the right to direct
the defense of such action on behalf of the indemnified party or parties), in
any of which events such fees and expenses shall be borne by such Underwriter
and paid as incurred (it being understood, however, that such Underwriter shall
not be liable for the expenses of more than one separate counsel in any one
action or series of related actions in the same jurisdiction representing the
indemnified parties who are parties to such action). Anything in this
paragraph to the contrary notwithstanding, no Underwriter shall be liable for
any settlement of any such claim or action effected without the written consent
of such Underwriter.
(c) If the indemnification provided for in this Section 9 is
unavailable to an indemnified party under subsections (a) and (b) of this
Section 9 in respect of any losses, expenses, liabilities or claims referred to
therein, then each applicable indemnifying party, in-lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, expenses, liabilities or claims
(i) in such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the Underwriters on the other hand
from the offering of the Shares or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand and of the
Underwriters on the other in connection with the statements or omissions which
resulted in such losses, expenses, liabilities or claims, as well as any other
relevant equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be deemed to be
in the same proportion as the total proceeds from the offering (net of
underwriting discounts and commissions but before deducting expenses) received
by the Company bear to the total underwriting discounts and commissions
received by the Underwriters. The relative fault of the Company on the one
hand and of the Underwriters on the other shall be determined by reference to,
among other things, whether the untrue statement or alleged untrue statement of
a material fact or omission or alleged omission relates to information supplied
by the Company or by the Underwriters and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The amount paid or payable by a party as a result of
the losses, expenses, liabilities and claims referred to above shall be deemed
to include any legal or other fees or expenses reasonably incurred by such
party in connection with investigating or
-23-
<PAGE> 25
defending any claim or action.
(d) The Company and the Underwriters agree that it would not
be just and equitable if contribution pursuant to this Section 9 were
determined by pro rata allocation (even if the Underwriters were treated as one
entity for such purpose) or by any other method of allocation that does not
take account of the equitable considerations referred to in subsection (c)
above. Notwithstanding the provisions of this Section 9, no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Shares underwritten by such Underwriter and distributed to
the public were offered to the public exceeds the amount of any damages which
such Underwriter has otherwise been required to pay by reason of such untrue
statement or alleged untrue statement or omission or alleged omission. No
person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The Underwriter's obligations to
contribute pursuant to this Section 9 are several in proportion to their
respective underwriting commitments and not joint.
(e) The indemnity and contribution agreements contained in
this Section 9 and the covenants, warranties and representations of the Company
contained in this Agreement shall remain in full force and effect regardless of
any investigation made by or on behalf of any Underwriter, or any person who
controls any Underwriter within the meaning of Section 15 of the Act or Section
20 of the Exchange Act, or by or on behalf of the Company, its directors and
officers or any person who controls the Company within the meaning of Section
15 of the Act or Section 20 of the Exchange Act, and shall survive any
termination of this Agreement or the issuance and delivery of the Shares. The
Company and each Underwriter agree promptly to notify the others of the
commencement of any litigation or proceeding against it and, in the case of the
Company, against any of the Company's officers and directors in connection with
the issuance and sale of the Shares, or in connection with the Registration
Statement or Prospectus.
10. Notices. Except as otherwise herein provided, all
statements, requests, notices and agreements shall be in writing or by telegram
and, if to the Underwriters, shall be sufficient in all respects if delivered
or sent to Dillon, Read & Co. Inc., 535 Madison Avenue, New York, N.Y. 10022,
Attention: Syndicate Department and, if to the Company, shall be sufficient in
all respects if delivered or sent to the Company at the offices of the Company
at 10375 Richmond Avenue, Houston, Texas 77042, Attention: President.
11. Construction. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New
-24-
<PAGE> 26
York. The Section headings in this Agreement have been inserted as a matter of
convenience of reference and are not a part of this Agreement.
12. Parties at Interest. The Agreement herein set forth has
been and is made solely for the benefit of the Underwriters and the Company and
the controlling persons, directors and officers referred to in Section 9
hereof, and their respective successors, assigns, executors and administrators.
No other person, partnership, association or corporation (including a
purchaser, as such purchaser, from any of the Underwriters) shall acquire or
have any right under or by virtue of this Agreement.
13. Counterparts. This agreement may be signed by the parties
in counterparts which together shall constitute one and the same agreement
among the parties.
-25-
<PAGE> 27
If the foregoing correctly sets forth the understanding among
the Company and the Underwriters, please so indicate in the space provided
below for the purpose, whereupon this letter and your acceptance shall
constitute a binding agreement among the Company and the Underwriters,
severally.
Very truly yours,
Pool Energy Services Co.
By: /s/ JAMES T. JONGEBLOED
------------------------------
Title: Chairman and President
Accepted and agreed to as of the
date first above written, on
behalf of themselves and the
other several Underwriters
named in Schedule A
DILLON, READ & CO. INC.
SALOMON BROTHERS INC
JOHNSON RICE & COMPANY L.L.C.
By: DILLON, READ & CO. INC.
By: /s/ J. W. HUNT
------------------------------
Title: Managing Director
-26-
<PAGE> 28
Schedule A
<TABLE>
<CAPTION>
NUMBER
OF
SHARES
--------
Underwriters
------------
<S> <C>
Dillon, Read & Co. Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 794,000
Salomon Brothers Inc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 793,000
Johnson Rice & Company L.L.C. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 793,000
A.G. Edwards & Sons, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,000
Auerbach Pollak & Richardson Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000
CS First Boston Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,000
David A. Noyes & Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000
Donaldson, Lufkin & Jenrette Securities Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . 85,000
First Southwest Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000
Gabelli & Company, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000
Goldman, Sachs & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,000
Hanifen, Imhoff Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000
Hoak Securities Corp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000
Howard, Weil, Labouisse, Friedrichs Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,000
Huberman Financial, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000
Huntleigh Securities Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000
Jefferies & Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,000
Josephthal Lyon & Ross Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000
Lehman Brothers Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,000
Morgan Keegan & Company, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000
Morgan Stanley & Co., Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,000
Oppenheimer & Co., Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,000
Pennsylvania Merchant Group Ltd. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000
Petrie Parkman & Co. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000
Principal Financial Securities, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,000
Prudential Securities Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000
Raymond James & Associates, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000
Robert W. Baird & Co. Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000
Rodman & Renshaw, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000
Schroder Wertheim & Co. Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,000
Simmons & Company International . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000
Smith Barney Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85,000
Southcoast Capital Corporation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000
The Robinson-Humphrey Company, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,000
Wellington (H.G.) & Co. Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,000
-------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000,000
=========
</TABLE>
-27-
<PAGE> 29
Schedule B
Material Subsidiaries
Antah Drilling Sdn. Bhd.
Pool Arabia, Ltd.
International Sea Drilling Ltd.
Pool International Ltd.
Pool Energy Holding, Inc.
Pool Company (Texas) Inc.
Pool California Energy Services, Inc.
Pool Company
Pool Alaska, Inc.
Pool International, Inc.
-28-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 6,371
<SECURITIES> 0
<RECEIVABLES> 54,449
<ALLOWANCES> 1,384
<INVENTORY> 10,857
<CURRENT-ASSETS> 88,098
<PP&E> 217,864
<DEPRECIATION> 83,670
<TOTAL-ASSETS> 267,157
<CURRENT-LIABILITIES> 65,024
<BONDS> 16,785
<COMMON> 136,069
0
0
<OTHER-SE> 4,787
<TOTAL-LIABILITY-AND-EQUITY> 267,157
<SALES> 0
<TOTAL-REVENUES> 164,670
<CGS> 0
<TOTAL-COSTS> 128,102
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 94
<INTEREST-EXPENSE> 1,384
<INCOME-PRETAX> 6,104
<INCOME-TAX> 2,848
<INCOME-CONTINUING> 3,256
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,256
<EPS-PRIMARY> .23
<EPS-DILUTED> .23
</TABLE>
