<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
------------------------
1994 FORM 10-K
(MARK ONE)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934. (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934. (NO FEE REQUIRED)
FOR THE TRANSITION PERIOD FROM TO .
-------------- ---------------
COMMISSION FILE NUMBER: 0-18309
MARINE DRILLING COMPANIES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-2558926
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
14141 SOUTHWEST FREEWAY, SUITE 2500, SUGAR LAND, TEXAS 77478-3435
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (713) 491-2002
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of each class Name of each exchange
- ------------------- on which registered
COMMON STOCK, $.01 PAR VALUE ---------------------
NASDAQ STOCK MARKET
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 .
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
AGGREGATE MARKET VALUE OF THE COMMON STOCK HELD BY
NONAFFILIATES ON MARCH 6, 1995 - $61,127,367.
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING
ON MARCH 6, 1995 - 44,096,210.
DOCUMENTS INCORPORATED BY REFERENCE
(1) Proxy Statement for Annual Meeting of Shareholders to be held May 2, 1995
- Part III
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<PAGE> 2
MARINE DRILLING COMPANIES, INC.
FORM 10-K
TABLE OF CONTENTS
<TABLE>
<CAPTION> Page
PART I ----
<S> <C> <C>
Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . . . . . 13
PART II
Item 5. Market for Registrant's Common Stock and Related Shareholder Matters . . . . . . . . . . . . . . 13
Item 6. Selected Consolidated Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . 16
Item 8. Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . 44
PART III
Item 10. Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . . . . . 44
Item 11. Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . 44
Item 13. Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . . . . . 44
PART IV
Item 14. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Signatures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
</TABLE>
(i)
<PAGE> 3
PART I
ITEM 1. BUSINESS
GENERAL
Marine Drilling Companies, Inc. (collectively with its subsidiaries,
the "Company") was incorporated in Texas in January 1990. Since 1966, the
Company or its predecessors has been engaged in offshore contract drilling of
oil and gas wells for independent and major oil and gas companies. As of March
6, 1995, the Company owned and operated a fleet of thirteen mobile offshore
jack-up drilling rigs, consisting of four independent leg cantilever jack-ups
and nine mat supported jack-ups. On that date, eleven of the Company's
thirteen rigs were located in the U.S. Gulf of Mexico, one was in the Bay of
Campeche and one was in transit to the U.S. Gulf of Mexico from Southeast Asia.
The Company currently derives substantially all of its revenues from offshore
drilling in the U.S. Gulf of Mexico and in the Bay of Campeche. The Company's
rigs could, with certain modifications, work in other areas, however, the
Company's rigs are not suitable for those areas, such as the North Sea, that
require hostile environment operating capabilities.
The Company's strategy is to strive to maintain its position as a
significant provider of offshore drilling services in its present markets and
to continue to diversify, insofar as financially and operationally practicable,
into other international offshore drilling markets. The Company also intends
to seek business combinations and to make acquisitions of additional drilling
rigs which, over the long term, the Company believes will benefit its
shareholders.
The Company was significantly restructured and recapitalized in 1992
and early 1993 (the "Recapitalization"). See Item 7 "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- The
Recapitalization" for further information.
INDUSTRY CONDITIONS AND COMPETITION
Demand for offshore drilling services is primarily driven by the
economics of oil and gas exploration, development and production, which in
turn, are closely tied to oil and gas prices. Since the mid-1980's oil and gas
prices have been volatile and generally lower than prices experienced during
the early 1980's. As a result, demand for offshore drilling services has been
volatile and generally lower than during the early 1980's. In addition, during
the late 1970's and early 1980's, the industry built a substantial number of
new offshore drilling rigs. The combination of (i) generally lower oil and gas
prices, (ii) increased rig supply and (iii) lower demand for offshore drilling
services has resulted in many periods of depressed pricing and utilization for
most of the world's offshore drilling markets.
Pricing and rig water depth capabilities are generally the most
important competitive factors in the drilling industry. Other competitive
factors include the technical capabilities of specialized drilling equipment
and personnel, operational experience, rig suitability, efficiency, equipment
condition, safety record, reputation and customer relations. The Company
believes that it competes favorably with respect to these factors.
The magnitude of the Company's contract drilling revenues is dependent
upon rig utilization and pricing. These variables are affected by competitive
conditions and the amount of exploration and development activity conducted by
oil and gas companies. As previously stated, this activity is strongly
influenced by the current and projected prices of oil and natural gas. To
provide a recent historical perspective, oil and gas prices for 1990 through
1994 are set forth in the following graph:
1
<PAGE> 4
OIL AND NATURAL GAS PRICES
[GRAPH]
Five year history of Oil and Natural Gas Prices by quarters from January 1,
1990 through December 31, 1994.
<TABLE>
<CAPTION>
Measurement Gas Oil
----------- --- ---
Period Prices Prices
------ ------ ------
<S> <C> <C>
1st Qtr 90 $1.80 $21.93
2nd Qtr 90 $1.39 $18.01
3rd Qtr 90 $1.33 $25.10
4th Qtr 90 $1.84 $32.16
1st Qtr 91 $1.38 $21.05
2nd Qtr 91 $1.21 $20.84
3rd Qtr 91 $1.24 $21.70
4th Qtr 91 $1.68 $21.75
1st Qtr 92 $1.16 $18.98
2nd Qtr 92 $1.44 $21.23
3rd Qtr 92 $1.80 $21.58
4th Qtr 92 $2.18 $20.53
1st Qtr 93 $1.84 $19.69
2nd Qtr 93 $2.03 $19.02
3rd Qtr 93 $2.03 $16.97
4th Qtr 93 $2.06 $16.51
1st Qtr 94 $2.27 $14.74
2nd Qtr 94 $1.89 $17.66
3rd Qtr 94 $1.67 $18.47
4th Qtr 94 $1.54 $17.64
</TABLE>
Source: Offshore Data Services
Natural Gas Prices -- Offshore Louisiana Spot Gas
Oil Prices -- West Texas Intermediate
Worldwide Offshore Market Conditions
As the following graph illustrates, from the beginning of 1992 to the
end of 1994, the number of jack-up rigs available worldwide has declined only
slightly (approximately 2.5%). Jack-up rig demand during that period has
varied from a low of 257 rigs (64% utilization) during the second quarter of
1992 to a high of 312 rigs (80% utilization). During 1994, the average
worldwide supply, demand and utilization of jack-up rigs was 391, 296 and 75%,
respectively, as compared to 1993 during which these statistics were 393, 308
and 78%, respectively. Although it would appear that the small variance
between the statistics for 1994 and 1993 might imply a minimal decrease in day
rates in 1994, other trends emerge due to the mobile nature of jack-up rigs.
As discussed later in this section, there was a significant movement of jack-up
rigs during 1993 and 1994 into the U.S. Gulf of Mexico from other worldwide
drilling markets. These mobilizations generally occurred for two reasons --
(i) strong natural gas prices throughout 1993 and early 1994 led to increased
demand for jack-ups in the U.S. Gulf of Mexico and (ii) oil prices were
generally weak during the latter half of 1993 and the first quarter of 1994
which had a depressing effect on the demand for drilling services in many
jack-up markets outside the U.S. Gulf of Mexico.
2
<PAGE> 5
The following graph includes data regarding worldwide jack-up rig
supply (including non-marketed rigs), demand and utilization for 1992 through
1994:
WORLDWIDE JACK-UP RIG STATISTICS
[GRAPH]
Statistics for Jack-Up Rigs Worldwide consisting of the total rigs, working
rigs, and rig utilization by quarters from January 1, 1992 through December 31,
1994.
<TABLE>
<CAPTION>
Measurement Total Working Utilization
----------- ----- ------- -----------
Period Rigs Rigs Percentage
------ ---- ---- ----------
<S> <C> <C> <C>
1st Qtr 92 401 277 69%
2nd Qtr 92 399 257 64%
3rd Qtr 92 397 270 68%
4th Qtr 92 396 298 75%
1st Qtr 93 394 303 77%
2nd Qtr 93 394 305 77%
3rd Qtr 93 393 310 79%
4th Qtr 93 392 312 80%
1st Qtr 94 391 295 75%
2nd Qtr 94 391 295 75%
3rd Qtr 94 392 294 75%
4th Qtr 94 391 298 76%
</TABLE>
Source: Offshore Data Services
Due to the extremely competitive nature of the offshore drilling
business, changes in the demand for drilling services among different markets
cause many drilling contractors to react by moving several rigs away from their
weaker markets to stronger markets, thereby creating an increased supply of
rigs in the stronger market. This increased rig supply in the stronger market
will quickly cause day rates to deteriorate unless rig demand increases at or
above the rate of growth in rig supply. It seems that the participants in the
offshore drilling industry often have a tendency to move too many rigs into the
stronger market -- causing it to suffer utilization and day rate deterioration.
The tendency of the offshore drilling industry to "over-mobilize" rigs among
markets has been exacerbated by the volatile nature of oil and gas prices since
the mid-1980's. As the prices of these commodities fluctuate, oil and gas
companies quickly adjust their drilling budgets to reflect the changed
economics of exploration and production. Thus, a drilling market which is
driven primarily by the exploration and production of only one of those
commodities will generally see a change in the demand for drilling services
triggered by the change in the price of the underlying commodity. These
changes in demand for drilling services often occur quickly and can have
significant magnitude. For example, the weak price of natural gas during most
of 1991 and early 1992 had a significant depressing effect on jack-up demand
during 1991 and early 1992.
During the periods discussed herein, the Company operated primarily in
the U.S. Gulf of Mexico and the Bay of Campeche, offshore Mexico. These
markets are further discussed below. The profitability of offshore drilling in
these markets, as well as most of the world's offshore drilling markets, has
been volatile since the mid-1980's and is expected to remain volatile until the
supply of jack-up rigs and demand therefor move closer to equilibrium levels.
The Company is unable to predict future oil and gas prices or future levels of
offshore drilling activity.
3
<PAGE> 6
U.S. Gulf of Mexico
The following graphs illustrate the relationship among working jack-up
rigs, jack-up rig utilization and jack-up rig supplies based upon all rigs, as
well as "marketed" rigs.
U.S. GULF OF MEXICO
JACK-UP RIG STATISTICS -- ALL RIGS
[GRAPH]
Statistics for Jack-Up Rigs in the U.S. Gulf of Mexico consisting of the total
rigs, working rigs, and rig utilization by quarters from January 1, 1992
through December 31, 1994.
<TABLE>
<CAPTION>
Measurement Total Working Utilization
----------- ----- ------- -----------
Period Rigs Rigs Percentage
------ ---- ---- ----------
<S> <C> <C> <C>
1st Qtr 92 127 60 47%
2nd Qtr 92 123 47 38%
3rd Qtr 92 117 52 44%
4th Qtr 92 117 76 65%
1st Qtr 93 111 81 73%
2nd Qtr 93 112 87 78%
3rd Qtr 93 119 93 78%
4th Qtr 93 125 101 81%
1st Qtr 94 127 92 72%
2nd Qtr 94 136 102 75%
3rd Qtr 94 139 105 76%
4th Qtr 94 141 112 79%
</TABLE>
Source: Offshore Data Services
U.S. GULF OF MEXICO
JACK-UP RIG STATISTICS -- MARKETED RIGS
[GRAPH]
Statistics for marketed Jack-Up Rigs in the U.S. Gulf of Mexico consisting of
the marketed rigs, working rigs, and rig utilization by quarters from January
1, 1992 through December 31, 1994.
<TABLE>
<CAPTION>
Measurement Marketed Working Utilization
----------- -------- ------- -----------
Period Rigs Rigs Percentage
------ ---- ---- ----------
<S> <C> <C> <C>
1st Qtr 92 96 60 63%
2nd Qtr 92 84 47 56%
3rd Qtr 92 77 52 68%
4th Qtr 92 88 76 86%
1st Qtr 93 91 81 89%
2nd Qtr 93 96 87 91%
3rd Qtr 93 103 93 90%
4th Qtr 93 111 101 90%
1st Qtr 94 118 92 78%
2nd Qtr 94 126 102 81%
3rd Qtr 94 130 105 81%
4th Qtr 94 131 112 86%
</TABLE>
Source: Offshore Data Services
4
<PAGE> 7
The jack-up drilling market in the U.S. Gulf of Mexico is highly
competitive. A significant number of offshore drilling companies have rigs in
this market and, as a result, no one contractor is able to materially affect
pricing levels. Indeed, day rates can and have exhibited major changes on
relatively small changes in the rig supply and demand situation in this market.
As illustrated in the preceding graphs, since 1992, demand for jack-up
rigs in this market has shown general improvement. Day rates during this
period generally increased until late 1993, however, they began to decline
thereafter. The decline in day rates during 1994 was due primarily to the
supply of marketed jack-up rigs growing faster than the rate of growth of
jack-up rig demand. The "Marketed Rigs" graph illustrates the variance in the
growth in the supply of marketed rigs versus working rigs. As noted on that
graph, during 1992, 1993 and 1994, the average utilization of marketed rigs was
approximately 71%, 90% and 81%, respectively. The growth in the marketed
jack-up rig supply was due to two factors -- (i) net rig mobilizations into
this market and (ii) reactivations (primarily during 1993) of previously
noncompetitive rigs.
In late 1994 and early 1995, the price of natural gas continued to
deteriorate due to a mild winter in the U.S. As a result, jack-up rig demand
in the U.S. Gulf of Mexico has shown a significant decline since year-end 1994.
According to Offshore Data Services, as of February 28, 1995, there were 141
jack-up rigs in the U.S. Gulf of Mexico of which 90 were contracted (a 64%
utilization rate). Day rates during early 1995 have also deteriorated and may
decline further. Moreover, as previously discussed, jack-up rigs are mobile
and competitors could move additional rigs from other markets to the U.S. Gulf
of Mexico. In addition, there are additional non-marketed rigs stacked in the
U.S. Gulf of Mexico which, subject to some expenditure, have been or could be
reactivated. Such movement or reactivation could further depress pricing
levels.
5
<PAGE> 8
Bay of Campeche, Offshore Mexico
BAY OF CAMPECHE
JACK-UP RIG STATISTICS
[GRAPH]
Statistics for Jack-Up Rigs in the Bay of Campeche, Offshore Mexico, consisting
of the total rigs, working rigs, and rig utilization by quarters from January
1, 1992 through December 31, 1994.
<TABLE>
<CAPTION>
Measurement Total Working Utilization
----------- ----- ------- -----------
Period Rigs Rigs Percentage
------ ---- ---- ----------
<S> <C> <C> <C>
1st Qtr 92 8 8 100%
2nd Qtr 92 9 9 100%
3rd Qtr 92 10 8 80%
4th Qtr 92 11 11 100%
1st Qtr 93 19 17 89%
2nd Qtr 93 22 21 95%
3rd Qtr 93 22 20 91%
4th Qtr 93 20 18 90%
1st Qtr 94 19 17 89%
2nd Qtr 94 17 15 88%
3rd Qtr 94 15 12 80%
4th Qtr 94 15 10 67%
</TABLE>
Source: Offshore Data Services
The Bay of Campeche drilling market experienced rapid growth in rig
demand during the period from late 1992 to mid-1993. Since that time, the
market has shown general deterioration. The Company was able to contract two
of its rigs (the MARINE 301 and MARINE 303) into this market in late 1992 and
another in mid-1993. The first two rigs completed their contracts in late 1993
and early 1994, respectively, and subsequently returned to the U.S. Gulf of
Mexico. The third rig (the MARINE 300) continues to operate in this market at
the present time pursuant to extensions of the initial contract. The Company
currently expects that contract to expire in June 1995 and intends, if no
additional jobs are available in this market at that time, to mobilize that rig
to the U.S. Gulf of Mexico or other international markets.
All of the rigs in the Bay of Campeche are performing drilling
services for Petroleos Mexicanos ("Pemex"), the national oil company of the
Republic of Mexico. Of the rigs working for Pemex in the Bay of Campeche, some
are subject to contracts between the respective drilling contractors and Pemex
and the other rigs are working for turnkey companies which, in turn, have
entered into turnkey drilling contracts with Pemex. The MARINE 300 is
contracted to Industrial Perforadora, S.A. de CV ("IPC") which, in turn, is
supplying the rig and its services to Pemex pursuant to a contract between
Pemex and IPC.
Recently, Mexico's currency, the peso, has suffered a significant
devaluation. If this devaluation were to adversely affect Pemex's drilling
programs, the demand for jack-up rigs in this market could further deteriorate.
The Company is unable at this time to predict the effect of this occurrence on
the Company's operations.
6
<PAGE> 9
The following table sets forth certain industry and Company
historical data for the periods indicated:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1994 1993 1992 1991 1990
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
INDUSTRY(1):
U.S. Gulf of Mexico:
Total jack-up rigs . . . . . . . . . . . . . 136 116 121 144 159
Working jack-up rigs . . . . . . . . . . . . 103 91 59 91 120
Utilization . . . . . . . . . . . . . . . . 76% 77% 49% 63% 76%
All other markets:
Total jack-up rigs . . . . . . . . . . . . . 255 277 277 266 257
Working jack-up rigs . . . . . . . . . . . . 192 217 217 235 224
Utilization . . . . . . . . . . . . . . . . 75% 78% 78% 88% 87%
COMPANY(2):
Total jack-up rigs(3) . . . . . . . . . . . 12 11 15 21 22
Working jack-up rigs . . . . . . . . . . . . 10 10 6 12 16
Utilization . . . . . . . . . . . . . . . . 83% 91% 40% 56% 71%
Non-marketed rigs . . . . . . . . . . . . . 1 1 7 5 3
Utilization of marketed rigs . . . . . . . . 87% 97% 73% 73% 84%
Average day rates(4) . . . . . . . . . . . . $ 19,686 $23,019 $13,816 $15,547 $15,141
</TABLE>
(1) Average of weekly data published by Offshore Data Services.
(2) The numbers included in the table represent the average number of rigs
(rounded to the nearest whole number) operated by the Company for the
periods indicated.
(3) From January 1 to March 12, 1990, the Company operated 16 rigs. In March
1990, the Company acquired four additional rigs and assumed charter
agreements covering three additional rigs. The Company's rig fleet was
substantially reduced during 1991 and 1992. See Item 2 "Properties -- Rig
Fleet."
(4) "Average day rate" is determined by dividing the total gross revenue
earned by the Company's rigs during a given period by the total number of
days that the Company's rigs were under contract during that period.
DRILLING OPERATIONS AND CUSTOMERS
Most of the Company's drilling contracts provide for compensation on a
"daywork" basis. Under daywork contracts, the Company receives a fixed amount
per day for providing drilling services using the rigs it operates. The
Company does not market its rigs under fixed price or turnkey contracts. In
recent years, the Company's rigs have generally been contracted on a
well-to-well basis due to highly competitive conditions. In early 1993,
however, the Company obtained longer term contracts in Mexico, including two
multi-well contracts and a one-year contract with extensions. To the extent
available, the Company will continue to focus upon obtaining, both foreign and
domestic, additional term contracts in the future.
7
<PAGE> 10
The Company provides drilling services to a customer base which
includes independent and major oil and gas companies. As is typical in the
industry, the Company does business with a relatively small number of customers
at any given time. The loss of any one of the Company's customers could, at
least on a short-term basis, have a material adverse effect on the Company's
profitability. Management believes, however, that at current levels of
activity, the Company would have alternative customers for its services if it
lost any single customer and that the loss of any one customer would not have a
material adverse effect on the Company on a long-term basis. See Note 9 of
Consolidated Financial Statements included in this report for further
information regarding the Company's major customers. The Company's management
believes that its customer relationships are good.
ENVIRONMENTAL MATTERS
General
The Company is subject to numerous domestic and foreign governmental
regulations that relate directly or indirectly to its operations, including
certain regulations (i) controlling the discharge of materials into the
environment, (ii) requiring removal and cleanup under certain circumstances,
(iii) requiring the proper handling and disposal of waste materials, or (iv)
otherwise relating to the protection of the environment. For example, the
Company, as an operator of mobile offshore drilling rigs in waters of the
United States and certain offshore areas, may be liable for damages and for the
cost of removing oil spills for which it is held responsible, subject to
certain limitations. Laws and regulations protecting the environment have
become more stringent in recent years and may, in certain circumstances, impose
"strict liability," rendering a company liable for environmental damage without
regard to negligence or fault on the part of such company. Such laws and
regulations may expose the Company to liability for the conduct of or
conditions caused by others or for acts of the Company that were in compliance
with all applicable laws at the time such acts were performed. The application
of these requirements or the adoption of new requirements could have a material
adverse effect on the Company. The Company believes that it has conducted its
operations in substantial compliance with all applicable environmental laws and
regulations.
The Company has generally been able to obtain contractual
indemnification in its drilling contracts against pollution and environmental
damages that are not caused by the gross negligence or willful misconduct of
the Company, but there can be no assurance that such indemnification will be
enforceable in all instances, that the customer will be financially able in all
cases to comply with its indemnity obligations, or that the Company will be
able to obtain such indemnification agreements in the future.
The Company maintains insurance coverage against certain environmental
liabilities, but there can be no assurance that such insurance will continue to
be available or carried by the Company or, if available and carried, will be
adequate to cover the Company's liability in the event of a catastrophic
occurrence.
U.S. Oil Pollution Act of 1990
The U.S. Oil Pollution Act of 1990 ("OPA '90") and regulations
promulgated pursuant thereto impose a variety of regulations on "responsible
parties" related to the prevention of oil spills and liability for damages
resulting from such spills. A "responsible party" includes the owner or
operator of a facility or vessel, or the lessee or permittee of the area in
which an offshore facility is located. OPA '90 assigns liability to each
responsible party for oil removal costs and a variety of public and private
damages. While liability limits apply in some circumstances, a responsible
party for an Outer Continental Shelf facility must pay all spill removal costs
incurred by a federal, state or local government. OPA '90 establishes
liability limits (subject to indexing) for mobile offshore drilling rigs. If
functioning as an offshore facility, the mobile offshore drilling rigs are
considered "tank vessels" for spills of oil on or above the water surface, with
liability limits of $1,200 per gross ton or $10,000,000. To the extent damages
and removal costs exceed this amount, the mobile offshore drilling rigs will be
treated as an offshore facility and the offshore lessee will be responsible up
to higher liability limits of all removal costs plus $75,000,000. A party
cannot take advantage of liability limits if the spill was caused by gross
negligence or willful misconduct or resulted from violation of a federal
safety,
8
<PAGE> 11
construction, or operating regulation. If the party fails to report a spill or
to cooperate fully in the cleanup, liability limits likewise do not apply. Few
defenses exist to the liability imposed by OPA '90.
OPA '90 also imposes ongoing requirements on a responsible party.
These include proof of financial responsibility (to cover at least some costs
in a potential spill), and preparation of an oil spill contingency plan. A
failure to comply with ongoing requirements or inadequate cooperation in a
spill event may subject a responsible party to civil or criminal enforcement
action. In short, OPA '90 places a burden on drilling rig owners or operators
to conduct safe operations and take other measures to prevent oil spills. If a
spill occurs, OPA '90 then imposes liability for resulting damages.
Outer Continental Shelf Lands Act (U.S.)
The Outer Continental Shelf Lands Act authorizes regulations relating
to safety and environmental protection applicable to lessees and permittees
operating on the Outer Continental Shelf. Specific design and operational
standards may apply to Outer Continental Shelf vessels, rigs, platforms,
vehicles and structures. Violations of lease terms relating to environmental
matters or regulations issued pursuant to the Outer Continental Shelf Lands Act
can result in substantial civil and criminal penalties as well as potential
court injunctions curtailing operations and the cancellation of leases. Such
enforcement liabilities can result from either governmental or citizen
prosecution.
CERCLA and RCRA (U.S.)
The Comprehensive Environmental Response, Compensation, and Liability
Act of 1980 ("CERCLA"), as amended, currently exempts crude oil, and the
Resource Conservation and Recovery Act ("RCRA"), as amended, currently exempts
certain drilling materials, such as drilling fluids and produced water, from
the definitions of hazardous substances and hazardous wastes for purposes of
these statutes. The Company's operations, however, may involve the use or
handling of other material that may be classified as environmentally hazardous
substances or wastes. There can be no assurances that these exemptions will be
preserved in future amendments of such acts, if any, or that more stringent
federal or state laws and regulations protecting the environment will not be
adopted. CERCLA assigns strict liability to each responsible party for all
response and remediation costs, as well as natural resource damage. Few
defenses exist to the liability imposed by CERCLA.
GOVERNMENTAL REGULATION
The Company's business is affected by political developments and by
federal, state, foreign and local laws and regulations that relate directly to
the oil and gas industry. The adoption of laws and regulations curtailing
exploration and developmental drilling for oil and gas for economic,
environmental or other policy reasons would and have adversely affected the
operations of the Company by limiting available drilling opportunities for its
customers and/or increasing the costs of such activities to the Company or its
customers. The Company believes that it has conducted its operations in
substantial compliance with applicable governmental laws and regulations.
OPERATIONAL RISKS AND INSURANCE
Contract drilling operations are subject to various risks including
blowouts, cratering, fires and explosions, each of which could result in damage
to or destruction of drilling rigs and oil and gas wells, damage to life and
property, suspension of operations, and environmental damage through oil
spillage and extensive uncontrolled fires. The Company insures its drilling
rigs and plant assets for amounts approximating used equipment replacement cost
and also insures against catastrophic losses resulting from employer's
liability and other risks customary in the energy service industry. The
Company currently maintains insurance coverage it believes to be customary in
the industry against certain general and marine public liabilities, including
liabilities for personal injuries. Except in limited circumstances, this
insurance does not cover liability for pollution or environmental damage that
originates below the water surface, although the Company is
9
<PAGE> 12
generally indemnified against such pollution and environmental liabilities by
its customers. There is no assurance that such insurance or indemnification
will be adequate to protect the Company against liability from all consequences
of well disasters, extensive fire damage or damage to the environment.
Recognizing these risks, the Company has programs that are designed to promote
a safe environment for its personnel and equipment.
EMPLOYEES
As of March 6, 1995, the Company had approximately 670 employees. The
number of employees varies throughout the year depending on the level of
drilling activity. The Company considers relations with its employees to be
good. None of the Company's employees is presently represented by labor
unions.
EXECUTIVE OFFICERS OF THE REGISTRANT
The name, age (as of December 31, 1994) and offices currently held by
each of the executive officers of the Company are shown in the table below.
Each officer is elected by the Board of Directors for a term of office
extending until the meeting of the Board of Directors which follows the next
annual meeting of shareholders or until his successor has been elected and
qualified, unless otherwise removed.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<S> <C> <C>
William O. Keyes 65 Chairman of the Board, President and
Chief Executive Officer(1)
William H. Flores 40 Senior Vice President, Chief Financial Officer
and Assistant Secretary(2)
Gerald T. Greak 54 Senior Vice President--Engineering(3)
Hugh L. Adkins 47 Senior Vice President--Operations Manager(4)
Joan R. Smith 39 Vice President, Controller and Secretary(5)
</TABLE>
(1) William O. Keyes has served as Chairman of the Board, President and
Chief Executive Officer of the Company since December 1991 and as Vice
Chairman of the Board from March 1990 to December 1991. Prior
thereto, he was sole director, sole shareholder and President of Keyes
Offshore, Inc. from October 1977 to March 1990.
(2) William H. Flores has served as Senior Vice President, Chief Financial
Officer and Assistant Secretary of the Company since March 1990.
Prior thereto, he served as Vice President--Finance for Keyes
Offshore, Inc. from December 1986 to March 1990.
(3) Gerald T. Greak has served as Senior Vice President--Engineering of
the Company since October 1994, as Senior Vice President--Marketing
from July 1991 to October 1994 and as Vice President from March 1990
to July 1991. Prior thereto, he served as Vice President--Engineering
of Keyes Offshore, Inc. from 1980 to March 1990.
(4) Hugh L. Adkins has served as Senior Vice President and Operations
Manager of the Company since March 1994, as Vice President and
Operations Manager of the Company from February 1992 to March 1994 and
as Safety Manager of the Company from August 1990 to February 1992.
Prior thereto, he was employed by Norton Drilling Company as Drilling
Superintendent and Division Manager from May 1989 to August 1990 and
by M. A. Hanna Company, Midland South West Division, as Vice
President- Drilling and Production from May 1984 to May 1989.
(5) Joan R. Smith has served as Vice President, Controller and Secretary
since February 1993 and as Controller and Assistant Secretary from
February 1991 to February 1993 . Prior thereto, she was employed by
the U.S. Securities and Exchange Commission in the Division of
Corporation Finance from March 1990 to February 1991 and as Controller
and Secretary for Enercap Corporation from July 1985 to March 1990.
10
<PAGE> 13
ITEM 2. PROPERTIES
RIG FLEET
All of the Company's rigs are jack-up rigs, which are mobile
self-elevating drilling platforms equipped with legs that can be lowered to the
ocean floor until a foundation is established to support the drilling platform.
The Company owns and operates thirteen rigs, nine of which are mat supported
rigs (i.e., they have a lower hull attached to the rig legs) and four are of
independent leg design. Five of the mat supported rigs and one of the
independent leg rigs are slot type jack-up units which are configured for the
drilling operations to take place through a slot in the hull. The Company's
other four mat supported rigs and three of the independent leg rigs have a
cantilever feature which allows the extension of the drilling equipment over a
customer's platform to perform development drilling or workover operations.
The Company's rigs are currently capable of drilling to depths of 20,000 to
30,000 feet in maximum water depths ranging from 200 to 300 feet. Three of the
Company's rigs are presently configured to work in international markets
outside the U.S. Gulf of Mexico. The Company's other rigs could, if applicable
modifications were made and certifications obtained, operate in certain
non-hostile areas outside of their current markets. The Company believes that
all of its rigs are in good operating condition and have been well maintained.
[PICTURE]
Mat Supported Rig -- This type of rig consists of a floating upper hull with
three legs which are attached to a lower hull commonly referred to as a mat.
After being towed to the drilling location, the legs are lowered until the mat
contacts the seabed and the upper hull is jacked to the desired elevation above
sea level. One advantage of mat supported rigs is the ability to operate in
areas having soft seabed conditions where independent leg rigs are prone to
have excessive penetration and subject to leg damage.
Independent Leg Rig -- This type of rig consists of a floating hull with three
independent elevated legs. After being towed to the drilling location, the legs
are lowered until they penetrate the seabed and the hull is jacked to the
desired elevation above sea level.
[PICTURE]
11
<PAGE> 14
The following table describes the Company's drilling rigs as of
February 24, 1995:
<TABLE>
<CAPTION>
YEAR OF
CONSTRUCTION RATED RATED
OR REFUR- WATER DRILLING
NAME OF RIG MAKE/DESIGN TYPE BISHMENT DEPTH DEPTH LOCATION
- ---------------------- ---------------- ---------- ------------- ----- ----- -------------------
<S> <C> <C> <C> <C> <C> <C>
Independent Leg Rigs:
MARINE 300 (a)(b)(d) F&G*/L780 MOD II Cantilever 1981 250' 30,000' Bay of Campeche
MARINE 301 (c) F&G*/L780 MOD II Cantilever 1981 300' 25,000' U.S. Gulf of Mexico
MARINE 303 F&G*/L780 MOD II Cantilever 1982 300' 30,000' U.S. Gulf of Mexico
MARINE 304 (c)(d) MLT** Slot 1993 (e) 300' 30,000' U.S. Gulf of Mexico
Mat Supported Rigs:
MARINE 3 Bethlehem/262 Slot 1974 262' 25,000' U.S. Gulf of Mexico
MARINE 4 Bethlehem/250 Slot 1975 250' 25,000' U.S. Gulf of Mexico
MARINE 15 Baker Marine/250 Slot 1981 250' 25,000' U.S. Gulf of Mexico
MARINE 16 Bethlehem/250 Slot 1981 250' 20,000' U.S. Gulf of Mexico
MARINE 17 Bethlehem/200 Cantilever 1981 200' 20,000' U.S. Gulf of Mexico
MARINE 18 Bethlehem/250 Cantilever 1982 250' 20,000' U.S. Gulf of Mexico
MARINE 200 Bethlehem/200 Cantilever 1981 200' 20,000' U.S. Gulf of Mexico
MARINE 201 (c)(d) Bethlehem/200 Cantilever 1981 200' 20,000' In transit (f)
MARINE 225 Bethlehem/225 Slot 1993 (g) 225' 20,000' U.S. Gulf of Mexico
- --------------------
</TABLE>
(a) Can be modified to provide for 300 foot water depth capacity.
(b) Designed to operate in environmentally sensitive areas such as Mobile Bay.
(c) Equipped with top drive drilling system.
(d) Configured for international operations.
(e) Year of construction -- 1976
(f) In transit from Singapore to the U.S. Gulf of Mexico
(g) Year of construction -- 1969
* Friede & Goldman.
** Marathon LeTourneau
The Company's fleet was substantially reduced in 1991 and 1992, during
which the Company reduced the number of rigs from twenty-one to eleven. See
Item 7 " -- The Recapitalization." In August 1993, the Company acquired and
refurbished the MARINE 304. Later in 1993, the Company refurbished and
reactivated the MARINE 225 (previously named the MARINE 1). During the fourth
quarter of 1994, the Company acquired the MARINE 3 (which the Company had
chartered from its former owner since early 1993) for approximately $5,500,000.
In addition, the Company acquired the MARINE 201 in December 1994 for
approximately $7,000,000.
OTHER PROPERTY
The Company leases approximately 28,000 square feet of office space in
Sugar Land, Texas for its headquarters. Due to the pending expiration of this
lease in May 1995, the Company has leased approximately 19,000 square feet in
an office building in Sugar Land and plans to move thereto in April 1995. In
addition, the Company leases a warehouse, storage and repair facility,
including approximately 31 acres of land and 60,000 square feet of buildings,
in Rosharon, Texas (near Houston).
12
<PAGE> 15
ITEM 3. LEGAL PROCEEDINGS
GENERAL
Various claims have been filed against the Company and its
subsidiaries in the ordinary course of business, particularly claims alleging
personal injuries. Management believes that the Company has established
adequate reserves for any liabilities which may reasonably be expected to
result from these claims. In the opinion of management, no pending claims,
actions or proceedings against the Company or its subsidiaries are expected to
have a material adverse effect on its financial position or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during
the fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
The Company's common stock, par value $.01 per share (the "Common
Stock"), trades on the Nasdaq Stock Market under the symbol "MDCO." The
following table sets forth the range of high and low sale prices per share of
the Common Stock as reported by the Nasdaq Stock Market for the periods
indicated.
<TABLE>
<CAPTION>
1994 1993
------------------ --------------------
HIGH LOW HIGH LOW
------ ----- -------- -----
<S> <C> <C> <C> <C>
First Quarter . . . . . . . 6 3/4 4 5/8 4 1/2 1 1/4
Second Quarter . . . . . . . 6 1/8 4 3/8 10 4
Third Quarter . . . . . . . 6 1/8 4 1/2 8 1/4 5 7/8
Fourth Quarter . . . . . . . 4 3/4 2 5/8 8 5/8 3 7/8
</TABLE>
The last sale price of the Common Stock as reported by the Nasdaq
Stock Market on March 6, 1995 was $2 5/8 per share and there were approximately
500 holders of record.
The Company has not paid cash dividends on its Common Stock in the
past and does not intend to pay dividends on the Common Stock in the
foreseeable future. See Item 7 "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and Notes thereto included in Item 8 of this report.
13
<PAGE> 16
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following table sets forth selected consolidated financial data of
the Company as of and for each of the periods indicated. The selected
financial data for each of the five years in the period ended December 31, 1994
are derived from the Company's audited consolidated financial statements. The
information presented below should be read in conjunction with Item 7
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements and Notes thereto
included in Item 8 of this report.
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1994 1993 1992 1991 1990(2)
--------- --------- --------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA(1):
Drilling revenues . . . . . . . . . . . . . . . . $ 70,597 $ 82,998 $ 31,621 $ 66,686 $ 85,863
Drilling expenses . . . . . . . . . . . . . . . . 50,575 45,330 29,189 58,117 72,842
Depreciation and amortization . . . . . . . . . . 7,733 5,312 12,315 17,240 18,956
General and administrative . . . . . . . . . . . 4,376 8,999 6,903 9,786 8,969
Rig writedown . . . . . . . . . . . . . . . . . . -- -- 68,320(3) -- --
Operating income (loss) . . . . . . . . . . . . . 7,913 23,357 (85,106) (18,457) (14,904)
Interest income (expense), net . . . . . . . . . 1,280 (62) (9,628) (13,291) (12,598)
Income (loss) before income taxes
and extraordinary items . . . . . . . . . . . . 9,123 23,301 (91,327) (34,462) (29,251)
Income tax expense . . . . . . . . . . . . . . . 3,193 8,278 40 -- --
Gains on early extinguishments
of debt . . . . . . . . . . . . . . . . . . . . -- -- 104,523(4) -- --
Net income (loss) . . . . . . . . . . . . . . . . $ 5,930 $15,023 $13,156 $(34,462) $(29,251)
Weighted average common shares
outstanding (5) . . . . . . . . . . . . . . . . 43,819 40,936 5,823 753 618
PER SHARE DATA(1):
Income (loss) per common share before
extraordinary items (6) . . . . . . . . . . . . $ 0.14 $ 0.37 $ (16.84) $ (56.29) $ (58.37)
Extraordinary gains per common
share . . . . . . . . . . . . . . . . . . . . . -- -- 17.95 -- --
Net income (loss) per common
share (6) . . . . . . . . . . . . . . . . . . . $ 0.14 $ 0.37 $ 1.11 $ (56.29) $ (58.37)
BALANCE SHEET DATA(1):
Cash and cash equivalents . . . . . . . . . . . . $ 18,872 $ 21,969 $ 9,173 $ 4,503 $ 20,995
Short-term investments . . . . . . . . . . . . . 18,137 -- -- -- --
Working capital (deficit) . . . . . . . . . . . . 48,413 32,089 (846)(7) (77,063)(7) 17,478
Total assets . . . . . . . . . . . . . . . . . . 143,215 124,171 92,228 247,788 293,201
Long-term debt . . . . . . . . . . . . . . . . . 15,000 -- 5,123 (7) 59,702 (7) 140,672
Deferred income taxes . . . . . . . . . . . . . . 8,365 5,376 -- -- --
Preferred stock . . . . . . . . . . . . . . . . . -- -- -- 57,233 49,296
Shareholders' equity . . . . . . . . . . . . . . 112,731 106,417 60,695 26,741 67,954
- --------------------
</TABLE>
(see notes on following page)
14
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL DATA -- (CONTINUED)
Note: For definitions of certain capitalized terms used in the following
footnotes, see Item 7 " -- The Recapitalization."
(1) See Note 1 to the Consolidated Financial Statements included in Item 8
of this report and Item 7 " -- The Recapitalization" for discussions of
the restructuring and recapitalization activities, as well as the
effect of quasi-reorganization accounting procedures adopted in 1992.
(2) Reflects the business combination (the "Keyes Merger") effected on
March 13, 1990 of the Company's predecessor, Marine Drilling Company,
and certain entities (the "Keyes Entities"). The statement of
operations data includes the Keyes Entities from March 1, 1990.
(3) In connection with the Recapitalization, during 1992, the Company
recorded a rig writedown of $68,320,000 related to the transfer of
seven rigs to MarAd and the writedown of four other rigs to net
realizable value.
(4) During the second quarter of 1992, the Company paid a lender $500,000
in connection with the Bank One Transaction and recorded early
extinguishment of debt of $13,942,000 and a related gain on early
extinguishment of debt of $13,442,000. Additionally, during the third
quarter of 1992, the Company recorded the discharge of debt of
$52,106,000 and a related early extinguishment gain of $45,406,000
pursuant to the Storm Drilling Restructuring. During the fourth
quarter of 1992, the Company recorded an extraordinary gain of
$45,675,000 and issued 4,994,752 shares of Common Stock at a value of
$1.25 per share, or $6,244,000, in connection with the Chase Exchange.
Total debt discharged and related early extinguishment gains during the
year ended December 31, 1992 were $117,967,000 and $104,523,000,
respectively. See "The Recapitalization" included in Item 7 of this
report.
(5) Income (loss) per common share is based on the weighted average number
of common shares outstanding and common stock equivalents, if dilutive.
Net income per common share for the years ended December 31, 1994 and
1993 do not include the effect of outstanding stock options as the
potential dilution from their exercise is less than three percent.
(6) For the years ended December 31, 1992, 1991 and 1990, net income (loss)
per common share includes $1.15, $10.54 and $11.01, respectively, per
share of Common Stock attributable to dividends on and discount
accretion of Old Preferred Stock. On October 29, 1992, the Company's
Old Preferred Stock was reclassified into 19,369,893 shares of Common
Stock.
(7) The working capital deficit as of December 31, 1992 included
$16,157,000 representing the current portion of long-term debt. The
working capital deficit as of December 31, 1991 included "Long-term
debt currently due" of $88,593,000 which was in default subsequent to
December 31, 1991.
15
<PAGE> 18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL CONDITION -- GENERAL
The following is a discussion of the Company's financial condition,
results of operations, historical financial resources and working capital.
This discussion and analysis should be read in conjunction with the Company's
Consolidated Financial Statements and Notes thereto included in Item 8 of this
report.
Overview
During most of 1992, demand for drilling services in the U.S. Gulf of
Mexico was generally depressed due primarily to the uncertainty and occasional
volatility of oil and gas prices, as well as an oversupply of jack-up drilling
rigs. During the latter part of 1992, the demand for drilling services in the
U.S. Gulf of Mexico improved markedly from earlier levels, which, combined with
a continued decline in the supply of jack-up rigs, resulted in generally higher
jack-up rig utilization and day rates. The Company attributes this improvement
in demand primarily to the increase in the price of domestic natural gas during
that period. Market conditions continued to improve during early 1993 due
primarily to increased drilling activity in the Bay of Campeche by Pemex. This
increased drilling activity further reduced the supply of jack-up rigs in the
U.S. Gulf of Mexico. In addition, demand for jack-up rigs in the U.S. Gulf of
Mexico showed general improvement throughout 1993. During 1994, oil prices
showed general improvement from the levels experienced in late 1993; gas
prices, however, experienced a general decline during the last three quarters.
In 1994, demand for offshore drilling services worldwide was generally lower
than in 1993 due to the prices of these commodities. Jack-up rig demand in the
U.S. Gulf of Mexico was somewhat stronger in 1994 compared to 1993, but jack-up
rig demand in the Bay of Campeche was generally weaker. Both markets, however,
had an excess supply of rigs available for work in 1994.
The Company
Prior to 1993, the Company derived most of its revenues from contract
drilling in the U.S. Gulf of Mexico. During 1993, the Company operated two to
three rigs in the Bay of Campeche and received a significant amount of revenues
therefrom. During 1994, the Company had one rig operating in this market. See
Note 9 to the Company's Consolidated Financial Statements included in Item 8 of
this report.
During 1992 and the first quarter of 1993, the Company completed a
series of related transactions that provided for the Recapitalization. See "
- -- The Recapitalization" below. Primarily as a result of the Recapitalization,
between January 1, 1992 and early 1993, the Company eliminated its preferred
stock obligations of approximately $64,000,000 and its indebtedness of
approximately $148,000,000. The Company's rig fleet was also reduced during
that period from 21 rigs to 11 rigs.
The Company's financial results improved markedly during the fourth
quarter of 1992 and throughout 1993 due to the improvements in business
conditions noted above and the effects of the Recapitalization.
The Company's results in 1994 reflected the impact of increased
competition in the U.S. Gulf of Mexico and reduced activity levels in Mexico's
Bay of Campeche. Increased competition in the U.S. Gulf of Mexico was due to
(i) an influx of jack-up rigs into that market from other markets, (ii) an
increased supply of marketed rigs due to reactivations of previously
noncompetitive rigs and (iii) lower than expected growth in jack-up demand due
to generally lower natural gas prices. Even though demand for jack-ups in the
U.S. Gulf of Mexico grew by approximately 14% (1994 vs. 1993), the supply of
marketed jack-ups grew by 26% during that period. The effects of this
increased competition in that market included generally lower utilization and
day rates experienced by the Company and most of the other competitors in this
market.
16
<PAGE> 19
THE RECAPITALIZATION
The Recapitalization of the Company in 1992 and the first quarter of
1993 included several transactions which significantly reduced the Company's
debt and eliminated its preferred stock obligations. The table presented below
reflects certain effects of the Recapitalization transactions and other
payments of debt as if each of the transactions had been consummated on January
1, 1992. The capitalized terms used in the table are defined in the narrative
following the table which further describes each of the Recapitalization
transactions.
<TABLE>
<CAPTION>
SHARES OF OLD
COMMON PREFERRED
STOCK(1) STOCK(2) DEBT(3)
------------ ------------ -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Balances as of January 1, 1992 . . . . . . 753,546 $ 57,233 $ 148,295
Recapitalization transactions --
Bridge Loan . . . . . . . . . . . . . . -- -- 4,000
Bank One Transaction . . . . . . . . . -- -- (12,901)
Marine 200 Restructuring . . . . . . . -- -- (7,471)
Chemical Bank Restructuring . . . . . . -- -- (4,070)
First City Redemption . . . . . . . . . -- -- (4,205)
Chemical Bank Extension . . . . . . . . -- -- (4,184)
Storm Drilling Restructuring . . . . . -- -- (47,841)
Preferred Stock Reclassification . . . 19,369,893 (57,233) --
Chase Exchange . . . . . . . . . . . . 4,994,752 -- (46,801)
Bridge Loan Exchange . . . . . . . . . 3,270,054 -- (4,000)
Rights Offering . . . . . . . . . . . . 9,638,214 -- --
------------ ---------- -----------
38,026,459 -- 20,822
Other cash payments of debt . . . . . . . -- -- (8,001)
------------ ---------- -----------
Balances as adjusted as of
March 31, 1993 . . . . . . . . . . . . 38,026,459 (4) $ -- $ 12,821
========== ========== ===========
- --------------------
</TABLE>
(1) Share amounts have been adjusted to reflect the Reverse Stock Split
effected on October 29, 1992.
(2) Excludes accrued dividends and accretion of discount.
(3) Excludes accrued interest and interest payments.
(4) Excludes 285,000 shares of restricted Common Stock issued in January
1993.
Background
In June 1992, the Company entered into an agreement (the
"Recapitalization Agreement") with certain of its lenders, including The Chase
Manhattan Bank, N.A. ("Chase"), and certain preferred shareholders, including
Warburg, Pincus Capital Company, L.P. ("Warburg"), Aeneas Venture Corporation
("Aeneas"), Capricorn Investors, L.P. ("Capricorn," and together with Warburg
and Aeneas, the "Marine Investors") and William O. Keyes ("Mr. Keyes"). At the
time the Company entered into the Recapitalization Agreement, a substantial
portion of its debt was in default. The Company had unsuccessfully sought a
business combination during the prior year and was close to exhausting its cash
reserves. The Recapitalization collectively consisted of the following
described transactions, substantially all of which were contemplated by the
Recapitalization Agreement.
17
<PAGE> 20
Bridge Loan and Bank One Transaction
Concurrently with the execution of the Recapitalization Agreement, the
Company entered into a $4,000,000 bridge loan agreement with the Marine
Investors (the "Bridge Loan") to provide sufficient funding to enable the
Company to complete the Recapitalization. The Company also then purchased
approximately $13,942,000 of indebtedness (approximately $12,901,000 principal
plus accrued interest) owed by one of its subsidiaries for $500,000 (the "Bank
One Transaction").
Marine 200 Restructuring
On July 14, 1992, a subsidiary of the Company owning a single jack-up
rig filed for protection under Chapter 11 of the United States Bankruptcy Code
in order to restructure certain indebtedness held by MarAd, an agency of the
U.S. Department of Transportation. On March 11, 1993, the creditors of this
subsidiary unanimously approved its plan of reorganization and on March 16,
1993 the plan was confirmed by the bankruptcy court. Under the plan (the
"Marine 200 Restructuring"), the subsidiary's outstanding indebtedness to MarAd
of approximately $10,554,000 was reduced by approximately $7,471,000 to
approximately $3,083,000, which was fully retired later in 1993.
Chemical Bank Restructuring, First City Redemption and Chemical Bank Extension
In August 1992, the Company agreed to a restructuring (the "Chemical
Bank Restructuring") of indebtedness owed to Chemical Bank and First City --
Texas, Houston N.A. ("First City"), which was in default and which aggregated
approximately $22,533,000 as of the date of the restructuring. The Chemical
Bank Restructuring extended the maturity of approximately $18,400,000 of such
indebtedness to April 30, 1993 and provided for payment of the balance
(approximately $4,070,000) during 1992. In January 1993, the Company acquired
all of such indebtedness then held by the successor to First City,
approximately $4,215,000 (approximately $4,205,000 principal plus accrued
interest), at a five percent discount (the "First City Redemption"). Later in
1993, the Company retired the remaining indebtedness owed to Chemical Bank.
Storm Drilling Restructuring
In September 1992, the Company effectively discharged approximately
$52,106,000 (approximately $47,841,000 principal plus accrued interest, net of
deferred financing costs) of indebtedness owed to MarAd by a subsidiary of the
Company (the "Storm Drilling Restructuring") in consideration for the transfer
to entities designated by MarAd of the seven jack-up rigs that secured such
debt and the transfer to MarAd of an interest in certain then pending
litigation against the manufacturer of one of the Company's jack-up rigs (the
"Marine 7 Litigation"). As a result of the settlement of the Marine 7
Litigation in early 1993, MarAd received approximately $3,802,000.
Preferred Stock Reclassification, Chase Exchange and Bridge Loan Exchange
On October 29, 1992, immediately following the meeting of the
Company's shareholders at which certain elements of the Recapitalization were
approved, the Company (i) effected the Reverse Stock Split which reclassified
the then outstanding 18,838,643 shares of Common Stock (pre Reverse Stock
Split) into 753,546 shares of Common Stock, (ii) reclassified all outstanding
shares of the Company's 14% nonconvertible redeemable preferred stock (the "Old
Preferred Stock") into an aggregate of 19,369,893 shares of Common Stock (the
"Preferred Stock Reclassification"), (iii) issued 4,994,752 shares of Common
Stock in exchange for approximately $51,919,000 (approximately $46,801,000
principal plus accrued interest, net of deferred financing costs) of
indebtedness of a subsidiary of the Company held primarily by Chase (the "Chase
Exchange"), (iv) issued 3,270,054 shares of Common Stock to the Marine
Investors in exchange for the approximately $4,087,000 ($4,000,000 principal
plus accrued interest) outstanding under the Bridge Loan (the "Bridge Loan
Exchange"), (v) paid contingent dividend rights (the "Litigation Dividend
Rights") to the holders of record of Common Stock immediately prior to the
consummation of the
18
<PAGE> 21
other Recapitalization transactions occurring on such date, and (vi) entered
into a Registration Rights Agreement and a Shareholders' Agreement with the
Marine Investors, Chase, Mr. Keyes and certain other participants in the
Recapitalization.
The Litigation Dividend Rights provided for a payment to be made if
the net litigation proceeds from the Marine 7 Litigation exceeded certain
threshold amounts. As a result of the settlement of this litigation in January
1993, no amounts have been or will be paid pursuant to the Litigation Dividend
Rights.
Rights Offering
In December 1992, the Company concluded a rights offering (the "Rights
Offering") in which it sold 9,638,214 shares of Common Stock, at $1.25 per
share, out of a maximum offering of 12,810,277 shares. The transferable rights
had been distributed to the holders of record of the Common Stock immediately
prior to the consummation of the Recapitalization transactions effected on
October 29, 1992. Pursuant to the Recapitalization Agreement, the Marine
Investors purchased 4,800,000 shares of Common Stock in the Rights Offering.
Quasi-Reorganization
As of December 31, 1992, the Company adopted quasi-reorganization
accounting procedures which allowed the Company to eliminate its accumulated
deficit against paid-in capital and to revalue its assets and liabilities to
estimated fair values.
FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES
Historical Information
The Company had positive working capital at December 31, 1994 of
$48,413,000 as compared to working capital of $32,089,000 at December 31, 1993.
The change in working capital was due primarily to borrowings under a credit
facility and cash generated by operations, net of capital expenditures.
Net cash provided by operating activities was $14,858,000 in 1994 and
$23,493,000 in 1993 as compared to net cash used in operations of $6,254,000
during 1992. Non-cash items included in the Company's Statement of Cash Flows
in 1992 consist of extraordinary gains on debt extinguishment of $104,523,000
and writedowns of rigs of $68,320,000.
Cash provided by or (used in) investing activities was $(32,968,000),
$(17,772,000) and $677,000 during 1994, 1993 and 1992, respectively. Cash used
in investing activities reflected the net impact of the following transactions
- -- (i) purchases of short-term investments of $29,537,000, (ii) proceeds of
$11,400,000 received from maturing short-term investments and (iii) capital
expenditures of $15,385,000. Capital expenditures in 1994 consisted primarily
of two offshore drilling rig purchases in the fourth quarter, the MARINE 3 for
$5,500,000 and the MARINE 201 (formerly the Nordic Explorer) for $6,900,000.
Other major expenditures included $1,800,000 for the purchase of top drive
drilling systems and other rig upgrades and drill pipe purchases of
approximately $1,000,000. Cash used in 1993 consisted primarily of capital
expenditures of $18,329,000, with the largest expenditures being the
acquisition and refurbishment of the MARINE 304 (formerly Key Largo) in August
1993, consisting of acquisition costs of $9,950,000 and refurbishment costs of
$2,400,000. In addition in 1993, the MARINE 225 was reactivated and
refurbished at a cost of $3,900,000 and the MARINE 303 was upgraded at a cost
of $1,200,000. The balance of $879,000 was used primarily for drill pipe and
other purchases. Cash provided from investing activities in 1992 was generated
primarily from proceeds from sales of two rigs.
19
<PAGE> 22
Cash provided by financing activities was $15,013,000, $6,825,000, and
$10,247,000 during 1994, 1993 and 1992, respectively. Cash provided by
financing activities in 1994 consisted primarily of borrowings from a credit
facility to purchase two drilling rigs and to partially upgrade other rigs.
Cash provided by financing activities in 1993 consisted of the sale of Common
Stock which was partially offset by the payments of debt discussed below.
During 1992, the Company (i) received $4,000,000 from the Bridge Loan in
connection with the Recapitalization, (ii) received net proceeds of $11,537,000
from the Rights Offering, and (iii) made debt payments of $12,277,000.
In connection with the Recapitalization, in November and December 1992
the Company sold stock pursuant to the Rights Offering. Approximately
9,638,000 shares of Common Stock were purchased for gross proceeds of
approximately $12,048,000. Approximately $186,000 of broker solicitation fees
were paid on approximately 3,055,000 shares and approximately $325,000 of
expenses were incurred in connection with the Rights Offering.
In early July 1993, the Company completed a sale of 5,000,000 shares
of Common Stock which provided net proceeds of approximately $28,200,000. The
proceeds of the offering were used for (i) the reduction of bank indebtedness
during the third quarter as discussed in the following paragraph, (ii) the
reactivation and refurbishment of the MARINE 225, (iii) the purchase and
refurbishment of the MARINE 304 and (iv) the balance was dedicated for general
corporate purposes, including possible acquisitions of offshore drilling rigs.
Approximately $422,000 of expenses were incurred in connection with the
offering.
On December 31, 1992, the Company's indebtedness was $21,280,000, with
shareholders' equity of $60,695,000. During the first quarter of 1993, the
Company reduced its debt pursuant to a redemption and retirement of $4,205,000
of indebtedness at 95% of face value followed by additional debt retirements of
$4,184,000. During the third quarter of 1993, the Company retired its
remaining indebtedness of $10,274,000. As a result of debt retirements, the
sale of Common Stock and improved cash flows from operations, the Company had
no debt and had shareholders' equity of $106,417,000 as of December 31, 1993.
On December 31, 1994, the Company's indebtedness was $15,000,000 with
shareholders' equity of $112,731,000.
Outlook
In late 1994, the Company commenced a program (the "Rig Upgrade
Program") to upgrade the operational capabilities of ten of its rigs during the
next two years at an aggregate cost of approximately $30,000,000. This program
includes the following upgrades: (i) converting the power systems of seven
mechanically powered rigs, (ii) adding top drive drilling systems to the
Company's seven mechanically powered rigs, (iii) adding a top drive drilling
system to the MARINE 303, (iv) increasing the water depth rating and adding a
cantilever feature to the MARINE 304 and (v) increasing the water depth rating
of the MARINE 300. At the present time, the Company has committed and/or
expended approximately $7,700,000 in connection with this program. During
these projects, the affected rigs will be taken out of service in order to
complete the modifications. At the present time, the Company anticipates that
most of the projects will involve approximately two to three weeks of downtime
per affected rig except for the MARINE 304 which could require up to four
months downtime. The MARINE 304 modifications, however, could be split into
two or three phases, each of which could be separately completed. The Company
may elect to complete these modifications in this manner in order to maximize
its working capital and optimize rig downtime. The Company's profitability
could be reduced during these periods due to lost revenues. Future
expenditures for the Rig Upgrade Program will be subject to the Company's
outlook for drilling market conditions, as well as changes in the Company's
financial condition. Accordingly, the Company may elect to defer or cancel
substantial portions of this program.
20
<PAGE> 23
The Company continues to pursue the acquisition of additional drilling
rigs to enhance its fleet. As of the date of this report, the Company has no
planned or pending rig acquisitions. Future acquisitions, if any, would likely
be funded from the Company's working capital resources, or through debt and/or
equity financing. The Company cannot predict whether it would be successful in
acquiring additional rigs, and obtaining financing therefor, on acceptable
terms. Depending upon the Company's success in acquiring rigs in the future,
as well as future industry conditions, the Company may elect to defer or
suspend portions of the Rig Upgrade Program discussed in the preceding
paragraph in order to preserve its working capital resources.
As of the date of this report, the Company estimates its 1995 capital
expenditures to be as follows:
<TABLE>
<CAPTION>
1995 EXPENDITURES
EXPENDED THROUGH ----------------------------
PROJECT DECEMBER 31, 1994 COMMITTED PLANNED*
------------------------- ----------------- --------- --------
<S> <C> <C> <C>
Rig Upgrade Program $ 880,000 $ 6,793,000 $ 18,128,000
MARINE 201 Acquisition,
Modifications and Mobilization 6,936,000 2,900,000 6,025,000
Drill String and Other N/A 520,000 520,000
-------------- -------------- --------------
$ 7,816,000 $ 10,213,000 $ 24,673,000
============== ============== ==============
</TABLE>
* Planned expenditures include committed amounts and are subject
to adjustment based upon industry conditions as described
herein.
Additional expenditures related to the Rig Upgrade Program, to the
extent completed, would be disbursed subsequent to 1995.
On December 1, 1994, Keyes Holding Corporation ("KHC"), a wholly-owned
subsidiary of the Company, entered into a revolving/term loan agreement (the
"Loan") with a U.S. financial institution for $35,000,000. That agreement
includes an eighteen- month revolving credit facility which is convertible at
the end of that period into a three-year term loan facility. The term loan is
amortized monthly at the rate of 20% of the initial term loan amount per year
with a balloon payment for the remaining principal (40% of the initial term
loan amount) due at the maturity of the term loan. As of December 31, 1994,
the related debt outstanding was $15,000,000 and the amount of unused line of
credit subject to the Loan was $20,000,000. Loan proceeds may be used to
purchase additional jack-up drilling rigs or to make capital improvements to
the Company's existing drilling rig fleet. The Company guarantees up to
$8,750,000 of the borrowings under the loan agreement. On February 28, 1995,
the Company repaid $5,000,000 of the revolving credit facility associated with
the Loan. The Company anticipates that it will re-borrow this amount in
addition to other borrowings in 1995 to fund capital expenditures. See Note 5
to the Consolidated Financial Statements included in Item 8 of this report.
Recent substantial weakness in the U.S. Gulf of Mexico drilling market
has adversely affected the Company's operations and cash flow. As a result,
the Company has elected to suspend the marketing of certain rigs. These rigs
will generally be deactivated in a common offshore location and, after
preparation for extended idle time, will be maintained periodically by a small
maintenance crew. The Company believes that these actions will benefit cash
flow and working capital during periods of depressed market conditions. The
Company anticipates that additional rigs could be deactivated if industry
conditions remain depressed. The remaining rigs will be aggressively marketed
to maximize cash flow. In addition to the foregoing, the Company will continue
to aggressively control and/or reduce its cost structure.
Recently, Mexico's currency, the peso, has suffered a significant
devaluation. If this devaluation were to adversely affect Pemex's drilling
programs, the Company's business could be adversely impacted. The Company is
unable to predict at this time the effect of this occurrence on the Company's
operations.
21
<PAGE> 24
On March 7, 1995, the Company announced that its Board of Directors
had authorized the repurchase of up to 4,000,000 shares of the Company's Common
Stock. The action reflects the Company's view that its remaining shareholders
will benefit from such repurchases. The repurchases may be effected, from time
to time, in accordance with applicable securities laws, through solicited or
unsolicited transactions in the market or in privately negotiated transactions.
No limit was placed on the duration of the repurchase program. Subject to
applicable securities laws, such repurchases shall be at such time and in such
amounts as the Company deems appropriate. The Company will fund such
repurchases from working capital.
The Company believes that its projected cash flows and current working
capital resources are sufficient to meet its working capital, debt service,
Common Stock repurchase program and capital expenditure requirements for the
foreseeable future.
On November 2, 1994, the Company and Falcon Drilling Company, Inc.
("Falcon") signed a letter of intent to merge. On February 15, 1995, Falcon
and the Company agreed to terminate the letter of intent and related
discussions because then current market conditions led both parties to conclude
that a definitive agreement could not be reached at that time. From time to
time, the Company has had discussions, and anticipates that such discussions
will continue in the future, with other parties regarding rig acquisitions and
business combinations. The Company cannot predict the outcome of such
discussions.
Income Taxes
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes". Statement 109 required a change from the deferred method of accounting
for income taxes of APB Opinion 11 to the asset and liability method of
accounting for income taxes. Under the asset and liability method of Statement
109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Statement 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Effective December 31, 1992, in conjunction with the adoption of
quasi-reorganization accounting, the Company adopted Statement 109. The change
in the method of accounting for income taxes had no cumulative effect on the
1992 consolidated statement of operations.
Federal Income Tax Effects of the Recapitalization
The Company has taken the position that the Recapitalization and the
Rights Offering did not cause an ownership change under Section 382 of the
Internal Revenue Code of 1986, as amended, (the "Code") based on the
applicability of Section 382(l)(3)(C) and Regulation Section
1.382-2T(h)(4)(i)(B). Since neither the Internal Revenue Service nor the
Department of Treasury has established any rules or guidance on Section
382(l)(3)(C), there can be no assurance that an ownership change will not be
deemed to have occurred. If an ownership change were deemed to have occurred,
the utilization of the Company's net operating losses and investment tax credit
carryforwards, would be substantially limited.
In addition, the Recapitalization and certain transactions related
thereto have resulted in substantial reductions of the Company's tax net
operating loss carryforwards. Moreover, if the Company fails to prevail on
certain of the tax positions it has taken with respect to the tax effects of
those transactions, the Company's net operating loss carryforwards could be
further reduced in a substantial manner. Appropriate valuation allowances for
deferred tax assets have been established in the consolidated financial
statements based on management's consideration of whether it is more likely
than not that some portion or all of the net operating losses and investment
tax credit carryforwards will not be realized.
22
<PAGE> 25
Sales of significant numbers of shares of Common Stock by the Company
or certain significant shareholders of the Company could result in an ownership
change under Section 382 of the Code. An ownership change under Section 382 of
the Code would limit the Company's ability to use its remaining net operating
losses against its future income in each taxable year to no more than an amount
equal to the product of the fair market value of the Company's equity
immediately prior to such an ownership change multiplied by the long-term
federal exempt rate then in effect. Such an ownership change would also limit
the Company's ability to use its investment tax credit and general business
credit carryforwards for federal income tax purposes.
For further discussion of the federal income tax effects of the
Recapitalization, see Note 6 to the Company's Consolidated Financial Statements
included in Item 8 of this report.
RESULTS OF OPERATIONS -- 1994 COMPARED WITH 1993
Revenues
During 1994, the Company generated drilling revenues of $70,597,000
which represented a decrease of $12,401,000 or 15% compared to 1993 drilling
revenues of $82,998,000. The change in revenues reflected the net effect of
the following factors: (i) an increase in the number of marketed rigs from 10
during the 1993 period to 11 rigs during 1994; (ii) a decrease in utilization
of marketed rigs from 97% during the 1993 period to 87% during 1994; and (iii)
a 14% decrease in average day rates from $23,019 during the 1993 period to
$19,686 in 1994. The decreases in utilization and average day rates resulted
principally from increased competition in the U.S. Gulf of Mexico and reduced
activity levels in Mexico's Bay of Campeche. Revenues from the Bay of Campeche
market accounted for 10% ($7,306,000) and 28% ($23,459,000) of the Company's
revenues in 1994 and 1993, respectively, and 34% ($2,698,000) and 37%
($8,538,000) of the Company's operating income for 1994 and 1993, respectively.
If Pemex further reduces the level of its drilling activities, the Company's
operations could be adversely affected.
Costs and Expenses
Contract drilling expenses of $50,575,000 in 1994 represented an
increase of $5,245,000 or 12% compared to contract drilling expenses of
$45,330,000 in 1993. This increase was primarily the result of the addition
of two rigs to the Company's active fleet in late 1993 and through most of
1994. The MARINE 225 (formerly the MARINE 1) was refurbished and operated from
October 1993 to May 1994 and again in November and December 1994. The MARINE
304 was purchased, refurbished and activated in late 1993.
Depreciation and amortization expense increased $2,421,000 or 46% from
$5,312,000 in 1993 to $7,733,000 in 1994. The increase was primarily due to
the MARINE 304 and the MARINE 225 having a full year of depreciation in 1994
and, to a lesser extent, the MARINE 303 upgrade and the MARINE 3 acquisition in
November 1994.
General and administrative expenses in 1994 decreased $4,623,000 or
51% from $8,999,000 in 1993 to $4,376,000 compared to 1994. General and
administrative expenses were higher in 1993 primarily as a result of executive
bonuses of $4,436,000 paid pursuant to bonus agreements which were based upon
the price of the Company's stock in November 1993. Excluding these bonuses,
general and administrative expenses were $4,376,000 and $4,563,000 during 1994
and 1993, respectively. Excluding these bonuses, 1994's general and
administrative expenses decreased 4% or $187,000 as compared to 1993.
23
<PAGE> 26
Interest Expense
Interest expense decreased $510,000 or 88% from $580,000 in 1993 to
$70,000 in 1994. The decrease was related primarily to decreased debt as a
result of the Recapitalization.
Interest Income
Interest income increased $832,000 or 161% from $518,000 in 1993 to
$1,350,000 in 1994. The increase was related primarily to increased cash
balances during 1994, as well as higher interest rates on short-term
investments.
Income Taxes
Income taxes of $3,193,000 for the year ended December 31, 1994,
consisted of current state and federal income taxes of $154,000, tax benefits
related to Common Stock issued pursuant to the Marine Drilling 1992 Long Term
Incentive Plan of $50,000 and deferred federal income taxes of $2,989,000.
RESULTS OF OPERATIONS -- 1993 COMPARED WITH 1992
Revenues
During 1993, the Company generated drilling revenues of $82,998,000
which represented an increase of $51,377,000 or 162% compared to 1992 drilling
revenues of $31,621,000. The increases in revenues resulted primarily from the
following factors: (i) an increase in the number of marketed rigs from 8
during the 1992 period to 10 rigs during 1993; (ii) an increase in utilization
of marketed rigs from 73% during the 1992 period to 97% during 1993; and (iii)
a 67% increase in average day rates from $13,816 during the 1992 period to
$23,019 in 1993. The increases in utilization and average day rates resulted
principally from increased drilling activity in the U.S. Gulf of Mexico and the
Bay of Campeche. Revenues from the Bay of Campeche market accounted for 28%
($23,459,000) of the Company's revenues and 37% ($8,538,000) of the Company's
operating income for 1993. The Company had no rigs in this market during 1992.
Costs and Expenses
Contract drilling expenses of $45,330,000 in 1993 represented an
increase of $16,141,000 or 55% compared to contract drilling expenses of
$29,189,000 in 1992. This increase was primarily the result of increased rig
utilization in 1993.
Depreciation and amortization expense in 1993 decreased $7,003,000 or
57% from $12,315,000 to $5,312,000 compared to 1992. The decrease was
primarily due to the effect of the adoption of quasi-reorganization accounting
procedures on December 31, 1992 which resulted in a decrease in the carrying
value of property and equipment of $56,051,000.
General and administrative expenses in 1993 increased $2,096,000 or
30% from $6,903,000 to $8,999,000 compared to 1992. General and administrative
expenses increased primarily as a result of executive bonuses of $4,436,000
paid pursuant to bonus agreements which were based upon the price of the
Company's stock in November 1993 and a reversal of compensation expense
($741,000) related to expired options in 1992. Excluding these items, general
and administrative expenses were $4,563,000 and $7,644,000 during 1993 and
1992, respectively.
24
<PAGE> 27
Interest Expense
Interest expense decreased $9,147,000 or 94% from $9,727,000 in 1992
to $580,000 in 1993. The decrease was related primarily to decreased debt as a
result of the Recapitalization and lower interest rates.
Interest Income
Interest income increased $419,000 or 423% from $99,000 in 1992 to
$518,000 in 1993. The increase was primarily the result of larger cash
balances available for investment which was partially offset by lower interest
rates.
Income Taxes
Income taxes of $8,278,000 for the year ended December 31, 1993,
consisted of current foreign, federal and state income taxes of $800,000,
deferred federal income taxes of $5,376,000, the realization of
pre-quasi-reorganization net operating loss carryforwards of $1,612,000 and tax
benefits of $490,000 related to Common Stock issued pursuant to the Marine
Drilling 1992 Long Term Incentive Plan. The latter amount was recorded to
shareholders' equity, while taxes currently payable represent federal
alternative minimum tax of $408,000, state income taxes of $12,000 and foreign
income taxes of $380,000. As a result of the Recapitalization, the realization
of pre-quasi-reorganization net operating loss carryforwards of $1,612,000 were
charged directly to shareholders' equity.
25
<PAGE> 28
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
Marine Drilling Companies, Inc.:
We have audited the consolidated financial statements of Marine
Drilling Companies, Inc. and subsidiaries as listed in Item 14 on page 44. In
connection with our audits of the consolidated financial statements, we also
have audited the financial statement schedules as listed in Item 14 on page 44.
These consolidated financial statements and financial statement schedules are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements and financial
statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position of
Marine Drilling Companies, Inc. and subsidiaries as of December 31, 1994 and
1993, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1994, in conformity with
generally accepted accounting principles. Also in our opinion, the related
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
KPMG PEAT MARWICK LLP
Houston, Texas
February 3, 1995
26
<PAGE> 29
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1993
---------- ----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 18,872 $ 21,969
Short-term investments 18,137 --
Accounts receivable - trade and other, net 15,353 19,356
Prepaid expenses and other 1,020 854
---------- ----------
Total current assets 53,382 42,179
Property and Equipment 102,431 87,140
Less accumulated depreciation 13,010 5,295
---------- ----------
Property and equipment, net 89,421 81,845
Other 412 147
---------- ----------
$ 143,215 $ 124,171
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable and accrued expenses $ 4,137 $ 8,647
Employer's liability claims, current 832 1,443
---------- ----------
Total current liabilities 4,969 10,090
Long-Term Debt 15,000 --
Employer's Liability Claims, non-current 2,150 2,288
Deferred Income Taxes 8,365 5,376
Shareholders' Equity:
Common stock, par value $.01. Authorized 200,000,000
shares; issued and outstanding 43,917,766 and
43,682,668 shares in 1994 and 1993, respectively 439 437
Common stock restricted (804) (844)
Additional paid-in capital 92,143 91,801
Retained earnings from January 1, 1993
(deficit of $49,572 as of December 31, 1992
eliminated in quasi-reorganization) 20,953 15,023
---------- ----------
Total shareholders' equity 112,731 106,417
---------- ----------
Commitments and contingencies
$ 143,215 $ 124,171
========== ==========
</TABLE>
See notes to consolidated financial statements.
27
<PAGE> 30
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Revenues $ 70,597 $ 82,998 $ 31,621
Costs and Expenses:
Contract drilling 50,575 45,330 29,189
Depreciation and amortization 7,733 5,312 12,315
General and administrative 4,376 8,999 6,903
Rig writedown -- -- 68,320
----------- ---------- ----------
62,684 59,641 116,727
----------- ---------- ----------
Operating income (loss) 7,913 23,357 (85,106)
----------- ---------- ----------
Other Income (Expense):
Interest expense (70) (580) (9,727)
Interest income 1,350 518 99
Other income (expense) (70) 6 429
Proceeds from settlement of litigation -- -- 2,978
----------- ---------- ----------
1,210 (56) (6,221)
----------- ---------- ----------
Income (Loss) Before Income Taxes
and Extraordinary Items 9,123 23,301 (91,327)
Income Taxes 3,193 8,278 40
----------- ---------- ----------
Income (Loss) Before Extraordinary
Items 5,930 15,023 (91,367)
Extraordinary Item:
Gains on early extinguishments of debt -- -- 104,523
----------- ---------- ----------
Net Income 5,930 15,023 13,156
Preferred Stock Discount Accretion and
Dividend Requirements -- -- (6,681)
----------- ---------- ----------
Net Income Applicable to Common
Shareholders $ 5,930 $ 15,023 $ 6,475
=========== ========== ==========
Income (Loss) Per Common Share Before
Extraordinary Items $ 0.14 $ 0.37 $ (16.84)
=========== ========== ==========
Extraordinary Gains Per Common Share $ -- $ -- $ 17.95
=========== ========== ==========
Net Income Per Common Share $ 0.14 $ 0.37 $ 1.11
=========== ========== ==========
Weighted Average Common Shares Outstanding 43,819,049 40,936,209 5,822,848
=========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
28
<PAGE> 31
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
<TABLE>
<CAPTION>
COMMON STK.
COMMON STOCK ADDITIONAL OPTIONS & RETAINED
------------------- PAID-IN RESTRICTED EARNINGS/
SHARES AMOUNT CAPITAL STOCK ( DEFICIT) TOTAL
------ ------ --------- -------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1991 753,546 $ 1,884 $ 84,974 $ 2,611 $ (62,728) $ 26,741
Net income -- -- -- -- 13,156 13,156
Accretion of discount and divi-
dends on preferred stock -- -- (6,681) -- -- (6,681)
Reverse split (1 for 25):
Common stock at $.10 par -- (1,884) 1,876 -- -- (8)
Common stock at $.01 par -- 8 -- -- -- 8
Issuance of common stock to
retire bridge loan 3,270,054 32 4,055 -- -- 4,087
Issuance of common stock
related to reclassification of
14% Cumulative Exchange-
able Preferred Stock 19,369,893 194 63,720 -- -- 63,914
Issuance of common stock in
satisfaction of bank debt 4,994,752 50 6,194 -- -- 6,244
Common stock options -- -- 1,870 (1,870) -- --
Deferred compensation -- -- -- (741) -- (741)
Issuance of common stock
pursuant to rights offering,
net of issuance cost of $511 9,638,214 96 11,441 -- -- 11,537
Quasi-reorganization:
Revaluation of net assets
and liabilities at fair value -- -- (57,562) -- -- (57,562)
Elimination of accumulated
deficit -- -- (49,572) -- 49,572 --
----------- -------- ----------- ---------- ------------ ----------
Balances at December 31, 1992 38,026,459 380 60,315 -- -- 60,695
Net income -- -- -- -- 15,023 15,023
Issuance of common stock
related to stock offering 5,000,000 50 28,150 -- -- 28,200
Common stock offering expenses -- -- (422) -- -- (422)
Issuance of restricted common stock 385,000 4 1,122 (1,126) -- --
Accrual of compensation expense -- -- -- 233 -- 233
Forfeitures of restricted common
stock (30,000) -- (49) 49 -- --
Common stock options exercised 261,030 3 324 -- -- 327
Issuance of common stock for
401(k) stock plan 40,105 -- 199 -- -- 199
Pre-quasi-reorganization net
operating loss carryforwards -- -- 1,612 -- -- 1,612
Tax benefits related to common
stock issued pursuant to long
term incentive plan -- -- 490 -- -- 490
Other 74 -- 60 -- -- 60
----------- -------- ----------- ---------- ------------ ----------
Balances at December 31, 1993 43,682,668 437 91,801 (844) 15,023 106,417
Net income -- -- -- -- 5,930 5,930
Issuance of restricted common
stock 83,000 1 414 (415) -- --
Accrual of compensation expense -- -- -- 318 -- 318
Forfeitures of restricted common
stock (31,250) -- (137) 137 -- --
Common stock options exercised 10,000 -- 13 -- -- 13
Issuance of common stock for
401(k) stock plan 173,348 1 815 -- -- 816
Tax benefits related to common
stock issued pursuant to long
term incentive plan -- -- 50 -- -- 50
Other -- -- (813) -- -- (813)
----------- -------- ----------- ---------- ------------ ----------
Balances at December 31, 1994 43,917,766 $ 439 $ 92,143 $ (804) $ 20,953 $ 112,731
=========== ======== =========== ========== ============ ==========
</TABLE>
See notes to consolidated financial statements.
29
<PAGE> 32
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 5,930 $ 15,023 $ 13,156
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Extraordinary gains on early extinguishments
of debt -- -- (104,523)
Rig writedown -- -- 68,320
Deferred income taxes 2,989 5,376 --
Pre-quasi-reorganization net operating loss
carry-forwards -- 1,612 --
Tax benefits related to common stock issued
pursuant to long term incentive plan 50 490 --
Depreciation and amortization 7,733 5,312 12,315
Gain on disposition of equipment (453) (462) (233)
Interest notes issued -- -- 1,949
Accrual (reversal) of compensation expense, net 318 233 (741)
(Increase) decrease in receivables 4,003 (7,397) (1,367)
(Increase) decrease in prepaid expenses (191) (94) 55
Increase (decrease) in payables, accrued
expenses and employer's liability claims (4,443) 2,324 (388)
Increase in accrued interest payable -- 4,601
Other (1,078) 1,076 602
----------- ---------- ----------
Net cash provided by (used in) operating
activities 14,858 23,493 (6,254)
----------- ---------- ----------
Cash Flows From Investing Activities:
Purchase of short-term investments (29,537) -- --
Proceeds from matured short-term investments 11,400 -- --
Purchase of equipment (15,385) (18,329) (80)
Proceeds from disposition of equipment 554 557 757
----------- ---------- ----------
Net cash provided by (used in) investing
activities (32,968) (17,772) 677
----------- ---------- ----------
Cash Flows From Financing Activities:
Proceeds from long-term debt 15,000 -- --
Proceeds from sale of common stock -- 28,200 12,048
Proceeds from exercise of stock options 13 327 --
Issuance cost of sale of common stock -- (422) (511)
Payments of debt -- (21,280) (12,277)
Proceeds from bridge loan -- Recapitalization -- -- 4,000
Decrease in restricted cash investments -- -- 6,987
----------- ---------- ----------
Net cash provided by financing activities 15,013 6,825 10,247
----------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents (3,097) 12,546 4,670
Cash and cash equivalents at beginning of period 21,969 9,423 4,753
----------- ---------- ----------
Cash and cash equivalents at end of period $ 18,872 $ 21,969 $ 9,423
=========== ========== ==========
</TABLE>
[Continued]
See notes to consolidated financial statements.
30
<PAGE> 33
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Interest paid $ 70 $ 580 $ 2,603
Income taxes paid 441 513 40
=========== ========== ==========
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Restructuring activities:
In June 1992, the bank indebtedness of one of the
lenders under a subsidiary note with accrued
interest thereon of $1,041 was discharged $ -- $ -- $ 13,942
=========== ========== ==========
In September 1992, the Title XI debt with accrued
interest thereon of $5,062 was discharged pursuant
to the MarAd Settlement in exchange for $6,700
fair value of surrendered rigs $ -- $ -- $ 52,106
=========== ========== ==========
On October 29, 1992, the 1992 Reorganization was
approved by the Company's shareholders, giving
effect to the following transactions:
Conversion of 14% Cumulative Exchangeable
Preferred Stock (including accrued dividends
thereon) to 19,369,893 shares of common stock $ -- $ -- $ 63,914
=========== ========== ==========
Conversion of bank indebtedness with accrued
interest thereon of $5,325 net of deferred
financing costs into 4,994,752 shares of
common stock $ -- $ -- $ 51,919
=========== ========== ==========
Conversion of Bridge Loan indebtedness into
3,270,054 shares of common stock $ -- $ -- $ 4,087
=========== ========== ==========
Other activities:
Accrual of cumulative dividends and accretion of
discount on preferred stock $ -- $ -- $ 6,681
Issuance of 83,000 and 385,000 shares in 1994 and
1993, respectively, of restricted common stock $ 415 $ 1,126 $ --
Forfeiture of 31,250 and 30,000 shares in 1994 and
1993, respectively, of restricted common stock $ (137) $ (49) $ --
Issuance of 173,348 and 40,105 shares in 1994 and
1993, respectively, to employee retirement plan $ 816 $ 199 $ --
=========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
31
<PAGE> 34
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(IN THOUSANDS, EXCEPT SHARE DATA)
(1) BASIS OF PRESENTATION AND RECAPITALIZATION TRANSACTIONS
Basis of Presentation
References herein to the "Company" refer to Marine Drilling Companies,
Inc. ("Parent") and its wholly-owned subsidiaries, Marine Drilling Management
Company ("MDMC"), Keyes Holding Corporation ("KHC") and Marine Drilling
International, Inc. unless the context otherwise requires a reference only to
the Parent.
Recapitalization Transactions
On June 19, 1992, the Company entered into an agreement with certain
of its lenders and preferred shareholders providing for a significant
recapitalization ("Recapitalization"). On June 19, 1992, $500 was paid to one
of the lenders in exchange for the discharge of approximately $13,942 of bank
indebtedness. On October 29, 1992, the Recapitalization was approved by the
Company's shareholders and, as a result, the Company's debt (including
interest) and preferred stock obligations were reduced during 1992 by
approximately $187,000 and the Company's rig fleet was substantially reduced.
The Recapitalization included a one-for-twenty-five reverse split of the
Company's $.10 par value common stock into $.01 par value common stock ("Common
Stock").
In connection with the approval of the Recapitalization, the Company's
remaining bank indebtedness and related interest totalling approximately
$51,919 as of September 30, 1992 was completely discharged for approximately
5,000,000 shares of Common Stock which were issued to a group of the Company's
lenders. The Recapitalization also included the reclassification of the
Company's 14% cumulative exchangeable preferred stock, par value $1.00 per
share ("Old Preferred Stock") with a liquidation preference as of October 29,
1992 of approximately $65,582 into 19,369,893 shares of Common Stock.
The Company sold 9,638,214 shares of Common Stock of which 4,800,000
shares were purchased by three of the Company's principal shareholders pursuant
to a rights offering ("Rights Offering"). The Rights Offering was closed in
December 1992 with the Company receiving net proceeds of approximately $11,537.
As part of the Recapitalization, the Company entered into a $4,000
bridge loan facility with three of its principal shareholders which was
intended to fund the Company's operations through the completion thereof. On
October 29, 1992, the $4,000 principal amount and interest thereon were
exchanged for shares of Common Stock at an exchange price of $1.25 per share.
During 1992 the Company defaulted on all series of its U.S. Government
guaranteed Title XI ("Title XI") ship financing bonds owed by two of its
subsidiaries. The Company transferred custody and financial responsibility for
seven of its eight Title XI financed rigs to the Maritime Administration of the
United States Department of Transportation ("MarAd"), agreed to pay to MarAd
certain additional amounts in connection with certain litigation (see below),
proposed to restructure approximately $2,300 in debt and pay approximately $460
in consideration for the discharge of approximately $63,019 in debt and related
interest. In September 1992, some of the Company's subsidiaries and MarAd
entered into an agreement (the "Storm Drilling Restructuring"). MarAd agreed
to (i) release one of the subsidiaries from its limited guarantee of interest
on another subsidiary's Title XI debt, (ii) not to take adverse actions against
the Company or its other subsidiaries or affiliates with respect to any
deficiencies remaining on the Title XI debt after the foreclosure or sale of
the subsidiary's rigs and (iii) take custody of the subsidiary's rigs. In
addition to the foregoing, MDMC paid approximately $3,802 to MarAd from
litigation involving the MARINE 7.
32
<PAGE> 35
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Quasi-Reorganization
On December 31, 1992, the Company adopted quasi-reorganization
accounting procedures. Quasi-reorganization accounting allowed the Company to
eliminate the accumulated deficit against additional paid-in capital and to
revalue assets and liabilities to estimated fair values. Therefore, the
adoption of quasi-reorganization accounting procedures following the
Recapitalization gave the Company a "fresh start" for accounting purposes.
The adoption of quasi-reorganization accounting procedures resulted in
a decrease to property and equipment of $56,051, a decrease in assets held for
sale of $240, a decrease in other assets of $9,043, a decrease in debt of
$8,054, a decrease in deferred expenses of $145, a decrease in receivables of
$112 and an increase in other liabilities of $25.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND OPERATIONS
Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated in consolidation.
Operations
As of December 31, 1994, the Company's fleet consisted of 13 jack-up
rigs.
Property and Equipment
Property and equipment are stated at historical cost or the cost
assigned to the assets at December 31, 1992 in connection with the adoption of
quasi-reorganization accounting procedures. Depreciation is provided on the
straight-line method over the estimated remaining useful lives of the assets
which are as follows:
<TABLE>
<CAPTION>
Years
-------
<S> <C>
Jack-up rigs 5 to 15
Drill string 4
Other equipment 5
</TABLE>
Maintenance and repairs amounted to $8,600, $8,030 and $1,943 in 1994,
1993 and 1992, respectively. Expenditures for major renewals and betterments
are capitalized. Expenditures for normal maintenance and repairs are charged
to expense as incurred. When property or equipment is retired, the related
assets and accumulated depreciation are removed from the accounts and a gain or
loss is reflected in other income (expense). The Company continues to
depreciate idle drilling equipment using the same rates as while operating.
Employer's Liability Claims
Employer's liability claims, principally arising from actual or
alleged personal injuries, are estimates of the Company's liabilities for such
occurrences. These claims are classified as current or long-term based upon
the periods in which such claims are expected to be funded.
33
<PAGE> 36
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Deferred Financing Costs
Deferred financing costs are amortized over the life of the related
debt. Deferred financing costs were $228 at December 31, 1994. Deferred
financing costs in 1992 of $1,003 were eliminated at December 31, 1992 in
connection with the adoption of quasi- reorganization accounting procedures or
were written off in connection with early extinguishments of debt.
Income Taxes
In February 1992, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes." Statement 109 required a change from the deferred method of accounting
for income taxes of APB Opinion 11 to the asset and liability method of
accounting for income taxes. Under the asset and liability method of Statement
109, deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Statement 109, the
effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
Effective December 31, 1992, in conjunction with the adoption of
quasi-reorganization accounting procedures, the Company adopted Statement 109.
The change in the method of accounting for income taxes had no cumulative
effect on the 1992 consolidated statements of operations. Pursuant to the
deferred method under APB Opinion 11, which was applied during 1992 and prior
years, deferred income taxes are recognized for income and expense items that
are reported in different years for financial reporting purposes and income tax
purposes using the tax rate applicable for the year of the calculation. Under
the deferred method, deferred taxes are not adjusted for subsequent changes in
tax rates.
Revenue Recognition
Drilling revenues are recorded pursuant to day rate contracts, under
which the Company receives a fixed amount per day for providing drilling
services using the rigs it operates.
Cash Equivalents
Cash equivalents of $18,531 and $21,396 at December 31, 1994 and 1993,
respectively, consist of loan participations, Eurodollar investments, mortgage
backed and corporate debt securities. Their carrying value is a reasonable
approximation of their fair value. For purposes of the statement of cash
flows, the Company generally considers all investments with an original
maturity of three months or less at date of purchase and other highly liquid
investments readily convertible to determinable amounts of cash, excluding
restricted cash investments, to be cash equivalents.
Short-Term Investments
Short-term investments consist of corporate debt securities,
mortgage-backed securities and corporate paper. The Company classifies its
short-term investments as held-to-maturity securities. Held-to-maturity
securities are those securities in which the Company has the ability and intent
to hold the security until maturity. Held-to-maturity securities are recorded
at amortized cost, adjusted for the amortization or accretion of premiums or
discounts. Premiums and discounts are amortized or accreted over the life of
the related held-to-maturity security as an adjustment to yield using the
effective interest method. Dividend and interest income are recognized when
earned. The fair value of the short-term investments at December 31, 1994 was
$18,133.
34
<PAGE> 37
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Income (Loss) Per Common Share
Income (loss) per common share is based on the weighted average number
of common shares outstanding and common stock equivalents, if dilutive. For
the year ended December 31, 1992, the net income (loss) applicable to common
shareholders has been adjusted to reflect the dividends on and the accretion of
discount on Old Preferred Stock. Net income per common share for the years
ended December 31, 1994 and 1993 do not include the effect of outstanding stock
options as the potential dilution from their exercise is less than three
percent.
Reclassification of Accounts
Certain reclassifications have been made to the 1993 and 1992
consolidated financial statements to conform with the current presentation.
Concentrations of Credit Risk
The market for the Company's services and products in the offshore oil
and gas industry, and the Company's customers consist primarily of independent
and major oil and gas companies. The Company performs ongoing credit
evaluations of its customers and obtains collateral security as deemed prudent.
The Company has established an adequate allowance for bad debts, and such
losses have been within management's expectations (see Note 9).
At December 31, 1994 and 1993, the Company had cash deposits
concentrated primarily in one major bank. In addition, the Company had
certificates of deposits, commercial paper and Eurodollar time deposits with a
variety of companies and financial institutions with strong credit ratings, and
such securities are held until maturity. The Company believes that credit and
market risk in such instruments is minimal.
(3) PROPERTY AND EQUIPMENT
Property and equipment are stated at historical cost or the cost
assigned to the assets at December 31, 1992 in connection with the adoption of
quasi-reorganization accounting procedures, and are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1993
---------- ----------
<S> <C> <C>
Jack-up rigs . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 99,452 $ 85,133
Drill string . . . . . . . . . . . . . . . . . . . . . . . . . . 2,634 1,704
Other equipment . . . . . . . . . . . . . . . . . . . . . . . . . 345 303
---------- ---------
$ 102,431 $ 87,140
========== =========
</TABLE>
Depreciation expense was $7,733, $5,312 and $11,030 for the years
ended December 31, 1994, 1993 and 1992, respectively. The Company rents
drilling rigs, certain equipment and other property under operating leases.
Rental expense was $1,707, $936 and $1,013 in 1994, 1993 and 1992,
respectively.
35
<PAGE> 38
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(4) ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1993
---------- ----------
<S> <C> <C>
Accounts payable - trade . . . . . . . . . . . . . . . . . . . . . $ 2,283 $ 4,425
Accrued payroll and related taxes . . . . . . . . . . . . . . . . 1,085 2,283
Accrued group insurance claims . . . . . . . . . . . . . . . . . . 300 300
Other accrued expenses . . . . . . . . . . . . . . . . . . . . . . 469 1,639
--------- ---------
$ 4,137 $ 8,647
========= =========
</TABLE>
(5) LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1993
---------- ----------
<S> <C> <C>
KHC note payable to lender due 1999 . . . . . . . . . . . . . . . . . $ 15,000 $ --
Less:
Current portion of long-term debt . . . . . . . . . . . . . . . . . -- --
--------- ---------
Long-term debt, non-current . . . . . . . . . . . . . . . . . . . . $ 15,000 $ --
========= =========
</TABLE>
KHC - Note Payable to Lender
On December 1, 1994, KHC entered into a $35,000 revolving/term loan
agreement (the "Loan") with a U.S. financial institution ("Lender"). As of
December 31, 1994, the related debt outstanding was $15,000 and the amount of
unused line of credit subject to the Loan was $20,000. Loan proceeds may be
used to purchase additional jack-up drilling rigs or to make capital
improvements to the Company's existing drilling rig fleet. The Company is a
guarantor for up to an aggregate of $8,750 under the Loan. On June 1, 1996,
all amounts borrowed under the Loan may be converted to a term loan.
If converted, the term loan will be due in thirty-six (36) consecutive
monthly installments, beginning July 1, 1996 and ending June 1, 1999 amortizing
at the rate of 20% of the term loan balance per year with the remaining 40%
principal balance due and payable concurrently with the last payment. KHC must
maintain a minimum borrowing of $10,000 (the "minimum borrowing") on the Loan
after June 1, 1996. If the Company's average borrowings under the revolving
loan or the term loan are less than the minimum borrowing, KHC will be required
to pay a non-utilization fee of 2% of the difference between the actual average
borrowed balance and the minimum borrowing. The term loan may be prepaid at
any time after the eighteenth payment (December 1, 1997). A prepayment premium
of 1% of the prepaid principal amount will be due with each such prepayment.
Repayments may not be re-borrowed during the term loan period.
Interest is due monthly on the outstanding principal balance at the
London Interbank Offered Rate ("LIBOR") plus 2.5%. The interest rate as of
December 31, 1994 was 7.938%. A revolving loan fee is due quarterly during the
revolving loan period based on the unused credit facility at .25%.
36
<PAGE> 39
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The note is secured by a first preferred fleet mortgage on the MARINE
300, 301 and 303 drilling rigs. The three drilling rigs must be appraised on
the term loan conversion date, June 1, 1996. The term loan will be limited to
50% of the appraised value of the rigs. The Company and KHC are required to
comply with various covenants, including, but not limited to, the maintenance
of financial ratios related to (i) debt to total equity and (ii) working
capital to fixed expenses and projected debt services.
Interest payments on the loan amounted to $70 for the year ended
December 31, 1994, including a revolving loan fee of $5. A facility fee of
$175 was paid to the lender during the fourth quarter 1994 and will be
amortized over the life of the loan.
The scheduled repayment of long-term debt as of December 31, 1994 is
as follows:
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999 TOTAL
-------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Annual maturities . . $ -- $ 1,500 $ 3,000 $ 3,000 $ 7,500 $ 15,000
======== ========= ======== ========= ======== =========
</TABLE>
(6) INCOME TAXES
Income taxes consist of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1994 1993 1992
------- -------- -------
<S> <C> <C> <C>
Current:
U.S. federal . . . . . . . . . . . . . . . . . . . . . . . $ 153 $ 408 $ --
State . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 12 40
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . -- 380 --
-------- ------- -------
154 800 40
-------- ------- -------
Other:
U.S. federal - deferred . . . . . . . . . . . . . . . . . . 2,989 5,376 --
Pre-quasi-reorganization net operating loss carry-
forwards . . . . . . . . . . . . . . . . . . . . . . . . . -- 1,612 --
Tax benefits related to common stock issued
pursuant to long-term incentive plan . . . . . . . . . . . 50 490 --
-------- ------- -------
3,039 7,478 --
-------- ------- -------
Total tax provision . . . . . . . . . . . . . . . . . . . . . . $ 3,193 $ 8,278 $ 40
======== ======= =======
</TABLE>
As a result of the adoption of quasi-reorganization accounting
procedures on December 31, 1992, the tax effect of the realization of tax
attributes generated prior thereto are recorded directly to shareholders'
equity and are not reflected as a reduction of income tax expense.
For the years ended December 31, 1994 and 1993, the effective tax rate
for financial reporting purposes approximates the U.S. federal statutory rate
of 35%.
37
<PAGE> 40
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1994 and 1993 are presented below.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1994 1993
---------- ----------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards . . . . . . . . . . . . . . . . . . $ 28,804 $ 33,312
Investment tax, general business and foreign tax
credit carryforwards . . . . . . . . . . . . . . . . . . . . . . . 13,410 15,463
Employer's liability claims . . . . . . . . . . . . . . . . . . . . . 1,044 1,306
Allowance for bad debts . . . . . . . . . . . . . . . . . . . . . . . 1 166
--------- ---------
Total gross deferred tax assets . . . . . . . . . . . . . . . . . . . 43,259 50,247
Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . (38,649) (42,209)
--------- ---------
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . 4,610 8,038
--------- ---------
Deferred tax liabilities:
Plant and equipment, principally due to differences
in depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . 11,273 11,393
Deferred intercompany gains and losses . . . . . . . . . . . . . . . 1,702 2,021
--------- ---------
Total gross deferred tax liabilities . . . . . . . . . . . . . . . . 12,975 13,414
--------- ---------
Net deferred tax liability . . . . . . . . . . . . . . . . . . . . . $ 8,365 $ 5,376
========= =========
</TABLE>
The valuation allowance for deferred tax assets as of December 31,
1994 and 1993 was $38,649 and $42,209, respectively. The net change in the
total valuation allowance for the years ended December 31, 1994 and 1993 was a
decrease of $3,560 and an increase of $2,615, respectively. In assessing the
realizability of deferred tax assets, management considers whether it is more
likely than not that some portion or all of the deferred tax assets will not be
realized. Management considers the scheduled reversal of deferred tax
liabilities, projected future taxable income, and tax planning strategies in
making this assessment. Based upon projections for future taxable income over
the periods which the deferred tax assets are deductible and the Section 382
limitation as discussed below, management believes it is more likely than not
that the Company will realize the benefits of these deductible differences, net
of the existing valuation allowances at December 31, 1994.
At December 31, 1994, the Company had net operating loss carryforwards
for federal income tax purposes of $82,296 which are available to offset future
federal taxable income, if any, through 2007. The Company also had investment
tax credit and general business credit carryforwards for federal income tax
purposes of approximately $13,410 (including $1,844 which are subject to the
limitation as to their use imposed in connection with the 1989 Ownership Change
as discussed below) at December 31, 1994 which are available to reduce future
federal income taxes, if any, through 2000.
38
<PAGE> 41
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Company has taken the position that the Recapitalization did not
cause an ownership change under Section 382 of the Internal Revenue Code of
1986, as amended ("Code"). The Company's position is based on the
applicability of Section 382(l)(3)(C) of the Code, which provides generally
that any change in the proportionate ownership attributable solely to
fluctuations in relative fair market value of different classes of stock are
not to be taken into account for purposes of Section 382. To date, neither the
Internal Revenue Service nor the United States Department of Treasury has
established any rules or guidance as to how such Section will be interpreted or
applied to situations similar to the Recapitalization. Accordingly, there can
be no assurance that an ownership change for purposes of Section 382 will not
be deemed to have occurred as a result of the Recapitalization. If an
ownership change were deemed to have occurred, the utilization of the Company's
net operating losses, against its future income, if any, would be limited
annually to approximately $1,500. Since such limitation would be less than the
Section 382 limitation (approximately $9,000) imposed as a result of the
Company's 1989 sale of Common Stock which resulted in an ownership change
("1989 Ownership Change") pursuant to Section 382 of the Code, the Section 382
limitation imposed in connection with the Recapitalization would apply to all
net operating losses applicable to the period before the Recapitalization.
(7) LONG TERM INCENTIVE PLANS
On September 14, 1992, the Company's Board of Directors adopted the
Marine Drilling 1992 Long Term Incentive Plan ("1992 Plan"), which was
subsequently approved by the shareholders on October 29, 1992. Pursuant to the
terms of the 1992 Plan, an aggregate of 10,000,000 shares (subject to the
restrictions described herein) of Common Stock are available for distribution
pursuant to stock options, SARs and restricted stock. The number of shares of
Common Stock available for distribution as described above is further limited
in that no stock options, SARs or restricted stock may be issued if,
immediately after such issuance, the number of shares subject to outstanding
stock options, SARs and restricted stock awards would exceed 5% of the Common
Stock then outstanding. The shares of Common Stock subject to any stock option
or SAR that terminates without a payment being made in the form of Common Stock
would again become available for distribution pursuant to the 1992 Plan.
During 1994 and 1993, respectively, the Company issued 83,000 and 385,000
shares of restricted Common Stock. Compensation expense related to the
issuance of restricted Common Stock for the years ended December 31, 1994 and
1993 was $318 and $233, respectively. During 1994 and 1993, respectively,
31,250 and 30,000 shares of restricted Common Stock were forfeited.
Holders of SARs and options granted under the plans existing prior to
the adoption of the 1992 Plan surrendered such SARs and options in exchange for
options under the 1992 Plan and those prior plans have been terminated.
39
<PAGE> 42
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
During the fourth quarter 1992, 1,440 SARs and 21,640 shares subject
to options outstanding under prior plans were exchanged for 23,080 shares
subject to option at $1.25 per share under the 1992 Plan. Additionally,
options for 1,590,000 shares exercisable at $1.25 were granted on November 3,
1992, options for 190,000 shares exercisable at $6.00 were granted on June 29,
1993 and options for 75,000 shares exercisable at $4.25 were granted on October
12, 1994. All such options expire November 2002, June 2003 and October 2004,
respectively, unless earlier exercised. During 1993, 261,030 shares were
exercised at $1.25 per share and options for 1,400 shares were forfeited.
During 1994, 10,000 shares were exercised at $1.25 per share and options for
30,000 shares were forfeited.
<TABLE>
<S> <C>
Options outstanding - December 31, 1992 . . . . . . . . . . . . . . . . . . . . 1,613,080
Granted - June 29, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190,000
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,400)
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (261,030)
------------
Options outstanding - December 31, 1993 . . . . . . . . . . . . . . . . . . . . 1,540,650
Granted - October 12, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . 75,000
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (30,000)
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (10,000)
------------
Options outstanding - December 31, 1994 . . . . . . . . . . . . . . . . . . . . 1,575,650
============
</TABLE>
The following table sets forth the shares subject to options
outstanding under the 1992 Plan at December 31, 1994:
<TABLE>
<CAPTION>
EXERCISE EXERCISE EXERCISE
PRICE/SHARE PRICE/SHARE PRICE/SHARE
@ $1.25 @ $4.25 @ $6.00 TOTAL
----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Fully vested and exercisable . . 535,650 -- 47,500 583,150
Vesting during 1995 . . . . . . 387,500 18,750 47,500 453,750
Vesting during 1996 . . . . . . 387,500 18,750 47,500 453,750
Vesting during 1997 . . . . . . -- 18,750 47,500 66,250
Vesting during 1998 . . . . . . -- 18,750 -- 18,750
----------- ----------- ----------- ------------
Total . . . . . . . . . . 1,310,650 75,000 190,000 1,575,650
=========== =========== =========== ============
</TABLE>
Based upon Common Stock outstanding as of December 31, 1994 and 1993
and shares reserved for issuance as set forth above, the number of shares then
available for future stock options, SARs and restricted stock grants was
432,721 and 423,028 shares, respectively.
(8) RELATED PARTY TRANSACTIONS
The Company has performed services directly for Newfield Exploration
Company ("Newfield") and indirectly for Newfield's customers. Amounts received
directly from Newfield were $515 during 1992. Amounts received indirectly from
Newfield's customers were approximately $526 and $774 during 1993 and 1992,
respectively. One of the Company's directors is also a director of Newfield.
The Company has performed services for Houston Exploration Company,
Inc. ("Houston"), the operator of certain oil and gas properties with respect
to which Smith Offshore Exploration Company ("Smith") participates as a working
interest owner. During 1994, 1993 and 1992, the Company recorded revenues of
$1,581, $5,658 and $1,356, respectively, from Houston. Aeneas, a principal
shareholder of the Company, is a principal shareholder and creditor of Smith.
40
<PAGE> 43
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In connection with the Recapitalization, the Company entered into a
loan agreement ("Bridge Loan") with three of its significant shareholders. The
Bridge Loan provided for the Company to borrow up to $4,000 at 10%. On October
29, 1992, concurrently with the Recapitalization, the Company issued 3,270,054
shares of Common Stock in full satisfaction of the loan balance of $4,000 and
accrued interest thereon.
(9) GEOGRAPHIC AREA ANALYSIS AND MAJOR CUSTOMERS
The following table summarizes geographic area operating revenues and
operating income for the years ended December 31, 1994 and 1993, and
identifiable assets by geographic area at year-end 1994 and 1993:
<TABLE>
<CAPTION>
UNITED STATES MEXICO CONSOLIDATED
------------- ------------ ------------
DECEMBER 31, 1994
-----------------
<S> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . $ 63,291 $ 7,306 $ 70,597
Operating income . . . . . . . . . . . . . . 5,215 2,698 7,913
Identifiable assets . . . . . . . . . . . . 87,290 16,024 103,314
DECEMBER 31, 1993
-----------------
Revenues . . . . . . . . . . . . . . . . . . $ 59,539 $ 23,459 $ 82,998
Operating income . . . . . . . . . . . . . . 14,819 8,538 23,357
Identifiable assets . . . . . . . . . . . . 65,248 35,905 101,153
</TABLE>
There were no significant international operations during 1992.
The Company conducts business in one industry segment, oil and gas
well contract drilling. The Company negotiates drilling contracts with a
number of customers for varying terms, and management believes it is not
dependent upon any single customer. For the years 1994, 1993 and 1992, sales
to customers that represented 10% or more of consolidated drilling revenues
were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------------
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Walter Oil & Gas Corporation . . . . . . . . . . . . . . 11% * *
Shell Offshore, Inc. . . . . . . . . . . . . . . . . . . 10% * 14%
Industrial Perforadora de Campeche, S.A. de CV . . . . . 10% * *
Perforadora Faja de Oro, S.A. de C.V. . . . . . . . . . * 23% *
Seagull Energy E&P, Inc. . . . . . . . . . . . . . . . . * 21% *
</TABLE>
* Less than 10%
As is typical in the industry, the Company does business with a
relatively small number of customers at any given time. The loss of any one of
such customers could, at least on a short-term basis, have a material adverse
effect on the Company's profitability. Management believes, however, that at
current levels of drilling activity, the Company would have alternative
customers for its services if it lost any single customer and that the loss of
any one customer would not have a material adverse effect on the Company on a
long-term basis.
41
<PAGE> 44
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(10) COMMITMENTS
Operating Leases
Aggregate future minimum rental payments relating to operating leases
are as follows:
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999 2000
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Office and equipment leases . . $ 300 $ 373 $ 358 $ 351 $ 354 $ 269
======= ======= ====== ======= ======= =======
</TABLE>
Employee 401(k) Profit Sharing Plan
The Company has a 401(k) Profit Sharing Plan (the "Plan") covering
substantially all of its employees who have been employed at least
three months. The Company matches employees' contributions to the
Plan on a dollar-for- dollar basis, in the form of Company common
stock, up to 5% of their eligible compensation. During 1994 and
1993, the Company made matching contributions with the Company's
common stock totaling $744 and $354, respectively. During 1992, the
Company made no matching contributions.
(11) UNAUDITED QUARTERLY FINANCIAL DATA
A summary of unaudited quarterly consolidated financial information
for 1994 and 1993 is as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1994 QUARTER QUARTER QUARTER QUARTER
---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . $ 18,814 $ 16,231 $ 17,393 $ 18,159
Operating income . . . . . . . . . . . . . . . 2,912 1,564 1,366 2,071
Income before income taxes . . . . . . . . . . 3,214 1,697 1,733 2,479
Income taxes . . . . . . . . . . . . . . . . . 1,126 593 606 868
Net income . . . . . . . . . . . . . . . . . . 2,088 1,104 1,127 1,611
Net income per common share (1) . . . . . . . $ 0.05 $ 0.03 $ 0.03 $ 0.04
Weighted average shares outstanding . . . . . 43,749,623 43,810,863 43,829,717 43,884,394
Average day rates (2) . . . . . . . . . . . . $ 22,791 $ 19,212 $ 18,616 $ 18,501
Marketed rigs (weighted average) . . . . . . . 12 11 11 11
Utilization of marketed rigs . . . . . . . . . 76% 82% 92% 97%
</TABLE>
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1993 QUARTER QUARTER QUARTER QUARTER
---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues . . . . . . . . . . . . . . . . . . . $ 17,596 $ 20,179 $ 20,906 $ 24,317
Operating income . . . . . . . . . . . . . . . 4,276 4,781 5,832 8,468
Income before income taxes . . . . . . . . . . 4,038 4,634 6,071 8,558
Income taxes . . . . . . . . . . . . . . . . . 1,373 1,576 2,223 3,106
Net income . . . . . . . . . . . . . . . . . . 2,665 3,058 3,848 5,452
Net income per common share (1) . . . . . . . $ 0.07 $ 0.08 $ 0.09 $ 0.13
Weighted average shares outstanding . . . . . 38,276,625 38,422,195 43,416,551 43,546,937
Average day rates (2) . . . . . . . . . . . . $ 21,521 $ 22,223 $ 23,054 $ 24,990
Marketed rigs (weighted average) . . . . . . . 10 10 10 11
Utilization of marketed rigs . . . . . . . . . 94% 100% 99% 95%
</TABLE>
(1) Quarterly net income per common share may not total to annual results due
to rounding.
(2) "Average day rate" is determined by dividing the total gross revenue
earned by the Company's rigs during a given period by the total number
of days that the Company's rigs were under contract during that
period.
42
<PAGE> 45
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In 1994, the average day rates earned by the Company's rigs generally
declined throughout the year, however, the adverse effects of these declines
were partially offset by sequentially higher rig utilization rates through
those quarters. The decline in day rates during 1994 was due primarily to (i)
increased competition in the U.S. Gulf of Mexico arising from an increased
supply of jack-up rigs in that market and (ii) reduced activity levels in
Mexico's Bay of Campeche.
Quarterly results during 1993 were virtually the reverse of 1994's due to
general day rate increases occurring throughout the year experienced
concurrently with consistently high levels of rig utilization. These
attributes were the results of (i) a better balance between jack-up rig supply
and demand in the U.S. Gulf of Mexico and (ii) high activity levels in the Bay
of Campeche.
(12) SUBSEQUENT EVENTS (UNAUDITED)
On November 2, 1994, the Company and Falcon Drilling Company, Inc.
("Falcon") signed a letter of intent to merge. On February 15, 1995, Falcon
and the Company agreed to terminate the letter of intent and related
discussions because then current market conditions led both parties to conclude
that a definitive agreement could not be reached at that time.
On February 28, 1995, the Company repaid $5,000 of the revolving credit
facility associated with the Loan described in Note 5 hereto. The Company
anticipates that amount will be re-borrowed in addition to other borrowings in
1995 to fund capital expenditures.
Weakness in natural gas prices contributed to a substantial downturn in U.S.
Gulf of Mexico drilling activity in early 1995. As a result, the Company's
operations and cash flow have been adversely affected. In response to these
conditions, the Company has elected to temporarily deactivate some of its rigs
and may deactivate additional rigs until market conditions improve.
On March 7, 1995, the Company announced that its Board of Directors had
authorized the repurchase of up to 4,000,000 shares of the Company's Common
Stock. The purchases may be effected, from time to time, in accordance with
applicable securities laws, through solicited or unsolicited transactions in
the market or in privately negotiated transactions. No limit was placed on the
duration of the repurchase program. Subject to applicable securities laws,
such repurchases shall be at such times and in such amounts as the Company
deems appropriate. The Company will fund such repurchases from working
capital.
43
<PAGE> 46
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
The information called for by Part III, Items 10 through 13, of Form
10-K is incorporated by reference from the Registrant's Proxy Statements
relating to its annual meeting of Shareholders to be held May 2, 1995, which
will be filed by the Registrant with the Securities and Exchange Commission no
later than 120 days after the close of the fiscal year. Also reference is made
to the information contained under the captioned "Executive Officers of
Registrant" contained in Part I hereof.
PART IV
ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following documents are included in Part II, Item 8:
(1) Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Consolidated Balance Sheets at December 31, 1994 and 1993 . . . . . . . . . . . . . . . 27
Consolidated Statements of Operations for each of the years
in the three-year period ended December 31, 1994 . . . . . . . . . . . . . . . . . . 28
Consolidated Statements of Shareholders' Equity for each of
the years in the three-year period ended December 31, 1994 . . . . . . . . . . . . . 29
Consolidated Statements of Cash Flows for each of the years
in the three-year period ended December 31, 1994 . . . . . . . . . . . . . . . . . . 30
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 32
(2) Financial Statement Schedules
Schedule I - Condensed Financial Information of Marine
Drilling Companies, Inc. for the years ended
December 31, 1994, 1993 and 1992 . . . . . . . . . . . . . . . . . . . . . 47
</TABLE>
All other schedules are omitted as the information is not required or
is not applicable.
44
<PAGE> 47
(3) Exhibits:
Exhibit
Number
3.1 Restated Articles of Incorporation of Marine Drilling
Companies, Inc. (Incorporated by reference to Exhibit 28.17 to
the Current Report on Form 8-K of the Registrant dated October
30, 1992.)
3.2 Amended and Restated Bylaws of Marine Drilling Companies, Inc.
(Incorporated by reference to Exhibit 28.18 to the Current
Report on Form 8-K of the Registrant dated October 30, 1992.)
++10.18 The Marine Drilling 1992 Long-Term Incentive Plan.
(Incorporated by reference to Exhibit 10.26 of the Company's
Registration Statement No. 33-52470 on Form S-1).
10.20 Registration Rights Agreement, dated October 29, 1992, among
Marine Drilling Companies, Inc., The Chase Manhattan Bank
(National Association), Corpus Christi National Bank, Bank
One, Texas, N.A., Energy Management Corporation, Randall D.
Smith, Trustee, Kathryn Sladek Smith Trust Article Third B, II
of Last Will and Testament of Kathryn Sladek Smith, Warburg,
Pincus Capital Company, L.P., Aeneas Venture Corporation,
Capricorn Investors, L.P. and William O. Keyes. (Incorporated
by reference to Exhibit 28.19 to the Current Report on Form
8-K of the Registrant dated October 30, 1992.)
10.21 Shareholders' Agreement, dated October 29, 1992, among Marine
Drilling Companies, Inc., The Chase Manhattan Bank (National
Association), Warburg, Pincus Capital Company, L.P., Aeneas
Venture Corporation, Capricorn Investors, L.P. and William O.
Keyes. (Incorporated by reference to Exhibit 28.20 to the
Current Report on Form 8-K of the Registrant dated October 30,
1992.)
10.22 Termination and Amendment Agreement (respecting the
Shareholders' Agreement dated October 29, 1992) dated as of
June 18, 1993 by and among Marine Drilling Companies, Inc.,
The Chase Manhattan Bank (National Association), Warburg,
Pincus Capital Company, L.P., Aeneas Venture Corporation,
Capricorn Investors, L.P. and William O. Keyes. (Incorporated
by reference to Exhibit 10.22 to the Annual Report on Form
10-K of the Registrant for the year ended December 31, 1993.)
* 10.23 Loan Agreement and related documents among The CIT
Group/Equipment Financing, Inc., as Lender, Marine Drilling
Companies, Inc., as Guarantor, and Keyes Holding Corporation,
as Borrower, dated as of December 1, 1994.
* 21.1 Subsidiaries of the Registrant.
* 23.1 Consent of Independent Certified Public Accountants.
* 24.1 Powers of attorney.
* 27.1 Financial Data Schedule
_________________________
++ Management contract or compensation plan or arrangement required to be
filed as an exhibit to this report.
* Filed herewith.
45
<PAGE> 48
(b) Reports on Form 8-K:
Three reports on Form 8-K were filed during the fourth quarter of 1994 --
(1) Report of the Company dated November 4, 1994 disclosing that it
entered into a letter of intent with Falcon Drilling Company, Inc.
to merge the two companies.
(2) Report of the Company dated November 23, 1994 disclosing its
consummation of the acquisition of the MARINE 3 jack-up drilling
rig.
(3) Report of the Company dated December 6, 1994 disclosing its
acquisition of the MARINE 201 (formerly the Nordic Explorer)
jack-up drilling rig and the closing of a $35 million credit
facility with The CIT Group/Capital Equipment Financing, Inc.
46
<PAGE> 49
SCHEDULE I
MARINE DRILLING COMPANIES, INC.
CONDENSED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1993
---------- ----------
<S> <C> <C>
ASSETS
Cash $ 584 $ 7,546
Investments in and amounts due from subsidiaries 120,512 104,715
---------- ----------
$ 121,096 $ 112,261
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued liabilities and other $ -- $ 468
Deferred Income Taxes, long-term 8,365 5,376
Shareholders' Equity:
Common stock, par value $.01. Authorized 200,000,000
shares; issued and outstanding 43,917,766 and
43,682,668 shares in 1994 and 1993, respectively 439 437
Common stock restricted (804) (844)
Additional paid-in capital 92,143 91,801
Retained earnings from January 1, 1993
(deficit of $49,572 as of December 31, 1992
eliminated in quasi-reorganization) 20,953 15,023
---------- ----------
Total shareholders' equity 112,731 106,417
---------- ----------
$ 121,096 $ 112,261
========== ==========
</TABLE>
See accompanying notes and the notes to the Condensed Financial Statements
47
<PAGE> 50
SCHEDULE I (CONTINUED)
MARINE DRILLING COMPANIES, INC.
CONDENSED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Revenues $ -- $ -- $ --
Costs and Expenses:
Contract drilling -- -- 293
Depreciation and amortization -- -- 1,541
General and administrative -- (10) (435)
Charter drilling expense - affiliates, net -- -- 328
----------- ---------- ----------
-- (10) 1,727
----------- ---------- ----------
Operating income (loss) -- 10 (1,727)
----------- ---------- ----------
Other Income (Expense):
Interest expense -- -- (88)
Interest income 1,390 857 1,839
Equity in earnings (loss) of subsidiaries 7,733 22,422 (91,677)
Other -- -- 286
----------- ---------- ----------
9,123 23,279 (89,640)
----------- ---------- ----------
Income (Loss) Before Income Taxes
and Extraordinary Items 9,123 23,289 (91,367)
Income Taxes 3,193 8,266 --
----------- ---------- ----------
Income (Loss) Before Extraordinary
Items 5,930 15,023 (91,367)
Extraordinary Item:
Gains on early extinguishments of debt -- -- 104,523
----------- ---------- ----------
Net Income 5,930 15,023 13,156
Preferred Stock Discount Accretion and
Dividend Requirements -- -- (6,681)
----------- ---------- ----------
Net Income Applicable to Common
Shareholders $ 5,930 $ 15,023 $ 6,475
=========== ========== ==========
</TABLE>
See accompanying notes and the notes to the Condensed Financial Statements
48
<PAGE> 51
SCHEDULE I (CONTINUED)
MARINE DRILLING COMPANIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $ 5,930 $ 15,023 $ 13,156
Adjustments to reconcile net income to net cash
used in operating activities:
Extraordinary gains on early extinguishments
of debt -- -- (104,523)
Depreciation and amortization -- -- 1,541
Gain on disposition of equipment -- -- (233)
Deferred income taxes 2,989 5,376 --
Pre-quasi-reorganization net operating loss
carryforwards -- 1,612 --
Tax benefits related to common stock issued
pursuant to long term incentive plan 50 490 --
Equity in (earnings) loss of subsidiaries (7,733) (22,422) 91,677
Increase in amounts due from subsidiaries (1,556) (12,654) (8,854)
Accrual (reversal) of compensation expense, net 318 233 (741)
Changes in working capital other than cash and
cash equivalents (466) 1,111 (407)
----------- ---------- -----------
Net cash used in operating activities (468) (11,231) (8,384)
----------- ---------- ----------
Cash Flows From Investing Activities:
Investment in subsidiaries (6,507) (17,221) --
Purchase of equipment -- -- (500)
Proceeds from disposition of equipment -- -- 333
----------- ---------- ----------
Net cash used in investing activities (6,507) (17,221) (167)
----------- ---------- ----------
Cash Flows From Financing Activities:
Proceeds from bridge loan - Recapitalization -- -- 4,000
Proceeds from sale of common stock -- 28,200 12,048
Issuance cost of common stock -- (422) (511)
Proceeds from exercise of stock options 13 327 --
----------- ---------- ----------
Net cash provided by financing activities 13 28,105 15,537
----------- ---------- ----------
Net increase (decrease) in cash and cash
equivalents (6,962) (347) 6,986
Cash and cash equivalents at beginning of year 7,546 7,893 907
----------- ---------- ----------
Cash and cash equivalents at end of year $ 584 $ 7,546 $ 7,893
=========== ========== ==========
</TABLE>
[Continued]
See accompanying notes and the notes to the Condensed Financial Statements
49
<PAGE> 52
SCHEDULE I (CONTINUED)
MARINE DRILLING COMPANIES, INC.
CONDENSED STATEMENTS OF CASH FLOWS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
--------------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Income taxes paid $ 175 $ 501 $ --
=========== ========== ==========
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Restructuring Activities:
On October 29, 1992, the 1992 Reorganization was
approved by the Company's shareholders, giving
effect to the following transactions:
Conversion of 14% Cumulative Exchangeable
Preferred Stock (including accrued dividends
thereon) to 19,369,893 shares of common stock $ -- $ -- $ 63,914
=========== ========== ==========
Issuance of 4,994,752 shares of MDCI stock to
a subsidiary at fair value of $1.25 per share $ -- $ -- $ 6,244
=========== ========== ==========
Conversion of Bridge Loan indebtedness into
3,270,054 shares of common stock $ -- $ -- $ 4,087
=========== ========== ==========
Intercompany activities:
In December 1992, the Company received four
drilling rigs and accounts receivable in
consideration for the compromise of a note,
accrued interest thereon and other receivables
from a subsidiary $ -- $ -- $ 14,282
=========== ========== ==========
In December 1992, the Company contributed six
drilling rigs and other assets to a subsidiary $ -- $ -- $ 18,937
=========== ========== ==========
Other Activities:
Accrual of cumulative dividends and accretion of
discount on preferred stock $ -- $ -- $ 6,681
Issuance of 83,000 and 385,000 shares in 1994 and
1993, respectively, of restricted common stock $ 415 $ 1,126 $ --
Forfeiture of 31,250 and 30,000 shares in 1994 and
1993, respectively, of restricted common stock $ (137) $ (49) $ --
Issuance of 173,348 and 40,105 shares in 1994 and
1993, respectively, to employee retirement plan $ 816 $ 199 $ --
=========== ========== ==========
</TABLE>
See accompanying notes and the notes to the Condensed Financial Statements
50
<PAGE> 53
SCHEDULE I (CONTINUED)
MARINE DRILLING COMPANIES, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
(1) SOURCES OF FUNDING AND SUBSIDIARIES' FUNDING REQUIREMENTS
The Company's primary source of funding consists of dividends,
distributions and repayments of intercompany advances and loans by its
subsidiaries.
To the extent that the Company's subsidiaries have funding requirements
in excess of amounts available from operations (if any), those subsidiaries'
primary source of funding is from the Company.
(2) INVESTMENT IN AND AMOUNTS DUE FROM SUBSIDIARIES
Due to the restrictions on intercompany payments, amounts due from
certain subsidiaries have been classified as non-current assets.
51
<PAGE> 54
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF
SUGAR LAND, STATE OF TEXAS, ON THIS 7TH DAY OF MARCH 1995.
MARINE DRILLING COMPANIES, INC.
By /s/ William O. Keyes
-----------------------------------
William O. Keyes
President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934,
THIS REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ William O. Keyes Chairman of the Board, President March 7, 1995
- ----------------------------------- and Chief Executive Officer
William O. Keyes (Principal Executive Officer)
/s/ William H. Flores Senior Vice President, March 7, 1995
- ----------------------------------- Chief Financial Officer and Director
William H. Flores (Principal Financial Officer)
/s/ Joan R. Smith Vice President, Controller March 7, 1995
- ----------------------------------- and Secretary
Joan R. Smith (Principal Accounting Officer)
/s/ David E. Libowitz* Director March 7, 1995
- -----------------------------------
David E. Libowitz
/s/ Christopher M. Linneman* Director March 7, 1995
- -----------------------------------
Christopher M. Linneman
/s/ Howard H. Newman* Director March 7, 1995
- -----------------------------------
Howard H. Newman
/s/ Herbert S. Winokur, Jr.* Director March 7, 1995
- -----------------------------------
Herbert S. Winokur, Jr.
* By /s/ William H. Flores March 7, 1995
------------------------------
(William H. Flores)
Attorney-in-Fact
</TABLE>
52
<PAGE> 55
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
------ --------
<S> <C>
10.23 Loan Agreement and related documents among The CIT Group/
Equipment Financing, Inc., as Lender, Marine Drilling Companies,
Inc., as Guarantor, and Keyes Holding Corporation, as Borrower,
dated as of December 1, 1994.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Independent Certified Public Accountants.
24.1 Powers of attorney.
27.1 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.23
LOAN AGREEMENT
AMONG
THE CIT GROUP/EQUIPMENT FINANCING, INC.,
as Lender,
MARINE DRILLING COMPANIES, INC.,
as Guarantor,
and
KEYES HOLDING CORPORATION,
as Borrower
Dated as of December 1, 1994
<PAGE> 2
TABLE OF CONTENTS
R E C I T A L S :
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
DEFINITIONS
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE I
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
The Loan
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.01 Amount . . . . . . . . . . . . . . . . . . . . . . 5
Section 1.02 Revolving Loan Period . . . . . . . . . . . . . . 5
Section 1.03 Term Loan Period . . . . . . . . . . . . . . . . . 5
Section 1.04 Interest . . . . . . . . . . . . . . . . . . . . . 6
Section 1.05 Payments . . . . . . . . . . . . . . . . . . . . . 8
Section 1.06 Prepayment . . . . . . . . . . . . . . . . . . . . 10
Section 1.07 Security . . . . . . . . . . . . . . . . . . . . . 12
Section 1.08 Facility Fee. . . . . . . . . . . . . . . . . . . . 12
Section 1.09 Revolving Loan Fee . . . . . . . . . . . . . . . . 12
ARTICLE II
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Conditions Precedent
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.01 Conditions Precedent . . . . . . . . . . . . . . . 12
Section 2.02 Waiver of Conditions Precedent . . . . . . . . . . 15
ARTICLE III
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Representations, Warranties and Covenants
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 3.01 Representations of the Borrower . . . . . . . . . 15
Section 3.02 Covenants of the Borrower . . . . . . . . . . . . 18
Section 3.03 Covenants of the Guarantor . . . . . . . . . . . . 24
ARTICLE IV
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Events of Default
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE V
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
-i-
<PAGE> 3
Miscellaneous
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Section 5.01 Notices . . . . . . . . . . . . . . . . . . . . . . 29
Section 5.02 No Waiver . . . . . . . . . . . . . . . . . . . . . 29
Section 5.03 Applicable Law and Jurisdiction . . . . . . . . . . 29
Section 5.04 Severability . . . . . . . . . . . . . . . . . . . 31
Section 5.05 Amendment . . . . . . . . . . . . . . . . . . . . 31
Section 5.06 Assignment and Participation . . . . . . . . . . . 32
Section 5.07 Costs, Expenses and Taxes . . . . . . . . . . . . 32
Section 5.08 Counterparts . . . . . . . . . . . . . . . . . . . 32
Section 5.09 Section Heading . . . . . . . . . . . . . . . . . 32
Section 5.10 Merger . . . . . . . . . . . . . . . . . . . . . . 32
Exhibit A - Secured Promissory Note
Exhibit B - Guaranty
Exhibit C - Notice of Drawing
-ii-
<PAGE> 4
THIS LOAN AGREEMENT dated as of December 1, 1994 among KEYES HOLDING
CORPORATION, a Delaware corporation (the "Borrower"), MARINE DRILLING
COMPANIES, INC., a Texas corporation, as Guarantor (the "Guarantor") and THE
CIT GROUP/EQUIPMENT FINANCING, INC., a New York corporation (the "Lender").
Capitalized terms used herein and not otherwise defined herein are used with
the meanings ascribed thereto in the Definitions Section of this Agreement.
R E C I T A L S :
1. The Borrower is the owner of three United States flag drilling
rigs, MARINE 300, Official No. 636379, MARINE 301, Official No. 640126 and
MARINE 303, Official No. 651994 (each a "Vessel and collectively, the
"Vessels").
2. The Borrower has requested a loan from the Lender in a principal
amount of up to Thirty Five Million United States Dollars (USD 35,000,000) (as
more specifically described in Section 1.01 hereof, the "Loan") in order to
facilitate the purchase of additional drilling rigs by the Borrower or its
affiliates and to provide working capital for certain modifications to the
existing drilling rig fleet of the Borrower and its affiliates upon the terms
and conditions contained herein and in the Note.
3. The Loan shall be evidenced by a secured promissory note made by
the Borrower to the Lender (the "Note") substantially in form and substance of
Exhibit A annexed hereto and made a part hereof.
4. In order to secure its obligations hereunder and under the Note,
the Borrower has agreed (a) to grant to the Lender a first preferred fleet
mortgage on the Vessels and a first priority security interest on its rights to
receive moneys on account of the operation thereof pursuant to the Mortgage,
the Earnings Assignment and the Insurance Assignment; and (b) to cause the
Guarantor to issue the Guaranty in favor of the Lender guaranteeing, up to an
aggregate of Eight Million Seven Hundred and Fifty Thousand United States
Dollars (USD 8,750,000), of the Borrower's obligations hereunder and under the
Note, the Mortgage, the Earnings Assignment and the Insurance Assignment.
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereto agree as follows:
DEFINITIONS
The following terms shall have the following meanings for all purposes
of this Agreement and shall be equally applicable to both the singular and the
plural forms of the terms herein defined.
-1-
<PAGE> 5
"Agreement", "this Agreement", "herein", "hereunder" or other like
words mean this Loan Agreement as originally executed or as modified, amended
or supplemented from time to time pursuant to the provisions hereof.
"Advance" means a loan by the Lender to the Borrower pursuant to
Section 1.01 of this Agreement.
"Assignments" mean the Earnings Assignment and the Insurance
Assignment.
"Borrower" means Keyes Holding Corporation and its successors and
permitted assigns.
"Business Day" means a day other than a Saturday or a Sunday or a day
on which commercial banks are authorized to be closed in the State of New York
or the State of Texas.
"Closing Date" has the meaning set forth in Section 1.02(b) of this
Agreement.
"Dollars" or "USD" means lawful currency of the United States of
America.
"Earnings Assignment" means the General Assignment of Earnings dated
the Closing Date granted by the Borrower in favor of the Lender, in form and
substance satisfactory to the Lender, as the same may be modified, amended or
supplemented from time to time.
"Event of Default" has the meaning set forth in Article IV of this
Agreement.
"Excluded Income Taxes" has the meaning set forth in Section 1.05(a)
of this Agreement.
"Fair Market Value" has the meaning set forth in Section 1.06(a)(iii).
"Governmental Agencies" means any government or any state, department
or other political subdivision thereof or governmental body, agency, authority,
department or commission having jurisdiction over the Borrower or its
properties (including without limitation any court or tribunal) exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government and any corporation, partnership or other entity
directly or indirectly owned by the foregoing.
"Guarantor" means Marine Drilling Companies, Inc. and its successors
and permitted assigns.
-2-
<PAGE> 6
"Guaranty" means the Guaranty dated the Closing Date given by the
Guarantor in favor of the Lender, substantially in the form of Exhibit B
attached hereto and made a part hereof, as the same may be modified, amended
and supplemented from time to time.
"Hazardous Substances" means petroleum and used oil, or any other
pollutant or contaminant, hazardous, dangerous or toxic waste, substance or
material as defined in the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, 42 U.S.C. Sec. 9601, et seq.
(hereinafter called "CERCLA"); the Resource Conservation and Recovery Act, as
amended, 42 U.S.C. Sec. 6901, et seq. (hereinafter called "RCRA"); the Toxic
Substances Control Act, as amended, 15 U.S.C. Sec. 2601, et seq. (hereinafter
called "TSCA"); the Hazardous Materials Transportation Act, as amended, 49
U.S.C. Sec. 1801, et seq. (hereinafter called "HMTA"); the Oil Pollution Act of
1990, Pub.L. No. 101-380, 104 Stat. 484 (1990) (hereinafter called "OPA"); or
any other statute, law, ordinance, code or regulation of any Governmental
Agency relating to or imposing liability or standards of conduct concerning the
use, production, generation, treatment, storage, recycling, handling,
transportation, release, threatened release or disposal of any hazardous,
dangerous or toxic waste, substance or material, currently in effect or at any
time hereafter adopted.
"Insurance Assignment" means the Assignment of Insurance dated the
Closing Date granted by the Borrower in favor of the Lender, in form and
substance satisfactory to the Lender, as the same may be modified, amended or
supplemented from time to time.
"Interest Rate" has the meaning set forth in Section 1.04(b) of this
Agreement.
"Loan" has the meaning set forth in Section 1.01 of this Agreement.
"Loan Documents" means the Note, the Mortgage, the Guaranty, the
Earnings Assignment and the Insurance Assignment.
"Maturity Date" means June 1, 1999.
"Merger Filings" has the meaning set forth in Section 2.01(r).
"Mortgage" means the United States first preferred fleet mortgage
dated the Closing Date granted by the Borrower in favor of the Lender, in form
and substance satisfactory to the Lender, as the same may be modified, amended
or supplemented from time to time, and any substantially similar instrument
which may be executed, delivered and recorded in substitution therefor.
-3-
<PAGE> 7
"Note" has the meaning set forth in paragraph 3 of the Recitals of
this Agreement.
"Notice of Drawing" means the notice of drawing given by the Borrower
pursuant to Section 1.02 substantially in the form of Exhibit C attached
hereto.
"Payment Date" has the meaning set forth in Section 1.04(a) of this
Agreement.
"Prepayment Premium" has the meaning set forth in Section 1.06(b) of
this Agreement.
"Responsible Officer" means, as to the Borrower and the Guarantor,
either of such corporation's chief executive officer, chief financial officer
or any other officer having principal responsibility for the financial affairs
of such company.
"Revolving Loan Availability Period" means the period of time
beginning on the Closing Date and ending on June 1, 1996.
"Tangible Net Worth" means, at a particular date, the sum of the
capital stock (excluding treasury stock) and surplus (including earned surplus,
capital surplus and the balance of the current profit and loss account not
transferred to surplus) accounted on a consolidated basis appearing on a
consolidated balance sheet prepared in accordance with generally accepted
United States accounting principles as of the date of determination, excluding,
however, from the determination, all inter-company transactions and after
deducting therefrom the net book value of all assets (after deducting any
reserves applicable thereto) which would be treated as intangibles under
generally accepted United States accounting principles, including, without
limitation, such items as good will, trademarks, trade names, patents and
licenses, franchises and operating rights).
"Taxes" has the meaning set forth in Section 1.05(a) of this Agreement.
"Term Loan Period" means the period of time beginning on the Term Loan
Conversion Date and ending on the Maturity Date.
"Term Loan Conversion Date" means June 1, 1996.
"Total Capital" means Total Funded Senior Debt plus Tangible Net Worth.
"Total Funded Senior Debt" means all indebtedness for borrowed money,
the payment of which is not subordinated to the Loan or the Guaranty.
-4-
<PAGE> 8
"Total Loss" has the meaning set forth in Section 1.06(a) of this
Agreement.
"Vessel Value" has the meaning set forth in Section 1.06(a)(ii).
ARTICLE I
The Loan
Section 1.01 Amount. Subject to the terms and conditions of Section
2.01 of this Agreement, the Lender agrees to make Advances to the Borrower in
an aggregate principal amount equal to the lesser of (1) 50% of the Vessel
Value determined in accordance with Section 1.06(a)(ii) and as substantiated by
the appraisal to be delivered to the Lender pursuant to Section 2.01(p) hereof
and (2) USD 35,000,000 (the "Loan").
Section 1.02 Revolving Loan Period. (a) During the Revolving Loan
Availability Period, the Lender agrees to make Advances to the Borrower from
time to time on any Business Day in the aggregate not to exceed the amount of
the Loan available to the Borrower referred to in Section 1.01 hereof. All
Advances shall be used by the Borrower for the purchase of jack-up drilling
rigs and to make capital improvements to the existing drilling rig fleet of the
Borrower and its affiliates. Each Advance shall be in an integral multiple of
One Million United States Dollars (USD 1,000,000) and no more than one Advance
shall be made by the Lender during any thirty (30) calendar days. Within the
limits referred to above, the Borrower may borrow, prepay and reborrow under
this Section 1.02(a). From and after December 1, 1994, outstanding Advances
shall, in the aggregate, total a minimum of USD 10,000,000.
(b) The Borrower shall make a request for an Advance by sending to
the Lender a written Notice of Drawing not later than 11:00 a.m., New York
Time, three (3) Business Days prior to the date such Advance is requested
setting forth the date the Advance is required and the bank account or accounts
to which the Advance is to be remitted. The first Notice of Drawing shall be
received by the Lender no later than three (3) Business Days immediately
preceding the Closing Date. All Notices of Drawing shall be irrevocable. As
used in this Agreement, the term "Closing Date" shall mean any Business Day
occurring on or prior to December 1, 1994 which shall be the day on which the
first Advance is to be made as designated by the Borrower in its Notice of
Drawing.
Section 1.03 Term Loan Period. (a) On the Term Loan Conversion Date,
all amounts outstanding under the Loan will be converted to a thirty six (36)
month term loan. During the Term
-5-
<PAGE> 9
Loan Period, the Lender shall make no further Advances to the Borrower
hereunder.
(b) In the event that the amount of the Loan outstanding on the Term
Loan Conversion Date is less than USD 10,000,000, the Borrower shall pay to the
Lender on the Term Loan Conversion Date a non-utilization fee equal to the
difference between USD 10,000,000 and the amount of the Loan then outstanding,
multiplied by two percent (2%).
(c) The Borrower shall repay the principal amount of the Note in
thirty-six (36) consecutive monthly installments, each such installment to be
paid by the Borrower to the Lender on a Payment Date commencing July 1, 1996
and ending on the Maturity Date. The amount of principal to be repaid on each
Payment Date shall be the amount necessary to amortize (over thirty-six equal
monthly installments) sixty percent (60%) of the balance of the Loan
outstanding on the Term Loan Conversion Date, provided, however, that such
final installment shall include a balloon amount sufficient to discharge the
accrued and unpaid interest, unpaid principal and unpaid premium, if any, in
respect of the Note.
(d) The Loan shall be evidenced by and repayable in accordance with
the terms hereof and of the Note.
Section 1.04 Interest.
(a) The Borrower shall pay interest, in arrears, on the unpaid
principal amount of the Note from the Closing Date until the principal amount
of the Note is paid in full on the last Business Day of each calendar month,
commencing December 30, 1994 to and including the Maturity Date (each such date
a "Payment Date") at a rate of interest per annum (computed on the basis of a
360-day year of twelve 30 day months) equal to the Interest Rate provided,
however, that all interest accrued on the Loan and unpaid on the Maturity Date
shall be paid on the Maturity Date.
(b) The term "Interest Rate" shall mean, for an Interest Period
(as hereinafter defined), an interest rate equal to the LIBOR Rate (as
hereinafter defined) plus 2.5% per annum, subject to periodic adjustment as
provided below. "LIBOR Rate" means the thirty (30) day rate of interest per
annum at which deposits in United States Dollars are offered in London, England
to prime banks in the London interbank market as published in The Wall Street
Journal for the fifteenth (15th) day of each calendar month during the term of
the Loan. (If the 15th day of the calendar month is not a day for which The
Wall Street Journal reports the LIBOR Rate, then for the first preceding day on
which The Wall Street Journal reports the LIBOR Rate). The LIBOR Rate shall
become effective as of the first day of the calendar month next succeeding each
such
-6-
<PAGE> 10
determination and shall continue in effect to, and including the last day of
the calendar month. If at any time the Lender shall determine that by reason
of circumstances affecting the London interbank market (u) adequate and
reasonable means do not exist for ascertaining the LIBOR Rate for the
succeeding Interest Period or (v) the making or continuance of the Loan at the
LIBOR Rate has become impracticable as a result of a contingency occurring
after the date of this Agreement which materially and adversely affects the
London interbank market, the Lender shall notify the Borrower. As used in this
Agreement, "Interest Period" shall mean each respective and successive one
month calendar period commencing on the Closing Date or the last day of the
immediately preceding Interest Period, as the case may be, provided, however,
that (y) if any Interest Period includes a Payment Date, but does not end on
such date, then the principal amount of the Loan required to be paid on such
date shall have an Interest Period ending on such date and (z) no Interest
Period shall commence or extend past the Maturity Date of the Note.
(c) Any amount of principal or any other amount due hereunder
which is not paid when due, whether at stated maturity, by acceleration or
otherwise, shall bear interest from the date when due until such amount is paid
in full, payable on demand, at a rate per annum equal at all times to 2% above
the Interest Rate.
(d) In no event shall any interest rate provided for in this
Agreement or the Note exceed the maximum rate permitted by the then applicable
law. It is the intention of the parties hereto to strictly comply with
applicable usury laws; accordingly, it is agreed that, notwithstanding any
provision to the contrary in this Agreement, in the Note, or in any other Loan
Document, in no event shall this Agreement, the Note, or the other Loan
Documents be construed to charge, contract for or require the payment or permit
the collection of interest in excess of the maximum amount permitted by
applicable law. If any such excess interest is contracted for, charged or
received under this Agreement, the Note or the other Loan Documents, or in the
event that all of the principal balance shall be prepaid, so that under any of
such circumstances the amount of interest contracted for, charged or received
on the principal balance shall exceed the maximum amount of interest permitted
by applicable law, then in such event (i) the provisions of this Section
1.04(d) shall govern and control, (ii) neither the Borrower nor any other
person or entity now or hereafter liable for the payment thereof shall be
obligated to pay the amount of such interest to the extent that it is in excess
of the maximum amount of interest permitted by applicable law, (iii) any such
excess which may have been collected shall be either applied as a credit
against the then unpaid principal balance or refunded to the Borrower, at the
option of the Lender, and (iv) the effective rate of interest shall be
automatically reduced to the
-7-
<PAGE> 11
maximum lawful contract rate allowed under applicable law as now or hereafter
construed by the courts having jurisdiction thereof. It is further agreed that
without limitation of the foregoing, all calculations of the rate of interest
contracted for, charged or received under this Agreement, the Note and the
other Loan Documents which are made for the purpose of determining whether such
rate exceeds the maximum lawful contract rate, shall be made, to the extent
permitted by applicable law, by amortizing, prorating, allocating and spreading
in equal parts during the period of the full stated term of the indebtedness
evidenced hereby, all interest at any time contracted for, charged or received
from the Borrower or otherwise by the Lender in connection with such
indebtedness; provided, however, that if any applicable state law is amended or
the law of the United States of America preempts any applicable state law, so
that it becomes lawful for the Lender to receive a greater simple interest per
annum rate than is presently allowed, the Borrower agrees that, on the
effective date of such amendment or preemption as the case may be, the lawful
maximum hereunder shall be increased to the maximum simple interest per annum
rate allowed by the higher of the amended state law or the law of the United
States of America.
Section 1.05 Payments.
(a) The payment obligations of the Borrower under the Note and all
other amounts payable under this Agreement to the Lender shall be paid, in
immediately available funds, to the Lender at Chemical Bank, 640 Madison
Avenue, New York, New York 10021, ABA No. 021-000-128, for credit to the
account of The CIT Group/Equipment Financing, Inc., Account No. 134-086460
(ref. Keyes Holding, Contract No. 8122) or at such other place as the Lender
may designate not less than one (1) Business Day prior to the due date
therefor, in immediately available funds, not later than the close of business
on the due date thereof, in lawful money of the United States. All payments
shall be made (i) without set-off, counterclaim or condition and (ii) free and
clear of, and without deduction for or on account of, any present or future
taxes, levies, duties, imposts, charges, fees, deductions or withholdings of
any nature ("Taxes"), unless the Borrower is required by law or regulation to
make payment subject to any Taxes. In the event that the Borrower is required
by law or regulation to make any deduction or withholding on account of any
Taxes from any payment due under this Agreement, then: (a) the Borrower shall
notify the Lender promptly as soon as it becomes aware of such requirement and
shall remit promptly the amount of such Taxes to the appropriate taxation
authority, and in any event prior to the date on which penalties attach
thereto; and (b) such payment shall be increased by such amount as may be
necessary to ensure that the Lender receives a net amount, free and clear of
all Taxes, equal to the full amount which the Lender would have received had
such payment not been subject to
-8-
<PAGE> 12
such Taxes (other than Excluded Income Taxes as such term is defined below).
Notwithstanding the foregoing, the Borrower shall not be liable for, or
required to pay, any Taxes which are overall income or franchise taxes imposed
at any time on the Lender in the United States of America or any state or local
government or taxing authority in any state in which the Lender conducts
business ("Excluded Income Taxes"). Each such payment or reimbursement by the
Borrower shall be net of any credit or the value of any deduction received by
the Lender thereon to the extent that the same can be determined by the Lender
(as certified by the Lender to the Borrower, such certificate to be conclusive
absent manifest error). The Borrower shall indemnify the Lender against any
liability of the Lender in respect of such Taxes and shall supply copies of
applicable tax receipts.
(b) If any payment to be made by the Borrower shall become due on
a day which is not a Business Day, such payment shall be made on the next
succeeding Business Day.
(c) Each payment to be made on a Payment Date and all prepayments
and other payments shall be applied first to the payment of accrued and unpaid
interest on the Note, then to the payment of all other amounts due under this
Agreement and the Loan Documents, and the balance shall be applied to the
payment of principal due under the Note.
(d) The Borrower shall indemnify the Lender on demand against all
costs, expenses, liabilities and losses (including funding losses) sustained or
incurred by the Lender as a result of or in connection with: (a) the
occurrence and/or continuance of any Event of Default (or event which, with the
giving of notice and/or lapse of time or other applicable condition might
constitute an Event of Default); and/or (b) any judgment or order which relates
to any sum due hereunder being expressed in a currency other than the currency
expressed to be due hereunder and as a result of a variation in rates of
exchange between the rate at which such amount is converted into such other
currency for the purposes of such judgment or order and the rate prevailing on
the date of actual payment of such amount pursuant thereto; and/or (c) any
postponement of the Closing Date occurring because of one or more of the
conditions precedent set forth in Section 2.01 shall not have been satisfied or
waived; and/or (d) any payment of principal of or interest on the Note made on
a date which is not a Payment Date. The above indemnities are separate and
independent obligations of the Borrower and apply irrespective of any
indulgence granted by the Lender.
-9-
<PAGE> 13
Section 1.06 Prepayment.
(a) Mandatory Prepayment.
(i) Total Loss. If there shall have occurred a Total
Loss as herein defined, on the earlier of (x) the date insurance
proceeds are received or (y) ninety (90) days after the date of
occurrence of the Total Loss, the Borrower shall (A) prepay the
outstanding principal balance under the Note in an amount equal to the
outstanding principal amount of the Loan on the date of prepayment
(without counting any amount being prepaid on such date), multiplied
by a fraction, the numerator of which is Fair Market Value of the lost
Vessel as most recently determined under Section 1.06(a)(iii) and the
denominator of which is the Vessel Value as of such date (including
the lost Vessel), and (B) pay accrued interest thereon to the date of
such prepayment together with any other amount due hereunder or under
any Loan Document. The Lender shall apply payments received pursuant
to this Section 1.06(a)(i) in accordance with Section 1.05(c)
hereof, provided, however, that the principal repayments shall be
applied so that the remaining installments of principal, if any, are
reduced on a pro rata basis, such reduction to be confirmed by the
Lender in a certificate delivered to the Borrower which certificate
shall be conclusive absent manifest error. No Prepayment Premium
shall be payable with respect to any Mandatory Prepayments made by the
Borrower pursuant to this Section 1.06(a)(i). "Total Loss" means in
respect of a Vessel (i) actual or constructive or compromised or
arranged total loss of such Vessel; or (ii) requisition for title or
other compulsory acquisition of such Vessel otherwise than by
requisition for hire; or (iii) capture, seizure, arrest, detention or
confiscation of such Vessel by any government or by persons acting or
purporting to act on behalf of any government unless such Vessel is
released from such capture, seizure, arrest, detention or confiscation
within thirty days of the occurrence thereof. A Total Loss shall be
deemed to have occurred (a) in the event of an actual total loss of a
Vessel, on the date of such loss, (b) in the event of damage to a
Vessel which results in a constructive or compromised or arranged
total loss of such Vessel, on the date of the occurrence of the event
giving rise to such damage, or (c) in the case of any event referred
to in Clauses (ii) or (iii) above, on the date of the occurrence of
such event. In the event of any Total Loss or requisition of a
Vessel, the Borrower shall give written or telegraphic notice to the
Lender not later than ten (10) days after a Responsible Officer of the
Borrower has actual knowledge of such occurrence.
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(ii) Collateral Value. On or before the Closing Date and
again on the Term Loan Conversion Date, the Lender shall arrange
to have the Fair Market Value of each of the Vessels determined at the
Borrower's expense by one independent drilling rig brokering firm
nominated by the Borrower from a list of three independent drilling
rig brokering firms compiled by the Lender. Each such valuation shall
be based on the Fair Market Value of each Vessel. The aggregate of
the most recent valuations of each Vessel is hereinafter referred to
as the "Vessel Value". If, on the Term Loan Conversion Date, the
outstanding principal amount of the Loan shall exceed fifty percent
(50%) of Vessel Value, then the Borrower shall either prepay within
five days of Lender's demand the amount of the Loan necessary to
restore the ratio referred to herein together with payment of accrued
interest thereon and the Prepayment Premium or provide additional
security for the Loan which shall be acceptable in the sole opinion of
the Lender for these purposes. The Lender shall apply payments
received under this Section 1.06(a)(ii) in accordance with Section
1.05(c) hereof, provided, however, that the principal repayments shall
be applied so that the remaining installments of principal, if any,
shall be reduced on a pro rata basis, such reduction to be confirmed by
the Lender in a certificate delivered to the Borrower which
certificate shall be conclusive absent manifest error.
(iii) Fair Market Value. The "Fair Market Value" of any
Vessel shall be the value determined by the independent drilling rig
brokering firm chosen by the Borrower in accordance with clause (ii)
above on the basis of an arm's-length purchase by a willing buyer from
a willing seller and without consideration of any drilling contract,
charter party or other vessel employment contract. The drilling rig
brokering firm's valuation shall be made without physical inspection,
unless otherwise required by the Lender.
(b) Voluntary Prepayment during Term Loan Period. After the
eighteenth (18th) Payment Date of the Term Loan Period, the Borrower may prepay
in full or in part in amounts of not less than USD 1,000,000, its indebtedness
under the Note on the next Payment Date after giving at least thirty (30)
Business Days prior notice of such prepayment and payment to the Lender of
accrued and unpaid interest under the Note and all other amounts due under this
Agreement and the other Loan Documents including a premium in an amount equal
to one percent (1%) of the principal amount prepaid (the "Prepayment Premium").
Any notice of prepayment hereunder shall be irrevocable.
The Lender shall apply payments received pursuant to this Section
1.06(b) in accordance with Section 1.05(c) hereof,
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provided, however, that the principal repayments shall be applied so that the
remaining installments of principal, if any, shall be reduced on a pro rata
basis, such reduction to be confirmed by the Lender in a certificate delivered
to the Borrower which certificate shall be conclusive absent manifest error.
(c) Voluntary Prepayment during Revolving Loan Availability Period.
During the Revolving Loan Availability Period the Borrower may prepay amounts
outstanding under the Loan on the following terms and conditions: (i) the
Borrower shall give the Lender at least three (3) Business Days' prior written
notice of its intent to prepay the Loan and the amount of such prepayment; (ii)
such repayments are made no more than once each calendar month; and (iii) each
prepayment of the Loan shall be in a principal amount of at least USD
1,000,000. No Prepayment Premium shall be due for any prepayment under this
Section 1.06(c).
Section 1.07 Security. All amounts due hereunder and under the Note
shall be secured by the following, each in form and substance satisfactory to
the Lender (A) the Mortgage, (B) the Earnings Assignment, (C) the Insurance
Assignment and (D) the Guaranty.
Section 1.08 Facility Fee. The Borrower shall pay to the Lender a
non-refundable facility fee equal to USD 175,000 which shall be paid to the
Lender on or before the Closing Date.
Section 1.09 Revolving Loan Fee. The Borrower shall pay to the Lender
a revolving loan fee of one quarter of one percent (.25%) per annum on the
unused portion of the Loan during the Revolving Loan Availability Period,
computed on the difference between USD 35,000,000 and the average daily
outstanding balance of the Loan, payable quarterly in arrears on the last
Business Day of each calendar quarter, beginning December 30, 1994.
ARTICLE II
Conditions Precedent
Section 2.01 Conditions Precedent. The Lender's execution and
delivery of this Agreement and the making of the Loan is subject to the
following conditions having been satisfied in the opinion of the Lender on or
prior to the Closing Date:
(a) Each of this Agreement and the other Loan Documents shall have
been duly authorized and executed with original counterparts thereof delivered
to the Lender.
(b) The Lender shall have received copies of the charters or drilling
contracts respecting the Vessels certified as to
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correctness by a Responsible Officer of the Borrower or the Guarantor.
(c) The Borrower and the Guarantor shall have delivered to Lender
evidence of good standing, certificates of incumbency and duly certified
resolutions of their respective Boards of Directors and all such other
corporate documentation authorizing each of them to enter into the transactions
contemplated by this Agreement and the other Loan Documents.
(d) The Lender shall have received opinions from counsel to the
Borrower and the Guarantor, as the case may be, and an opinion of its special
counsel, Haight, Gardner, Poor & Havens, each in form and substance
satisfactory to the Lender.
(e) The representations and warranties contained in Article III of
this Agreement and in each other Loan Document shall be true on the Closing
Date with the same effect as though such representations and warranties had
been made on and as of such date, and no Event of Default specified in Article
IV hereof and no event which, with the lapse of time or the notice and lapse of
time specified in Article IV hereof, would become such an Event of Default,
shall have occurred and be continuing or shall have occurred at the completion
of the making of the Loan, and the Lender shall have received satisfactory
certificates signed by a Responsible Officer of the Borrower and the Guarantor,
as to all questions of fact involved in this condition.
(f) The Lender shall have received financial statements dated as of
the period ending on September 30, 1994 for the Guarantor prepared on a
consolidated basis and in accordance with generally accepted United States
accounting principles, certified by a Responsible Officer of the Guarantor, and
the results set forth therein shall be consistent with the forecasted trends
otherwise provided by the Guarantor to the Lender.
(g) There shall have been no material adverse change in the business,
financial condition or operations of the Borrower or the Guarantor since
December 31, 1993.
(h) The Lender shall have received evidence that the person specified
to act as agent for service of process for the Borrower, and the Guarantor
pursuant to Section 5.03 has agreed to so act.
(i) The Lender shall have received a certificate of the Guarantor
signed by an officer in charge of environmental affairs and safety of the
Guarantor as to compliance by each of the Borrower and the Guarantor with all
environmental, safety and public health laws and regulations applicable to each
of the Borrower and the Guarantor, without limitation of the foregoing,
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<PAGE> 17
all other laws and regulations affecting or relating to the Vessels, the
non-compliance with which would have a material adverse effect on the business,
properties or condition (financial or otherwise) of any thereof.
(j) The Vessels shall be duly registered in the name and ownership of
the Borrower under the laws and flag of The United States of America.
(k) The Borrower shall have provided evidence of insurance maintained
by the Borrower on the Vessels, in form and substance satisfactory to the
Lender, from insurance underwriters providing such coverage and conforming with
the requirements of Section 1.18 of the Mortgage together with a broker's
opinion meeting the requirement of Section 1.20 of the Mortgage.
(l) The Lender shall have received evidence dated no later than ten
(10) days prior to the Closing Date of the Vessels' classification, as A-1,
self-elevating drilling units, free of recommendations affecting class.
(m) The Mortgage shall have been duly executed and delivered and
shall constitute a first preferred ship mortgage lien on the Vessels under the
laws of The United States of America and shall have been duly filed under those
laws at the Vessel Documentation Office of the United States Coast Guard, Port
of Houston, Texas.
(n) Financing statements or other documents necessary to perfect the
Lender's security interests under any of the Loan Documents in the United
States, the jurisdiction of incorporation of any of the Borrower, the Guarantor
or any other relevant jurisdiction shall have been filed.
(o) The Lender shall have received a report appraising the Fair
Market Value of the Vessels prepared by M.E.L. Valuations, Inc. in form and
substance satisfactory to the Lender.
(p) The Vessels shall not have been the subject of a Total Loss and
shall not have sustained any material damage to their condition since the date
of the inspection and survey reports therefor delivered to the Lender pursuant
to Section 2.01(o), or materially decreased in value from the value attributed
thereto as set forth in the appraisal report therefor delivered to the Lender
pursuant to Section 2.01(o).
(q) The Lender shall have received copies of all filings made with
the Securities and Exchange Commission, the Federal Trade Commission and the
Department of Justice of the United States in connection with the proposed
merger of the Guarantor and Falcon Drilling Company, Inc. (the "Merger
Filings").
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<PAGE> 18
(r) The Lender shall have received such other documents and
instruments it may reasonably request, in each case in form and substance
reasonably satisfactory to it.
Section 2.02 Waiver of Conditions Precedent. All of the conditions
precedent contained in this Section 2 are for the sole benefit of the Lender
and the Lender may waive any or all of them in its absolute discretion.
ARTICLE III
Representations, Warranties and Covenants
Section 3.01 Representations of the Borrower. The Borrower represents
and warrants that:
(a) The Borrower is a corporation, duly organized and validly
existing in good standing under the laws of the State of Delaware and has the
requisite power and authority (i) to carry on its business as presently
conducted, (ii) to enter into and perform its obligations under each Loan
Document to which it is a party, (iii) to borrow moneys, and (iv) to mortgage
the Vessels and give the security provided in the Loan Documents to which it is
a party.
(b) The execution, delivery and performance by the Borrower of each
Loan Document to which it is a party, and any other instrument or agreement
provided for by this Agreement to which the Borrower is a party, have been duly
authorized by all necessary corporate action, do not require stockholder
approval other than such as has been duly obtained or given, do not or will not
contravene any of the terms of its articles of incorporation or by-laws, and
will not violate any provision of law or of any order of any court or
governmental agency or constitute (with or without notice or lapse of time or
both) a default under, or result (except as contemplated by this Agreement) in
the creation of any security interest, lien, charge or encumbrance upon any of
its properties or assets pursuant to, any agreement, indenture or other
instrument to which it is a party or by which it may be bound; this Agreement
and each Loan Document to which it is a party has been duly executed and
delivered by the Borrower and constitutes its legal, valid and binding
agreement or instrument, enforceable in accordance with the respective terms
thereof. The enforceability of this Agreement, however, is subject to all
applicable bankruptcy, insolvency, reorganization, moratorium and other laws
affecting the rights of creditors and to general equity principles.
(c) There are no suits or proceedings pending or to its knowledge
threatened against or affecting the Borrower which if adversely determined
would have a material adverse effect upon its financial condition, operations
or business.
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(d) The registered place of business of the Borrower is 14141
Southwest Freeway, Suite 2500, Sugar Land, Texas 77478. The principal place of
business of the Borrower and the place where all records relating to the
transactions contemplated hereby, including records relating to the chartering
and operations of the Vessels are kept is 14141 Southwest Freeway, Suite 2500,
Sugar Land, Texas 77478.
(e) Other than such as have been obtained, no license, consent or
approval of any Governmental Agency or other regulatory authority is required
for the execution, delivery and performance of this Agreement or any Loan
Document or any instrument contemplated herein or therein. The Borrower is the
holder of all certificates and authorizations of governmental authorities
required by law to enable it to engage in the business transacted by it.
(f) No part of the proceeds of the Loan will be used for any purpose
that violates the provisions of any of Regulation G, T, U or X of the Board of
Governors of the Federal Reserve System or any other regulation of such Board
of Governors. The Borrower is not engaged in the business of extending credit
to others for the purpose of purchasing or carrying margin stock within the
meaning of Regulations G, T, U and X of the Board of Governors of the Federal
Reserve System. If requested by the Lender, the Borrower will furnish to the
Lender in connection with the Loan hereunder a statement in conformity with the
requirements of Federal Reserve Form U-1 referred to in said Regulation U. The
Borrower is not an "investment company" or a company "controlled" by an
"investment company" (as each of such terms is defined or used in the
Investment Company Act of 1940, as amended). No proceeds of the Loan will be
used to acquire any security in any transaction which is subject to Sections 13
and 14 of the Securities Exchange Act of 1934, as amended.
(g) The Vessels are and will be on the Closing Date: (i) owned by
the Borrower, free and clear of all liens, charges and rights of others except
the Mortgage; (ii) duly documented under the laws and flag of The United States
of America in the name of the Borrower; and (iii) in class without
recommendations and in good condition, working order and repair.
(h) The Borrower has filed or caused to be filed all tax returns
required by any applicable jurisdiction which are required to be filed and has
paid or caused to be paid all taxes as shown on such returns or on any
assessment received by it to the extent that such taxes have become due and
except as to such taxes being contested in good faith by appropriate
proceedings for which adequate reserves are being maintained. The Borrower has
set up reserves to the extent believed by it to be adequate for the
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<PAGE> 20
payment of additional taxes for years which have not been audited by the
respective tax authorities.
(i) The Borrower has no subsidiaries other than its permanent
establishment in Mexico known as Keyes Holding Corporation P.E. The Borrower
is a wholly-owned subsidiary of the Guarantor.
(j) The Borrower has not incurred any indebtedness except such as
generally incurred from time to time in the ordinary course of business and it
has not incurred any inter-company debts to the Guarantor or any of its
affiliates, except as disclosed in writing to the Lender and subordinated to
the Loan.
(k) (i) The Borrower has duly complied in all material respects
with, and the Vessels and their other properties and operations are in
compliance in all material respects with, the provisions of all applicable
environmental, health and safety laws, codes and ordinances and all rules and
regulations promulgated thereunder of all Governmental Agencies unless such
compliance would violate the laws or regulations of the jurisdiction in which
the Vessels are operating.
(ii) As of the date of this Agreement, except as disclosed to
the Lender in writing, the Borrower has received no notice from any
Governmental Agency, and has no knowledge, of any fact(s) which
constitute a violation of any applicable environmental, health or
safety laws, codes or ordinances, and any rules or regulations
promulgated thereunder of all Governmental Agencies, which relate to
the use or ownership of the Vessels or other properties owned or
operated by the Borrower.
(iii) The Borrower has been issued all required permits,
licenses, certificates and approvals of all Governmental Agencies
relating to (a) air emissions, (b) discharges to surface water or
ground water, (c) noise emissions, (d) solid or liquid waste disposal,
(e) the use, generation, storage, transportation, treatment, recycling
or disposal of Hazardous Substances or (f) other environmental, health
or safety matters which are material and necessary for the ownership
or operation of the Vessels or other properties owned or operated by
the Borrower and such permits, licenses, certificates and approvals
are in full force and effect on the date of this Agreement.
(iv) Except as disclosed to the Lender in writing, to the
best of the Borrower's knowledge, except in accordance with a valid
governmental permit, license, certificate or approval, there has been
no spill or unauthorized discharge or
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release of any Hazardous Substance to the environment at, from, or as
a result of any operations on the Vessels or other properties and
operations owned or operated by the Borrower required to be reported
to any Governmental Agency.
(v) Except as disclosed to the Lender in writing, there
has been no material complaint, compliance order, compliance schedule,
notice letter, notice of citation or other similar notice from any
applicable environmental agency which concerns the operations of the
Vessels or other properties owned or operated by the Borrower.
(l) All representations and warranties made by the Borrower herein or
pursuant to any Loan Document to which it is a party or made in any certificate
or written statement delivered pursuant hereto or thereto (i) do not contain
any untrue statement of or omit to state a material fact necessary to make the
statements contained herein or therein not misleading and (ii) shall survive
the making of the Loan hereunder and the execution and delivery to the Lender
of the Note and any other Loan Document to which it is a party.
Section 3.02 Covenants of the Borrower. After the date of execution
of this Agreement and until payment in full of the Note and performance by the
Borrower and the Guarantor of their respective obligations under this Agreement
and the Loan Documents, the Borrower agrees that it will:
(a) promptly inform the Lender of any event which constitutes or
will constitute, by giving of notice or lapse of time, or both, an Event of
Default or adversely affect its ability to fully perform its obligations under
this Agreement and the Loan Documents to which it is a party;
(b) pay and discharge, or cause to be paid and discharged, any taxes,
assessments and governmental charges or levies that may be imposed upon the
Borrower or upon its income or profits or upon any of its properties prior to
the date on which penalties attach thereto and all lawful claims which, if
unpaid, might become a lien or charge upon their respective properties;
provided, however, that this provision shall not be deemed to require payment
of any taxes, assessments, governmental charges, levies or claims while the
Borrower contests the validity thereof by appropriate proceedings in good faith
and so long as it shall have set aside on its books adequate reserves with
respect thereto;
(c) preserve and maintain, or cause to be preserved or maintained,
(i) its existence in good standing in the jurisdictions where it is
incorporated and in all jurisdictions where it is
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currently conducting business, and (ii) all its rights, privileges and
franchises thereunder;
(d) file or cause to be filed in such offices as shall be required
or appropriate under any applicable Uniform Commercial Code of any State or any
other statute of any other jurisdiction, and in such manner and form as the
Lender may require or as may be reasonably necessary or appropriate under
applicable law, any financing statement or statements or other instruments that
may be reasonably necessary or desirable or that the Lender may request in
order to create, perfect, preserve, continue, validate or satisfy the Lender's
liens on and security interests and rights in collateral arising out of or
related to this Agreement and any Loan Document;
(e) promptly notify the Lender of any proposed change in location
of its registered place of business or the office where its records are kept or
any principal place of business located within the United States of America for
purposes of effecting its obligations under Section 3.01(d) hereof;
(f) promptly obtain and upon the reasonable request, deliver to
the Lender all authorizations, approvals, consents and licenses and renewals
thereof required under any applicable law or regulation with respect to this
Agreement, the Loan Documents, and the Vessels and it shall comply with the
terms of the same;
(g) as soon as practicable after the date of execution of the
Mortgage, (i) cause the Mortgage to be duly recorded under the laws and
regulations of the United States of America at the Vessel Documentation Office
of the United States Coast Guard, Port of Houston, Texas; and (ii) cause a
certified copy of the Mortgage to be placed aboard the Vessels, together with
the required Notice of Mortgage provided for therein;
(h) promptly notify the Lender of any suit or proceedings brought
against the Borrower or, to the knowledge of the Borrower, threatened against
or affecting it which, if adversely determined, would have a material adverse
effect upon the financial condition, operations or business of the Borrower;
(i) upon the request of the Lender, give the Lender or any
representative of the Lender access during normal business hours to, and permit
the Lender or such representative to inspect, all properties belonging to the
Borrower and permit such representative to examine, copy and make extracts from
such books, records and documents in the possession of the Borrower, relating
to the affairs of the Borrower, as such representative may reasonably request;
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<PAGE> 23
(j) comply with and use its best efforts to cause its agents,
contractors and sub-contractors (while such persons are acting within the scope
of their contractual relationship with the Borrower) to so comply with all
material, applicable environmental, health and safety laws, codes and
ordinances, and all rules and regulations promulgated thereunder of all
Governmental Agencies; and with the terms and conditions of all applicable
permits, licenses, certificates and approvals of all Governmental Agencies now
or hereafter granted or obtained with respect to the Vessels or other
properties owned or operated by the Borrower unless such compliance would
violate the laws or regulations of the jurisdictions in which the Vessels are
operating.
(i) The Borrower will use its best efforts and safety
practices to prevent the unauthorized release, discharge, disposal,
escape or spill of Hazardous Substances on or about the Vessels or
other properties owned or operated by the Borrower.
(ii) The Borrower shall notify the Lender, in writing,
within five (5) Business Days of any of the following events occurring
after the date of this Agreement:
(A) Any written notification made by the Borrower
to any federal, state or local environmental agency required
under any federal, state or local environmental statute,
regulation or ordinance relating to a spill or unauthorized
discharge or release of any Hazardous Substance to the
environment at, from, or as a result of any operations on, the
Vessels or other properties and operations owned or operated
by the Borrower;
(B) Knowledge by a Responsible Officer of the
Borrower of receipt of service by the Borrower of any
complaint, compliance order, compliance schedule, notice
letter, notice of violation, citation or other similar notice
or any judicial demand by any court, federal, state or local
environmental agency, alleging (i) any spill, unauthorized
discharge or release of any Hazardous Substance to the
environment from, or as a result of the operations on, the
Vessels or other properties owned or operated by the Borrower
or (ii) violations of applicable laws, regulations or permits
regarding the generation, storage, handling, treatment,
transportation, recycling, release or disposal of Hazardous
Substances on or as a result of operations on the Vessels or
other properties and operations owned or operated by the
Borrower.
(C) It is understood by the parties hereto that
the aforementioned notices are solely for the Lender's
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<PAGE> 24
information, may not otherwise be required by any federal,
state or local environmental laws, regulations or ordinances,
and are to be considered confidential information by the
Lender.
(D) The term "environmental agency" as used
herein shall include, but not be limited to, the United States
Environmental Protection Agency, the United States Coast
Guard, the United States Minerals Management Service, the
United States Department of Transportation (in its
administration of the Hazardous Materials Transportation Act,
49 U.S.C. Sec. 1801, et seq.) and other analogous or similar
Governmental Agencies regulating or administering statutes,
regulations or ordinances relating to or imposing liability or
standards of conduct concerning the generation, storage, use,
production, transportation, handling, treatment, recycling,
release or disposal of any Hazardous Substance.
(iii) The Borrower hereby agrees to indemnify and hold the
Lender harmless from and against any and all claims, losses,
liability, damages and injuries of any kind whatsoever asserted
against the Lender with respect to or as a direct result of the
presence, escape, seepage, spillage, release, leaking, discharge or
migration from any Vessel or other properties owned or operated by the
Borrower of any Hazardous Substance, including without limitation, any
claims asserted or arising under any applicable environmental, health
and safety laws, codes and ordinances, and all rules and regulations
promulgated thereunder of all Governmental Agencies, regardless of
whether or not caused by or within the control of the Borrower subject
to the following:
(A) It is the parties' understanding that the
Lender does not now, has never and does not intend in the
future to exercise any operational control or maintenance over
the Vessels or any other properties and operations owned or
operated by the Borrower, nor has it in the past, presently,
or intend in the future to, maintain an ownership interest in
the Vessels or any other properties owned or operated by the
Borrower except as may arise upon enforcement of the Lender's
rights under the Mortgage.
(B) Should, however, the Lender hereafter
exercise any ownership interest in or operational control over
the Vessels or any other properties owned or operated by the
Borrower, e.g., including but not limited to, through
foreclosure, then the above stated indemnity and hold harmless
shall be limited with respect to any actions or
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<PAGE> 25
failures to act by the Lender subsequent to exercising such
interest or operational control, to the extent such action or
inaction by the Lender is found by a court or Governmental
Agency with competent jurisdiction to have caused or made
worse any condition for which liability is asserted, including
but not limited to, the presence, escape, seepage, spillage,
leaking, discharge or migration on or from the Vessels or
other properties owned or operated by the Borrower of
any Hazardous Substance.
(C) The indemnity and hold harmless contained in
this Subsection (j) shall not extend to the Lender in its
capacity as an equity investor in the Borrower or as an owner
of any property or interest as to which the Borrower are also
owners but only to their capacity as a lender, a holder of
security interests, or a beneficiary of security interests.
(k) not, without the prior written consent of the Lender, (i) sell,
transfer, lend, lease or otherwise dispose of the whole or, in the opinion of
the Lender, any substantial part of its business, property or assets, whether
by a single transaction or by a series of transactions, (related or not), (ii)
change the management or stock ownership of the Borrower, or (iii) permit the
Vessels to be chartered for a period longer than twelve months (including any
committed extensions or renewals) to an entity not an affiliate of the
Guarantor;
(l) other than pursuant to or permitted by those Loan Documents to
which it is a party it will not create, assume or permit to exist any
encumbrance upon any of its property or assets (whether now owned or hereafter
acquired);
(m) not, without the prior written consent of the Lender: (i)
conduct or manage any business or activity other than as presently conducted or
managed or as is contemplated by this Agreement and the Loan Documents; (ii)
incur or agree to incur or issue any indebtedness nor make any commitments
other than (A) in the ordinary course of day-to-day trading; and (B) to the
Guarantor or its affiliates which are evidenced by promissory notes, the
payment of which are expressly subordinated to the Loan and are pledged to the
Lender as security for the performance of the obligations under the Loan
Documents pursuant to documentation which is in form and substance satisfactory
to the Lender; and (iii) liquidate or dissolve or consolidate or amalgamate
with, or merge into, any other entity;
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<PAGE> 26
(n) not, without the prior written consent of the Lender repay any
stockholders' loan nor make any loans or advances to any other person;
(o) not, without the prior written consent of the Lender, acquire by
purchase or otherwise or make any investment in any firm, corporation or person
not a wholly owned subsidiary of the Borrower whether by acquisition of stock
or indebtedness, by loan, guarantee or otherwise;
(p) at all times conduct its business in a manner so as to qualify
and to maintain its qualification to register the Vessels in the registry and
under the flag of the United States of America;
(q) immediately upon receipt from the United States Coast Guard or
other governmental official having jurisdiction over the Vessels of notice in
respect of the invalidity or possible invalidity of the registration of the
Vessels or the disqualification or possible disqualification to maintain the
registration of the Vessels, (i) give written notice to the Lender of the
receipt of such notice and (ii) take all action as may be required by the
Lender to effect the proper registration of the Vessels;
(r) if in the sole reasonable opinion of the Lender, the Lender's
security may otherwise be imperilled and at the Lender's written request,
effect the change of registration of the Vessels;
(s) forthwith upon demand by the Lender and at the Borrower's sole
cost and expense, execute and provide all such assurances and do all acts and
things as the Lender or any receiver in its absolute discretion may require
for: (i) perfecting or protecting the security created (or intended to be
created) by any of the Loan Documents, including, without limitation, granting
in favor of the Lender a security interest covering the security created (or
intended to be created) by any of the Loan Documents with respect to any
obligations of the Borrower hereafter owing to the Lender; or (ii) preserving
or protecting any of the rights of the Lender under any of the Loan Documents;
or (iii) facilitating the appropriation or realization of any of the collateral
assigned or granted to the Lender under any of the Loan Documents and enforcing
the security constituted by any of the Loan Documents on or at any time after
the same shall have become enforceable; or (iv) the exercise of any power,
authority or discretion vested in the Lender under any of the Loan Documents;
(t) deliver to the Lender such financial or other information
relating to it, any of the transactions contemplated by this Agreement or any
of the Loan Documents, as may be requested by the Lender;
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(u) upon the request of the Lender, given the Lender or any
representative of the Lender at any reasonable time, access to the Vessels and
permit the Lender or such representative to inspect the Vessels and any part
thereof, as the Lender or such representative may reasonably request, all at
the sole cost and expense of the Borrower; and
(v) obtain an agreement in form and substance reasonably satisfaction
to the Lender from any person retained by or for the benefit of the Borrower
relating to the management of the Vessels that any indebtedness incurred by
such person for the benefit of the Vessels and any fees and expenses paid to
such manager shall be subject and subordinate to the lien of the Mortgage.
Section 3.03 Covenants of the Guarantor. After the date of execution
of this Agreement and until payment in full of the Note and performance by the
Borrower, its obligations under this Agreement and the Loan Documents, the
Guarantor agrees that it will:
(a) deliver, or shall cause to be delivered, to the Lender at
least two copies and as many additional copies as the Lender may reasonably
require from time to time of, (i) its audited annual consolidated and
consolidating financial statements (including the balance sheet and income
statement of the Borrower), in a form consistent with generally accepted United
States accounting principles and practices consistently applied, as soon as is
practicable after the same have been issued but in any case within ninety (90)
days of the end of its fiscal year certified by KPMG Peat Marwick LLP or other
auditors as may be acceptable to the Lender that the consolidated financial
statements present fairly, in all material respects, the financial position of
the Guarantor as of the date thereof, (ii) its quarterly consolidated and
consolidating financial statements (including the balance sheet and income
statement of the Borrower) in a form consistent with generally accepted United
States accounting principles and practices consistently applied, as soon as is
practicable after the end of each financial quarter but in any case within
sixty (60) days of the end of its financial quarter certified by one of its
Responsible Officers that the consolidated financial statements present fairly,
in all material respects, the financial position of the Guarantor as of the
date thereof, (iii) such financial or other information relating to it, any of
the transactions contemplated by this Agreement or any of the other Loan
Documents, as may reasonably be requested by the Lender or generally made
available to its other creditors, its shareholders and to any governmental
authorities;
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(b) not, on a consolidated basis, allow its ratio of Total Funded
Senior Debt to Total Capital to exceed thirty percent (30%);
(c) not, on a consolidated basis, allow its current assets less
current liabilities calculated in accordance with generally accepted United
States accounting principles consistently applied to be an amount less than one
hundred twenty five percent (125%) of the sum of (x) the amount of its previous
four (4) financial quarters' fixed expenses and (y) the amount of the projected
debt service on borrowed money for the next four (4) financial quarters;
(d) maintain and cause the Borrower to maintain all permits and
certificates which are material and necessary under all applicable
environmental, safety and public health laws and regulations applicable to
itself or the Borrower and the Vessels, and all other laws and regulations
affecting or relating to the Vessels;
(e) deliver to the Lender, contemporaneously with the delivery to
the Lender of the annual and quarterly financial statements specified in clause
(a) above, its certificate (in form and substance satisfactory to the Lender),
signed by one of its Responsible Officers, (i) stating that such officer has
reviewed the relevant terms of this Agreement, the other Loan Documents and all
other agreements of the Borrower and the Guarantor which evidence indebtedness
for borrowed money, lease or other financial obligations on the part of either
entity in excess of USD 500,000 (the "Financial Obligation Agreements") and has
made or caused to be made under his supervision, a review of the transactions
and condition of the Borrower and the Guarantor during the relevant fiscal
quarter or year, as the case may be, and that such review has not disclosed the
existence during such period, nor does such Responsible Officer have knowledge
of the existence as at the date of such certificate, of any condition or event
which constitutes an event of default under any of the Loan Documents or
Financial Obligation Agreements, or which, after notice or lapse of time or
both would constitute an event of default under any of the Loan Documents or
Financial Obligation Agreements, or if any such condition or event existed or
exists, specifying the nature and period of existence thereof and what action
the Guarantor or the Borrower has taken or proposes to take with respect
thereto, (ii) setting forth in form and detail satisfactory to the Lender the
calculations respecting compliance with the financial covenants of this
Agreement and (iii) for purposes of the annual certificate only, attaching and
certifying as true and correct copies, the insurance certificates and brokers
opinions required to be provided to the Lender pursuant to Section 1.18 and
Section 1.20 of the Mortgage;
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(f) deliver, or shall cause to be delivered, to the Lender at
least two copies and as many additional copies as the Lender may reasonably
require from time to time, within thirty (30) days of each quarterly financial
statement referred to in Clause (a) above, a report (in form and substance
reasonably satisfactory to the Lender) on each drilling rig directly or
indirectly owned, controlled or managed by the Guarantor stating the then
current employment; operator contracted with; the then current day rate;
contract expiration date; average utilization during the past quarter and the
average net day rate earned by such rig for the past quarter for the days it
was under contract;
(g) not, without the prior written consent of the Lender, (i)
sell, transfer, lend, lease or otherwise dispose of the whole or, in the
opinion of the Lender, any substantial part of its business, property or
assets, whether by a single transaction or by a series of transactions,
(related or not), or (ii) other than as contemplated by the transactions
described in the Merger Filings, change the management of the Guarantor; and
(h) not, without the prior written consent of the Lender: (i)
conduct or manage any business or activity other than as presently conducted or
managed or as is contemplated by this Agreement and the Loan Documents; or (ii)
other than as contemplated by the transactions described in the Merger Filings,
liquidate or dissolve or consolidate or amalgamate with, or merge into, any
other entity.
ARTICLE IV
Events of Default
If any of the following events shall occur and be continuing, (each an
"Event of Default"):
A. the Borrower shall fail to pay any principal of or interest on the
Note, which failure shall continue for five days after the date when due;
B. any representation or warranty made by any of the Borrower or the
Guarantor herein or made in any certificate or financial statement furnished to
the Lender hereunder or under any of the Loan Documents shall prove to have
been incorrect, or shall be breached, in any material respect;
C. default in the performance of any agreement, covenant, term or
condition contained herein or in any Loan Document to be performed by the
Borrower or the Guarantor, as the case may be, (other than any covered in
paragraph A of this Article IV and Sections 3.02 (l), 3.03 (b) and 3.03(c)
hereunder) which shall
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continue for 30 days after the giving of notice thereof to the Borrower, or the
Guarantor, as the case may be, by the Lender;
D. default in the performance of the covenants contained in Sections
3.02(l), 3.03(b) and 3.03(c);
E. a Default under the Mortgage;
F. an event of default under any loan agreement, credit agreement,
security agreement, guaranty agreement, lease agreement or other agreement now
existing or hereafter entered into by the Borrower or the Guarantor or any of
its subsidiaries shall have occurred and shall not have been remedied during
such time as USD 1,000,000 or more is outstanding under such agreement;
G. any license, consent or approval of any governmental body or other
regulatory authority required for the making and performance of this Agreement
or any instrument contemplated hereby or thereby shall have been revoked,
withdrawn, materially modified or withheld or shall otherwise fail to remain in
full force and effect;
H. Any of the following events shall occur:
(i) Either the Borrower or the Guarantor commences a
voluntary case under Title 11 of the United States Code as now or
hereafter in effect, or any successor thereto (the "Bankruptcy Code");
or
(ii) an involuntary case is commenced against the Borrower or
the Guarantor under the Bankruptcy Code and relief is ordered against
the Borrower or the Guarantor or the petition is controverted but is
not dismissed or stayed within ninety (90) days after the commencement
of the case; or
(iii) a custodian (as defined in the Bankruptcy Code) or a
similar official is appointed for, or takes charge of, all or
substantially all of the property of the Borrower or the Guarantor and
such appointment is not terminated within ninety (90) days; or
(iv) either the Borrower or the Guarantor commences any other
proceeding under any reorganization, arrangement, readjustment of
debt, relief of debtors, dissolution, insolvency, liquidation or
similar law of any jurisdiction relating to the Borrower or the
Guarantor (whether now or hereafter in effect), or there is commenced
against the Borrower or the Guarantor any such proceeding which
remains undismissed or unstayed for a period of ninety (90) days or
the Borrower or the Guarantor is adjudicated insolvent or
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<PAGE> 31
bankrupt; or the Borrower or the Guarantor fails to controvert in a
timely manner any such case under the Bankruptcy Code or any such
proceeding, or any order of relief or other order approving any such
case or proceeding is entered; or
(v) either the Borrower or the Guarantor by any act or
failure to act indicates its consent to, approval of or acquiescence
in any such case or proceeding or in the appointment of any custodian
of or for it or any substantial part of its property or suffers any
such appointment to continue undischarged or unstayed for a period of
ninety (90) days; or
(vi) either the Borrower or the Guarantor makes a general
assignment for the benefit of creditors; or
(vii) any corporate action is taken by either the Borrower or
the Guarantor for the purpose of effecting any of the foregoing.
I. an order, judgment or decree shall be entered, without the
application, approval or consent of the Borrower or the Guarantor by any court
of competent jurisdiction, approving a petition seeking reorganization of the
Borrower or the Guarantor seizure or attachment of all or a substantial part of
the Borrower's or the Guarantor's or respective assets, and such order,
judgment or decree shall continue unstayed and in effect for any period of
ninety (90) consecutive days; or
J. judgments or orders for the payment of monies in excess of USD
1,000,000 in aggregate shall be rendered against the Borrower, or in excess of
USD 5,000,000 against the Guarantor and such judgments or orders shall continue
unsatisfied, unstayed or unbonded for a period of 30 days;
then the Lender may by written notice to the Borrower (1) immediately terminate
the commitment of the Lender hereunder or (2) declare the principal of, and
interest accrued to the date of such declaration on, the Note together with all
other amounts due hereunder or under any of the Loan Documents, to be forthwith
due and payable, whereupon the same shall become forthwith due and payable
(provided, however, no notice or declaration shall be required and such amounts
shall be immediately due and payable upon the occurrence of an event described
in Article IV(H) or (I) hereof) and (3) exercise any remedies to which it may
be entitled by any Loan Document or by applicable law.
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ARTICLE V
Miscellaneous
Section 5.01 Notices. All notices, requests and demands shall be in
writing (including telecopier transmission) given to or made upon the
respective parties hereto as follows:
In the case of the Borrower or the Guarantor, at
14141 Southwest Freeway, Suite 2500
Sugar Land, Texas 77478
Attention: Chief Financial Officer
Telecopier: (713) 565-2002
In the case of Lender, at
The CIT Group/Equipment Financing, Inc.
1211 Avenue of the Americas
New York, New York 10036
Attention: (a) Senior Vice President - Credit
Telecopier: (212) 536-1385
(b) Legal Department
Telecopier: (212) 536-1388
or in such other manner as any party hereto shall designate by written notice
to the other parties hereto. All such notices shall be effective upon delivery
or 3 days after being deposited in the United States mail with postage prepaid
certified, return receipt requested in a correctly addressed wrapper, or upon
receipt if delivered to Federal Express or similar courier company or
transmitted by telefax during normal business hours, except that all notices,
requests and demands to the Lender shall not be effective until received by the
Lender. All notices, demands, requests, communications and other documents
delivered hereunder or under the Loan Documents, unless submitted in the
English language, shall be accompanied by certified English translation
thereof.
Section 5.02 No Waiver. No failure on the part of the Lender to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise by the Lender of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right.
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<PAGE> 33
Section 5.03 Applicable Law and Jurisdiction. (a) This Agreement and
the Loan Documents provided for herein (including, but not limited to, the
validity and enforceability hereof and thereof) shall be governed by, and
construed in accordance with, the laws of the State of New York, other than
conflict of laws rules thereof. Any legal action or proceeding against the
Borrower or the Guarantor with respect to this Agreement or any Loan Document
may be brought in the courts of the State of New York, the U.S. Federal Courts
in such state, sitting in the County of New York, or in the courts of any other
jurisdiction where such action or proceeding may be properly brought, and each
of the Borrower or the Guarantor hereby irrevocably accepts the jurisdiction of
such courts for the purpose of any action or proceeding. Each of the Borrower
and the Guarantor hereby designates and irrevocably appoints and empowers C T
Corporation System (the "Process Agent"), currently located at 1633 Broadway,
New York, New York 10019 in each case as its authorized agent to accept,
receive and acknowledge for and on behalf of each and its property service of
any and all process which may be served but only in any action, suit or
proceeding of the nature referred to above in the State of New York and further
agrees that failure of such firm to give the Borrower and the Guarantor, as the
case may be, any notice of any such service shall not impair or affect the
validity of such service or of any judgment rendered in any action or
proceeding based thereon. Each of the Borrower and the Guarantor hereby
irrevocably authorizes and directs the Process Agent to accept such service on
its behalf. Each of the Borrower and the Guarantor further irrevocably
consents to the service of process out of said courts by the mailing thereof by
the Lender by U.S. registered or certified mail postage prepaid to the party to
be served at its address designated in Section 5.01. Each of the Borrower and
the Guarantor agree that a final judgment in any action or proceeding shall be
conclusive and may be enforced in any other jurisdiction by suit on the
judgment or in any other manner provided by law. Nothing in this Section 5.03
shall affect the right of the Lender to serve legal process in any other manner
permitted by law or affect the right of the Lender to bring any action or
proceeding against the Borrower or the Guarantor or their respective properties
in the courts of any other jurisdiction. To the extent that the Borrower or
the Guarantor has or hereafter may acquire any immunity from jurisdiction of
any court or from any legal process (whether through service of notice,
attachment prior to judgment, attachment in aid of execution, execution or
otherwise) with respect to either itself or its respective property, each of
the Borrower and the Guarantor hereby irrevocably waive such immunity in
respect of its obligations under this Agreement and the other Loan Documents.
Each of the Borrower and the Guarantor hereby irrevocably waive any objection
which it may now or hereafter have to the laying of venue of any suit, action
or proceeding arising out of or relating to this Agreement or any Loan Document
brought
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in the Supreme Court of the State of New York, County of New York or the U.S.
District Court for the Southern District of New York, and hereby further
irrevocably waives any claim that any such suit, action or proceeding brought
in any such court has been brought in an inconvenient forum.
(b) THE LENDER AND THE BORROWER AND THE GUARANTOR IRREVOCABLY WAIVE
ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING
OUT OF OR RELATING TO THIS AGREEMENT, THE NOTE OR ANY OTHER LOAN DOCUMENT OR
THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY.
(c) If for the purposes of obtaining a judgment in any court it
becomes necessary to convert the sum due hereunder or under any of the other
Loan Documents or under any instrument delivered hereunder or thereunder in
United States Dollars into another currency, the parties hereto agree, to the
fullest extent permitted by law, that the rate of exchange used shall be that
at which in accordance with normal banking procedures the Lender would purchase
United States Dollars with such other currency on the Business Day preceding
that on which the final judgment is given. The obligation of the Borrower or
the Guarantor in respect of any sum due to the Lender hereunder or under any of
the Loan Documents or under any instrument delivered hereunder or thereunder
shall, notwithstanding any judgment in currency other than United States
Dollars, be discharged only to the extent that on the Business Day following
receipt by the Lender of any sum adjudged to be so due in such other currency,
the Lender may in accordance with normal banking procedures purchase United
States Dollars with such other currency; if the United States Dollars so
purchased are less than the sum originally due to the Lender in United States
Dollars, the Borrower and the Guarantor agree, as a separate obligation and
notwithstanding any such judgment, to indemnify the Lender against such loss
and if the United States Dollars so purchased exceed the sum originally due to
the Lender, in United States Dollars, the Lender agrees to remit to the
Borrower or the Guarantor, as the case may be, such excess.
Section 5.04 Severability. In the event that any provision of this
Agreement is held to be void or unenforceable in any jurisdiction, all other
provisions shall remain unaffected and be enforceable in accordance with their
terms in such jurisdiction, and all provisions of this Agreement shall remain
unaffected and shall be enforceable in accordance with their terms in all other
jurisdictions.
Section 5.05 Amendment. Neither this Agreement nor any provision
hereof, including without limitation this Section 5.05, may be amended,
modified, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against
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which enforcement of the amendment, modification, waiver, discharge or
termination is sought. This Agreement shall be binding upon and inure to the
benefit of the Borrower, the Guarantor and the Lender and their respective
successors and assigns, except that neither the Borrower or the Guarantor shall
have the right to assign their respective rights hereunder or any interest
herein without the prior written consent of the Lender.
Section 5.06 Assignment and Participation. The Lender shall have the
right to assign or grant participations in all or any portion of the Loan
outstanding under this Agreement or the Note to any affiliate of the Lender or
to any foreign, federal or state banking institution, savings and loan
institution or finance company upon thirty (30) days written notice to the
Borrower of such assignment or participation.
Section 5.07 Costs, Expenses and Taxes. The Borrower agrees to pay on
demand all reasonable fees, costs and expenses in connection (i) with the
preparation, execution, delivery, administration, amendment and enforcement of
this Agreement, the Note, any other Loan Document and any other documents to be
delivered hereunder and thereunder (including, without limitation, the
appraisal and inspection and survey reports required hereunder) and any
amendment, modification or supplement hereto or thereto, including, without
limitation, the reasonable fees and out-of-pocket expenses of counsel for the
Lender, and any special counsel associated with them, and with respect thereto
and the filing of any document or instrument in connection with any of the
foregoing, (ii) with respect to fees and expenses of counsel for advising the
Lender as to its rights and responsibilities under this Agreement and the
transactions contemplated thereby after an Event of Default or an event which,
with the giving of notice or lapse of time, or both, shall have occurred, and
(iii) with any filing or recording of any document or instrument. In addition,
the Borrower shall pay any and all stamp and other taxes (including, without
limitation penalties and interest assessed thereon) other than Excluded Taxes
payable or determined to be payable in connection with the execution, delivery
or performance of this Agreement and the Loan Documents and any other documents
to be delivered hereunder and thereunder and agrees to save the Lender harmless
from and against any and all liabilities with respect to or resulting from any
delay in paying or omission to pay such taxes.
Section 5.08 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original, but all of
which, when taken together, shall constitute but one instrument.
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Section 5.09 Section Heading. The heading of the various Sections and
subsections of this Agreement are for convenience of reference only and shall
not define or limit any of the terms or provisions hereof.
Section 5.10 Merger. THIS AGREEMENT AND THE LOAN DOCUMENTS EMBODY THE
ENTIRE AGREEMENT BETWEEN THE BORROWER AND THE GUARANTOR ON THE ONE HAND AND THE
LENDER ON THE OTHER HAND AND SUPERSEDE ALL PRIOR AGREEMENTS, REPRESENTATIONS
AND UNDERSTANDINGS, IF ANY, RELATING TO THE SUBJECT MATTER HEREOF AND THEREOF.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
THE CIT GROUP/EQUIPMENT KEYES HOLDING CORPORATION
FINANCING, INC.
/s/ JOSEPH M. PITCH /s/ WILLIAM H. FLORES
By: _______________________ By: _________________________
Name: Joseph M. Pitch Name: William H. Flores
Title: Vice President Title: Vice President
MARINE DRILLING COMPANIES, INC.
/s/ WILLIAM H. FLORES
By: _____________________________
Name: William H. Flores
Title: Senior Vice President
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EXHIBIT A
SECURED PROMISSORY NOTE
USD 35,000,000
The undersigned (the "Borrower") for value received, hereby promises
to pay to the order of THE CIT GROUP/EQUIPMENT FINANCING, INC. (the "Lender")
or any subsequent holder hereof the principal sum of Thirty Five Million United
States Dollars (USD 35,000,000) or such lesser amount as may be loaned to the
Borrower pursuant to a Loan Agreement dated as of December 1, 1994 among the
Borrower, Marine Drilling Companies, Inc., as Guarantor and the Lender (the
"Loan Agreement").
PRINCIPAL AND INTEREST
1.1 (a) Interest on this Note shall be payable at the times
and the rates as provided in Section 1.04 of the Loan Agreement.
(b) Subject to the terms of Section 1.5 hereof, in case any
payment of principal or interest is not paid when due, additional interest at
the rate determined as provided in Section 1.04(c) of the Loan Agreement shall
be payable on all overdue principal and, to the extent that the same may be
lawful, on all overdue interest.
1.2 Interest shall be calculated as provided in Section 1.04(b) of
the Loan Agreement.
1.3 The principal of this Note shall be payable in installments as
provided in Section 1.03(c) of the Loan Agreement and in such amounts as are
set forth in Schedule 1 hereto.
1.4 All principal, interest, premium, if any, and other amounts
due hereunder shall be payable in lawful money of the United States of America
in immediately available funds to the Lender at Chemical Bank, 640 Madison
Avenue, New York, New York 10021, ABA No. 021-000-128, for credit to The CIT
Group/Equipment Financing, Inc., Account No. 134-086460 (ref. Keyes Holding,
Contract No. 8122) as provided in Section 1.05 of the Loan Agreement.
1.5 In no event shall any interest rate provided for in this
Note exceed the maximum rate permitted by the then applicable law. It is
the intention of the Lender and the Borrower to strictly comply with applicable
usury laws; accordingly, it is agreed that, notwithstanding any provision to
the contrary in this Note, the Loan Agreement or in the other Loan Documents,
in no event shall this Note require the payment or permit the collection of
interest in excess of the maximum amount permitted by applicable law. If any
such excess interest is contracted for, charged or received under this Note, or
in the event that all of the principal balance shall be prepaid, so that under
any of such circumstances the
<PAGE> 38
amount of interest contracted for, charged or received on the principal balance
shall exceed the maximum amount of interest permitted by applicable law, then
in such event (i) the provisions of Section 1.04(d) of the Loan Agreement shall
govern and control, (ii) neither the Borrower nor any other person or entity
now or hereafter liable for the payment thereof shall be obligated to pay the
amount of such interest to the extent that it is in excess of the maximum
amount of interest permitted by applicable law, (iii) any such excess which may
have been collected shall be either applied as a credit against the then unpaid
principal balance or refunded to the Borrower, at the option of the Lender, and
(iv) the effective rate of interest shall be automatically reduced to the
maximum lawful contract rate allowed under applicable law as now or hereafter
construed by the courts having jurisdiction thereof. Without limitation of the
foregoing, all calculations of the rate of interest contracted for, charged or
received under this Note which are made for the purpose of determining whether
such rate exceeds the maximum lawful contract rate, shall be made, to the
extent permitted by applicable law, by amortizing, prorating, allocating and
spreading in equal parts during the period of the full stated term of the
indebtedness evidenced hereby, all interest at any time contracted for, charged
or received from the Borrower or otherwise by the Lender in connection with
such indebtedness; provided, however, that if any applicable state law is
amended or the law of the United States of America preempts any applicable
state law, so that it becomes lawful for the Lender to receive a greater simple
interest per annum rate than is presently allowed, on the effective date of
such amendment or preemption as the case may be, the lawful maximum hereunder
shall be increased to the maximum simple interest per annum rate allowed by the
higher of the amended state law or the law of the United States of America.
SECURITY
2.1 This Note is the secured promissory note issued under and
pursuant to the Loan Agreement and is secured by, among other things, a U.S.
First Preferred Fleet Mortgage on three U.S. flag drilling rigs dated December
1, 1994 in favor of the Lender (the "Mortgage"). Reference is hereby made to
the Mortgage for a description of the property thereby mortgaged, the nature
and extent of the security afforded thereby and the rights of the Borrower and
the Lender with respect to such security as provided in the Mortgage. Payment
of this Note may be demanded prior to the maturity of this Note under certain
circumstances and conditions, in the manner, and with the effect, provided in
the Mortgage or the Loan Agreement. A true and complete copy of the form of
the Loan Agreement is attached to the Mortgage and made a part thereof.
2.2 This Note evidences Advances made by the Lender under
Section 1.02 of the Loan Agreement.
2
<PAGE> 39
MISCELLANEOUS
3.1 All parties hereto, including endorsers hereof, hereby waive
presentment for payment, demand, protest and notice of protest and non-payment
hereof and hereby consent that any and all securities or other property, if
any, held by or for the holders hereof at any time as security for this Note
may be exchanged, released or surrendered and that the time of payment of this
Note may be extended, all in the sole discretion of the holders hereof and
without notice and without affecting in any manner the liability of the parties
hereto.
3.2 No course of dealing between the Borrower and the Lender in
exercising any rights hereunder shall operate as a waiver of any right of any
holders except to the extent expressly waived in writing by such holder.
3.3 Whenever any payment to be made hereunder shall be due on a
day which is not a Business Day, such payments shall be made on the next
succeeding Business Day.
3.4 Any notice to be given pursuant to this Note shall be given in
accordance with Section 5.01 of the Loan Agreement.
3.5 THIS NOTE (INCLUDING, BUT NOT LIMITED TO, THE VALIDITY AND
ENFORCEABILITY HEREOF) SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, OTHER THAN THE CONFLICT OF LAWS RULES
THEREOF.
3.6 THE BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY JUDICIAL
PROCEEDING TO WHICH THEY ARE A PARTY INVOLVING, DIRECTLY OR INDIRECTLY, ANY
MATTER (WHETHER SOUNDING IN TORT, CONTRACT OR OTHERWISE) IN ANY WAY ARISING OUT
OF, RELATED TO, OR CONNECTED WITH THIS NOTE OR ANY OF THE LOAN DOCUMENTS.
3.7 Capitalized terms used in this Note but not defined herein
shall have the meanings given to them in the Loan Agreement.
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly
executed the day and year first above written.
KEYES HOLDING CORPORATION
By:_________________________
Name: William H. Flores
Title: Vice President
3
<PAGE> 40
EXHIBIT B
GUARANTY
GUARANTY, dated as of December 1, 1994, made by MARINE DRILLING
COMPANIES, INC., a corporation organized and existing under the laws of the
State of Texas (the "Guarantor") in favor of THE CIT GROUP/EQUIPMENT FINANCING,
INC., a corporation organized and existing under the laws of the State of New
York (the "Lender").
WHEREAS, KEYES HOLDING CORPORATION, a Delaware corporation (the
"Borrower"), wishes to borrow funds in an aggregate amount up to USD 35,000,000
(the "Loan") from the Lender pursuant to the terms of the Loan Agreement dated
as of December 1, 1994 (as the same may be amended, supplemented or otherwise
modified from time to time, the "Loan Agreement") by and among the Borrower,
the Guarantor and the Lender; and
WHEREAS, the Borrower is a wholly owned subsidiary of the Guarantor
and it is to the corporate benefit of the Guarantor that the Borrower obtain
the Loan; and
WHEREAS, the Loan will be evidenced by the promissory note of the
Borrower in favor of the Lender (as the same may be amended, supplemented as
otherwise modified from time to time, the "Note"); and
WHEREAS, in order to induce the Lender to make the Loan, the Guarantor
is prepared to guarantee the performance by the Borrower of certain of its
obligations under the Loan Agreement and the Note; and
WHEREAS, the Lender is prepared to make the Loan in consideration,
among other things, of the said guaranty by the Guarantor;
NOW, THEREFORE, in consideration of the premises, the Guarantor hereby
agrees as follows:
SECTION 1. Guaranty. As independent and additional security for the
Loan, the Guarantor hereby unconditionally and irrevocably guarantees the
payment by the Borrower of all amounts due and to become due from the Borrower
under the Loan Agreement and the Note up to an aggregate amount of Eight
Million Seven Hundred Fifty Thousand United States Dollars (USD 8,750,000) (the
"Obligations") and agrees to pay any and all expenses incurred by the Lender in
enforcing any of its respective rights under this Guaranty.
<PAGE> 41
SECTION 2. Guaranty Absolute. (a) The Guarantor hereby guarantees
that the Obligations will be paid strictly in accordance with the terms of the
Loan Agreement and the Note, regardless of any law, regulation or order now or
hereafter in effect in any jurisdiction affecting any of such terms or the
rights of the Lender with respect thereto. The liability of the Guarantor
under this Guaranty shall be absolute and unconditional irrespective of:
(i) any lack of validity or enforceability of the Loan
Agreement, the Note or any other agreement or instrument entered into
between the Borrower, the Lender or the Guarantor;
(ii) any change in the time, manner or place of payment of,
or in any other term of, all or any of the Obligations, or any other
amendment or waiver of or any consent to departure from the Loan
Agreement or the Note;
(iii) any other circumstance which might otherwise constitute
a defense available to, or a discharge of, the Borrower in respect of
the Obligations or the Guarantor in respect of this Guaranty.
(b) This Guaranty shall continue to be effective or be reinstated, as
the case may be, if at any time any payment of any of the Obligations is
rescinded or must otherwise be returned by the Lender upon the insolvency,
bankruptcy or reorganization of the Borrower or otherwise, all as though such
payment had not been made.
SECTION 3. Waiver. The Guarantor hereby waives promptness, diligence,
notice of acceptance and any other notice with respect to any of the
Obligations and this Guaranty and any requirement that the Lender or any other
person exhaust any right or take any action against the Borrower or any other
person or entity or any collateral. This is a guaranty of payment and not of
collection only.
SECTION 4. Subrogation. The Guarantor will not exercise any rights
which it may acquire by way of subrogation under this Guaranty, by any payment
made hereunder or otherwise, until all the Obligations shall have been paid in
full. If any amount shall be paid to the Guarantor on account of such
subrogation rights at any time when all the Obligations shall not have been
paid in full, such amount shall be forthwith paid to the Lender to be credited
and applied against the Obligations. If (i) the Guarantor shall make payment
to the Lender, of all or any part of the Obligations and (ii) all the
Obligations shall be paid in full, the Lender will, at the Guarantor's request,
execute and deliver to the Guarantor appropriate documents, without recourse
and without representation or warranty, transferring to the Guarantor any and
all rights the Lender, may have against the Borrower or necessary
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<PAGE> 42
to evidence the transfer by subrogation to the Guarantor of any interest in the
Obligations resulting from such payment by the Guarantor.
SECTION 5. Payments Free and Clear of Taxes, Etc. (a) All sums
payable by the Guarantor under this Guaranty, whether of principal, interest,
fees or otherwise, shall be paid in full without set-off or counterclaim and in
such amounts as may be necessary in order that all such payments (after
deduction or withholding for or on account of any present or future taxes,
levies, imposts, duties or other charges of whatsoever nature imposed by any
Governmental Agency or taxing authority thereof, other than any tax or fee on
or measured by the net income of the Lender; collectively the "Taxes") shall
not be less than the amounts otherwise specified to be paid under this
Guaranty.
(b) A certificate as to any additional amounts payable to the Lender
under this Section 5 submitted to the Guarantor by the Lender shall show in
reasonable detail the amount payable and the calculations used to determine in
good faith such amount and shall be deemed prima facie correct.
(c) With respect to each deduction or withholding for or on account
of any Taxes, the Guarantor shall promptly furnish to the Lender such
certificates, receipts and other documents as may be required (in the
reasonable judgment of the Lender) to establish any income tax credit to which
any of the Lender may be entitled.
SECTION 6. APPLICABLE LAW AND JURISDICTION. (a) THIS GUARANTY
(INCLUDING, BUT NOT LIMITED TO, THE VALIDITY AND ENFORCEABILITY HEREOF) SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK, OTHER THAN CONFLICT OF LAWS RULES THEREOF. ANY LEGAL ACTION OR
PROCEEDING AGAINST THE GUARANTOR WITH RESPECT TO THIS GUARANTY MAY BE BROUGHT
IN THE COURTS OF THE STATE OF NEW YORK, THE U.S. FEDERAL COURTS IN SUCH STATE,
SITTING IN THE COUNTY OF NEW YORK, OR IN THE COURTS OF ANY OTHER JURISDICTION
WHERE SUCH ACTION OR PROCEEDING MAY BE PROPERLY BROUGHT, AND THE GUARANTOR
HEREBY IRREVOCABLY ACCEPTS THE JURISDICTION OF SUCH COURTS FOR THE PURPOSE OF
ANY ACTION OR PROCEEDING. THE GUARANTOR HEREBY DESIGNATES AND IRREVOCABLY
APPOINTS AND EMPOWERS C T CORPORATION SYSTEM (THE "PROCESS AGENT"), CURRENTLY
LOCATED AT 1633 BROADWAY, NEW YORK, NEW YORK 10019 AS ITS AUTHORIZED AGENT TO
ACCEPT, RECEIVE AND ACKNOWLEDGE FOR AND ON BEHALF OF ITS PROPERTY, SERVICE OF
ANY AND ALL PROCESS WHICH MAY BE SERVED BUT ONLY IN ANY ACTION, SUIT OR
PROCEEDING OF THE NATURE REFERRED TO ABOVE IN THE STATE OF NEW YORK AND FURTHER
AGREES THAT FAILURE OF SUCH FIRM TO GIVE THE GUARANTOR ANY NOTICE OF ANY SUCH
SERVICE SHALL NOT IMPAIR OR AFFECT THE VALIDITY OF SUCH SERVICE OR OF ANY
JUDGMENT RENDERED IN ANY ACTION OR PROCEEDING BASED THEREON. THE GUARANTOR
HEREBY IRREVOCABLY AUTHORIZES AND DIRECTS THE PROCESS AGENT TO ACCEPT SUCH
SERVICE ON ITS BEHALF. THE GUARANTOR FURTHER IRREVOCABLY CONSENTS TO THE
SERVICE OF PROCESS OUT OF SAID COURTS
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<PAGE> 43
BY THE MAILING THEREOF BY THE LENDER BY U.S. REGISTERED OR CERTIFIED MAIL
POSTAGE PREPAID TO THE GUARANTOR AT ITS ADDRESS DESIGNATED IN SECTION 11
HEREOF. THE GUARANTOR AGREES THAT A FINAL JUDGMENT IN ANY ACTION OR PROCEEDING
SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTION BY SUIT ON
THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. NOTHING IN THIS SECTION 6
SHALL AFFECT THE RIGHT OF THE LENDER TO SERVE LEGAL PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR AFFECT THE RIGHT OF THE LENDER TO BRING ANY ACTION OR
PROCEEDING AGAINST THE GUARANTOR OR ITS PROPERTY IN THE COURTS OF ANY OTHER
JURISDICTION. TO THE EXTENT THAT THE GUARANTOR HAS OR HEREAFTER MAY ACQUIRE
ANY IMMUNITY FROM JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER
THROUGH SERVICE OF NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF
EXECUTION, EXECUTION OR OTHERWISE) WITH RESPECT TO EITHER ITSELF OR ITS
PROPERTY, THE GUARANTOR HEREBY IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF
ITS OBLIGATIONS UNDER THIS GUARANTY. THE GUARANTOR HEREBY IRREVOCABLY WAIVES
ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY
SUIT, ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS GUARANTY BROUGHT
IN THE COURTS OF THE STATE OF NEW YORK, OR THE U.S. FEDERAL COURTS IN SUCH
STATE, SITTING IN THE COUNTY OF NEW YORK, AND HEREBY FURTHER IRREVOCABLY WAIVES
ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT
HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.
(b) THE LENDER AND THE GUARANTOR IRREVOCABLY WAIVE ALL RIGHT TO A
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
RELATING TO THIS GUARANTY OR THE TRANSACTIONS CONTEMPLATED HEREBY.
SECTION 7. Representations and Warranties. The Guarantor hereby
represents and warrants as follows:
(a) It is a corporation duly incorporated, validly existing and in
good standing under the laws of the State of Texas, duly qualified to do
business wherever its business or ownership of property requires it to be so
qualified.
(b) The execution, delivery and performance by the Guarantor of this
Guaranty and any other documents contemplated herein and the completion of all
other transactions herein contemplated are within the Guarantor's corporate
authority, are in furtherance of its corporate purposes, have been duly
authorized by all necessary corporate action and will not contravene any
applicable law or regulation nor violate the Guarantor's Articles of
Incorporation or By-Laws nor any agreement binding on the Guarantor nor any
applicable law or regulation or order or decree of any governmental authority
or agency of the State of Texas, the United States of America or the State of
New York.
(c) This Guaranty is supported by adequate and sufficient
consideration, has been validly signed on behalf of the Guarantor
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<PAGE> 44
and represents the valid and binding obligation of the Guarantor, enforceable
in accordance with its terms and will not result in the Guarantor's liabilities
(including the maximum amount of liabilities that may be reasonably expected to
result from all contingent liabilities and giving effect to rights of
contribution and subrogation) exceeding the fair market value of its assets.
The enforceability of this Guaranty, however, is subject to all applicable
bankruptcy, insolvency, reorganization, moratorium and other laws affecting the
rights of creditors generally and to general equity principles.
(d) The legality, validity, enforceability or admissibility of this
Guaranty are not subject to or conditional upon this Guaranty being filed,
recorded or enrolled with any governmental authority or agency or stamped with
any stamp, duty or similar transaction tax of the State of Texas, the United
States of America or the State of New York.
(e) There are no pending, or to the best of the Guarantor's knowledge,
any threatened actions or proceedings affecting the Guarantor or any of the
Guarantor's subsidiaries before any court, governmental agency or arbitrator in
any country, which may materially adversely affect the financial condition or
operations of the Guarantor.
(f) The covenants, recitals, representations and warranties of the
Guarantor set forth in Section 3.03 of the Loan Agreement are true and correct
on the date hereof if made on the date hereof.
SECTION 8. Subordination of Borrower's Note. The Borrower is
indebted to the Guarantor for borrowed money as evidenced by that certain
promissory note dated September 30, 1993 made by the Borrower in favor of the
Guarantor in the original principal amount of USD 15,000,000 (the "Borrower's
Note"). As of November 30, 1994, the sum of USD 4,068,915.12 remains
outstanding under the Borrower's Note. The repayment of all principal and
interest under the Borrower's Note is hereby fully and completely subordinated
by the Guarantor to the repayment by the Borrower of all amounts due to the
Lender under the Loan Agreement.
SECTION 9. The Loan Agreement and the Note. The Guarantor hereby
acknowledges receipt of the Loan Agreement and the Note in execution form and
hereby consents and agrees to the Loan Agreement and the Note and to all the
terms and provisions thereof.
SECTION 10. Amendments, Etc. No amendment or waiver of any provision
of this Guaranty nor consent to any departure by the Guarantor therefrom shall
in any event be effective unless the same shall be in writing and signed by the
Lender, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
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<PAGE> 45
SECTION 11. Notices. (a) All notices, requests, consents, demands
and other communications provided for or permitted hereunder shall be made as
required in Section 5.01 of the Loan Agreement, except that notices to the
Lender shall not be effective until received.
(b) Any of the parties hereto may change its respective address by
notice in writing given to the other parties to this Agreement.
SECTION 12. No Waiver; Remedies. No failure on the part of the
Lender to exercise, and no delay in exercising, any right hereunder shall
operate as a waiver thereof; nor shall any single or partial exercise of any
right hereunder preclude any other or further exercise thereof or the exercise
of any other right. The remedies herein provided are cumulative and not
exclusive of any remedies provided by law.
SECTION 13. Continuing Guaranty. This Guaranty is a continuing
guaranty and shall (i) remain in full force and effect until payment in full of
the Obligations and payment in full of all other amounts due under this
Guaranty, (ii) be binding upon the Guarantor, its successors or assigns, as the
case may be, and (iii) inure to the benefit of and be enforceable by the Lender
and its respective successors, transferees and assigns, provided, however, that
the Guarantor may not transfer the Guaranty or any part thereof without the
prior written consent of the Lender.
SECTION 14. Capitalized Terms. All capitalized terms used in this
Guaranty which are not defined herein shall have the meanings given to them in
the Loan Agreement.
IN WITNESS WHEREOF, the Guarantor has duly executed and delivered this
Guaranty, as of the date first above written.
MARINE DRILLING COMPANIES, INC.
By: _______________________________
Name: William H. Flores
Title: Senior Vice President
ACCEPTED:
THE CIT GROUP/EQUIPMENT FINANCING, INC.
By: ________________________________
Name: Joseph M. Pitch
Title: Vice President
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<PAGE> 46
EXHIBIT C
NOTICE OF DRAWING
_____________, 199__
BY FACSIMILE
(213) 628-7083
The CIT Group/Equipment Financing, Inc.
300 South Grand Ave., 3rd Fl.
Los Angeles, CA 90071
Attention: Dorothy T. Dougherty, Vice President
or Timothy J. White, Vice President
Ladies and Gentlemen:
The undersigned, Keyes Holding Corporation, refers to the Loan
Agreement, dated as of December 1, 1994 (the "Loan Agreement"), the term
defined therein being used herein as therein defined), among the undersigned as
Borrower, Marine Drilling Companies, Inc. as Guarantor and the Lender party
thereto, and hereby gives you notice, irrevocably, pursuant to Section 1.02(b)
of the Loan Agreement that the undersigned hereby requests an Advance under the
Loan Agreement, and in that connection sets forth below the information
relating to such Advance (the "Proposed Advance"):
(i) The Drawdown Date of the Proposed Advance is _______ __, 199__.
(ii) The amount of the Proposed Advance is USD ___________.
(iii) The bank account to which the Proposed Advance is to be
remitted is as follows:
(iv) The proceeds of the Proposed Advance will be used by the
undersigned for the following purpose(s):
The undersigned hereby certifies that the following are true on the
date hereof, and will be true on the date of the Proposed Advance:
(A) the representations and warranties contained in Section 3.01
of the Loan Agreement will be correct, before and after giving
effect to the Proposed Advance and to the application of the
proceeds therefrom, as though made on and as of such date;
<PAGE> 47
(B) no Default or Event of Default will have occurred and be
continuing, or will result from such Proposed Advance or from
the application of the proceeds therefrom;
(C) no material adverse change has occurred since [date of most
recent quarterly statement], in the business, operations,
properties, prospects or condition (financial or otherwise) of
the Borrower or the Guarantor; and
If the Proposed Advance fails to take place or is delayed for any
reason, the undersigned hereby agrees to indemnify the Lender against any loss
incurred as a result of the giving of this Notice of Drawing.
Very truly yours,
KEYES HOLDING CORPORATION
By: ____________________________________
Name: _________________________________
Title: _________________________________
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<PAGE> 48
THIS FIRST PREFERRED FLEET MORTGAGE, dated the 1st day of December,
1994, is made and given by KEYES HOLDING CORPORATION, a Delaware corporation
with its principal place of business at 14141 SW Freeway, Suite 2500, Sugar
Land, Texas 77478 (the "Mortgagor"), to THE CIT GROUP/EQUIPMENT FINANCING,
INC., a New York corporation with an office at 1211 Avenue of the Americas, New
York, NY 10036 (the "Mortgagee").
W I T N E S S E T H:
WHEREAS, the Mortgagor is the sole owner of the whole of the following
vessels:
Name Official No.
---- ------------
MARINE 300 636379
MARINE 301 640126
MARINE 303 651994
which vessels have been duly documented in the name of the Mortgagor under the
laws of the United States and each having its home port and port of
documentation at Houston, Texas (each hereinafter a "Vessel", collectively
called the "Vessels");
WHEREAS, the Mortgagor, as borrower and the Mortgagee are parties to a
Loan Agreement dated as of December 1, 1994, a copy of which is annexed hereto
as Annex I and made a part hereof (said Loan Agreement, as the same may be
amended, supplemented or otherwise modified from time to time, being herein
called "Loan Agreement"), pursuant to which the Mortgagee has agreed to make a
loan to the Mortgagor with respect to the Vessels in an aggregate amount not to
exceed Thirty Five Million United States Dollars (USD 35,000,000) (the "Loan");
WHEREAS, the Loan will each be evidenced by a separate secured
promissory note made by the Mortgagor in favor of the Mortgagee (the "Note") in
the aggregate principal amount not to exceed Thirty Five Million United States
Dollars (USD 35,000,000), dated the date of the Loan and in the form annexed
hereto as Exhibit A to the Loan Agreement, payable in accordance with the
provisions of Article 1.3 of the Loan Agreement including provisions therein
set forth for payment of interest at rates set forth in the Loan Agreement;
WHEREAS, the Mortgagor has agreed to execute and deliver to the
Mortgagee this Mortgage (herein, as the same may from time to time be amended,
supplemented or otherwise modified, called the "Mortgage"), in order to secure
the payment in full of its obligations as contained in the Loan Agreement;
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NOW, THEREFORE, in consideration of the foregoing premises and of
other good and valuable consideration, the receipt and adequacy of which is
hereby acknowledged, and in order to secure the payment and performance of (i)
all obligations, undertakings and liabilities of Mortgagor, now existing or
hereafter incurred, under, arising out of, or in connection with the Loan
Agreement and the Note; (ii) the unpaid principal amount of, and accrued
interest on, the Note; (iii) all obligations, undertakings and liabilities of
Mortgagor now existing or hereafter incurred, under, arising out of or in
connection with this Mortgage; and (iv) any and all other present and future
indebtedness, obligations, undertakings and liabilities of any kind whatsoever
of Mortgagor to Mortgagee, whether direct or indirect, joint or several,
absolute or contingent, liquidated or unliquidated, secured or unsecured,
matured or unmatured and whether originally contracted with Mortgagee or
otherwise acquired by Mortgagee or from time to time reduced and thereafter
increased, the Mortgagor has granted, conveyed, mortgaged, pledged, assigned,
transferred, set over and confirmed and by these presents does grant, convey,
mortgage, pledge, assign, transfer, set over and confirm unto the Mortgagee,
its successors and assigns, the whole of each Vessel, together with all of the
boilers, engines, generators, air compressors, cranes, machinery, masts, spars,
rigging, boats, anchors, cables, chains, tackle, tools, pumps and pumping
equipment, apparel, furniture, fittings and equipment, spare parts, and all
other appurtenances thereunto appertaining or belonging, whether now owned or
hereafter acquired, whether on board or not, and all additions, improvements,
renewals and replacements hereafter made in or to each Vessel, or any part
thereof, or in or to said appurtenances, all of which property shall be deemed
to be included in the term "Vessel" as used in this Mortgage.
TO HAVE AND TO HOLD all and singular the above mortgaged and described
property unto the Mortgagee, its successors and assigns forever upon the terms
herein set forth;
PROVIDED, HOWEVER, and these presents are on the conditions that, if
the Mortgagor, its successor or assigns shall pay and perform each and every
one of the obligations, in accordance with the terms of the Loan Agreement, the
Note, this Mortgage and any other instrument evidencing any obligation of the
Mortgagor to the Mortgagee then these presents and the estate and rights
hereunder shall cease, terminate and be void, otherwise to be and remain in
full force and effect.
The Mortgagor hereby agrees with the Mortgagee that each and every
Vessel now or at any time subject to the lien of this Mortgage is to be held by
the Mortgagee subject to the further agreements and conditions hereinafter set
forth.
Capitalized terms used herein and not otherwise defined herein shall
have the meanings ascribed to them in the Loan Agreement.
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<PAGE> 50
ARTICLE 1. REPRESENTATIONS, WARRANTIES
AND COVENANTS OF THE MORTGAGOR
In order to induce the Mortgagee to make the Loan provided for in the
Loan Agreement and for Mortgagee to accept this Mortgage as collateral security
for the payment of its obligations contained in the Loan Agreement, the
Mortgagor represents and warrants to the Mortgagee and covenants with the
Mortgagee that:
Section 1.1 Payment and Performance of Obligations. The Mortgagor
will pay, observe, perform and comply with each and every one of the covenants,
terms and conditions herein expressed or implied, on its part to be observed,
performed, or complied with.
Section 1.2 Citizenship. The Mortgagor is a citizen of the United
States as defined in Section 2 of the Shipping Act, 1916, as amended, duly
qualified to engage in the coastwise trade and in foreign commerce of the
United States, and shall remain such a citizen during the life of this
Mortgage.
Section 1.3 Ownership of Vessel Warranty and Defense of Title. The
Mortgagor lawfully owns and is lawfully possessed of the whole of each of the
Vessels free from any mortgage, security interest, lien, charge or encumbrance
whatsoever other than the lien of this Mortgage and liens permitted, and to the
extent permitted, by the provisions of Section 1.7 hereof and the Mortgagor
will warrant and defend the title to, and possession of each of the Vessels and
every part thereof for the benefit of the Mortgagee against the claims and
demands of all persons whomsoever.
Section 1.4 Compliance with Laws.
(a) Documentation. The Mortgagor will comply with and satisfy all
provisions of the laws and regulations of the United States now or hereafter
from time to time in effect in order that the Vessels shall continue to be
documented vessels pursuant to the laws of the United States as a vessel of the
United States under the United States flag with such endorsements as shall
qualify each of the Vessels for participation in the trades and services to
which it may be dedicated from time to time.
(b) U.S. Code. Tit. 46. Ch. 313. The Mortgagor will, at its
expense and at no cost to the Mortgagee, cause this Mortgage to be duly
recorded at the U.S. Coast Guard Vessel Documentation Office at the Port of
Houston, Texas in accordance with the provisions of 46 U.S.C. Section 31321, on
the date hereof, and will otherwise comply with and satisfy all the applicable
provisions of the U.S. Code, Tit. 46, Ch. 301 and Ch. 313, as amended, in order
to establish, record and maintain this Mortgage as a First Preferred Mortgage
thereunder upon the Vessels, and will do all such other acts and execute all
such instruments, deeds, conveyances, mortgages and assurances as the Mortgagee
shall reasonably require in order to
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<PAGE> 51
subject the Vessels to the lien of this Mortgage as aforesaid.
(c) Laws Treaties and Conventions. The Vessels shall, and the
Mortgagor covenants that it will, at all times comply with all applicable laws,
treaties and conventions and rules and regulations issued thereunder, and shall
have on board as and when required thereby valid certificates showing
compliance therewith.
Section 1.5 Operation of the Vessels. The Mortgagor will not cause
or permit the Vessels to be operated in any manner contrary to applicable law
or regulation, or in any manner not permitted by the Loan Agreement or by any
insurances required thereby and hereby, will not engage in any unlawful trade,
violate any applicable law or carry any cargo that will expose the Vessels to
penalty, forfeiture or capture and will not do, or suffer or permit to be done,
anything which can or may injuriously affect the documentation of the Vessels
under the laws and regulations of the United States of America. Mortgagor
shall keep the operation of the Vessels within the permitted navigational
limits set forth in the trading warranties of the policies of insurance
covering each of the Vessels and in any case will not operate the Vessels, or
permit the Vessels to be operated, in any area where such insurance would not
be fully applicable and enforceable with respect to each of the Vessels and its
operation.
Section 1.6 Claims Taxes Fees Etc. The Mortgagor will pay and
discharge or cause to be paid and discharged all claims against, and fees,
taxes, assessments, governmental charges, fines and penalties imposed on each
Vessel, its cargoes or any income therefrom when due and payable, except those
claims, fees, taxes, assessments, governmental charges and penalties being
contested in good faith by appropriate proceedings for which adequate reserves
are being maintained.
Section 1.7 Liens. Neither the Mortgagor, any charterer, the master
of any Vessel nor any other person has or shall have any right, power or
authority to create, incur or permit to be placed or imposed or continued upon
any Vessel, its freights, profits or hires, any lien, security interest,
encumbrance or charge whatsoever other than the lien of this Mortgage and liens
for wages of the crew, including the master of such Vessel, for wages of
stevedores when employed directly by a person listed in Section 31341 of Title
46 of the United States Code, or for general average or salvage (such lien
called a "Permitted Lien"). Mortgagor agrees to hold a certified copy of this
Mortgage in safekeeping with each Vessel's papers at the principal office of
Mortgagor and on demand to exhibit the same to any person having business with
such Vessel, or to any representative of Mortgagee. Mortgagor shall also place
and cause to be displayed in a prominent place and in a durable manner a notice
printed in plain type of such size that the paragraph of reading matter shall
cover a space not less than six inches wide by nine inches high, reading as
follows:
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<PAGE> 52
"NOTICE OF FIRST PREFERRED FLEET MORTGAGE AND OWNERSHIP"
"This Vessel is owned by KEYES HOLDING CORPORATION, and is covered by
a First Preferred Fleet Mortgage in favor of THE CIT GROUP/EQUIPMENT FINANCING,
INC., as Mortgagee, under Chapter 313 of Title 46 of the United States Code.
Under the terms of said First Preferred Fleet Mortgage neither Owner, any
charterer nor any subcharterer nor the master of this Vessel nor any other
person has the right, power or authority to create, incur or permit to be
placed or imposed upon this Vessel, or upon title thereto or any interest
therein any lien whatsoever other than liens for wages of the crew, for wages
of stevedores when employed directly by a person listed in Section 31341 of
Title 46 of the United States Code, or for general average or salvage."
Such notice shall be amended at the sole cost and expense of
Mortgagor, upon request of Mortgagee, to reflect the identity of any successor
Mortgagee.
Section 1.8 Exhibit of Mortgage. The Mortgagor shall exhibit and
shall require that any other person having custody or control of such Vessel to
exhibit a copy of this Mortgage to any person having business with the Vessel
which might give rise to a maritime lien upon such Vessel or otherwise be
deemed a sale, conveyance, mortgage or lease thereof and, on demand, to any
representative of the Mortgagee.
Section 1.9 Removal of Liens. The Mortgagor will not suffer to be
continued any lien (other than Permitted Liens but only to the extent permitted
under Subsection 1.7), encumbrance or charge on any Vessel other than this
Mortgage, and in due course and in any event within thirty (30) days after the
same shall become due and payable, (except for those claims or demands being
contested in good faith by appropriate proceedings for which adequate reserves
are being maintained), will pay or caused to be discharged or make adequate
provisions for the satisfaction or discharge of all claims or demands secured
by any lien, charge or encumbrance on such Vessel and will cause the Vessel to
be released or discharged from any such lien, encumbrance or charge thereon.
Section 1.10 Libel or Attachment. If a libel is filed against any
Vessel or if any Vessel shall be attached, levied upon or taken into custody by
virtue of any proceeding in any court or tribunal or by any government or other
authority, the Mortgagor shall promptly notify the Mortgagee thereof by
telecopier, confirmed by overnight letter addressed to the Mortgagee, and
within three (3) Business Days after any such libel, levy, attachment or taking
into custody will cause any such Vessel to be released and will promptly notify
the Mortgagee of such release in the manner aforesaid.
Section 1.11 Maintenance and Classification of Vessel. The Mortgagor
will at all times and without cost or expense to the
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Mortgagee (a) maintain each Vessel and its machinery in such condition and
repair as will keep the Vessel entitled to the highest classification in the
American Bureau of Shipping, or other classification society of like standing
approved in writing by the Mortgagee for such vessels, (b) keep each Vessel,
its machinery, boilers, appurtenances and spare parts in a good state of
repair, wear and tear and depreciation excepted, and in efficient operating
condition in accordance with good commercial maintenance practices employed in
the offshore oil and gas contract drilling industry, (c) keep each Vessel
tight, staunch, strong and in all respects seaworthy, in so far as due
diligence can make it, (d) maintain each Vessel with full unexpired
classification and other required certificates and (e) furnish prior to
December 1 of each year to the Mortgagee, a written statement of the
classification society that any classification referred to in (a) above is in
effect. All maintenance and repairs will be made in a good and workmanlike
manner by persons of appropriate skill and experience whose work will not
adversely affect the service life or marketability of each Vessel. All
repairs, parts, mechanisms, devices, replacements, improvements, changes,
additions and alterations to the Vessels shall immediately and without further
act, become part of the Vessels and subject to this Mortgage. Mortgagor shall
promptly furnish to the Mortgagee copies of each damage survey with respect to
damage to any Vessel where the survey does not specifically quantify the cost
of total damages or where the survey states total damage in excess of USD
100,000.00.
Section 1.12 Changes in Vessels. The Mortgagor will not make, or
permit to be made, any material change in the structure or type of any Vessel
or in its rig, unless it shall have received the prior written consent thereto
of the Mortgagee.
Section 1.13 Inspection. The Mortgagor at all times shall afford the
Mortgagee or its authorized representatives full and complete access to the
Vessels for the purpose of inspecting or surveying the same and their papers
and, at the request of the Mortgagee, the Mortgagor shall deliver for
inspection copies of any and all contracts and documents relating to each
Vessel, whether on board or not and shall cause any charterer to comply
herewith during the term of any charter to the maximum extent permitted
thereunder.
Section 1.14 Change of Flag or Port of Documentation. The Mortgagor
will not change the flag or port of documentation of the Vessels without the
prior written consent of the Mortgagee and the payment by the Mortgagor of all
expenses of registration or re-registration of this Mortgage. Such consent may
be denied or withheld for any reason or for no reason, except that Mortgagee
shall not unreasonably withhold its consent to a change in the port of
documentation, although reasonable conditions may be attached to such consent.
Any such written consent to any one transfer or change of flag or port of
documentation shall not be construed as
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a waiver of these provisions with respect to any other or subsequent proposed
transfer or change of flag or port of documentation.
Section 1.15 Sale or Other Disposition of Vessels.
(a) Except as provided below, the Mortgagor will not sell, charter,
mortgage, transfer or in any other way dispose of all or any part of or
interest in any Vessel without the prior written consent of the Mortgagee. Any
sale, mortgage, charter, transfer or other disposition of all or any part of or
interest in any Vessel shall be subject to the provisions of this Mortgage and
the lien hereof. The Mortgagor will not charter any Vessel to, or permit any
Vessel to serve under any contract of affreightment with, a person included
within the definition of "designated foreign country" or a "national" of a
"designated foreign country" in the "Foreign Assets Control Regulations" or
"Cuban Assets Control Regulations" of the United States Treasury Department, 31
C.F.R. Chapter V, as amended, within the meaning of said regulations or of any
regulation, interpretation or ruling issued thereunder.
(b) Mortgagor shall not enter into any charter for any Vessel in
excess of twelve months (inclusive of all extension and renewal opt-on periods)
without the prior written consent of the Mortgagee, and in the case where such
consent is given, not without providing Mortgagee a copy thereof and without
first obtaining the written agreement of such charterer in each case to the
collateral assignment by Mortgagor to Mortgagee of a first priority lien and
security interest in the charter, charter hire and earnings of such charter,
such consent to be in form acceptable to Mortgagee. Mortgagor undertakes and
covenants that any such charter shall contain a provision prohibiting the
charterer and any other persons from incurring or acquiring any lien on any
Vessel.
Section 1.16 Requisition of Title or Use. In the event that the title
to or ownership of any Vessel, or the use of any Vessel (whether on a bareboat,
time or voyage charter basis or any other basis), shall be requisitioned,
purchased or taken by, or any Vessel shall be seized by or forfeited to any
government of any country or any department, agency or representative thereof,
pursuant to any present or future law, proclamation, decree, order or
otherwise, or by any other person or persons, whether or not acting under color
of governmental authority, the compensation, purchase price, reimbursement or
award for such requisition, purchase, seizure, forfeiture or other taking of
such title, ownership or use shall forthwith be and become payable to the
Mortgagee, who shall be entitled to receive the same and shall apply it as
provided in Section 1.05(c) of the Loan Agreement.
Section 1.17 Notice of Loss Requisition or Damage. In the event of (a)
the disappearance or actual or constructive loss of any Vessel, (b) any event
referred to in Section 1.16 hereof with
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respect to any Vessel, or (c) any casualty, accident or damage to any Vessel in
excess of USD 100,000.00, the Mortgagor will give written notice thereof
(containing full particulars), within three (3) Business Days of the occurrence
thereof, to the Mortgagee.
Section 1.18 Insurance.
I. Form and Amount.
I(A). Hull & Machinery Insurance. At its own expense, Mortgagor shall
maintain or cause to be maintained with financially sound and reputable
insurers satisfactory to Mortgagee all risk equivalent marine hull and
machinery insurance (and, if necessary to satisfy the proviso of this
subparagraph, policies of increased value insurance) and war risk hull and
machinery insurance covering confiscation, nationalization, expropriation and
seizure on an agreed value basis on each Vessel against loss, damage, fire and
such other perils and in such amounts as are usually maintained on vessels
engaged in the same or a similar business under blanket fleet policies with
respect to vessels of like size, character and marine activity; provided,
however, that in no event shall the amount of such insurance, subject to such
deductible, if any, as permitted by Mortgagee, at any time be less than the
greater of (a) the Fair Market Value (as defined in the Loan Agreement) or (b)
the amount of the outstanding principal, interest and all other obligations
covered by this Mortgage.
Such insurance shall name the Mortgagee, Mortgagor and other
interested persons as insureds as their respective interests may appear, but
(subject only to paragraph II of Subsection 1.18) shall be payable solely to
Mortgagee for further disbursement by it to the other insureds as their
interests may appear and shall be applied as set forth in Subpart II of this
Section 1.18.
Unless a Default hereunder shall have occurred and is continuing
hereunder, Mortgagee consents to a deductible of USD 250,000.00 per incident
with respect to policies required under this Subsection I(A).
I(B). Liability Insurance. At its own expense, Mortgagor shall
maintain entries with financially sound and reputable insurers or protection
and indemnity associations satisfactory to the Mortgagee protection and
indemnity, collision, tower's liability including crew, cargo, contractual
liabilities, and removal of wreck insurance and protection and indemnity war
risk insurance protecting the interests of Mortgagor and Mortgagee against
liability for property damage to third persons (including liability to any
governmental authority or other person with respect to pollution liability) and
personal injury or death to any person arising out of the maintenance, use,
operation and ownership of the Vessels, cargo damage or loss, contractual
liability and wreck removal in such amounts as are usually carried by persons
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engaged in the same or similar businesses; provided, however, that in no event
shall the amount of such insurance per person and per occurrence (subject to
such deductible, if any, permitted by Mortgagee) be less than the customary
amount of coverage available on the market from time to time with respect to
vessels of the same type, age and trade as the Vessels and acceptable to the
Mortgagee. Such liability insurance shall name each of the Mortgagee,
Mortgagor and other interested persons as additional insureds, as their
respective interests may appear, but the proceeds of such policies shall be
payable to the person actually suffering the loss in respect of which such
proceeds are payable provided, however, that if Mortgagee shall have first
notified the underwriters or brokers that a Default hereunder has occurred then
all such proceeds to which the Mortgagor would have otherwise been entitled
shall be thereafter payable to Mortgagee for distribution to itself and others
as their interests may appear as hereinafter set forth or otherwise with the
consent of Mortgagee in each case.
I(C). Other Insurance. At its own expense, the Mortgagor shall, at
all times during which the Vessels are operating within the jurisdiction of the
United States of America, maintain
(i) insurance or post bond or maintain approved evidence
of financial responsibility with respect to the Vessels to cover the
actual cost of removal of discharged oil for which the Mortgagor or
the Vessels may be held strictly liable (or held liable due to
negligence of the Mortgagor or any other person) under the Clean Water
Act of 1977, the Oil Pollution Act of 1990 or the Outer Continental
Shelf Lands Act, or under any other federal or state law which, in the
future, may apply to the Vessels or to the Mortgagor; and the
Mortgagor shall maintain insurance or post bond or maintain approved
evidence of financial responsibility covering similar pollution risks
or liabilities incident thereto under any law, regulation or judicial
decision of any foreign jurisdiction or jurisdictions or political
subdivision thereof applicable to the Mortgagor, the Vessels or their
operations;
(ii) such workmen's compensation or longshoremen's and
harbor workers' insurance as shall be required by applicable law,
including endorsements for Outer Continental Shelf operations,
borrowed servant, voluntary compensation and in rem claims;
(iii) insurance (with a limit of USD 5,000,000 per
occurrence) naming the Mortgagor and the Mortgagee assureds and loss
payees, as their interests may appear, against contingent Operator's
Extra Expense ("O.E.E.") liabilities in connection with operations
conducted by the Vessels with respect to Vessels operating under a
drilling contract with a financially responsible operator acceptable
to the Mortgagee that indemnifies against such "O.E.E." arising out of
blowout
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(above and below ground), cratering, redrilling/recompletion, cost of
control, clean-up, containment seepage, pollution, spillage or leakage
in connection with operations conducted by any Vessel, in form and
substance satisfactory to the Mortgagee, and third party liabilities
("T.P.L.") that may be assumed by a contract which is legally
enforceable and in form and substance satisfactory to the Mortgagee.
Deductibles or self-insured retentions shall not exceed USD 250,000
("O.E.E.")/ ("T.P.L.") and shall be for the account of the Mortgagor;
(iv) excess seepage, pollution, clean-up and containment
liability coverage in the amount of USD 50,000,000 in respect of
offshore operations in excess of and following the seepage, pollution,
clean-up and containment liability coverage recited in Subsection
(iii) above; and
(v) mortgagee's interest insurance or breach of warranty
endorsement in favor of the Mortgagee with such underwriters and under
forms of policies approved by the Mortgagee in an amount equal to at
least 125% of the Loan.
II. Application of Proceeds. All policies of insurance required under
this Section 1.18 shall be placed through first-class marine brokers acceptable
to Mortgagee and shall name the Mortgagor and Mortgagee as Additional Insureds.
All policies maintained under Subsection I above shall also name the Mortgagee
as a loss payee for all hull and machinery policies, and, in the case of
policies procured under Subpart I(A) hereof, shall provide that all payments in
respect of loss or damage shall be made solely to the Mortgagee for all amounts
in excess of USD 100,000.00 and that upon the occurrence and continuance of a
Default hereunder, all proceeds shall be payable solely to Mortgagee. Any
insurance recoveries under any policies to which the Mortgagee shall be so
entitled shall be applied as provided in Section 1.05(c) of the Loan Agreement.
Until a Default has occurred, the Mortgagee and the Mortgagor shall cooperate
in adjusting any claim with the underwriters of insurances for the Vessels and
underwriters may rely on any agreement reached with the Mortgagor as binding
both the Mortgagee and the Mortgagor. Following the occurrence of a Default,
the Mortgagee and the Mortgagor shall continue to cooperate to adjust any claim
but only the Mortgagee shall have the power to agree any adjustment with
underwriters on behalf of the Vessels, the Mortgagor and itself.
III. Constructive Total Loss. In the event of an accident, occurrence
or event resulting in a constructive total loss of any Vessel, the Mortgagee
shall have the right to claim for a constructive total loss of the Vessel and
to require that Mortgagor declare such to be a constructive total loss, and if
both (1) such claim is accepted by all underwriters under all policies then in
force as to the Vessel under which payment is due for total loss
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and (2) payment in full is made in cash under such policies, then the Mortgagee
shall have the right at its election, to abandon the Vessel to the underwriters
under such policies, free from the lien of this Mortgage and apply the proceeds
of such insurance as provided in Section 1.05(c) of the Loan Agreement.
IV. Agreed or Compromised Total Loss. In the event of an accident,
occurrence or event of damage to any Vessel, the Mortgagee shall have the right
in its discretion to enter into an agreement or compromise with underwriters
providing for an agreed or compromised total loss of the Vessel.
V. Carriers; Approvals. All insurance required under this Section
shall be placed and kept with the United States Government or with American,
British, or other insurance companies, underwriters' associations, clubs or
underwriting funds approved by the Mortgagee. Any approval of a policy under
this Section 1.18 shall be effective until the end of the policy period or
until thirty (30) days after the Mortgagee shall notify the Mortgagor of the
desired change in the form and/or amount thereof, whichever shall first occur.
Notwithstanding the foregoing, Mortgagee may require changes on shorter notice
if such changes are necessary or desirable to comply with requirements of or
insure against liabilities created or increased by any change, modification,
amendment in the law (including judicial or administrative decisions),
regulations, rules, policies or practices of the United States government or
the government of any state, territory, possession thereof or of any other
place where the Vessel may be operating or whose laws may apply.
VI. Taking, Requisition, etc. During the continuance of a taking,
requisition or charter of the use of any Vessel by the United States
Government, with the prior written consent of the Mortgagee, the provisions of
this Section shall be deemed to have been complied with in all respects as to
any Vessel if the United States Government shall have agreed, pursuant to an
agreement in form and substance satisfactory to the Mortgagee, to reimburse the
Mortgagee and the Mortgagor for loss or damage resulting from the risks
indicated in subsection I of this Section. In the event of any taking,
requisition, charter or loss of any Vessel contemplated by this paragraph the
Mortgagor shall promptly furnish to the Mortgagee an Officers Certificate
stating that such taking, requisition, charter or loss has occurred and, if
such is the case, that the United States Government has agreed to reimburse the
Mortgagee and the Mortgagor for loss or damage resulting from the risks covered
pursuant to the requirements of Subpart I of this Section 1.18.
VII. Additional Provisions. All insurance required under this
Section 1.18 shall, unless otherwise first agreed in writing by the Mortgagee,
provide that (1) there shall be no recourse against the Mortgagee for the
payment of premiums, supplemental or
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back calls or commissions or warranties or representations to underwriters, (2)
if such insurance provides for the payment of club calls, assessments or
advances, there shall be no recourse against the Mortgagee for the payment
thereof, (3) at least thirty (30) days' prior written notice of any
cancellation, reduction in amount or change in coverage or other material
change of such insurance shall be given to the Mortgagee by the insurance
underwriters, (4) the interests of the Mortgagee shall be continued insured
regardless of any breach of or violation by Mortgagor or any other insured of
any warranties, declarations or conditions contained in such insurances, (5) no
insurance shall be excess over other coverage but shall be primary insurance
and shall not require any contribution from any excess insurance on any Vessel
which may be carried by Mortgagee, (6) no insurance shall be invalidated by any
assignment of any charters of any Vessel, and (7) the insurers agree to advise
Mortgagee promptly in writing of any default in the payment of any premium and
of any other act or omission of which such insurer has knowledge which might
invalidate or render unenforceable, in whole or in part, any such policy. The
policies shall provide for severability of interest as though separate policies
were issued to each additional insured except with respect to the limits of
liability.
The Mortgagor shall not, without the prior written consent of the
Mortgagee, do any act, nor voluntarily suffer nor permit any act to be done,
whereby any insurance required by this Section shall or may be suspended,
impaired or defeated, or suffer or permit any Vessel to engage in any voyage or
any activity not permitted under policies of insurance satisfactory to the
Mortgagee in all respects for such voyage or the engaging in of such activity.
Section 1.19 Reimbursement of Mortgagee. In the event that Mortgagor
shall fail to obtain or maintain insurance in accordance with the provisions of
this Mortgage, Mortgagee shall have the right to obtain, and pay the premiums
on, such insurance as Mortgagee reasonably deems necessary. The Mortgagor
shall reimburse the Mortgagee on demand, with interest at the rate (described
in Section 1.04(c) of the Loan Agreement) for any and all expenditures which
the Mortgagee may from time to time make, lay out or expend in providing
protection in respect of insurance, discharge or purchase of any liens, taxes,
dues, assessments, governmental charges, fines and penalties imposed, repairs,
attorneys' fees and other matters as the Mortgagor is obligated herein to
provide, but fails to provide. Such obligation of the Mortgagor to reimburse
the Mortgagee, together with interest as provided above, shall be an additional
indebtedness due from the Mortgagor, secured by this Mortgage, and shall be
payable by the Mortgagor on demand. The Mortgagee, though privileged so to do,
shall be under no obligation to the Mortgagor or to any other person to make
any such expenditures, nor shall the making thereof relieve the Mortgagor of
any Default in that respect.
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Section 1.20 Reports. Prior to the date hereof and concurrently with
each renewal or replacement of each policy or entry thereafter, Mortgagor shall
furnish to the Mortgagee an original certificate of insurance or a report by a
nationally recognized first class marine insurance broker acceptable to the
Mortgagee, describing in reasonable detail the insurance then carried and
maintained on and with respect to the Vessels and certifying that such
insurance complies with the terms hereof and certifying that the insurances are
in the form, cover the risks and are in the amounts determined in accordance
with Section 1.18 of this Mortgage, and that, in the opinion of such firm, the
insurance then carried and maintained complies with the terms of said Section
1.18. Mortgagor shall obtain for the benefit of Mortgagee the undertaking of
Mortgagor's insurance agent or broker to promptly advise the Mortgagee in
writing of any act or omission of which such agent or broker has knowledge
which might invalidate or render unenforceable, in whole or in part, any such
policy.
ARTICLE 2. DEFAULTS
Section 2.1 Defaults. The occurrence and continuance of any of the
following events (each of which is herein called a "Default") shall constitute
a default hereunder:
(a) The occurrence of an Event of Default under (and as defined
in) the Loan Agreement; or
(b) The occurrence of a default under the Guaranty; or
(c) Default by the Mortgagor in the due and punctual observance or
performance of any of the covenants or agreements contained in Sections 1.4,
1.5, 1.9, 1.10, 1.11, 1.12, 1.13, 1.14, 1.15, 1.17, 1.18, 1.19 or 1.20 hereof;
or
(d) Breach by Mortgagor under any entry or policy of insurance
from time to time in effect with respect to the Vessels.
(e) Default by the Mortgagor in the due and punctual observance or
performance of any other covenant or agreement contained in this Mortgage and
the continuance of such default unremedied for a period of 30 days; or
(f) The arrest, attachment or detention of any Vessel by a U.S.
Marshal or other officer of any court of law, equity or admiralty jurisdiction
in any country or nation of the world or by any government or other person; or
(g) The Mortgagor or any charterer shall remove or attempt to
remove any Vessel beyond the geographic limits of the then current insurance
coverage in place on the Vessel, or shall abandon the Vessel in a foreign port
or shall cease to be a citizen of the United States of America within the
meaning of Section 2 of the
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Shipping Act, 1916, as amended.
ARTICLE 3. REMEDIES: APPLICATION OF PROCEEDS
Section 3.1 Sale. etc. If a Default specified in Subsection 2.1(a)
above shall occur as a result of an Event of Default occurring under Article
IV, subsections H or I of the Loan Agreement, then, and in any such event, the
principal amount of the Note, together with accrued interest thereon and all
other obligations shall become immediately due and payable without any notice
or other action by the Mortgagee, or if any other Default shall occur and be
continuing, then, and in any such event, the Mortgagee may, by notice of
default given to the Mortgagor, declare the principal amount of the Note,
together with accrued interest thereon and any other amounts due in accordance
therewith and all other obligations to be forthwith due and payable, whereupon
all such amounts shall become immediately due and payable without presentment,
demand, protest or other notice of any kind, all of which are hereby expressly
waived. During the continuance of any Default, Mortgagee shall have the right
to pursue and enforce any of its rights and remedies under the Loan Agreement
and any other Loan Document and, in addition, Mortgagee may do any one or more
of the following as it may elect:
(a) Exercise all the rights and remedies in foreclosure and
otherwise given to mortgagees by the provisions of the U.S. Code, Tit. 46, Ch.
313, as amended, or other applicable law including the laws of any other
applicable jurisdiction;
(b) Bring suit at law, in equity or in admiralty or initiate and
prosecute such other judicial, extra-judicial, or administrative proceedings as
it may consider appropriate to recover any and all sums due, or declared due,
on the Note, and all other obligations due, with the right to enforce payment
of said sums against any assets of the Mortgagor, whether they are covered by
this Mortgage or otherwise;
(c) Take possession of the Vessels with or without legal
proceedings, at any place where it or they may be found; and the Mortgagor or
any person in possession of the Vessels, forthwith upon request by the
Mortgagee, as mortgage creditor, shall deliver possession to the Mortgagee, and
the Mortgagee shall have the right, without being responsible for loss or
damage, to lay up, hold, charter, lease, operate or otherwise use the Vessels
for such period and under such conditions as it may deem most expedient for its
interest, and demand, collect and retain all hire, freights, earnings, issues,
revenues, income, profits, returns, premiums, salvage awards or recoveries,
recoveries in general average, and all other sums due or to become due in
respect of the Vessels or in respect of any insurance thereon from any person
whomsoever, accounting only for net profits, if any, arising from such use and
charging against all receipts from such use or from the sale of the
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Vessels by court proceedings or pursuant to subsection (d) below, all costs,
expenses (including without limitation attorneys' fees and disbursements),
charges, damages or losses by reason of such use; and if at any time the
Mortgagee shall avail itself of the right herein given to it to take the
Vessels and shall take them, the Mortgagee shall have the right to dock the
Vessels at any dock, pier or other premises owned or leased by the Mortgagor
without charge, or at any other place at the cost and expense of the Mortgagor;
(d) Take and enter into possession of the Vessels, at any time,
wherever the same may be, without legal process, and if it seems desirable to
the Mortgagee without being responsible for loss or damage, sell it at any
place or places and at such time or times as the Mortgagee may specify, at
public or private sale, by sealed bids or otherwise, on such terms and
conditions as the Mortgagee deems best, free of any claim, commitment or
encumbrance, regardless of the nature thereof, in favor of the Mortgagor and,
except as provided by law, in favor of any other person, upon advance notice of
ten (10) consecutive days published in any newspaper authorized to publish
legal notices of that kind in the port of documentation and the places of sale
of the Vessels and by sending notice of each such sale at least fourteen (14)
days prior to the date fixed for such sale, by mail, to the Mortgagor. In the
event that the Vessels shall be offered for sale by private sale, no newspaper
publication of notice shall be required, nor notice of adjournment of sale.
Sale may be held at such place and at such time as the Mortgagee by notice may
have specified, or may be adjourned by the Mortgagee from time to time by
announcement at the time and place appointed for such sale or for such
adjourned sale, and, without further notice or publication the Mortgagee may
make any such sale at the time and place to which the same shall be so
adjourned; and any sale may be conducted without bringing the Vessels to the
place designated for such sale and in such manner as the Mortgagee may deem to
be for its best advantage, and the Mortgagee may become the purchaser at any
public sale, and shall have the right to credit on the purchase price any and
all sums of money due to the Mortgagee under the Note, or otherwise due to the
Mortgagee hereunder or under the Loan Agreement, the Guaranty or under any
other instrument evidencing any obligation.
Section 3.2 Finality of Sale. A sale of the Vessels made in
pursuance of this Mortgage, whether under the power of sale hereby granted or
any judicial proceedings, shall operate to divest all right, title and interest
of any nature whatsoever of the Mortgagor therein and thereto, and shall bar
the Mortgagor, its successors and assigns, and all persons claiming by, through
or under them. No purchaser shall be bound to inquire whether notice has been
given or whether any Default has occurred, or as to the propriety of the sale,
or as to application of the proceeds thereof. In case of any such sale, any
purchaser who is the holder of this Mortgage shall be entitled, for the purpose
of making settlement or payment for
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the Vessels, to apply the balance due under this Mortgage or a part thereof as
part or all of the purchase price to the extent of the amount remaining due and
unpaid. At any such sale, the holder of this Mortgage may bid for and purchase
the Vessels and upon compliance with the terms of sale may hold, retain and
dispose of the Vessels without further accountability. At any such sale, the
Mortgagee may bid for the purchase of the Vessels and upon compliance with the
terms of sale may hold and retain and dispose of the Vessels without further
accountability therefor.
Section 3.3 Powers and Rights of Mortgagee upon Occurrence of Default.
(a) Sale. For the purpose of Sections 3.1 and 3.2 the Mortgagor does
hereby irrevocably appoint the Mortgagee and its successors and assigns the
true and lawful attorneys-in-fact of the Mortgagor, in its name and stead, to
make the necessary transfers of the Vessels, and for that purpose the Mortgagee
may execute the necessary instruments of assignment and transfer (including
bills of sale), the Mortgagor hereby ratifying and confirming all that its said
attorney shall lawfully do by virtue hereof. Nevertheless, the Mortgagor, if
so requested by the Mortgagee, shall ratify and confirm any sale of the Vessels
by executing and delivering to the purchaser thereof such proper bills of sale,
conveyances, instruments of transfer and releases as may be designated in such
request.
(b) Revenues and Proceeds of the Vessels. The Mortgagee is hereby
irrevocably appointed attorney-in-fact of the Mortgagor, upon the happening and
during the continuation of any Default, in the name of the Mortgagor to demand,
collect, receive, compromise and sue for, so far as may be permitted by law,
all drilling contract revenues, freights, hire, earnings, issues, revenues,
income and profits of the Vessels, and all amounts due from underwriters under
any insurance thereon as payment or losses or as return premiums or otherwise,
salvage awards and recoveries, recoveries in general average or otherwise, and
all other sums due or to become due in respect of the Vessels or in respect of
any insurance thereon from any person whomsoever, and to make, give and execute
in the name of the Mortgagor acquittances, receipts, releases or other
discharges for the same, whether under seal or otherwise, and to endorse and
accept in the name of the Mortgagor all checks, notes, drafts, warrants,
agreements and all other instruments in writing with respect to the foregoing,
the Mortgagor hereby confirming and ratifying the same.
(c) Additional Rights. The Mortgagor covenants and agrees that in
addition to any and all other rights, powers and remedies elsewhere in this
Mortgage granted to and conferred upon the Mortgagee, and including, without
limitation, in any suit to enforce any of its rights, powers or remedies, if a
Default shall have occurred and be continuing and shall not have been waived by
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the Mortgagee, the Mortgagee shall be entitled as a matter of right and not as
a matter of discretion (i) to the appointment of a receiver or receivers of the
Vessels and collection of the freights, hire, earnings, issues, revenues,
income and profits due or to become due arising from any operation of the
Vessels, and any receiver or receivers so appointed shall have full right and
power to use and operate the Vessels, and (ii) to a decree ordering and
directing the sale and disposal of the Vessels, and the Mortgagee may become
the purchaser at such sale and shall have the right to credit on the purchase
price any and all sums of money due under the Note or otherwise due to the
Mortgagee hereunder or under the Loan Agreement, the Guaranty or under any
other Loan Document. The Mortgagee shall not be required to have the Vessels
marshalled (upon any sale of the Vessels pursuant to this Mortgage or
otherwise) or be required to realize on any other collateral prior to
realization on the Vessels.
Section 3.4 Restoration of Position. In case the Mortgagee shall
have proceeded to enforce any right, power or remedy under this Mortgage by
foreclosure, entry or otherwise, and such proceedings shall have been
discontinued or abandoned for any reason or shall have been determined
adversely to the Mortgagee, then and in every such case the Mortgagor and the
Mortgagee shall be restored to their former positions and rights hereunder with
respect to the property subject or intended to be subject to the Mortgage, and
all rights, remedies and powers of the Mortgagee shall continue as if no such
proceedings had been taken.
Section 3.5 Application of Proceeds. The proceeds of any sale and
net earnings derived from the operation, use, charter, or any other employment
of the Vessels by the Mortgagee, as mortgage creditor, and within any of the
powers and authority above given, as well as the proceeds of any judgment which
the Mortgagee may obtain by reason of the breach or failure to perform any of
the terms of this Mortgage, as well as the proceeds of any claim for damage
received by the Mortgagee while exercising the powers and the authorities above
given, shall be applied by Mortgagee as provided in the Loan Agreement.
In the event the proceeds and the net earnings referred to in this
Section 3.5 should be insufficient to pay the sum total of the Mortgagor's
obligations to the Mortgagee, then the Mortgagee, as mortgage creditor, shall
have the right to collect and to receive from the Mortgagor, or from any other
person or persons who may be chargeable in respect thereof, such amount as will
fully pay any remaining deficiency with respect to the obligations. In any
action to enforce the Mortgage whether in rem or in personam, in admiralty, in
equity or at law Mortgagor hereby waives any right to trial by jury.
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Section 3.6 No Transfer in Violation of Shipping Act.
Notwithstanding any other provision herein to the contrary, no sale, charter,
transfer or other disposition of any Vessel or any interest therein may be made
to any entity not a citizen of the United States within the meaning of Section
2 of the Shipping Act of 1916, as amended, without the approval of the
Secretary of Transportation of the United States.
Section 3.7 Defeasance. If the Note shall have been satisfied and
discharged, then this Mortgage and the estate and rights hereunder shall cease,
determine, and become null and void; and the Mortgagee, on the request of the
Mortgagor and at the Mortgagor's cost and expense, shall forthwith cause
satisfaction and discharge of this Mortgage to be entered upon its and other
appropriate records and shall execute and deliver to the Mortgagor such
instruments as may be necessary in the Mortgagor's reasonable opinion to duly
acknowledge the satisfaction and discharge of this Mortgage.
Section 3.8 Right of Peaceful Enjoyment. During the term of this
Mortgage and so long as no Event of Default shall have occurred and be
continuing, the Mortgagor shall have full and peaceful enjoyment, use, right to
possession and control of the Vessels.
ARTICLE 4. GENERAL POWERS OF MORTGAGEE
(a) Arrest or Detention of a Vessel. In the event that any Vessel
shall be arrested or detained by a Marshal or other officer of any court of
law, equity or admiralty jurisdiction in any country or nation of the world or
by any government or other person, the Mortgagor does hereby authorize and
empower the Mortgagee, from the date of arrest or detention, in the name of the
Mortgagor, or its successors or assigns, to apply for and receive possession of
and to take possession of the Vessel with all the rights and powers that the
Mortgagor, or its successors or assigns, might have, possess or exercise in any
such event; and this power of attorney shall be irrevocable and may be
exercised not only by the Mortgagee but also by its appointee or appointees,
with full power of substitution, to the same extent as if the said appointee or
appointees had been named as one of the attorneys above named by express
designation.
(b) Suits. The Mortgagor also authorizes and empowers the Mortgagee
or its appointees or any of them to appear in the name of the Mortgagor, its
successors or assigns, in any court of any country or nation of the world where
a suit is pending against any Vessel because of or on account of any alleged
lien against the Vessel from which the Vessel has not been released and to take
such proceedings as to them may seem proper towards the defense of such suit
and the discharge of such lien, and all expenditures made or incurred by them
or any of them for the purpose of such defense or
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discharge shall be a debt due from the Mortgagor, its successors and assigns,
to the Mortgagee, and shall be secured by the lien of this Mortgage in like
manner and extent as if the amount and description thereof were written herein.
ARTICLE 5. INDEMNITY
The Mortgagor assumes liability for, and agrees to indemnify and hold
the Mortgagee harmless from, all claims, costs, expenses (including legal
expenses), damages and liabilities arising from or pertaining to this Mortgage
or the ownership, use, possession or operation of the Vessels; provided that
Mortgagor shall have no obligation hereunder with respect to amounts subject to
indemnification between such parties under any agreement of trust between such
parties or for indemnified liabilities arising from the gross negligence or
wilful misconduct of Mortgagee. The agreements and indemnities contained in
this Article shall survive the maturity or earlier discharge of this Mortgage
and payment in full of the Note.
ARTICLE 6. SUNDRY PROVISIONS
Section 6.1 Cumulative Remedies; No Waiver. Each and every power and
remedy herein given to the Mortgagee shall be cumulative and shall be in
addition to every other power and remedy herein or now or hereafter existing at
law, in equity, in admiralty or by statute, and each and every power and remedy
whether herein given or otherwise existing may be exercised from time to time
and as often and in such order as may be deemed expedient by the Mortgagee, and
the exercise or the beginning of the exercise of any power or remedy shall not
be construed to be a waiver of the right to exercise at the same time or
thereafter any other power or remedy. No delay or omission by the Mortgagee in
the exercise of any right or power in the pursuance of any remedy specified in
Article 3 accruing upon any Default hereof shall impair any such right, power
or remedy or be construed to be a waiver of any such Default or an acquiescence
therein; nor shall the acceptance by the Mortgagee of any security or of any
payment of or on account of any part of the indebtedness secured by this
Mortgage or of any payment on account of any past Default be construed to be a
waiver of any right to take advantage of any future Default or of any past
Default not completely cured thereby.
Section 6.2 Further Assurances. In the event that this Mortgage, or
any provisions hereof, shall be deemed invalid in whole or in part by reason of
any present or future law or any decision of any court having jurisdiction, or
if the documents at any time held by the Mortgagee shall be deemed by the
Mortgagee for any reason insufficient to carry out the rights and powers
granted to the Mortgagee herein, then, from time to time, the Mortgagor will
do, execute, acknowledge and deliver, or cause to be done, executed,
acknowledged and delivered such other and further
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assurances and documents as in the opinion of the Mortgagee may reasonably be
required in order to more effectively subject the Vessel to the lien of this
Mortgage or more effectively subject the Vessel to the performance of the terms
and provisions of this Mortgage, or to enable this Mortgage continuously to
enjoy the status of a First "Preferred" Mortgage.
Section 6.3 No Waiver of Preferred Status. No provision of this
Mortgage shall be deemed to constitute a waiver by the Mortgagee of the
preferred status hereof given by the U.S. Code, Tit. 46, Ch. 313, as amended,
and any provision of this Mortgage which would otherwise constitute such a
waiver shall to such extent be of no force or effect.
Section 6.4 Survival of Agreements. All representations, warranties,
covenants and agreements herein contained or made in writing in connection with
this Mortgage shall survive the execution of this Mortgage and shall continue
in full force and effect until all sums secured hereby shall have been paid in
full, and the same shall bind and inure to the benefit of the respective
successors and assigns of the Mortgagor and the Mortgagee.
Section 6.5 Notices. All notices, requests and demands shall be in
writing (including telecopier) given to or made upon the respective parties
hereto as follows:
In the case of the Borrower or Marine Drilling, at
14141 SW Freeway, Suite 2500
Sugar Land, Texas 77478
Attention: Chief Financial Officer
Telecopier: (713) 565-2002
In the case of Lender, at
The CIT Group/Equipment Financing, Inc.
1211 Avenue of the Americas
New York, New York 10036
Attention: (a) Senior Vice President-Credit
Telecopier: (212) 536-1385
(b) Legal Department
Telecopier: (212) 536-1388
or in such other manner as any party hereto shall designate by written notice
to the other parties hereto. All such notices shall be effective upon delivery
or 3 days after being deposited in the United States mail with postage prepaid
certified, return receipt requested in a correctly addressed wrapper, or upon
receipt if delivered to Federal Express or similar courier company or
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transmitted by telefax, except that all notices, requests and demands to the
Lender shall not be effective until received by the Lender. All notices,
demands, requests, communications and other documents delivered hereunder or
under the Loan Documents, unless submitted in the English language, shall be
accompanied by certified English translation thereof.
Section 6.6 Counterparts. This instrument may be executed in any
number of counterparts, and each of such counterparts shall for all purposes be
deemed to be an original.
Section 6.7 Nature of Agreements Hereunder. The agreements, terms,
conditions, rights, remedies and indemnities provided herein are in addition
to, not in limitation of, and shall not be limited by, each of the agreements,
terms, conditions, rights, remedies and indemnities contained in the Loan
Agreement.
Section 6.8 Recording. For purposes of this Mortgage and for
purposes of recording this Mortgage as required by 46 U.S. Code, Ch. 313, the
total amount of this Mortgage is Thirty Five Million United States Dollars (USD
35,000,000) plus interest, costs, expenses and performance of Mortgage
covenants; the discharge amount is the same as the total amount and there is no
separate discharge amount.
Section 6.9 Construction. Any provision of this Mortgage which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, any such prohibition or
unenforceability shall not invalidate or render unenforceable such provision in
any other jurisdiction. To the extent permitted by law, Mortgagor hereby
waives any provision of law which renders any provision hereof prohibited or
unenforceable in any respect.
Section 6.10 Consent to Forum. MORTGAGOR HEREBY IRREVOCABLY CONSENTS
AND AGREES THAT ANY LEGAL ACTION, SUIT, OR PROCEEDING ARISING OUT OF OR IN ANY
WAY IN CONNECTION WITH THIS MORTGAGE MAY BE INSTITUTED OR BROUGHT IN THE COURTS
OF THE STATE OF NEW YORK, IN THE COUNTY OF NEW YORK, OR THE UNITED STATES
DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK, AS MORTGAGEE MAY ELECT,
AND BY EXECUTION AND DELIVERY OF THIS MORTGAGE, EACH MORTGAGOR HEREBY
IRREVOCABLY ACCEPTS AND SUBMITS TO, FOR ITSELF AND IN RESPECT OF ITS PROPERTY,
GENERALLY AND UNCONDITIONALLY, THE NON-EXCLUSIVE JURISDICTION OF ANY SUCH
COURT, AND TO ALL PROCEEDINGS IN SUCH COURTS. MORTGAGOR IRREVOCABLY CONSENTS
TO SERVICE OF ANY SUMMONS AND/OR LEGAL PROCESS BY REGISTERED OR CERTIFIED
UNITED STATES AIR MAIL, POSTAGE PREPAID, TO SUCH MORTGAGOR AT THE ADDRESS SET
FORTH IN SUBSECTION 6.5 HEREOF, SUCH METHOD OF SERVICE TO CONSTITUTE, IN EVERY
RESPECT, SUFFICIENT AND EFFECTIVE SERVICE OF PROCESS IN ANY SUCH LEGAL ACTION
OR PROCEEDING. NOTHING IN THIS MORTGAGE SHALL AFFECT THE RIGHT OF MORTGAGEE TO
EFFECT SERVICE OF PROCESS IN ANY
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OTHER MANNER PERMITTED BY LAW OR LIMIT THE RIGHT OF MORTGAGEE TO BRING ACTIONS,
SUITS OR PROCEEDINGS WHETHER IN REM, IN PERSONAM, IN LAW, EQUITY, ADMIRALTY OR
OTHERWISE IN THE COURTS OF ANY OTHER JURISDICTION. MORTGAGOR FURTHER AGREES
THAT FINAL JUDGMENT AGAINST IT IN ANY SUCH LEGAL ACTION, SUIT OR PROCEEDING
SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTION, WITHIN OR
OUTSIDE THE UNITED STATES OF AMERICA, BY SUIT ON THE JUDGMENT, A CERTIFIED OR
EXEMPLIFIED COPY OF WHICH Shall BE CONCLUSIVE EVIDENCE OF THE FACT AND THE
AMOUNT OF THE LIABILITY.
IN WITNESS WHEREOF, the Mortgagor has caused this Mortgage to be duly
executed and delivered as of the day and year first above written.
KEYES HOLDING CORPORATION
By: /s/ William H. Flores
_____________________________
Name: William H. Flores
Title: Vice President
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STATE OF TEXAS )
) ss.:
COUNTY OF HARRIS )
On this 1st day of December, 1994, before me personally came William
H. Flores, to me known, who, being by me duly sworn, did depose and say that
his address is 14141 Southwest Freeway, Suite 2500, Sugar Land, Texas 77478;
that he is Vice President of Keyes Holding Corporation, the corporation
described in and which executed the foregoing instrument; and that he signed
his name thereto pursuant to authority granted to him by the Board of Directors
of said corporation.
/s/ Dorothy M. Dur
_________________________________
(Notary Public)
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GENERAL ASSIGNMENT OF EARNINGS
The undersigned, KEYES HOLDING CORPORATION, a corporation organized
and existing under the laws of the State of Delaware, (hereinafter called the
"Assignor"), in consideration of One Dollar ($1) lawful money of the United
States of America, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, has sold, assigned, transferred
and set over and by this instrument does sell, assign, transfer and set over
unto THE CIT GROUP/EQUIPMENT FINANCING, INC. (hereinafter called the
"Assignee") and unto the Assignee's successors and assigns, to its and its
successors' and assigns' own proper use and benefit, and, as collateral
security for the obligations of the Assignor to the Assignee pursuant to the
terms and conditions of a Loan Agreement dated December 1, 1994 among the
Assignor, the Assignee, and MARINE DRILLING COMPANIES, INC. (the "Loan
Agreement") and any other indebtedness existing now or hereafter from the
Assignor in favor of the Assignee, and does hereby grant the Assignee a
security interest in all of the Assignor's right, title and interest in and to:
(i) all day rate payments, charter hire, drilling contract revenues, accounts
and contract rights and all freights, hire and other monies earned and to be
earned, due or to become due, or paid or payable to, or for the account of, the
Assignor, of whatsoever nature arising out of or as a result of the ownership
and operation by the Assignor or its respective agents of each of the United
States flag vessels MARINE 300, Official No. 636379, MARINE 301, Official No.
640126, and MARINE 303, Official No. 651994 (collectively, the "Vessels"), (ii)
all monies and claims for moneys due and to become due to the Assignor and all
claims for damages arising out of the breach of any and all present and future
drilling contracts, charter parties, bills of lading, contracts and other
engagements of affreightment or for the carriage or transportation of cargo,
and operations of every kind whatsoever of each of the Vessels and in and to
any and all claims and causes of action for money, loss or damages that may
accrue or belong to the Assignor, its respective successors or assigns, arising
out of or in any way connected with the present or future use, operation or
management of each of the Vessels or arising or in any way connected with any
and all present and future requisitions, drilling contracts, charter parties,
bills of lading, contracts and other engagements of affreightment or for the
carriage or transportation of cargo, and other operations of each of the
Vessels, (iii) all moneys and claims for moneys due and to become due to the
Assignor, and all claims for damages in respect of the actual or constructive
total loss of or requisition of use of or title to each of the Vessels, and
(iv) any proceeds of any of the foregoing.
Capitalized terms used herein and not otherwise defined herein shall
have the meanings specified in the Loan Agreement.
<PAGE> 72
Upon the occurrence and continuance of an Event of Default, the
Assignor shall cause all day rate payments, drilling contract revenues, charter
hire, freights and moneys hereby assigned to be paid over to the Assignee at
such account or accounts as designated in writing by the Assignee.
The Assignor covenants that in the Event of Default or upon the
Assignee's request it will send letters to each of the agents and
representatives of the Assignor into whose hands or control may come any
earnings and moneys hereby assigned, informing each such addressee of this
Assignment and instructing such addressee to remit promptly to the Assignee all
earnings and moneys hereby assigned which may come into addressee's hands or
control and to continue to make such remittances until such time as the
addressee may receive written notice or instructions to the contrary directly
from the Assignee. The Assignor further covenants that it will use its best
efforts to insure that each such addressee will acknowledge directly to the
Assignee receipt of the Assignor's letter of notification and instructions.
It is expressly agreed that anything herein contained to the contrary
notwithstanding, the Assignee shall have no obligation or liability under any
drilling contract, charter party or any contract of affreightment by reason of
or arising out of this instrument of assignment nor shall the Assignee be
required or obligated in any manner to perform or fulfill any obligations of
any of the Assignor under or pursuant to any drilling contract, charter party,
or any contract of affreightment or to make any payment or to make any inquiry
as to the nature or sufficiency of any payment received by it or to present or
file any claim, or to take any other action to collect or enforce the payment
of any amounts which may have been assigned to it or to which it may be
entitled hereunder at any time or times.
The Assignor does hereby constitute the Assignee, its successors and
assigns, the Assignor's true and lawful attorney, irrevocably, with full power
(in the name of the Assignor or otherwise) to ask, require, demand, receive
compound and give acquittance for any and all moneys, claims, property and
rights hereby assigned, to endorse any checks or other instruments or orders in
connection therewith and to file any claims or to take any action or institute
any proceedings which to the Assignee may seem to be necessary or advisable in
the premises.
The powers and authority granted to the Assignee in this General
Assignment have been given for a valuable consideration and are hereby declared
to be irrevocable.
The Assignor agrees that at any time and from time to time, upon the
written request of the Assignee, the Assignor will promptly and duly execute
and deliver any and all such further instruments and documents as the Assignee
may deem reasonably
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<PAGE> 73
necessary in obtaining the full benefits of this Assignment and of the rights
and powers herein granted.
The Assignor does hereby warrant and represent that it has not
assigned, pledged or in any way created or suffered to be created any security
interest in the whole or any part of the right, title and interest hereby
assigned, except for the assignment to the Assignee made by this Assignment.
The Assignor hereby covenants that, without the prior written consent thereto
of the Assignee, so long as this instrument of assignment shall remain in
effect, (A) it will not assign or pledge the whole or any part of the right,
title and interest hereby assigned to anyone other than the Assignee, its
successors or assigns, (B) it will not take or omit to take any actions, the
taking or omission of which might result in an alteration or impairment of the
said rights or this Assignment and (C) it will not default under any drilling
contract or charter party.
The Assignor represents and warrants that (i) it has an office at
14141 SW Freeway, Suite 2500, Sugar Land, Texas 77478, and (ii) its principal
place of business and the location at which it keeps and will keep its records
concerning the Loan Agreement and the transactions contemplated thereby,
including records relating to this Assignment, any drilling contract, charter
party or contract of affreightment for the operations of the Vessels is 14141
SW Freeway, Suite 2500, Sugar Land, Texas 77478. The Assignor agrees that it
will notify the Assignee of any change in the location of such office and of
the opening of any other place of business by or on behalf of the Assignor.
This Assignment (including, but not limited to the validity and
enforceability hereof) shall in all respects be governed by, and construed in
accordance with, the laws of the State of New York, other than conflict of laws
rules thereof.
All notices or other communications which are required to be made to
the Assignee hereunder shall be made by telex or telecopier transmission,
confirmed by postage prepaid letter to:
(a) The CIT Group/Equipment Financing Inc.
1211 Avenue of the Americas
New York, New York 10036
Attention: Senior Vice President-Credit
Telecopier: (212) 536-1385
(b) Legal Department
Telecopier: (212) 536-1388
or at such other address as may have been furnished in writing by the Assignee.
Any consents, waivers, approvals or other actions to be given or taken by the
Assignee hereunder shall be effective if
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<PAGE> 74
contained in a writing signed by the Assignee or such other person or persons
as the Assignee may from time to time appoint, and forwarded to the Assignor at
its respective address as provided in Section 5.01 of the Loan Agreement.
The Assignor hereby appoints the Assignee its attorney-in-fact to
execute and file any financing statements or papers of similar purpose or
effect in connection with any filing or recording of this Assignment.
IN WITNESS WHEREOF, the Assignor has caused this Assignment to be duly
executed this 1st day of December, 1994.
KEYES HOLDING CORPORATION
By: /s/ WILLIAM H. FLORES
______________________________
Name: William H. Flores
Title: Vice President
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<PAGE> 75
ASSIGNMENT OF INSURANCE
The undersigned KEYES HOLDING CORPORATION, a corporation organized and
existing under the laws of the State of Delaware (the "Assignor"), in
consideration of One Dollar ($1) lawful money of the United States of America,
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, pursuant to the Loan Agreement dated as of December 1,
1994 (the "Loan Agreement") among (i) the Assignor, as Borrower, (ii) MARINE
DRILLING COMPANIES, INC., as Guarantor and (iii) THE CIT GROUP/EQUIPMENT
FINANCING, INC. ("the Assignee") and as owner of the three U.S. flag drilling
rigs, MARINE 300, Official No. 636379, MARINE 301, Official No. 640126, and
MARINE 303, Official No. 651994 (the "Vessels"), has sold, assigned,
transferred and set over and by this instrument, does sell, assign, transfer
and set over unto the Assignee, and unto the Assignee's successors and assigns,
to it and its successors' and assigns' own proper use and benefit, all right,
title and interest of the Assignor under, in and to (i) all policies and
contracts of insurance (which expression includes all entries of the Vessels in
Protection and Indemnity Associations or War Risk Associations) in respect of
the Vessels whether now or hereafter to be effected, and all renewals of or
replacements for the same, (ii) when the context so admits, any reinsurance of
such insurances, (iii) all claims, returns of premium and other monies and
claims for monies due and to become due under said insurances or in respect of
said insurances, (iv) all other rights of the Assignor under or in respect of
said insurances, and (v) any proceeds of any of the foregoing.
Capitalized terms used herein and not otherwise herein defined shall
be used herein as defined in the Loan Agreement.
It is expressly agreed that anything herein contained to the contrary
notwithstanding, the Assignor shall remain liable under said insurances to
perform all of the obligations assumed by it thereunder, and the Assignee shall
have no obligation or liability under said insurances by reason of or arising
out of this instrument of assignment nor shall the Assignee be required or
obligated in any manner to perform or fulfill any obligations of the Assignor
under or pursuant to said insurances or to make any payment or to make any
inquiry as to the nature or sufficiency of any payment received by it or to
present or file any claim, or to take any other action to collect or enforce
the payment of any amounts which may have been assigned to it or to which it
may be entitled hereunder at any time or times.
The Assignor does hereby constitute the Assignee, its successors and
assigns, the Assignor's true and lawful attorney,
<PAGE> 76
irrevocably, with full power (in the name of the Assignor or otherwise), during
the continuation of an Event of Default, to ask, require, demand, receive,
compound and give acquittance for any and all monies and claims for monies due
and to become due under or arising out of said insurances, to endorse any
checks or other instruments or orders in connection therewith and to file any
claims or to take any action or institute any proceedings which the Assignee
may deem to be necessary or advisable in the premises.
The Assignor hereby covenants and agrees (A) to procure that notice of
this Assignment shall be duly given to all underwriters and brokers, (B) that
where the consent of any underwriter is required pursuant to any of the
insurances assigned hereby that it shall be obtained and evidence thereof shall
be given to the Assignee, or, in the alternative, that in the case of
protection and indemnity coverage, the Assignor shall obtain a letter of
undertaking by the underwriters duly noting the interest of the Assignee, and
(C) that there shall be duly endorsed upon all slips, cover notes, policies,
certificates of entry or other instruments issued or to be issued in connection
with the insurances assigned hereby such clauses as to loss payees as the
Assignee may reasonably require or approve. In all cases, unless otherwise
agreed in writing by the Assignee, such slips, cover notes, notices,
certificates of entry or other instruments shall provide that there will be no
recourse against the Assignee for payment of premiums, calls or assessments.
The Assignor agrees that at any time and from time to time, upon the
written request of the Assignee, the Assignor will promptly and duly execute
and deliver any and all such further instruments and documents as the Assignee
may deem desirable in obtaining the full benefits of this Assignment and of the
rights and powers herein granted.
The Assignor does hereby warrant and represent that it has not
assigned or pledged, and hereby covenants that, without the prior written
consent thereto of the Assignee, so long as this instrument of assignment shall
remain in effect, it will not assign or pledge the whole or any part of the
right, title and interest hereby assigned to anyone other than the Assignee,
its successors or assigns, and it will not take or omit to take any action, the
taking or omission of which might result in an alteration or impairment of said
insurances, of this Assignment or of any of the rights created by said
insurances or this Assignment.
This Assignment to the Assignee shall take effect immediately upon the
execution hereof and the powers and authorities granted to the Assignee, its
successors and assigns, herein, having been given for valuable consideration,
are hereby declared to be irrevocable.
The Assignor agrees that the Assignee is hereby appointed its
attorney-in-fact and may execute on the Assignor's behalf and file
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<PAGE> 77
any financing statements under the Uniform Commercial Code, or papers of
similar purpose or effect in respect of this Assignment, which the Assignee
deems appropriate.
All notices or other communications which are required to be made to
the Assignee hereunder shall be made by telex or telecopier transmission,
confirmed by postage prepaid letter to:
if to the Assignor, to:
14141 SW Freeway, Suite 2500
Sugar Land, Texas 77478
Attention: Chief Financial Officer
Telecopier: (713) 565-2002
if to the Assignee, to:
The CIT GROUP/EQUIPMENT
FINANCING, INC.
1211 Avenue of the Americas
New York, New York 10036
Attention: (a) Senior Vice President-Credit
Telecopier: (212) 536-1385
Attention: (b) Legal Department
Telecopier: (212) 536-1388
or at such other address as may have been furnished in writing by the Assignee.
Any consents, waivers, approvals or other actions to be given or taken by the
Assignee hereunder shall be effective if contained in a writing signed by the
Assignee or such other person or persons as the Assignee may from time to time
appoint, and forwarded to the Assignor at its address as provided herein.
Any payments made pursuant to the terms hereof shall be payable to the
Assignee to such account or accounts as may, from time to time, be designated
by the Assignee.
Upon payment in full to Assignee of all amounts due and owing thereto
under each of the Loan Documents, this Assignment shall terminate.
This Assignment (including, but not limited to, the validity and
enforceability hereof) shall be governed by and construed in accordance with
the laws of the State of New York, other than conflict of laws rules thereof,
and shall not be amended or altered nor shall any provision hereto be waived
except by an amendment or waiver in writing signed by the Assignee.
3
<PAGE> 78
IN WITNESS WHEREOF, the Assignor has caused this Assignment of
Insurance respecting the Vessels to be duly executed this 1st day of December,
1994.
KEYES HOLDING CORPORATION
By: /S/ WILLIAM H. FLORES
_____________________________
Name: William H. Flores
Title: Vice President
4
<PAGE> 79
NOTICE OF ASSIGNMENT
OF INSURANCE
PLEASE TAKE NOTICE that the undersigned, owner of the three U.S. flag
vessels MARINE 300, Official No. 636379, MARINE 301, Official No. 640126, and
MARINE 303, Official No. 651994 has assigned to THE CIT GROUP/EQUIPMENT
FINANCING, INC. as mortgagee under a certain U.S. First Preferred Fleet
Mortgage dated the date hereof covering said Vessels, all of the Undersigned's
right, title and interest in and to any and all insurances respecting said
Vessels.
Dated: December ___, 1994
KEYES HOLDING CORPORATION
By: _____________________________
Name:
Title:
1
<PAGE> 1
EXHIBIT 21.1
MARINE DRILLING COMPANIES, INC.
Subsidiaries and Partnerships
December 31, 1994
<TABLE>
<CAPTION>
Place of
Incorporation Ownership
Subsidiary/Partnership or Domicile Owner Percentage
---------------------- ------------ ----- ----------
<S> <C> <C> <C>
Marine Drilling Management Company Delaware Marine Drilling Companies, Inc. 100%
Marine Drilling International, Inc. Delaware Marine Drilling Management Company 100%
Keyes Holding Corporation Delaware Marine Drilling Companies, Inc. 100%
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Shareholders
Marine Drilling Companies, Inc.:
We consent to incorporation by reference in the registration statement
(No. 33-56920) on Form S-8 of Marine Drilling Companies, Inc. of our report
dated February 3, 1995, relating to the consolidated balance sheets of Marine
Drilling Companies, Inc. and subsidiaries as of December 31, 1994 and 1993,
and the related consolidated statements of operations, shareholders' equity,
and cash flows for each of the years in the three-year period ended December
31, 1994, and all related schedules, which report appears in the December 31,
1994 annual report on Form 10-K of Marine Drilling Companies, Inc.
KPMG PEAT MARWICK LLP
Houston, Texas
February 3, 1995
<PAGE> 1
EXHIBIT 24.1
MARINE DRILLING COMPANIES, INC.
POWER OF ATTORNEY
WHEREAS, Marine Drilling Companies, Inc., a Texas corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended, an annual
report on Form 10-K for the year ended December 31, 1994 and quarterly reports
on Form 10-Q for the quarters ended March 31, June 30 and September 30, 1995,
with such amendment or amendments thereto in each case as may be necessary or
appropriate, together with any and all exhibits and other documents having
relation to said reports;
NOW, THEREFORE, the undersigned in his capacity as a director of the
Company, does hereby appoint William H. Flores, his true and lawful attorney
with power to act with full power of substitution and resubstitution, to
execute in his name, place and stead, in his capacity as Director the reports
referred to above, together with any and all amendments thereto as said
attorney shall deem necessary or incidental in connection therewith, and to
file the same with the Commission. Such attorney shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities every act whatsoever necessary or desirable to be done
in the premises, as fully and to all intents and purposes as the undersigned
might or could do in person, the undersigned hereby ratifying and approving the
acts of such attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of
this 23rd day of January 1995.
/s/ David E. Libowitz
---------------------------------
David E. Libowitz
<PAGE> 2
EXHIBIT 24.1
MARINE DRILLING COMPANIES, INC.
POWER OF ATTORNEY
WHEREAS, Marine Drilling Companies, Inc., a Texas corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended, an annual
report on Form 10-K for the year ended December 31, 1994 and quarterly reports
on Form 10-Q for the quarters ended March 31, June 30 and September 30, 1995,
with such amendment or amendments thereto in each case as may be necessary or
appropriate, together with any and all exhibits and other documents having
relation to said reports;
NOW, THEREFORE, the undersigned in his capacity as a director of the
Company, does hereby appoint William H. Flores, his true and lawful attorney
with power to act with full power of substitution and resubstitution, to
execute in his name, place and stead, in his capacity as Director the reports
referred to above, together with any and all amendments thereto as said
attorney shall deem necessary or incidental in connection therewith, and to
file the same with the Commission. Such attorney shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities every act whatsoever necessary or desirable to be done
in the premises, as fully and to all intents and purposes as the undersigned
might or could do in person, the undersigned hereby ratifying and approving the
acts of such attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of
this 23rd day of January 1995.
/s/ Christopher M. Linneman
--------------------------------------
Christopher M. Linneman
<PAGE> 3
EXHIBIT 24.1
MARINE DRILLING COMPANIES, INC.
POWER OF ATTORNEY
WHEREAS, Marine Drilling Companies, Inc., a Texas corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended, an annual
report on Form 10-K for the year ended December 31, 1994 and quarterly reports
on Form 10-Q for the quarters ended March 31, June 30 and September 30, 1995,
with such amendment or amendments thereto in each case as may be necessary or
appropriate, together with any and all exhibits and other documents having
relation to said reports;
NOW, THEREFORE, the undersigned in his capacity as a director of the
Company, does hereby appoint William H. Flores, his true and lawful attorney
with power to act with full power of substitution and resubstitution, to
execute in his name, place and stead, in his capacity as Director the reports
referred to above, together with any and all amendments thereto as said
attorney shall deem necessary or incidental in connection therewith, and to
file the same with the Commission. Such attorney shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities every act whatsoever necessary or desirable to be done
in the premises, as fully and to all intents and purposes as the undersigned
might or could do in person, the undersigned hereby ratifying and approving the
acts of such attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of
this 23rd day of January 1995.
/s/ Howard H. Newman
-------------------------------
Howard H. Newman
<PAGE> 4
EXHIBIT 24.1
MARINE DRILLING COMPANIES, INC.
POWER OF ATTORNEY
WHEREAS, Marine Drilling Companies, Inc., a Texas corporation (the
"Company"), intends to file with the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934, as amended, an annual
report on Form 10-K for the year ended December 31, 1994 and quarterly reports
on Form 10-Q for the quarters ended March 31, June 30 and September 30, 1995,
with such amendment or amendments thereto in each case as may be necessary or
appropriate, together with any and all exhibits and other documents having
relation to said reports;
NOW, THEREFORE, the undersigned in his capacity as a director of the
Company, does hereby appoint William H. Flores, his true and lawful attorney
with power to act with full power of substitution and resubstitution, to
execute in his name, place and stead, in his capacity as Director the reports
referred to above, together with any and all amendments thereto as said
attorney shall deem necessary or incidental in connection therewith, and to
file the same with the Commission. Such attorney shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in
any and all capacities every act whatsoever necessary or desirable to be done
in the premises, as fully and to all intents and purposes as the undersigned
might or could do in person, the undersigned hereby ratifying and approving the
acts of such attorney.
IN WITNESS WHEREOF, the undersigned has executed this instrument as of
this 23rd day of January 1995.
/s/ Herbert S. Winokur, Jr.
----------------------------------
Herbert S. Winokur, Jr.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<CASH> 18,872
<SECURITIES> 18,137
<RECEIVABLES> 15,353
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 53,382
<PP&E> 102,431
<DEPRECIATION> 13,010
<TOTAL-ASSETS> 143,215
<CURRENT-LIABILITIES> 4,969
<BONDS> 0
<COMMON> 439
0
0
<OTHER-SE> 112,292
<TOTAL-LIABILITY-AND-EQUITY> 143,215
<SALES> 70,597
<TOTAL-REVENUES> 70,597
<CGS> 50,575
<TOTAL-COSTS> 50,575
<OTHER-EXPENSES> 7,733
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 70
<INCOME-PRETAX> 9,123
<INCOME-TAX> 3,193
<INCOME-CONTINUING> 5,930
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,930
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0
</TABLE>
