<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934.
FOR THE TRANSITION PERIOD FROM ___________ TO ____________
COMMISSION FILE NUMBER: 0-18309
-----------------------
MARINE DRILLING COMPANIES, INC.
(Exact name of registrant as specified in its charter)
TEXAS 74-2558926
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) Number)
ONE SUGAR CREEK CENTER BLVD., SUITE 600, SUGAR LAND, TEXAS 77478-3556
(Address of principal executive offices and zip code)
(713) 243-3000
(Registrant's telephone number, including area code)
- --------------------------------------------------------------------------------
(Former name, former address and formal fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X . No .
--- ---
NUMBER OF SHARES OF COMMON STOCK OUTSTANDING AT OCTOBER 15, 1996 -- 45,546,605
<PAGE> 2
MARINE DRILLING COMPANIES, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1. Index to Financial Statements
Independent Auditors' Review Report ...................... 1
Consolidated Balance Sheets --
September 30, 1996 and December 31, 1995 ................. 2
Consolidated Statements of Operations --
Three and Nine Months Ended September 30, 1996 and 1995 .. 3
Consolidated Statements of Cash Flows --
Nine Months Ended September 30, 1996 and 1995 ............ 4
Notes to Consolidated Financial Statements ............... 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations ............... 7
PART II - OTHER INFORMATION
Item 1. Legal Proceedings ........................................... 16
Item 6. Exhibits and Reports on Form 8-K ............................ 16
SIGNATURES .......................................................... 17
</TABLE>
(i)
<PAGE> 3
INDEPENDENT AUDITORS' REVIEW REPORT
The Board of Directors and Shareholders
Marine Drilling Companies, Inc.:
We have reviewed the accompanying consolidated balance sheet of Marine
Drilling Companies, Inc. and subsidiaries as of September 30, 1996, and the
related consolidated statements of operations and cash flows for the three
month and nine month periods ended September 30, 1996 and 1995. These
consolidated financial statements are the responsibility of the Company's
management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted
in accordance with generally accepted auditing standards, the objective of
which is the expression of an opinion regarding the financial statements taken
as a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the consolidated financial statements referred to above for
them to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of Marine Drilling Companies, Inc.
and subsidiaries as of December 31, 1995, and the related consolidated
statements of operations, shareholders' equity and cash flows for the year then
ended (not presented herein); and in our report dated January 26, 1996, we
expressed an unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying consolidated
balance sheet as of December 31, 1995, is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.
KPMG PEAT MARWICK LLP
Houston, Texas
October 16, 1996
<PAGE> 4
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $17,460 $12,260
Short-term investments 9,851 -
Accounts receivable - trade and other, net 20,669 18,078
Inventory 973 1,272
Prepaid expenses and other 2,205 1,380
-------- --------
Total current assets 51,158 32,990
Property and Equipment 142,633 123,442
Less accumulated depreciation 30,478 22,090
-------- --------
Property and equipment, net 112,155 101,352
Other 275 203
-------- --------
$163,588 $134,545
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $500 $1,000
Accounts payable 3,287 5,721
Accrued expenses 3,026 1,927
Employer's liability claims, current 1,143 1,026
-------- --------
Total current liabilities 7,956 9,674
Long-Term Debt 9,500 9,000
Employer's Liability Claims, non-current 1,839 2,155
Deferred Income Taxes 11,213 6,144
Shareholders' Equity:
Common stock, par value $.01. Authorized 200,000,000 shares; issued
and outstanding 45,518,651 shares as of September 30, 1996; issued
44,169,643 and outstanding 43,635,433 shares as of December 31, 1995 455 442
Common stock restricted (557) (505)
Treasury stock, at cost (534,210 shares in 1995) - (2,016)
Additional paid-in capital 103,740 92,720
Retained earnings from January 1, 1993 29,442 16,931
-------- --------
Total shareholders' equity 133,080 107,572
-------- --------
Commitments and contingencies - -
-------- --------
$163,588 $134,545
======== ========
</TABLE>
See notes to consolidated financial statements and accompanying accountants'
review report.
2
<PAGE> 5
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------------- ---------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues $ 29,819 $ 15,490 $ 78,418 $ 39,860
Costs and Expenses:
Contract drilling 14,955 12,893 44,166 38,335
Depreciation and amortization 2,975 2,471 8,545 6,773
General and administrative 1,857 1,201 5,470 4,085
----------- ----------- ----------- -----------
19,787 16,565 58,181 49,193
----------- ----------- ----------- -----------
Operating income (loss) 10,032 (1,075) 20,237 (9,333)
----------- ----------- ----------- -----------
Other Income (Expense):
Interest expense (209) (199) (593) (657)
Interest income 312 321 726 1,258
Other income (expense) 269 36 355 130
----------- ----------- ----------- -----------
372 158 488 731
----------- ----------- ----------- -----------
Income (loss) before income taxes 10,404 (917) 20,725 (8,602)
Income tax expense (benefit) 3,714 (320) 7,469 (3,011)
----------- ----------- ----------- -----------
Net income (loss) $ 6,690 $ (597) $ 13,256 $ (5,591)
=========== =========== =========== ===========
Income (loss) per common share $ 0.15 $ (0.01) $ 0.30 $ (0.13)
=========== =========== =========== ===========
Weighted average common shares
outstanding 45,028,616 43,656,282 44,392,776 43,880,936
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements and accompanying accountants'
review report.
3
<PAGE> 6
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-----------------------------
1996 1995
--------- ---------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ 13,256 $ (5,591)
Adjustments to reconcile net income (loss) to net cash provided
by operating activities:
Deferred income taxes 5,069 (3,096)
Tax benefits related to common stock issued pursuant to
long-term incentive plan 2,092 85
Depreciation and amortization 8,545 6,773
Gain on disposition of equipment (358) (163)
Accrual of compensation expense, net 317 270
Issuance of common stock to Employee 401(k) Plan
and the Non-Employee Directors' Plan 725 667
Amortization of interest income (122) (131)
Changes in operating assets and liabilities:
Receivables (2,591) 5,377
Other current assets (607) (2,522)
Payables, accrued expenses and employer's liability claims (1,534) 2,807
Other (109) 158
--------- ---------
Net cash provided by operating activities 24,683 4,634
--------- ---------
Cash Flows From Investing Activities:
Purchase of short-term investments (9,729) (5,466)
Maturity of short-term investments - 18,150
Purchase of equipment (12,047) (14,867)
Proceeds from disposition of equipment 593 284
--------- ---------
Net cash used in investing activities (21,183) (1,899)
--------- ---------
Cash Flows From Financing Activities:
Proceeds from exercise of stock options 1,835 177
Payments of debt - (5,000)
Purchase of treasury stock - (2,657)
Costs associated with shelf registration statements (135) -
--------- ---------
Net cash provided by (used in) financing activities 1,700 (7,480)
--------- ---------
Net increase (decrease) in cash and cash equivalents 5,200 (4,745)
Cash and cash equivalents at beginning of period 12,260 18,872
--------- ---------
Cash and cash equivalents at end of period $ 17,460 $ 14,127
========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid $ 649 $ 743
Income taxes paid (refunded) $ 309 $ (1)
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING
AND FINANCING ACTIVITIES:
Issuance of 882,352 shares in 1996 for MARINE 305 $ 7,500 $ -
rig acquisition
Issuance of 60,833 and 43,500 shares in 1996 and 1995, $ 368 $ 148
respectively, of restricted common stock
Forfeitures of restricted common stock (7,500 shares in 1995) $ - $ 44
</TABLE>
See notes to consolidated financial statements and accompanying accountants'
review report.
4
<PAGE> 7
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
(1) INTERIM FINANCIAL INFORMATION
The consolidated interim financial statements of Marine Drilling
Companies, Inc. (the "Company" or the "Registrant") presented herein have been
prepared without audit pursuant to the rules and regulations of the Securities
and Exchange Commission. Accordingly, certain information and notes required
by generally accepted accounting principles for complete financial statements
have been condensed or omitted. In the opinion of management, these statements
include all adjustments (all of which consist of normal recurring adjustments
except as otherwise noted herein) necessary to present fairly the Company's
financial position and results of operations for the interim periods presented.
The financial data for the nine months ended September 30, 1996 included
herein has been subjected to a limited review by KPMG Peat Marwick LLP, the
Registrant's independent public accountants, whose report is included herein.
These statements should be read in conjunction with the audited financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1995. The results of operations for the
nine months ended September 30, 1996 are not necessarily indicative of the
results of operations that may be expected for the year.
(2) RECLASSIFICATION OF ACCOUNTS
Certain reclassifications have been made to the 1995 consolidated
financial statements to conform with the 1996 presentation.
(3) INCOME TAXES
Income taxes consist of the following:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ----------------------
1996 1995 1996 1995
------ ----- ------ -------
(In thousands)
<S> <C> <C> <C> <C>
Current:
U.S. federal $ 92 $ - $ 93 $ -
State - 1 - -
Foreign 72 - 215 -
------ ----- ------ -------
164 1 308 -
------ ----- ------ -------
Other:
U.S. federal - deferred 3,312 (321) 5,069 (3,096)
Tax benefits related to common
stock issued pursuant to long-
term incentive plan 238 - 2,092 85
------ ----- ------ -------
3,550 (321) 7,161 (3,011)
------ ----- ------ -------
Total tax provision (benefit) $3,714 $(320) $7,469 $(3,011)
====== ===== ====== =======
</TABLE>
5
<PAGE> 8
MARINE DRILLING COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
For the nine months ended September 30, 1996, the effective tax rate of
36% for financial reporting purposes approximates the U.S. federal statutory
rate of 35%, plus the effect of foreign taxes.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at September
30, 1996 and December 31, 1995 are presented below.
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards $26,169 $31,361
Investment tax, general business and
alternative tax credit carryforwards 10,465 11,356
Employer's liability claims 1,044 1,113
Allowance for bad debts 53 45
------- -------
Total gross deferred tax assets 37,731 43,875
Less valuation allowance (35,703) (36,738)
------- -------
Net deferred tax assets 2,028 7,137
------- -------
Deferred tax liabilities:
Plant and equipment, principally due to
differences in depreciation 12,096 11,896
Deferred intercompany gains and losses 1,145 1,385
------- -------
Total gross deferred tax liabilities 13,241 13,281
------- -------
Net deferred tax liability $11,213 $ 6,144
======= =======
</TABLE>
(4) NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share for the three and nine months ended
September 30, 1996 and 1995 excludes the effect of outstanding stock options
inasmuch as the potential dilution from their exercise is less than three
percent.
(5) COMMITMENTS AND CONTINGENCIES
The Company is a defendant in certain claims and litigation arising out of
operations in the normal course of business. In the opinion of management,
uninsured losses, if any, will not be material to the Company's financial
position or results of operations.
6
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Demand for offshore drilling services is primarily driven by the economics
of oil and gas exploration, development and production, which in turn, are
closely linked to current and projected oil and gas prices. Since the
mid-1980's, oil and gas prices have been unstable and generally lower than
prices experienced during the early 1980's, resulting in volatile and generally
reduced demand for offshore drilling services. In addition, during the early
1980's, the industry built a substantial number of new offshore drilling rigs.
Since 1993, the worldwide jack-up market has shown general improvement compared
to the 1986-1992 period. This improvement can be generally attributed to
improved jack-up rig demand and a continuing reduction in jack-up rig supply.
Although this period can be characterized as showing general improvement,
certain significant jack-up markets have experienced short periods of reduced
rig demand and/or excess rig supply. During those periods of low rig
utilization, day rates were adversely impacted and drilling contractors
competing in those markets suffered poorer financial results until rig demand
improved or rigs left those markets for other markets.
DRILLING MARKETS AND UTILIZATION
General
Most of the world's significant jack-up drilling markets have recently
experienced improved rig utilization and day rates. According to Offshore Data
Services, as of October 8, 1996, worldwide jack-up utilization was 90% (340
rigs working out of a supply of 379 rigs) compared to 77% utilization (297 rigs
working out of a supply of 387 rigs) experienced during the first nine months
of 1995.
Historically, the Company has derived substantially all of its revenues
from offshore drilling in the U.S. Gulf of Mexico, the Bay of Campeche
(Mexico), and offshore India. Three of the Company's rigs, MARINE 300, MARINE
304 and MARINE 201, are configured to work in international markets outside the
Gulf of Mexico. In addition, the Company has recently fabricated quarters for
the MARINE 303 in order to facilitate that rig's use in certain international
markets. These upgrades could be added to the rig in a relatively short time
frame to allow that rig to obtain an international contract. The Company's
other rigs could, if applicable modifications were made and certifications
obtained, operate in certain areas outside of the Gulf of Mexico. The
Company's rigs are not, however, suitable for areas, such as the North Sea,
that require enhanced environmental operating capabilities.
Due to the highly cyclical nature of the offshore drilling business, the
Company seeks longer term contracts for the employment of its rigs, both
domestically and internationally. Such contacts help mitigate the cyclicity of
the Company's results. Historically, most longer term contracts have been
available primarily in international markets. Thus far this year, the Company
has successfully obtained six intermediate term contracts for its U.S. Gulf of
Mexico rigs with terms ranging from three months to one year. Most of these
contracts include repricing mechanisms allowing the Company to periodically
adjust day rates during the terms of
7
<PAGE> 10
the contracts. The Company also has one rig in India (the MARINE 201) which is
operating under a one year contract ending November 1996 with eight three-month
extension options. The Company currently anticipates that the first four
options will be exercised which would keep the rig employed in India through
November 1997.
U.S. Gulf of Mexico
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. Day rates can and have fluctuated significantly on relatively
small changes in the rig supply and demand situation in this market.
Throughout the period from late 1992 through 1994, jack-up operations in
the U.S. Gulf of Mexico were characterized by improving rig demand. In late
1994 and early 1995, however, the combination of reduced jack-up demand and
increased rig supply had a depressing effect on U.S. Gulf of Mexico operations.
During this period of reduced utilization, day rate levels fell and contractors
experienced reduced levels of earnings. Since mid-1995, a combination of
improved jack-up rig demand and rig mobilizations to other markets has resulted
in improved jack-up utilization and day rates.
Improved utilization of jack-up rigs in the U.S. Gulf of Mexico during the
third and fourth quarters of 1995 continued into the first nine months of 1996.
Utilization of jack-up rigs in this market as of October 8, 1996 was 90% (122
rigs working out of a supply of 135 rigs) as compared with an average of 72%
(101 rigs working out of a supply of 141 rigs) for the first nine months of
1995. With 12 of its 14 rigs located in the U.S. Gulf of Mexico, the Company
is well positioned to benefit from the improved rig demand in this market.
Bay of Campeche
During most of 1993 and early 1994, demand for jack-up rigs was strong in
the Bay of Campeche, offshore Mexico in the southern Gulf of Mexico. The Bay of
Campeche drilling market, however, generally deteriorated in late 1994 and early
1995. The Company contracted two of its rigs (the MARINE 301 and the MARINE
303) into this market in late 1992 and another (the MARINE 300) 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 completed its contract and returned to the U.S. Gulf of Mexico in May 1995.
The Company is continuing to actively market its fleet in this area. Demand for
rigs in the Bay of Campeche dropped from a high of 22 rigs in 1993 to 7 rigs in
1995 and has increased to an average of 8 rigs for the first three quarters of
1996. Jack-up utilization in the Bay of Campeche at the end of 1995 was
approximately 64% compared to 80% as of October 10, 1996. Recently, drilling
activity in this market has improved and the Company expects that jack-up rig
demand and utilization will continue to improve during the remainder of 1996 and
1997.
8
<PAGE> 11
India
In August 1995, the Company entered into a one-year term contract for the
MARINE 201 to operate off the east coast of India. That rig commenced
operations under this contract in mid-November 1995. Under the contract, the
customer has options to extend the contract for up to eight three-month
extension periods. Yearly demand for jack-ups in India has generally averaged
between 20 to 26 rigs during the past few years. During this time, jack-up
utilization has been stable in the range of 89% to 93%. The government of
India recently approved investment by non-Indian energy companies. As a result
of these actions, jack-up rig demand has recently increased, and most industry
analysts expect that demand could increase further in the near term.
The following table sets forth certain industry and Company historical
data for the periods indicated. Industry data includes many rigs that are
dissimilar to the Company's rigs in terms of performance capabilities, age,
operational criteria and environmental capabilities. Certain of the Company's
competitors operate rigs other than jack-up rigs that can compete with jack-up
rigs under certain circumstances.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED YEARS ENDED
SEPTEMBER 30, SEPTEMBER 30, DECEMBER 31,
------------------ ----------------- ------------------
1996 1995 1996 1995 1995 1994
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
INDUSTRY(A):
U.S. Gulf of Mexico:
Total jack-up rigs 135.9 139.7 136.6 140.8 140.1 135.8
Working jack-up rigs 119.6 108.5 117.2 101.4 104.6 102.9
Utilization 88% 78% 86% 72% 75% 76%
All other markets:
Total jack-up rigs 246.0 245.2 246.5 246.5 246.7 255.5
Working jack-up rigs 210.8 199.8 206.4 195.2 197.5 192.5
Utilization 86% 81% 84% 79% 80% 75%
COMPANY(B):
Total jack-up rigs 13.5 13.0 13.2 13.0 13.0 12.1
Working jack-up rigs 13.0 9.5 12.3 8.3 8.9 9.8
Utilization 97% 73% 93% 64% 69% 81%
Non-marketed rigs 0.5 3.0 0.6 3.5 3.0 0.8
Utilization of marketed rigs 100% 95% 98% 88% 89% 87%
Average day rates(c) $24,932 $17,712 $23,268 $17,564 $19,289 $19,686
</TABLE>
- ---------------
(a) Average of weekly data published by Offshore Data Services.
(b) The numbers included in the table represent the average number of rigs
operated by the Company for the periods indicated.
(c) "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 and working during that
period.
9
<PAGE> 12
COMPETITION
The offshore contract drilling market is highly competitive with a large
number of contractors competing for available work. Drilling contracts are
generally awarded on a competitive bid basis. 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 seeks to capitalize on customer recognition of the Company's
safety record, crew quality and the quality of its service and equipment. Many
of the Company's competitors, however, are larger, or are subsidiaries of
larger companies, and have greater financial resources and more diverse fleets
than the Company. This may enable them to better withstand industry downturns,
to compete more effectively on the basis of price, to build new rigs or to
acquire existing rigs that become available for purchase.
DRILLING OPERATIONS AND CUSTOMERS
The Company's existing 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. Under most
daywork contracts, the customer also pays the cost of moving the rig and
related equipment to the job site and the costs of drilling the well (other
than the costs of operating the rig, which are borne by the drilling
contractor). Daywork contracts may provide for lower rates during periods when
drilling operations are interrupted or restricted by equipment breakdowns,
adverse weather or water conditions or other conditions beyond the control of
the Company. Historically, the Company has not marketed its rigs under fixed
price or turnkey contracts.
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 1 of this
report.
FINANCIAL CONDITION -- LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resources
The Company had working capital at September 30, 1996 of $43,202,000 as
compared to working capital of $23,316,000 at December 31, 1995. Net cash
provided by operating activities was $24,683,000 for the nine months ended
September 30, 1996 compared to $4,634,000 for the nine months ended September
30, 1995, an increase of $20,049,000 or 433%. Cash used in investing
activities was $21,183,000 for the nine months ended September 30, 1996
resulting primarily from capital expenditures of $12,047,000 compared to cash
used in investing activities of $1,899,000 for the nine months ended September
30, 1995. Capital expenditures for the nine months ended September 30, 1996
consisted of (i) drill pipe purchases, (ii) the addition of a top drive
drilling system and other upgrades to the MARINE 15,
10
<PAGE> 13
(iii) the installation of a top drive drilling system and the fabrication of
additional leg sections for the MARINE 300, (iv) the fabrication of
international quarters for the MARINE 303, and (v) the acquisition of the
MARINE 305. Net cash provided by financing activities was $1,700,000
consisting primarily of the proceeds from exercises of common stock options of
$1,835,000.
Other Activities
In August 1996, the Company purchased the ODIN PRINCESS, a 300 foot
independent leg slot rig, for a total consideration of $8,000,000, consisting
of approximately $500,000 cash and approximately $7,500,000 of equity
securities upon the issuance of 882,352 shares of common stock from a shelf
registration statement filed in late June 1996. The rig, which was renamed the
MARINE 305, is currently located in the Middle East and will require
substantial expenditures to restore it to working condition. At this time, the
Company has not determined when it will commence the refurbishment of this rig,
the extent to which it will upgrade and refurbish the rig, or the amount which
it will spend to do so.
On December 1, 1994, Keyes Holding Corporation ("KHC"), a wholly-owned
subsidiary of the Company, entered into a revolving credit/term loan agreement
(the "Loan Agreement") with a U.S. financial institution pursuant to which KHC
may, subject to the conditions stated in the agreement, borrow up to the lesser
of (i) $35,000,000, or (ii) 50% of the appraised value of MARINE 300, 301 and
303. The agreement included an 18-month revolving credit facility which was
convertible on June 1, 1996 into a three-year term loan facility.
On May 31, 1996, the Loan Agreement was amended to extend the revolving
loan availability period for one year to June 1, 1997; to extend the maturity
date of the term facility to June 1, 2002; and to lower the amount of available
borrowing during the loan availability period. The amended amount available
during the revolving loan availability period will be permanently reduced
through four consecutive quarterly reductions of $1,750,000 each on September
1, 1996; December 1, 1996; March 1, 1997 and June 1, 1997. If so converted,
the term loan will be amortized over sixty equal monthly installments ending
June 1, 2002. The agreement provides that the amounts borrowed will bear
interest at floating rates equal to LIBOR + 2.5%. The minimum borrowing under
the revolving credit facility is $10,000,000. If, on June 1, 1997, KHC elects
to convert less than $10,000,000 into a term loan, it will be required to pay a
non-utilization fee equal to 1 1/2% of the excess of $10,000,000 over the
amount converted.
As of September 30, 1996, the related debt outstanding was $10,000,000 and
the amount available under the line of credit was $23,250,000. Loan proceeds
may be used to purchase additional jack-up drilling rigs or to make capital
improvements to the Company's drilling rig fleet. The Company has guaranteed
up to $8,312,500 of the borrowings under the loan agreement. The borrowings
under the agreement are secured by a mortgage on the MARINE 300, MARINE 301 and
MARINE 303.
Reduced rig demand in the U.S. Gulf of Mexico drilling market in early
1995 adversely affected the Company's operations and cash flow. As a result,
the Company elected to suspend the marketing of two rigs. These rigs were
deactivated in a common offshore location and, after preparation for extended
idle time, were maintained periodically by a small maintenance crew. One rig
was reactivated during September 1995 and the remaining rig was reactivated
during April 1996.
11
<PAGE> 14
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 shareholders would
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 times and in such
amounts as the Company deems appropriate. The Company will fund such
repurchases from working capital. During 1995, the Company purchased 735,633
shares of its common stock at an average price of $3.61 per share (aggregate
value $2,659,000) pursuant to the repurchase program. A portion of these
shares (201,423 shares) were subsequently reissued (i) to fund the Company's
contributions to its 401(k) plan, (ii) to provide stock for stock option
exercises pursuant to its employees long term incentive plan and (iii) to
remunerate certain non-employee directors pursuant to the Company's directors
compensation plan. During the first nine months of 1996, no shares were
repurchased by the Company; however, 534,210 shares were reissued to fund the
Company's contributions to its 401(k) plan and to provide stock option
exercises pursuant to the employee long term incentive plan.
Outlook
The Company will continue to pursue the direct or indirect acquisition of
additional drilling rigs and related equipment and/or businesses. Future
acquisitions, if any, would likely be funded from the Company's working capital
or through the issuance of debt and/or equity securities. The Company cannot
predict whether it will 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 rig upgrades in order to
preserve its working capital resources. At this time, based on current industry
conditions, the Company estimates its 1996 capital expenditures, excluding rig
and other acquisitions, to be approximately $12,300,000, including approximately
$12,000,000 spent during the first nine months. These amounts exclude the
value of the stock issued in connection with the acquisition of the MARINE 305
- -- 882,352 shares having an approximate value of $7,500,000 as of the date of
the acquisition.
12
<PAGE> 15
The Company believes that its available funds, together with cash generated
from operations and amounts that may be borrowed under the Loan Agreement, will
be sufficient to fund its required capital expenditures, working capital and
debt service requirements for the foreseeable future. Future cash flows,
however, are subject to a number of uncertainties, particularly the condition of
the oil and gas industry. Accordingly, there can be no assurance that these
resources will be sufficient to fund the Company's cash requirements.
RESULTS OF OPERATIONS -- NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO
NINE MONTHS ENDED SEPTEMBER 30, 1995
Revenues
Revenues for the nine months ended September 30, 1996 increased
$38,558,000 (97%) from $39,860,000 to $78,418,000 compared to the same period
in 1995. The increase in revenues was the result of three factors: (i) a 32%
increase in average day rates from $17,564 in 1995 to $23,268 in 1996, (ii) an
increase in the number of marketed rigs from 10 in 1995 to 13 in 1996 and (iii)
an increase in utilization of marketed rigs from 88% in 1995 to 98% in 1996.
The increases in utilization and average day rates resulted from increased
drilling activity in the U.S. Gulf of Mexico due to improved natural gas
prices.
Costs and Expenses
Contract drilling expenses for the nine months ended September 30, 1996
increased $5,831,000 (15%) from $38,335,000 to $44,166,000 compared to the
same period in 1995. This increase is primarily the result of an increase in
the number of working rigs from 8 in 1995 to 12 in 1996. Specifically, labor
expense increased by $3,363,000, repair and maintenance expenses increased by
$1,605,000 and insurance premiums increased by $428,000 in 1996 compared to
1995.
Depreciation and amortization expense for the nine months ended September
30, 1996 increased $1,772,000 (26%) from $6,773,000 to $8,545,000 compared to
the same period in 1995. The increase resulted primarily from the addition of
top drives and equipment upgrades on the MARINE 15, MARINE 16, MARINE 300 and
MARINE 303, the acquisition and upgrade of the MARINE 201, and drill string
purchases.
General and administrative expenses increased $1,385,000 (34%) from
$4,085,000 for the first nine months of 1995 to $5,470,000 for the same period
in 1996. The increase was attributed to an increase in labor due to additional
personnel and an increase in professional services.
Interest Expense
Interest expense for the nine months ended September 30, 1996 was $593,000
and consisted of the following: (i) interest of $601,000 based upon an average
interest rate of 8.0% on an average borrowings of $10,000,000; (ii) credit
facility fees of $47,000, less (iii) capitalized interest of approximately
$55,000. Interest expense for the first nine months of 1995 was $657,000.
13
<PAGE> 16
Interest Income
Interest income decreased $532,000 from $1,258,000 for the first nine
months of 1995 to $726,000 for the same period in 1996. The decrease was
related primarily to decreases in cash balances which were partially offset by
higher interest rates.
Income Taxes
Income taxes for the nine months ended September 30, 1996 consisted of (i)
a refund of prior year alternative minimum tax of ($64,000), (ii) current
portion of U.S. federal alternative minimum tax of $157,000, (iii) current
foreign taxes of $215,000, (iv) deferred U.S. federal tax expense of $5,069,000
and (v) tax benefits related to common stock issued pursuant to the long term
incentive plan of $2,092,000.
RESULTS OF OPERATIONS -- THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO
THREE MONTHS ENDED SEPTEMBER 30, 1995
Revenues
Revenues for the third quarter of 1996 increased $14,329,000 (93%) from
$15,490,000 to $29,819,000 compared to the same period in 1995. The increase
in revenues was the result of three factors -- (i) a 41% increase in average
day rates from $17,712 in 1995 to $24,932 in 1996, (ii) an increase in the
number of marketed rigs from 10 in 1995 to 13 in 1996 and (iii) an increase in
utilization of marketed rigs from 95% in 1995 to 100% in 1996.
Costs and Expenses
Contract drilling expenses for the third quarter of 1996 increased
$2,062,000 (16%) from $12,893,000 to $14,955,000 compared to the same period in
1995. This increase is attributed to the increased number of rigs working
during the third quarter of 1996 compared to the same period in 1995. As a
result, labor expense increased $1,428,000, repairs and maintenance expenses
increased by $294,000 and transportation charges increased by $481,000,
partially offset by a decrease in employer liability claims in the third
quarter of 1996.
Depreciation and amortization expense for the third quarter of 1996
increased $504,000 (20%) from $2,471,000 to $2,975,000 compared to the same
period in 1995. This increase resulted primarily from the addition of a top
drive and equipment upgrades on the MARINE 15, MARINE 16 and MARINE 300,
upgrades to the MARINE 201 and other capital expenditures.
General and administrative expenses for the third quarter of 1996
increased $656,000 (55%) from $1,201,000 to $1,857,000 compared to the same
period in 1995. The increase in the third quarter of 1996 resulted primarily
from an increase in labor costs and an increase in professional services and
other administrative expenses.
Interest Expense
Interest expense for the third quarter of 1996 was $209,000 and consisted
of the following: (i) interest of $199,000 based on an average interest rate of
7.9% on average borrowings of $10,000,000; (ii) credit facility fees of $16,000
less (iii) capitalized interest of approximately $6,000. Interest expense for
the third quarter of 1995 was $199,000.
14
<PAGE> 17
Interest Income
Interest income for the third quarter of 1996 decreased $9,000 from
$321,000 to $312,000 compared to the same period in 1995. The decrease was
related primarily to a decrease in cash balances and partially offset by higher
interest rates.
Income Taxes
Income taxes for the third quarter of 1996 consisted of (I) current
portion of U.S. federal alternative minimum tax of $92,000, (ii) current
foreign taxes of $72,000, (iii) deferred U.S. federal tax expense of
$3,312,000, and (iv) tax benefits related to common stock issued pursuant to
the long term incentive plan of $238,000.
15
<PAGE> 18
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company has various claims filed against its subsidiaries in the
ordinary course of business, particularly claims alleging personal injuries.
It is the belief of management 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 would have a material adverse effect on its
financial position or results of operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit No. Description
----------- -----------
10.2 Employment Agreement between Marine Drilling Companies, Inc.
and William H. Flores, dated July 18, 1996
10.3 Severance Agreement between Marine Drilling Companies, Inc.
and H. Larry Adkins dated July 18, 1996
10.4 Severance Agreement between Marine Drilling Companies, Inc.
and G. Ted Greak dated July 18, 1996
10.5 Severance Agreement between Marine Drilling Companies, Inc.
and Danny R. Richardson dated July 18, 1996
15 Letter regarding unaudited interim financial information
27 Financial Data Schedule
(Exhibit 27 is being submitted as an exhibit only in the
electronic format of this Quarterly Report on Form 10-Q
being submitted to the U.S. Securities and Exchange
Commission.)
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the third quarter of 1996.
16
<PAGE> 19
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MARINE DRILLING COMPANIES, INC.
(Registrant)
Date: October 16, 1996 By /s/ William H. Flores
----------------------------------------
William H. Flores
Executive Vice President,
Chief Financial Officer and Director
(Principal Financial Officer)
Date: October 16, 1996 By /s/ Joan R. Smith
----------------------------------------
Joan R. Smith
Vice President, Controller and Secretary
(Principal Accounting Officer)
17
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBITS
------- --------
<S> <C>
10.2 Employment Agreement between Marine Drilling Companies, Inc.
and William H. Flores, dated July 18, 1996
10.3 Severance Agreement between Marine Drilling Companies, Inc.
and H. Larry Adkins dated July 18, 1996
10.4 Severance Agreement between Marine Drilling Companies, Inc.
and G. Ted Greak dated July 18, 1996
10.5 Severance Agreement between Marine Drilling Companies, Inc.
and Danny R. Richardson dated July 18, 1996
15 Letter regarding unaudited interim financial information
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT ("Agreement") is made by and between MARINE
DRILLING COMPANIES, INC. ("Company") and WILLIAM H. FLORES ("Executive").
W I T N E S S E T H:
WHEREAS, Company is desirous of employing Executive in an executive
capacity on the terms and conditions, and for the consideration, hereinafter
set forth and Executive is desirous of being employed by Company on such terms
and conditions and for such consideration;
NOW, THEREFORE, for and in consideration of the mutual promises,
covenants and obligations contained herein, Company and Executive agree as
follows:
ARTICLE 1: EMPLOYMENT AND DUTIES
1.1 EMPLOYMENT; EFFECTIVE DATE. Company agrees to employ
Executive and Executive agrees to be employed by Company, beginning as of July
18, 1996 (the "Effective Date") and continuing for the period of time set forth
in Article 2 of this Agreement, subject to the terms and conditions of this
Agreement.
1.2 POSITION. From and after the Effective Date, Company shall
employ Executive in the position of Executive Vice President and Chief
Financial Officer of Company, or in such other positions as the parties
mutually may agree.
1.3 DUTIES AND SERVICES. Executive agrees to serve in the
position referred to in paragraph 1.2 and to perform diligently and to the best
of his abilities the duties and services appertaining to such office, as well
as such additional duties and services appropriate to such office which the
parties mutually may agree upon from time to time. Executive's employment
shall also be subject to the policies maintained and established by Company, as
the same may be amended from time to time.
1.4 OTHER INTERESTS. Executive agrees, during the period of his
employment by Company, to devote his primary business time, energy and best
efforts to the business and affairs of Company and its affiliates and not to
engage, directly or indirectly, in any other business or businesses, whether or
not similar to that of Company, except with the consent of the Board of
Directors of Company (the "Board of Directors"). The foregoing
notwithstanding, the parties recognize and agree that Executive may engage in
passive personal investments and other business activities that do not conflict
with the business and affairs of Company or interfere with Executive's
performance of his duties hereunder. Executive represents to Company that the
execution, delivery and performance of this Agreement by Executive will not
violate or conflict with any non-competition or similar agreement to which
Executive is subject.
<PAGE> 2
1.5 DUTY OF LOYALTY. Executive acknowledges and agrees that
Executive owes a fiduciary duty of loyalty, fidelity and allegiance to act at
all times in the best interests of Company and to do no act which would injure
the business, interests, or reputation of Company or any of its subsidiaries or
affiliates. In keeping with these duties, Executive shall make full disclosure
to Company of all business opportunities pertaining to Company's business and
shall not appropriate for Executive's own benefit business opportunities
concerning the subject matter of the fiduciary relationship.
ARTICLE 2: TERM AND TERMINATION OF EMPLOYMENT
21 TERM. Unless sooner terminated pursuant to other provisions
hereof, Company agrees to employ Executive for the period
beginning on the Effective Date and ending on the second
anniversary of the Effective Date (the "Initial Term"). Said term
of employment shall be extended automatically for an additional
successive one- year period as of the last day of the Initial Term
and as of the last day of each such successive one-year period of
time thereafter that this Agreement is in effect; provided,
however, that if, prior to ninety days before the last day of the
Initial Term or any such subsequent one-year term of employment,
either party shall give written notice to the other that no such
automatic extension shall occur, then Executive's employment shall
terminate on the last day of the Initial Term or the subsequent
one-year term of employment, as applicable, during which such
notice is given.
2.2 COMPANY'S RIGHT TO TERMINATE. Notwithstanding the provisions
of paragraph 2.1, Company shall have the right to terminate Executive's
employment under this Agreement at any time for any of the following reasons:
(i) upon Executive's death;
(ii) upon Executive's becoming incapacitated by
accident, sickness or other circumstance which renders him
mentally or physically incapable of performing the duties and
services required of him hereunder on a full-time basis for a
period of at least 90 consecutive days or for a period of 120
days during any 12-month period;
(iii) for cause, which for purposes of this
Agreement shall mean Executive (A) has engaged in gross
negligence or willful misconduct in the performance of the
duties required of him hereunder, (B) has been convicted of a
felony or a misdemeanor involving moral turpitude, (C) has
willfully refused without proper legal reason to perform the
duties and responsibilities required of him hereunder, (D) has
materially breached any material corporate policy or code of
conduct established by Company, or (E) has willfully engaged
in conduct that he knows or should know is materially
injurious to Company or any of its affiliates;
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<PAGE> 3
(iv) for Executive's material breach of any
material provision of this Agreement which, if correctable,
remains uncorrected for 30 days following written notice to
Executive by Company of such breach;
(v) for any reason on or after the date Executive
reaches age sixty-five; or
(vi) for any other reason whatsoever, in the sole
discretion of the Board of Directors.
2.3 EXECUTIVE'S RIGHT TO TERMINATE. Notwithstanding the
provisions of paragraph 2.1, Executive shall have the right to terminate his
employment under this Agreement at any time for any of the following reasons:
(i) at any time other than within 12 months after
a Change in Control (as defined in paragraph 7.4 hereof) (A) a
material breach by Company of any material provision of this
Agreement which, if correctable, remains uncorrected for 30
days following written notice of such breach by Executive to
Company or (B) a change within the prior thirty days of the
location of Executive's principal place of employment by
Company by more than fifty miles from the location of
Company's principal executive office as of the date hereof;
(ii) at any time within 12 months after the date
upon which a Change in Control occurs (A) a material breach by
Company of any material provision of this Agreement which, if
correctable, remains uncorrected for 30 days following written
notice of such breach by Executive to Company, (B) a material
diminution within the prior thirty days in the nature or scope
of Executive's authorities, powers, functions or duties from
those applicable to him immediately prior to the date on which
a Change in Control occurs; (C) a reduction within the prior
thirty days in Executive's annual base salary from that
provided to him immediately prior to the date on which a
change in Control occurs; or (D) a change within the prior
thirty days of the location of Executive's principal place of
employment by Company by more than fifty miles from the
location of Company's principal executive office prior to the
date on which a change in Control occurs; or
(iii) at any time for any other reason whatsoever,
in the sole discretion of Executive.
2.4 NOTICE OF TERMINATION. If Company or Executive desires to
terminate Executive's employment hereunder at any time prior to expiration of
the term of employment as provided in paragraph 2.1, it or he shall do so by
giving written notice to the other party that it or he has elected to terminate
Executive's employment hereunder and stating the effective date and reason for
such termination, provided that no such action shall alter or amend any other
provisions hereof or rights arising hereunder, including, without limitation,
the provisions of Articles 4 and 5 hereof.
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<PAGE> 4
ARTICLE 3: COMPENSATION AND BENEFITS
3.1 BASE SALARY. During the period of this Agreement, Executive
shall receive a minimum annual base salary equal to the greater of (i) $205,000
or (ii) such amount as the parties mutually may agree upon from time to time.
Executive's annual base salary shall be paid in equal installments in
accordance with Company's standard policy regarding payment of compensation to
executives but no less frequently than monthly.
3.2 BONUSES. Executive shall receive such bonuses, if any, as
Company shall determine in its sole discretion; provided, however, that it is
not anticipated that any annual bonus will in any event exceed 50% of
Executive's base salary for that year.
3.3 VACATION. During each year of his employment, Executive shall
be entitled to four weeks of vacation.
3.4 OTHER PERQUISITES. During his employment hereunder, Executive
and, to the extent applicable, Executive's spouse, dependents and
beneficiaries, shall be allowed to participate in all benefits, plans and
programs, including improvements or modifications of the same, which are now,
or may hereafter be, available to similarly-situated Company employees. Such
benefits, plans and programs may include, without limitation, health insurance
or health care plan, life insurance, disability insurance, vacation and sick
leave benefits, and the like. Company shall not, however, by reason of this
paragraph be obligated to institute, maintain, or refrain from changing,
amending, or discontinuing, any such benefit plan or program, so long as such
changes are similarly applicable to executive employees generally.
ARTICLE 4: PROTECTION OF INFORMATION
4.1 DISCLOSURE TO EXECUTIVE. Company shall disclose to Executive,
or place Executive in a position to have access to or develop, trade secrets or
confidential information of Company or its affiliates; and/or shall entrust
Executive with business opportunities of Company or its affiliates; and/or
shall place Executive in a position to develop business good will on behalf of
Company or its affiliates.
4.2 DISCLOSURE TO AND PROPERTY OF COMPANY. All information,
ideas, concepts, improvements, discoveries, and inventions, whether patentable
or not, which are conceived, made, developed, or acquired by Executive,
individually or in conjunction with others, during Executive's employment by
Company (whether during business hours or otherwise and whether on Company's
premises or otherwise) which relate to Company's business, products, or
services (including, without limitation, all such information relating to
corporate opportunities, research, financial and sales data, pricing terms,
evaluations, opinions, interpretations, acquisitions prospects, the identity of
customers or their requirements, the identity of key contacts within the
customer's organizations or within the organization of acquisition prospects,
or marketing and merchandising techniques, prospective names, and marks) shall
be disclosed to Company and are and shall be the sole and exclusive property of
Company. Moreover, all documents, drawings, memoranda, notes, records, files,
correspondence, manuals, models, specifications, computer programs, E-mail,
voice mail, electronic databases, maps, and all other writings or materials of
-4-
<PAGE> 5
any type embodying any of such information, ideas, concepts, improvements,
discoveries, and inventions are and shall be the sole and exclusive property of
Company. Upon termination of Executive's employment by Company, for any
reason, Executive promptly shall deliver the same, and all copies thereof, to
Company.
4.3 NO UNAUTHORIZED USE OR DISCLOSURE. Executive will not, at any
time during or after Executive's employment by Company, make any unauthorized
disclosure of any confidential business information or trade secrets of Company
or its affiliates, or make any use thereof, except in the carrying out of
Executive's employment responsibilities hereunder. Affiliates of Company shall
be third party beneficiaries of Executive's obligations under this paragraph.
As a result of Executive's employment by Company, Executive may also from time
to time have access to, or knowledge of, confidential business information or
trade secrets of third parties, such as customers, suppliers, partners, joint
venturers, and the like, of Company and its affiliates. Executive also agrees
to preserve and protect the confidentiality of such third party confidential
information and trade secrets to the same extent, and on the same basis, as
Company's confidential business information and trade secrets.
4.4 OWNERSHIP BY COMPANY. If, during Executive's employment by
company, Executive creates any work of authorship fixed in any tangible medium
of expression which is the subject matter of copyright (such as videotapes,
written presentations, or acquisitions, computer programs, E-mail, voice mail,
electronic databases, drawings, maps, architectural renditions, models,
manuals, brochures, or the like) relating to Company's business, products, or
services, whether such work is created solely by Executive or jointly with
others (whether during business hours or otherwise and whether on Company's
premises or otherwise), Company shall be deemed the author of such work if the
work is prepared by Executive in the scope of Executive's employment; or, if
the work is not prepared by Executive within the scope of Executive's
employment but is specially ordered by Company as a contribution to a
collective work, as a part of a motion picture or other audiovisual work, as a
translation, as a supplementary work, as a compilation, or as an instructional
text, then the work shall be considered to be work made for hire and Company
shall be the author of the work. If such work is neither prepared by Executive
within the scope of Executive's employment nor a work specially ordered that is
deemed to be a work made for hire, then Executive hereby agrees to assign, and
by these presents does assign, to Company all of Executive's worldwide right,
title, and interest in and to such work and all rights of copyright therein.
4.5 ASSISTANCE BY EXECUTIVE. Both during the period of
Executive's employment by Company and thereafter, Executive shall assist
Company and its nominee, at any time, in the protection of Company's worldwide
right, title, and interest in and to information, ideas, concepts,
improvements, discoveries, and inventions, and its copyrighted works, including
without limitation, the execution of all formal assignment documents requested
by Company or its nominee and the execution of all lawful oaths and
applications for patents and registration of copyright in the United States and
foreign countries.
4.6 REMEDIES. Executive acknowledges that money damages would not
be sufficient remedy for any breach of this Article by Executive, and Company
shall be entitled to enforce the
-5-
<PAGE> 6
provisions of this Article by terminating payments then owing to Executive
under this Agreement and/or to specific performance and injunctive relief as
remedies for such breach or any threatened breach. Such remedies shall not be
deemed the exclusive remedies for a breach of this Article, but shall be in
addition to all remedies available at law or in equity to Company, including
the recovery of damages from Executive and his agents involved in such breach
and remedies available to Company pursuant to other agreements with Executive.
ARTICLE 5: NONCOMPETITION OBLIGATIONS
5.1 IN GENERAL. As part of the consideration for the compensation
and benefits to be paid to Executive hereunder; to protect the trade secrets
and confidential information of Company and its affiliates that have been and
will in the future be disclosed or entrusted to Executive, the business good
will of Company and its affiliates that has been and will in the future be
developed in Executive, or the business opportunities that have been and will
in the future be disclosed or entrusted to Executive by Company and its
affiliates; and as an additional incentive for Company to enter into this
Agreement, Company and Executive agree to the noncompetition obligations
hereunder. If Executive's employment hereunder shall be terminated by
Executive prior to the expiration of the term provided in paragraph 2.1 for any
reason not described in paragraph 2.3(i) or 2.3(ii), then Executive shall not,
directly or indirectly for Executive or for others, in any geographic area or
market where Company or any of its affiliates are conducting any business as of
the date of such termination of the employment relationship or have during the
previous twelve months conducted such business, induce any employee of Company
or any of its affiliates to terminate his or her employment with Company or
such affiliates, or hire or assist in the hiring of any such employee by any
person, association, or entity not affiliated with Company. The obligations
referred to in the preceding sentence shall extend until the later of (i) the
expiration of the term of this Agreement (or any extended term) provided in
paragraph 2.1 and (ii) the one year anniversary of the termination of
Executive's employment hereunder.
5.2 ENFORCEMENT AND REMEDIES. Executive understands that the
restrictions set forth in paragraph 5.1 may limit Executive's ability to engage
in certain businesses anywhere in the world during the period provided for
above, but acknowledges that Executive will receive sufficiently high
remuneration and other benefits under this Agreement to justify such
restriction. Executive acknowledges that money damages would not be sufficient
remedy for any breach of this Article by Executive, and Company shall be
entitled to enforce the provisions of this Article be terminating any payments
then owing to Executive under this Agreement and/or to specific performance and
injunctive relief as remedies for such breach or any threatened breach. Such
remedies shall not be deemed the exclusive remedies for a breach of this
Article, but shall be in addition to all remedies available at law or in equity
to Company, including without limitation, the recovery of damages from
Executive and Executive's agents involved in such breach and remedies available
to Company pursuant to other agreements with Executive.
5.3 REFORMATION. It is expressly understood and agreed that
Company and Executive consider the restrictions contained in this Article to be
reasonable and necessary to protect the proprietary information of Company.
Nevertheless, if any of the aforesaid restrictions are found
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<PAGE> 7
by a court having jurisdiction to be unreasonable, or overly broad as to
geographic area or time, or otherwise unenforceable, the parties intend for the
restrictions therein set forth to be modified by such courts so as to be
reasonable and enforceable and, as so modified by the court, to be fully
enforced.
ARTICLE 6: STATEMENTS CONCERNING COMPANY
6.1 IN GENERAL. Executive shall refrain, both during the
employment relationship and after the employment relationship terminates, from
publishing any oral or written statements about Company, any of its affiliates,
or any of such entities' officers, employees, agents or representatives that
are slanderous, libelous, or defamatory; or that disclose private or
confidential information about Company, any of its affiliates, or any of such
entities' business affairs, officers, employees, agents, or representatives; or
that constitute an intrusion into the seclusion or private lives of Company,
any of its affiliates, or any of such entities' officers, employees, agents, or
representatives; or that give rise to unreasonable publicity about the private
lives of Company, any of its affiliates, or any of such entities' officers,
employees, agents, or representatives; or that place Company, any of its
affiliates, or any of such entities' officers, employees, agents, or
representatives in a false light before the public; or that constitute a
misappropriation of the name or likeness of Company, any of its affiliates, or
any of such entities' officers, employees, agents, or representatives. A
violation or threatened violation of this prohibition may be enjoined by the
courts. The rights afforded Company and its affiliates under this provision
are in addition to any and all rights and remedies otherwise afforded by law.
ARTICLE 7: EFFECT OF TERMINATION ON COMPENSATION
7.1 BY EXPIRATION. If Executive's employment hereunder shall
terminate upon expiration of the term provided in paragraph 2.1 hereof, then
all compensation and all benefits to Executive hereunder shall terminate
contemporaneously with termination of his employment; provided, however, that
if Company shall be the party that gave written notice of such termination,
then, Company shall, within 10 days after the last day of Executive's
employment with Company, pay Executive a lump sum cash payment in an amount
equal to 100% of Executive's annual base salary as in effect pursuant to
paragraph 3.1 immediately prior to such termination.
7.2 BY COMPANY. If Executive's employment hereunder shall be
terminated by Company prior to expiration of the term provided in paragraph
2.1, then, upon such termination, regardless of the reason therefor, all
compensation and benefits to Executive hereunder shall terminate
contemporaneously with the termination of such employment; provided, however,
that if such termination shall be for any reason other than those encompassed
by paragraphs 2.2(i), (ii), (iii), (iv) or (v), then, Company shall, within 10
days after the last day of Executive's employment with Company, pay Executive a
lump sum cash payment in an amount equal to 100% of Executive's annual base
salary as in effect pursuant to paragraph 3.1 immediately prior to such
termination.
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<PAGE> 8
7.3 BY EXECUTIVE. If Executive's employment hereunder shall be
terminated by Executive prior to expiration of the term provided in paragraph
2.1 then, upon such termination, regardless of the reason therefor, all
compensation and benefits to Executive hereunder shall terminate
contemporaneously with the termination of such employment; provided, however,
that if such termination shall be pursuant to paragraph 2.3(i), Company shall,
within 10 days after the last day of Executive's employment with Company, pay
Executive a lump sum cash payment in an amount equal to 100% of Executive's
annual base salary as in effect pursuant to paragraph 3.1 immediately prior to
such termination; provided further however, that if such termination shall be
pursuant to paragraph 2.3(ii), then the provisions of Section 7.4 shall apply.
7.4 CHANGE IN CONTROL. For purposes of this Agreement, the term
"Change in Control" shall have the same meaning as assigned to such term in The
Marine Drilling 1992 Long Term Incentive Plan (the "Incentive Plan"). If
Executive's employment with Company shall terminate pursuant to paragraph
2.3(ii) or if within twelve months following the occurrence of a Change in
Control, Executive's employment with Company shall terminate under
circumstances that would entitle him to a severance payment pursuant to
paragraph 7.1 or 7.2, then Company shall, within 10 days after the last day of
Executive's employment with Company, pay Executive a lump sum cash payment
equal to 200% of Executive's annual base salary as in effect pursuant to
paragraph 3.1 immediately prior to such termination of employment.
Notwithstanding anything to the contrary herein, any such payment shall be in
lieu of any payment, if any, otherwise payable under paragraph 7.1 or 7.2.
7.5 OTHER BENEFITS. If Executive's employment with Company shall
terminate under circumstances that entitle him to a severance payment pursuant
to paragraph 7.1, 7.2, 7.3 or 7.4, then Company will take the following actions
on the last day of Executive's employment with Company:
(a) Cause Executive and those of his dependents
(including his spouse) who were covered under Company's medical and dental
benefit plans on the last day of Executive's employment with Company to
continue to be covered under such plans for twelve months following such
termination, without any cost to Executive; provided, however, that (i) such
coverage shall terminate if and to the extent Executive becomes eligible to
receive medical and dental coverage from a subsequent employer (and any such
eligibility shall be promptly reported to Company by Executive) and (ii) if
Executive (and/or his spouse) would have been entitled to retiree medical
and/or dental coverage under Company's plans had he voluntarily retired on the
date of such termination of employment, then such coverages shall be continued
as provided under such plans.
(b) If such termination did not follow a Change in
Control, cause any and all outstanding options to purchase common stock of
Company held by Executive, which options were granted prior to December 31,
1995, to become immediately exercisable in full and to remain exercisable
during the period of three months following such termination (or such greater
period as the Committee (as such term is defined in the Incentive Plan) may
determine), or by Executive's estate (or the person who acquires such options
by will or the laws of descent and distribution or otherwise by reason of the
death of Executive) during a period of one year
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<PAGE> 9
following Executive's death if Executive dies during such three-month period
(or such greater period as the Committee may determine), but in no event shall
any such option be exercisable after the tenth anniversary of the grant of such
option.
7.6 PARACHUTE PAYMENT LIMITATION. Notwithstanding anything to the
contrary in this Agreement, the amount of any benefits provided by this
Agreement shall be reduced or eliminated to the extent necessary so that no
payment made under this Agreement will subject Executive to an excise tax, as a
result of the Golden Parachute payment provisions contained in Sections 280G
and 4999 of the Internal Revenue Code of 1986, as amended (ignoring, for
purposes of such excise tax calculation, payments under other agreements which
will be made after the payment to be made pursuant to this Agreement and which
are subject to a provision similar to this paragraph). Notwithstanding the
foregoing, if payments which are not made as a result of the preceding sentence
("Cutback Payment"), when combined with payments under other agreements
sponsored by Company which have not been paid as a result of a provision
similar to this paragraph ("Prior Cutback Payments"), would, if paid, result in
Executive being in a better net after-tax position (taking into account any
applicable excise tax under Section 4999 of the Internal Revenue Code of 1986,
as amended, and any income tax applicable to payments made under this Agreement
or under such other agreements) than he would have been had such reduction or
elimination not been made pursuant to the preceding sentence and provisions
similar to this paragraph in other agreements, then the Cutback Payment shall
then be paid notwithstanding the preceding sentence and all Prior Cutback
Payments shall also then be paid notwithstanding any provisions similar to this
paragraph applicable to such Prior Cutback Payments. Prior to the date any
payment is to be made to Executive pursuant to this Agreement (without regard
to this paragraph), Company shall provide Executive with its calculations
relevant to this paragraph and such supporting materials as are reasonably
necessary for Executive to evaluate Company's calculations. If Executive
objects to Company's calculations, Company shall pay Executive such portion of
the Cutback Payment and Prior Cutback Payments (in each case, up to 100%
thereof) as Executive determines is necessary to comply with the intent of this
paragraph.
7.7 LIQUIDATED DAMAGES. In light of the difficulties in
estimating the damages for an early termination of this Agreement, Company and
Executive hereby agree that the payments, if any, to be received by Executive
pursuant to this Article 7 shall be received by Executive as liquidated
damages.
ARTICLE 8: MISCELLANEOUS
8.1 NOTICES. For purposes of this Agreement, notices and all
other communications provided for herein shall be in writing and shall be
deemed to have been duly given when personally delivered or when mailed by
United States registered or certified mail, return receipt requested, postage
prepaid, addressed as follows:
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<PAGE> 10
IF TO COMPANY TO: Marine Drilling Companies, Inc.
One Sugar Creek Center Blvd.,Suite 600
Sugar Land, Texas 77478
Attention: Chairman of the Board
IF TO EMPLOYEE TO: Mr. William H. Flores
One Sugar Creek Center Blvd., Suite 600
Sugar Land, Texas 77478
or to such other address as either party may furnish to the other in writing in
accordance herewith, except that notices or changes of address shall be
effective only upon receipt.
8.2 APPLICABLE LAW. This Agreement is entered into under, and
shall be governed for all purposes by, the laws of the State of Texas.
8.3 NO WAIVER. No failure by either party hereto at any time to
give notice of any breach by the other party of, or to require compliance with,
any condition or provision of this Agreement shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
8.4 SEVERABILITY. If a court of competent jurisdiction determines
that any provision of this Agreement is invalid or unenforceable, then the
invalidity or unenforceability of that provision shall not affect the validity
or enforceability of any other provision of this Agreement, and all other
provisions shall remain in full force and effect.
8.5 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together will constitute one and the same Agreement.
8.6 WITHHOLDING OF TAXES AND OTHER EMPLOYEE DEDUCTIONS. Company
may withhold from any benefits and payments made pursuant to this Agreement all
federal, state, city and other taxes as may be required pursuant to any law or
governmental regulation or ruling and all other normal employee deductions made
with respect to Company's employees generally, and the Company shall promptly
remit such withheld amounts to the appropriate governmental agency or other
authority.
8.7 HEADINGS. The paragraph headings have been inserted for
purposes of convenience and shall not be used for interpretive purposes.
8.8 GENDER AND PLURALS. Wherever the context so requires, the
masculine gender includes the feminine or neuter, and the singular number
includes the plural and conversely.
8.9 AFFILIATE. As used in this Agreement, the term "affiliate"
shall mean any entity which owns or controls, is owned or controlled by, or is
under common ownership or control with, Company.
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<PAGE> 11
8.10 ASSIGNMENT. This Agreement shall be binding upon and inure to
the benefit of Company and any successor of Company, by merger or otherwise.
Except as provided in the preceding sentence, this Agreement, and the rights
and obligations of the parties hereunder, are personal and neither this
Agreement, nor any right, benefit, or obligation of either party hereto, shall
be subject to voluntary or involuntary assignment, alienation or transfer,
whether by operation of law or otherwise, without the prior written consent of
the other party; provided, however, that Company may assign this Agreement to a
wholly-owned subsidiary of Company as long as Company fully and unconditionally
guarantees the performance of this Agreement.
8.11 TERM. This Agreement has a term co-extensive with the term of
employment provided in paragraph 2.1. Termination shall not affect any right
or obligation of any party which is accrued or vested prior to such
termination. Without limiting the scope of the preceding sentence, the
provisions of Articles 4, 5, 6 and 7 shall survive any termination of the
employment relationship and/or of this Agreement.
8.12 ENTIRE AGREEMENT. Except as provided in (i) the written
benefit plans and programs referenced in paragraph 3.4 and award agreements
heretofore issued under the Incentive Plan and (ii) any signed written
agreement contemporaneously or hereafter executed by Company and Executive,
this Agreement constitutes the entire agreement of the parties with regard to
the subject matter hereof, and contains all the covenants, promises,
representations, warranties and agreements between the parties with respect to
employment of Executive by Company. Without limiting the scope of the
preceding sentence, all prior understandings and agreements (other than those
referred to in the preceding sentence) among the parties hereto relating to the
subject matter hereof are hereby null and void and of no further force and
effect. Executive hereby acknowledges that Company has heretofore rescinded
and terminated Company's Executive Severance Policy, as amended from time to
time, which policy was originally adopted on January 1, 1994, and Executive
hereby waives any and all rights Executive may have under such policy. Any
modification of this Agreement will be effective only if it is in writing and
signed by the party to be charged.
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<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the 18th day of July, 1996.
MARINE DRILLING COMPANIES, INC.
BY:
-------------------------------------
NAME: JAN RASK
TITLE: CHIEF EXECUTIVE OFFICER
"COMPANY"
----------------------------------------
WILLIAM H. FLORES
"EXECUTIVE"
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<PAGE> 1
EXHIBIT 10.3
SEVERANCE AGREEMENT
AGREEMENT between MARINE DRILLING COMPANIES, INC., a Texas corporation
(the "Company"), and H. LARRY ADKINS ("Executive"),
W I T N E S S E T H :
WHEREAS, the Company desires to attract and retain certain key employee
personnel and, accordingly, the Board of Directors of the Company (the "Board")
has approved the Company entering into a severance agreement with Executive in
order to encourage his continued service to the Company; and
WHEREAS, Executive is prepared to commit such services in return for
specific arrangements with respect to severance compensation and other
benefits;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the Company and Executive agree as follows:
1. DEFINITIONS.
(a) "ANNUAL COMPENSATION" shall mean an amount equal to the greater
of:
(i) Executive's annual base salary at the annual rate in
effect at the date of his Involuntary Termination; or
(ii) Executive's annual base salary at the annual rate in
effect immediately prior to a Change-in-Control if Executive's
employment shall be subject to a Change-in-Control Involuntary
Termination.
(b) "CHANGE-IN-CONTROL" shall have the meaning ascribed to such term
in Section 9(b) of The Marine Drilling 1992 Long-Term Incentive Plan (the
"Incentive Plan").
(c) "CHANGE-IN-CONTROL INVOLUNTARY TERMINATION" shall mean any
termination of Executive's employment with the Company which:
(i) results from a resignation by Executive within 12 months
after the date upon which a Change-in-Control occurs if such
resignation occurs within 30 days after Executive receives notice from
the Company that Executive will be subject to a Material Change in
Employment Terms; or
(ii) results from a termination by the Company within 12 months
after the date upon which a Change-in-Control occurs;
<PAGE> 2
provided, however, the term "CHANGE-IN-CONTROL INVOLUNTARY TERMINATION" shall
not include a Termination for Cause or any termination as a result of death,
Disability, or Retirement.
(d) "COMPENSATION COMMITTEE" shall mean the Compensation Committee of
the Board.
(e) "DISABILITY" shall mean that, as a result of Executive's
incapacity due to physical or mental illness, he shall have been absent from the
full-time performance of his duties for at least 90 consecutive days or for a
period of 120 days during any 12-month period and he shall not have returned to
full-time performance of his duties within 30 days after written notice of
termination is given to Executive by the Company (provided, however, that such
notice may not be given prior to 30 days before the expiration of either such
period).
(f) "INVOLUNTARY TERMINATION" shall mean any Non-Change-in-Control
Termination or any Change-in-Control Involuntary Termination.
(g) "MATERIAL CHANGE IN COMPENSATION" shall mean any one or more of
the following:
(i) a reduction in Executive's annual base salary from that
provided to him immediately prior to the effective date of this
Agreement; or
(ii) a significant diminution in Executive's eligibility to
participate in bonus, stock option, incentive award and other
compensation plans under which Executive is participating immediately
prior to the effective date of this Agreement.
(h) "MATERIAL CHANGE IN EMPLOYMENT TERMS" shall mean any one or more
of the following:
(i) a material diminution in the nature or scope of
Executive's authorities, powers, functions or duties from those
applicable to him immediately prior to the date on which a
Change-in-Control occurs;
(ii) a reduction in Executive's annual base salary from that
provided to him immediately prior to the date on which a
Change-in-Control occurs;
(iii) a significant diminution in Executive's eligibility to
participate in bonus, stock option, incentive award and other
compensation plans under which Executive is participating immediately
prior to the date on which a Change-in-Control occurs; or
(iv) a change in the location of Executive's principal place of
employment by the Company by more than 50 miles from the location where
he was principally employed immediately prior to the date on which a
Change-in-Control occurs.
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<PAGE> 3
(i) "NON-CHANGE-IN-CONTROL INVOLUNTARY TERMINATION" shall mean any
termination of Executive's employment with the Company which:
(i) results from a resignation by Executive if but only if
such resignation occurs within 30 days after Executive receives notice
from the Company that (A) Executive's principal place of employment
will be moved by more than 50 miles from the location where he was
principally employed immediately prior to the date of such notice or
(B) Executive will be subject to a Material Change in Compensation; or
(ii) results from a termination by the Company;
provided, however, the term "NON-CHANGE-IN-CONTROL INVOLUNTARY TERMINATION"
shall not include a Termination for Cause, a Change-in-Control Involuntary
Termination or any termination as a result of death, Disability, or Retirement.
(j) "RETIREMENT" shall mean termination of Executive's employment for
any reason on or after the date Executive reaches age sixty-five.
(k) "SEVERANCE AMOUNT" shall mean an amount equal to Executive's
Annual Compensation.
(l) "SEVERANCE PERIOD" shall mean the period commencing on the date
of an Involuntary Termination and continuing for 12 months.
(m) "TERMINATION FOR CAUSE" shall mean termination of Executive's
employment by the Company for any of the following reasons:
(i) Executive has engaged in gross negligence or willful
misconduct in the performance of the duties required of him;
(ii) Executive has been convicted of a felony or a misdemeanor
involving moral turpitude;
(iii) Executive has willfully refused without proper legal
reason to perform the duties and responsibilities required of him;
(iv) Executive has materially breached any material corporate
policy or code of conduct established by the Company; or
(v) Executive has willfully engaged in conduct that he knows
or should know is materially injurious to the Company or any of its
affiliates.
2. SERVICES. Executive agrees that he will render services to the
Company (as well as any subsidiary thereof or successor thereto) during the
period of his employment to the best of
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<PAGE> 4
his ability and in a prudent and businesslike manner and that he will devote
substantially the same time, efforts and dedication to his duties as heretofore
devoted.
3. TERMINATION. Subject to the provisions of Paragraph 5(i) hereof,
if Executive's employment by the Company or any subsidiary thereof or successor
thereto shall be subject to an Involuntary Termination, then the Company will,
as additional compensation for services rendered to the Company (including its
subsidiaries), pay to Executive the following amounts (subject to any applicable
payroll or other taxes required to be withheld and any employee benefit
premiums) and take the following actions:
(a) Pay Executive a lump sum cash payment in an amount equal to the
Severance Amount on or before the tenth day after the last day of Executive's
employment with the Company; provided, however, if such Involuntary Termination
is a Change-in-Control Involuntary Termination, then such lump sum cash payment
shall be in an amount equal to twice the Severance Amount.
(b) Immediately cause Executive and those of his dependents
(including his spouse) who were covered under the Company's medical and dental
benefit plans on the day prior to Executive's Involuntary Termination to
continue to be covered under such plans throughout the Severance Period,
without any cost to Executive; provided, however, that (i) such coverage shall
terminate if and to the extent Executive becomes eligible to receive medical
and dental coverage from a subsequent employer (and any such eligibility shall
be promptly reported to the Company by Executive) and (ii) if Executive (and/or
his spouse) would have been entitled to retiree medical and/or dental coverage
under the Company's plans had he voluntarily retired on the date of such
Involuntary Termination, then such coverages shall be continued as provided
under such plans.
(c) Immediately cause any and all outstanding options to purchase
common stock of the Company held by Executive, which options were granted prior
to December 31, 1995, to become immediately exercisable in full and to remain
exercisable during the period of three months following such termination (or
such greater period as the Committee (as such term is defined in the Incentive
Plan) may determine), or by Executive's estate (or the person who acquires such
options by will or the laws of descent and distribution or otherwise by reason
of the death of Executive) during a period of one year following Executive's
death if Executive dies during such three-month period (or such greater period
as the Committee may determine), but in no event shall any such option be
exercisable after the tenth anniversary of the grant of such option.
4. PARACHUTE PAYMENT LIMITATION. Notwithstanding anything to the
contrary in this Agreement, the amount of any benefits provided by this
Agreement shall be reduced or eliminated to the extent necessary so that no
payment made under this Agreement will subject Executive to an excise tax, as a
result of the Golden Parachute payment provisions contained in Sections 280G
and 4999 of the Internal Revenue Code of 1986, as amended (ignoring, for
purposes of such excise tax calculation, payments under other agreements which
will be made after the payment to be made pursuant to this Agreement and which
are subject to a provision
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<PAGE> 5
similar to this paragraph). Notwithstanding the foregoing, if payments which
are not made as a result of the preceding sentence ("Cutback Payment"), when
combined with payments under other agreements sponsored by the Company which
have not been paid as a result of a provision similar to this paragraph ("Prior
Cutback Payments"), would, if paid, result in Executive being in a
better net after-tax position (taking into account any applicable excise tax
under Section 4999 of the Internal Revenue Code of 1986, as amended, and any
income tax applicable to payments made under this Agreement or under such other
agreements) than he would have been had such reduction or elimination not been
made pursuant to the preceding sentence and provisions similar to this
paragraph in other agreements, then the Cutback Payment shall then be paid
notwithstanding the preceding sentence and all Prior Cutback Payments shall
also then be paid notwithstanding any provisions similar to this paragraph
applicable to such Prior Cutback Payments. Prior to the date any payment is to
be made to Executive pursuant to this Agreement (without regard to this
paragraph), the Company shall provide Executive with its calculations relevant
to this paragraph and such supporting materials as are reasonably necessary for
Executive to evaluate the Company's calculations. If Executive objects to the
Company's calculations, the Company shall pay Executive such portion of the
Cutback Payment and Prior Cutback Payments (in each case, up to 100% thereof)
as Executive determines is necessary to comply with the intent of this
paragraph.
5. GENERAL.
(a) TERM. The effective date of this Agreement is July 18, 1996,
and this Agreement shall have an initial term (the "Initial Term") of two years
beginning on such effective date. The term of this Agreement shall be extended
automatically for an additional successive one-year period as of the last day of
the Initial Term and as of the last day of each such successive one-year period
of time thereafter that this Agreement is in effect; provided, however, that if,
prior to 90 days before the last day of the Initial Term or any such successive
one-year term, the Compensation Committee (excluding any member of the
Compensation Committee who is covered by this Agreement or by a similar
agreement with the Company) shall give written notice to Executive that no such
automatic extension shall occur, then this Agreement shall terminate on the last
day of the Initial Term or such successive one-year term, as applicable, during
which such notice is given. Notwithstanding anything to the contrary contained
in this "sunset provision," it is agreed that if a Change-in-Control occurs
while this Agreement is in effect, then this Agreement shall not be subject to
termination under this "sunset provision," and shall remain in force for a
period of 12 months after such Change-in-Control, and if within said 12 months
the contingency factors occur which would entitle Executive to the benefits as
provided herein, this Agreement shall remain in effect in accordance with its
terms. If, within such 12 months after a Change-in-Control, the contingency
factors that would entitle Executive to said benefits do not occur, thereupon
this "sunset provision" shall again be applicable with the 90-day time period
for Compensation Committee action to thereafter commence 90 days prior to the
first anniversary of such Change-in-Control and 90 days prior to each one-year
anniversary date thereafter.
(b) INDEMNIFICATION. If Executive shall obtain any money judgment
or otherwise prevail with respect to any litigation brought by Executive or the
Company to enforce
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<PAGE> 6
or interpret any provision contained herein, the Company, to the fullest extent
permitted by applicable law, hereby indemnifies Executive for his reasonable
attorneys' fees and disbursements incurred in such litigation.
(c) PAYMENT OBLIGATIONS ABSOLUTE. The Company's obligation to
pay (or cause one of its subsidiaries to pay) Executive the amounts and to make
the arrangements provided herein shall be absolute and unconditional and shall
not be affected by any circumstances, including, without limitation, any
set-off, counterclaim, recoupment, defense or other right which the Company
(including its subsidiaries) may have against him or anyone else. All amounts
payable by the Company (including its subsidiaries hereunder) shall be paid
without notice or demand. Executive shall not be obligated to seek other
employment in mitigation of the amounts payable or arrangements made under any
provision of this Agreement, and, except as provided in Paragraphs 3(b) hereof,
the obtaining of any such other employment shall in no event effect any
reduction of the Company's obligations to make (or cause to be made) the
payments and arrangements required to be made under this Agreement.
(d) SUCCESSORS. This Agreement shall be binding upon and inure
to the benefit of the Company and any successor of the Company, by merger or
otherwise. This Agreement shall also be binding upon and inure to the benefit
of Executive and his estate. If Executive shall die prior to full payment of
amounts due pursuant to this Agreement, such amounts shall be payable pursuant
to the terms of this Agreement to his estate.
(e) SEVERABILITY. Any provision in this Agreement which is
prohibited or unenforceable in any jurisdiction by reason of applicable law
shall, as to such jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability without invalidating or affecting the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
(f) NON-ALIENATION. Executive shall not have any right to
pledge, hypothecate, anticipate or assign this Agreement or the rights
hereunder, except by will or the laws of descent and distribution.
(g) NOTICES. Any notices or other communications provided for
in this Agreement shall be sufficient if in writing. In the case of Executive,
such notices or communications shall be effectively delivered if hand delivered
to Executive at his principal place of employment or if sent by registered or
certified mail to Executive at the last address he has filed with the Company.
In the case of the Company, such notices or communications shall be effectively
delivered if sent by registered or certified mail to the Company at its
principal executive offices.
(h) CONTROLLING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Texas.
(i) RELEASE. As a condition to the receipt of any benefit under
Paragraph 3 hereof, Executive shall first execute a release, in the form
established by the Company, releasing
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<PAGE> 7
the Company, its shareholders, partners, officers, directors, employees and
agents from any and all claims and from any and all causes of action of any
kind or character, including but not limited to all claims or causes of action
arising out of Executive's employment with the Company or the termination of
such employment.
(j) FULL SETTLEMENT. If Executive is entitled to and receives the
benefits provided hereunder, performance of the obligations of the Company
hereunder will constitute full settlement of all claims that Executive might
otherwise assert against the Company on account of his termination of
employment. Executive hereby acknowledges that the Company has heretofore
rescinded and terminated the Company's Executive Severance Policy, as amended
from time to time, which policy was originally adopted on January 1, 1994, and
Executive hereby waives any and all rights Executive may have under such
policy.
(k) UNFUNDED OBLIGATION. The obligation to pay amounts under
this Agreement is an unfunded obligation of the Company, and no such obligation
shall create a trust or be deemed to be secured by any pledge or encumbrance on
any property of the Company (including its subsidiaries).
(l) NOT A CONTRACT OF EMPLOYMENT. This Agreement shall not be
deemed to constitute a contract of employment, nor shall any provision hereof
affect (a) the right of the Company (or its subsidiaries) to discharge Executive
at will or (b) the terms and conditions of any other agreement between the
Company and Executive except as provided herein.
(m) NUMBER AND GENDER. Wherever appropriate herein, words used
in the singular shall include the plural and the plural shall include the
singular. The masculine gender where appearing herein shall be deemed to include
the feminine gender.
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<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the 18th day of July, 1996.
"EXECUTIVE"
-------------------------------------
H. LARRY ADKINS
"COMPANY"
MARINE DRILLING COMPANIES, INC.
BY:
---------------------------------
NAME: JAN RASK
TITLE: CHIEF EXECUTIVE OFFICER
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<PAGE> 1
EXHIBIT 10.4
SEVERANCE AGREEMENT
AGREEMENT between MARINE DRILLING COMPANIES, INC., a Texas corporation
(the "Company"), and G. TED GREAK ("Executive"),
W I T N E S S E T H :
WHEREAS, the Company desires to attract and retain certain key employee
personnel and, accordingly, the Board of Directors of the Company (the "Board")
has approved the Company entering into a severance agreement with Executive in
order to encourage his continued service to the Company; and
WHEREAS, Executive is prepared to commit such services in return for
specific arrangements with respect to severance compensation and other benefits;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the Company and Executive agree as follows:
1. DEFINITIONS.
(a) "ANNUAL COMPENSATION" shall mean an amount equal to the greater
of:
(i) Executive's annual base salary at the annual rate in
effect at the date of his Involuntary Termination; or
(ii) Executive's annual base salary at the annual rate in
effect immediately prior to a Change-in-Control if Executive's
employment shall be subject to a Change-in-Control Involuntary
Termination.
(b) "CHANGE-IN-CONTROL" shall have the meaning ascribed to such
term in Section 9(b) of The Marine Drilling 1992 Long-Term Incentive Plan (the
"Incentive Plan").
(c) "CHANGE-IN-CONTROL INVOLUNTARY TERMINATION" shall mean any
termination of Executive's employment with the Company which:
(i) results from a resignation by Executive within 12 months
after the date upon which a Change-in-Control occurs if such
resignation occurs within 30 days after Executive receives notice from
the Company that Executive will be subject to a Material Change in
Employment Terms; or
(ii) results from a termination by the Company within 12
months after the date upon which a Change-in-Control occurs;
provided, however, the term "CHANGE-IN-CONTROL INVOLUNTARY TERMINATION" shall
not include a Termination for Cause or any termination as a result of death,
Disability, or Retirement.
<PAGE> 2
(d) "COMPENSATION COMMITTEE" shall mean the Compensation Committee
of the Board.
(e) "DISABILITY" shall mean that, as a result of Executive's
incapacity due to physical or mental illness, he shall have been absent from the
full-time performance of his duties for at least 90 consecutive days or for a
period of 120 days during any 12-month period and he shall not have returned to
full-time performance of his duties within 30 days after written notice of
termination is given to Executive by the Company (provided, however, that such
notice may not be given prior to 30 days before the expiration of either such
period).
(f) "INVOLUNTARY TERMINATION" shall mean any Non-Change-in-Control
Termination or any Change-in-Control Involuntary Termination.
(g) "MATERIAL CHANGE IN COMPENSATION" shall mean any one or more of
the following:
(i) a reduction in Executive's annual base salary from that
provided to him immediately prior to the effective date of this
Agreement; or
(ii) a significant diminution in Executive's eligibility to
participate in bonus, stock option, incentive award and other
compensation plans under which Executive is participating immediately
prior to the effective date of this Agreement.
(h) "MATERIAL CHANGE IN EMPLOYMENT TERMS" shall mean any one or more
of the following:
(i) a material diminution in the nature or scope of
Executive's authorities, powers, functions or duties from those
applicable to him immediately prior to the date on which a
Change-in-Control occurs;
(ii) a reduction in Executive's annual base salary from that
provided to him immediately prior to the date on which a
Change-in-Control occurs;
(iii) a significant diminution in Executive's eligibility to
participate in bonus, stock option, incentive award and other
compensation plans under which Executive is participating immediately
prior to the date on which a Change-in-Control occurs; or
(iv) a change in the location of Executive's principal place of
employment by the Company by more than 50 miles from the location where
he was principally employed immediately prior to the date on which a
Change-in-Control occurs.
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<PAGE> 3
(i) "NON-CHANGE-IN-CONTROL INVOLUNTARY TERMINATION" shall mean any
termination of Executive's employment with the Company which:
(i) results from a resignation by Executive if but only if
such resignation occurs within 30 days after Executive receives notice
from the Company that (A) Executive's principal place of employment
will be moved by more than 50 miles from the location where he was
principally employed immediately prior to the date of such notice or
(B) Executive will be subject to a Material Change in Compensation; or
(ii) results from a termination by the Company;
provided, however, the term "NON-CHANGE-IN-CONTROL INVOLUNTARY TERMINATION"
shall not include a Termination for Cause, a Change-in-Control Involuntary
Termination or any termination as a result of death, Disability, or Retirement.
(j) "RETIREMENT" shall mean termination of Executive's employment for
any reason on or after the date Executive reaches age sixty-five.
(k) "SEVERANCE AMOUNT" shall mean an amount equal to Executive's
Annual Compensation.
(l) "SEVERANCE PERIOD" shall mean the period commencing on the date
of an Involuntary Termination and continuing for 12 months.
(m) "TERMINATION FOR CAUSE" shall mean termination of Executive's
employment by the Company for any of the following reasons:
(i) Executive has engaged in gross negligence or willful
misconduct in the performance of the duties required of him;
(ii) Executive has been convicted of a felony or a misdemeanor
involving moral turpitude;
(iii) Executive has willfully refused without proper legal
reason to perform the duties and responsibilities required of him;
(iv) Executive has materially breached any material corporate
policy or code of conduct established by the Company; or
(v) Executive has willfully engaged in conduct that he knows
or should know is materially injurious to the Company or any of its
affiliates.
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<PAGE> 4
2. SERVICES. Executive agrees that he will render services to the Company
(as well as any subsidiary thereof or successor thereto) during the period of
his employment to the best of his ability and in a prudent and businesslike
manner and that he will devote substantially the same time, efforts and
dedication to his duties as heretofore devoted.
3. TERMINATION. Subject to the provisions of Paragraph 5(i) hereof, if
Executive's employment by the Company or any subsidiary thereof or successor
thereto shall be subject to an Involuntary Termination, then the Company will,
as additional compensation for services rendered to the Company (including its
subsidiaries), pay to Executive the following amounts (subject to any
applicable payroll or other taxes required to be withheld and any employee
benefit premiums) and take the following actions:
(a) Pay Executive a lump sum cash payment in an amount equal to the
Severance Amount on or before the tenth day after the last day of Executive's
employment with the Company.
(b) Immediately cause Executive and those of his dependents
(including his spouse) who were covered under the Company's medical and dental
benefit plans on the day prior to Executive's Involuntary Termination to
continue to be covered under such plans throughout the Severance Period, without
any cost to Executive; provided, however, that (i) such coverage shall terminate
if and to the extent Executive becomes eligible to receive medical and dental
coverage from a subsequent employer (and any such eligibility shall be promptly
reported to the Company by Executive) and (ii) if Executive (and/or his spouse)
would have been entitled to retiree medical and/or dental coverage under the
Company's plans had he voluntarily retired on the date of such Involuntary
Termination, then such coverages shall be continued as provided under such
plans.
(c) Immediately cause any and all outstanding options to purchase
common stock of the Company held by Executive, which options were granted prior
to December 31, 1995, to become immediately exercisable in full and to remain
exercisable during the period of three months following such termination (or
such greater period as the Committee (as such term is defined in the Incentive
Plan) may determine), or by Executive's estate (or the person who acquires such
options by will or the laws of descent and distribution or otherwise by reason
of the death of Executive) during a period of one year following Executive's
death if Executive dies during such three-month period (or such greater period
as the Committee may determine), but in no event shall any such option be
exercisable after the tenth anniversary of the grant of such option.
4. PARACHUTE PAYMENT LIMITATION. Notwithstanding anything to the contrary
in this Agreement, the amount of any benefits provided by this Agreement shall
be reduced or eliminated to the extent necessary so that no payment made under
this Agreement will subject Executive to an excise tax, as a result of the
Golden Parachute payment provisions contained in Sections 280G and 4999 of the
Internal Revenue Code of 1986, as amended (ignoring, for purposes of such
excise tax calculation, payments under other agreements which will be made
after the payment to be made pursuant to this Agreement and which are subject
to a provision
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<PAGE> 5
similar to this paragraph). Notwithstanding the foregoing, if payments which
are not made as a result of the preceding sentence ("Cutback Payment"), when
combined with payments under other agreements sponsored by the Company which
have not been paid as a result of a provision similar to this paragraph ("Prior
Cutback Payments"), would, if paid, result in Executive being in a better net
after-tax position (taking into account any applicable excise tax under Section
4999 of the Internal Revenue Code of 1986, as amended, and any income tax
applicable to payments made under this Agreement or under such other agreements)
than he would have been had such reduction or elimination not been made pursuant
to the preceding sentence and provisions similar to this paragraph in other
agreements, then the Cutback Payment shall then be paid notwithstanding the
preceding sentence and all Prior Cutback Payments shall also then be paid
notwithstanding any provisions similar to this paragraph applicable to such
Prior Cutback Payments. Prior to the date any payment is to be made to
Executive pursuant to this Agreement (without regard to this paragraph), the
Company shall provide Executive with its calculations relevant to this paragraph
and such supporting materials as are reasonably necessary for Executive to
evaluate the Company's calculations. If Executive objects to the Company's
calculations, the Company shall pay Executive such portion of the Cutback
Payment and Prior Cutback Payments (in each case, up to 100% thereof) as
Executive determines is necessary to comply with the intent of this paragraph.
5. GENERAL.
(a) TERM. The effective date of this Agreement is July 18, 1996, and
this Agreement shall have an initial term (the "Initial Term") of two years
beginning on such effective date. The term of this Agreement shall be extended
automatically for an additional successive one-year period as of the last day of
the Initial Term and as of the last day of each such successive one-year period
of time thereafter that this Agreement is in effect; provided, however, that if,
prior to 90 days before the last day of the Initial Term or any such successive
one-year term, the Compensation Committee (excluding any member of the
Compensation Committee who is covered by this Agreement or by a similar
agreement with the Company) shall give written notice to Executive that no such
automatic extension shall occur, then this Agreement shall terminate on the last
day of the Initial Term or such successive one-year term, as applicable, during
which such notice is given. Notwithstanding anything to the contrary contained
in this "sunset provision," it is agreed that if a Change-in-Control occurs
while this Agreement is in effect, then this Agreement shall not be subject to
termination under this "sunset provision," and shall remain in force for a
period of 12 months after such Change-in-Control, and if within said 12 months
the contingency factors occur which would entitle Executive to the benefits as
provided herein, this Agreement shall remain in effect in accordance with its
terms. If, within such 12 months after a Change-in-Control, the contingency
factors that would entitle Executive to said benefits do not occur, thereupon
this "sunset provision" shall again be applicable with the 90-day time period
for Compensation Committee action to thereafter commence 90 days prior to the
first anniversary of such Change-in-Control and 90 days prior to each one-year
anniversary date thereafter.
(b) INDEMNIFICATION. If Executive shall obtain any money judgment or
otherwise prevail with respect to any litigation brought by Executive or the
Company to enforce
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<PAGE> 6
or interpret any provision contained herein, the Company, to
the fullest extent permitted by applicable law, hereby indemnifies Executive for
his reasonable attorneys' fees and disbursements incurred in such litigation.
(c) PAYMENT OBLIGATIONS ABSOLUTE. The Company's obligation to pay
(or cause one of its subsidiaries to pay) Executive the amounts and to make the
arrangements provided herein shall be absolute and unconditional and shall not
be affected by any circumstances, including, without limitation, any set-off,
counterclaim, recoupment, defense or other right which the Company (including
its subsidiaries) may have against him or anyone else. All amounts payable by
the Company (including its subsidiaries hereunder) shall be paid without notice
or demand. Executive shall not be obligated to seek other employment in
mitigation of the amounts payable or arrangements made under any provision of
this Agreement, and, except as provided in Paragraphs 3(b) hereof, the
obtaining of any such other employment shall in no event effect any reduction
of the Company's obligations to make (or cause to be made) the payments and
arrangements required to be made under this Agreement.
(d) SUCCESSORS. This Agreement shall be binding upon and inure to
the benefit of the Company and any successor of the Company, by merger or
otherwise. This Agreement shall also be binding upon and inure to the benefit
of Executive and his estate. If Executive shall die prior to full payment of
amounts due pursuant to this Agreement, such amounts shall be payable pursuant
to the terms of this Agreement to his estate.
(e) SEVERABILITY. Any provision in this Agreement which is
prohibited or unenforceable in any jurisdiction by reason of applicable law
shall, as to such jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability without invalidating or affecting the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
(f) NON-ALIENATION. Executive shall not have any right to pledge,
hypothecate, anticipate or assign this Agreement or the rights hereunder,
except by will or the laws of descent and distribution.
(g) NOTICES. Any notices or other communications provided for in
this Agreement shall be sufficient if in writing. In the case of Executive,
such notices or communications shall be effectively delivered if hand delivered
to Executive at his principal place of employment or if sent by registered or
certified mail to Executive at the last address he has filed with the Company.
In the case of the Company, such notices or communications shall be effectively
delivered if sent by registered or certified mail to the Company at its
principal executive offices.
(h) CONTROLLING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Texas.
(i) RELEASE. As a condition to the receipt of any benefit under
Paragraph 3 hereof, Executive shall first execute a release, in the form
established by the Company, releasing
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<PAGE> 7
the Company, its shareholders, partners, officers, directors, employees and
agents from any and all claims and from any and all causes of action of any
kind or character, including but not limited to all claims or causes of action
arising out of Executive's employment with the Company or the termination of
such employment.
(j) FULL SETTLEMENT. If Executive is entitled to and receives the
benefits provided hereunder, performance of the obligations of the Company
hereunder will constitute full settlement of all claims that Executive might
otherwise assert against the Company on account of his termination of
employment. Executive hereby acknowledges that the Company has heretofore
rescinded and terminated the Company's Executive Severance Policy, as amended
from time to time, which policy was originally adopted on January 1, 1994, and
Executive hereby waives any and all rights Executive may have under such
policy.
(k) UNFUNDED OBLIGATION. The obligation to pay amounts under this
Agreement is an unfunded obligation of the Company, and no such obligation shall
create a trust or be deemed to be secured by any pledge or encumbrance on any
property of the Company (including its subsidiaries).
(l) NOT A CONTRACT OF EMPLOYMENT. This Agreement shall not be deemed
to constitute a contract of employment, nor shall any provision hereof affect
(a) the right of the Company (or its subsidiaries) to discharge Executive at
will or (b) the terms and conditions of any other agreement between the Company
and Executive except as provided herein.
(m) NUMBER AND GENDER. Wherever appropriate herein, words used in
the singular shall include the plural and the plural shall include the singular.
The masculine gender where appearing herein shall be deemed to include the
feminine gender.
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<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the 18th day of July, 1996.
"EXECUTIVE"
-------------------------------------
G. TED GREAK
"COMPANY"
MARINE DRILLING COMPANIES, INC.
BY:
----------------------------------
NAME: JAN RASK
TITLE: CHIEF EXECUTIVE OFFICER
-8-
<PAGE> 1
EXHIBIT 10.5
SEVERANCE AGREEMENT
AGREEMENT between MARINE DRILLING COMPANIES, INC., a Texas corporation
(the "Company"), and DANNY R. RICHARDSON ("Executive"),
W I T N E S S E T H :
WHEREAS, the Company desires to attract and retain certain key employee
personnel and, accordingly, the Board of Directors of the Company (the "Board")
has approved the Company entering into a severance agreement with Executive in
order to encourage his continued service to the Company; and
WHEREAS, Executive is prepared to commit such services in return for
specific arrangements with respect to severance compensation and other
benefits;
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the Company and Executive agree as follows:
1. DEFINITIONS.
(a) "ANNUAL COMPENSATION" shall mean an amount equal to the greater
of:
(i) Executive's annual base salary at the annual rate in
effect at the date of his Involuntary Termination; or
(ii) Executive's annual base salary at the annual rate in
effect immediately prior to a Change-in-Control if Executive's
employment shall be subject to a Change-in-Control Involuntary
Termination.
(b) "CHANGE-IN-CONTROL" shall have the meaning ascribed to such term
in Section 9(b) of The Marine Drilling 1992 Long-Term Incentive Plan (the
"Incentive Plan").
(c) "CHANGE-IN-CONTROL INVOLUNTARY TERMINATION" shall mean any
termination of Executive's employment with the Company which:
(i) results from a resignation by Executive within 12
months after the date upon which a Change-in-Control occurs if such
resignation occurs within 30 days after Executive receives notice from
the Company that Executive will be subject to a Material Change in
Employment Terms; or
(ii) results from a termination by the Company within 12 months
after the date upon which a Change-in-Control occurs;
provided, however, the term "CHANGE-IN-CONTROL INVOLUNTARY TERMINATION" shall
not include a Termination for Cause or any termination as a result of death,
Disability, or Retirement.
<PAGE> 2
(d) "COMPENSATION COMMITTEE" shall mean the Compensation Committee of
the Board.
(e) "DISABILITY" shall mean that, as a result of Executive's
incapacity due to physical or mental illness, he shall have been absent from the
full-time performance of his duties for at least 90 consecutive days or for a
period of 120 days during any 12-month period and he shall not have returned to
full-time performance of his duties within 30 days after written notice of
termination is given to Executive by the Company (provided, however, that such
notice may not be given prior to 30 days before the expiration of either such
period).
(f) "INVOLUNTARY TERMINATION" shall mean any Non-Change-in-Control
Termination or any Change-in-Control Involuntary Termination.
(g) "MATERIAL CHANGE IN COMPENSATION" shall mean any one or more of
the following:
(i) a reduction in Executive's annual base salary from that
provided to him immediately prior to the effective date of this
Agreement; or
(ii) a significant diminution in Executive's eligibility to
participate in bonus, stock option, incentive award and other
compensation plans under which Executive is participating immediately
prior to the effective date of this Agreement.
(h) "MATERIAL CHANGE IN EMPLOYMENT TERMS" shall mean any one or more
of the following:
(i) a material diminution in the nature or scope of
Executive's authorities, powers, functions or duties from those
applicable to him immediately prior to the date on which a
Change-in-Control occurs;
(ii) a reduction in Executive's annual base salary from that
provided to him immediately prior to the date on which a
Change-in-Control occurs;
(iii) a significant diminution in Executive's eligibility to
participate in bonus, stock option, incentive award and other
compensation plans under which Executive is participating immediately
prior to the date on which a Change-in-Control occurs; or
(iv) a change in the location of Executive's principal place of
employment by the Company by more than 50 miles from the location where
he was principally employed immediately prior to the date on which a
Change-in-Control occurs.
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<PAGE> 3
(i) "NON-CHANGE-IN-CONTROL INVOLUNTARY TERMINATION" shall mean any
termination of Executive's employment with the Company which:
(i) results from a resignation by Executive if but only if
such resignation occurs within 30 days after Executive receives notice
from the Company that (A) Executive's principal place of employment
will be moved by more than 50 miles from the location where he was
principally employed immediately prior to the date of such notice or
(B) Executive will be subject to a Material Change in Compensation; or
(ii) results from a termination by the Company;
provided, however, the term "NON-CHANGE-IN-CONTROL INVOLUNTARY TERMINATION"
shall not include a Termination for Cause, a Change-in-Control Involuntary
Termination or any termination as a result of death, Disability, or Retirement.
(j) "RETIREMENT" shall mean termination of Executive's employment for
any reason on or after the date Executive reaches age sixty-five.
(k) "SEVERANCE AMOUNT" shall mean an amount equal to Executive's
Annual Compensation.
(l) "SEVERANCE PERIOD" shall mean the period commencing on the date
of an Involuntary Termination and continuing for 12 months.
(m) "TERMINATION FOR CAUSE" shall mean termination of Executive's
employment by the Company for any of the following reasons:
(i) Executive has engaged in gross negligence or willful
misconduct in the performance of the duties required of him;
(ii) Executive has been convicted of a felony or a misdemeanor
involving moral turpitude;
(iii) Executive has willfully refused without proper legal
reason to perform the duties and responsibilities required of him;
(iv) Executive has materially breached any material corporate
policy or code of conduct established by the Company; or
(v) Executive has willfully engaged in conduct that he knows
or should know is materially injurious to the Company or any of its
affiliates.
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<PAGE> 4
2. SERVICES. Executive agrees that he will render services to the
Company (as well as any subsidiary thereof or successor thereto) during the
period of his employment to the best of his ability and in a prudent and
businesslike manner and that he will devote substantially the same time, efforts
and dedication to his duties as heretofore devoted.
3. TERMINATION. Subject to the provisions of Paragraph 5(i) hereof, if
Executive's
employment by the Company or any subsidiary thereof or successor thereto shall
be subject to an Involuntary Termination, then the Company will, as additional
compensation for services rendered to the Company (including its subsidiaries),
pay to Executive the following amounts (subject to any applicable payroll or
other taxes required to be withheld and any employee benefit premiums) and take
the following actions:
(a) Pay Executive a lump sum cash payment in an amount equal to the
Severance Amount on or before the tenth day after the last day of Executive's
employment with the Company; provided, however, if such Involuntary Termination
is a Change-in-Control Involuntary Termination, then such lump sum cash payment
shall be in an amount equal to twice the Severance Amount.
(b) Immediately cause Executive and those of his dependents
(including his spouse) who were covered under the Company's medical and dental
benefit plans on the day prior to Executive's Involuntary Termination to
continue to be covered under such plans throughout the Severance Period,
without any cost to Executive; provided, however, that (i) such coverage shall
terminate if and to the extent Executive becomes eligible to receive medical
and dental coverage from a subsequent employer (and any such eligibility shall
be promptly reported to the Company by Executive) and (ii) if Executive (and/or
his spouse) would have been entitled to retiree medical and/or dental coverage
under the Company's plans had he voluntarily retired on the date of such
Involuntary Termination, then such coverages shall be continued as provided
under such plans.
(c) Immediately cause any and all outstanding options to purchase
common stock of the Company held by Executive, which options were granted prior
to December 31, 1995, to become immediately exercisable in full and to remain
exercisable during the period of three months following such termination (or
such greater period as the Committee (as such term is defined in the Incentive
Plan) may determine), or by Executive's estate (or the person who acquires such
options by will or the laws of descent and distribution or otherwise by reason
of the death of Executive) during a period of one year following Executive's
death if Executive dies during such three-month period (or such greater period
as the Committee may determine), but in no event shall any such option be
exercisable after the tenth anniversary of the grant of such option.
4. PARACHUTE PAYMENT LIMITATION. Notwithstanding anything to the contrary
in this Agreement, the amount of any benefits provided by this Agreement shall
be reduced or eliminated to the extent necessary so that no payment made under
this Agreement will subject Executive to an excise tax, as a result of the
Golden Parachute payment provisions contained in Sections 280G and 4999 of the
Internal Revenue Code of 1986, as amended (ignoring, for
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<PAGE> 5
purposes of such excise tax calculation, payments under other agreements which
will be made after the payment to be made pursuant to this Agreement and which
are subject to a provision similar to this paragraph). Notwithstanding the
foregoing, if payments which are not made as a result of the preceding sentence
("Cutback Payment"), when combined with payments under other agreements
sponsored by the Company which have not been paid as a result of a provision
similar to this paragraph ("Prior Cutback Payments"), would, if paid, result in
Executive being in a better net after-tax position (taking into account any
applicable excise tax under Section 4999 of
the Internal Revenue Code of 1986, as amended, and any income tax applicable to
payments made under this Agreement or under such other agreements) than he
would have been had such reduction or elimination not been made pursuant to the
preceding sentence and provisions similar to this paragraph in other
agreements, then the Cutback Payment shall then be paid notwithstanding the
preceding sentence and all Prior Cutback Payments shall also then be paid
notwithstanding any provisions similar to this paragraph applicable to such
Prior Cutback Payments. Prior to the date any payment is to be made to
Executive pursuant to this Agreement (without regard to this paragraph), the
Company shall provide Executive with its calculations relevant to this
paragraph and such supporting materials as are reasonably necessary for
Executive to evaluate the Company's calculations. If Executive objects to the
Company's calculations, the Company shall pay Executive such portion of the
Cutback Payment and Prior Cutback Payments (in each case, up to 100% thereof)
as Executive determines is necessary to comply with the intent of this
paragraph.
5. GENERAL.
(a) TERM. The effective date of this Agreement is July 18, 1996, and
this Agreement shall have an initial term (the "Initial Term") of two years
beginning on such effective date. The term of this Agreement shall be extended
automatically for an additional successive one-year period as of the last day of
the Initial Term and as of the last day of each such successive one-year period
of time thereafter that this Agreement is in effect; provided, however, that if,
prior to 90 days before the last day of the Initial Term or any such successive
one-year term, the Compensation Committee (excluding any member of the
Compensation Committee who is covered by this Agreement or by a similar
agreement with the Company) shall give written notice to Executive that no such
automatic extension shall occur, then this Agreement shall terminate on the last
day of the Initial Term or such successive one-year term, as applicable, during
which such notice is given. Notwithstanding anything to the contrary contained
in this "sunset provision," it is agreed that if a Change-in-Control occurs
while this Agreement is in effect, then this Agreement shall not be subject to
termination under this "sunset provision," and shall remain in force for a
period of 12 months after such Change-in-Control, and if within said 12 months
the contingency factors occur which would entitle Executive to the benefits as
provided herein, this Agreement shall remain in effect in accordance with its
terms. If, within such 12 months after a Change-in-Control, the contingency
factors that would entitle Executive to said benefits do not occur, thereupon
this "sunset provision" shall again be applicable with the 90-day time period
for Compensation Committee action to thereafter commence 90 days prior to the
first anniversary of such Change-in-Control and 90 days prior to each one-year
anniversary date thereafter.
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<PAGE> 6
(b) INDEMNIFICATION. If Executive shall obtain any money judgment or
otherwise prevail with respect to any litigation brought by Executive or the
Company to enforce or interpret any provision contained herein, the Company, to
the fullest extent permitted by applicable law, hereby indemnifies Executive for
his reasonable attorneys' fees and disbursements incurred in such litigation.
(c) PAYMENT OBLIGATIONS ABSOLUTE. The Company's obligation to pay
(or cause one of its subsidiaries to pay) Executive the amounts and to make the
arrangements
provided herein shall be absolute and unconditional and shall not be affected
by any circumstances, including, without limitation, any set-off, counterclaim,
recoupment, defense or other right which the Company (including its
subsidiaries) may have against him or anyone else. All amounts payable by the
Company (including its subsidiaries hereunder) shall be paid without notice or
demand. Executive shall not be obligated to seek other employment in
mitigation of the amounts payable or arrangements made under any provision of
this Agreement, and, except as provided in Paragraphs 3(b) hereof, the
obtaining of any such other employment shall in no event effect any reduction
of the Company's obligations to make (or cause to be made) the payments and
arrangements required to be made under this Agreement.
(d) SUCCESSORS. This Agreement shall be binding upon and inure to
the benefit of the Company and any successor of the Company, by merger or
otherwise. This Agreement shall also be binding upon and inure to the benefit
of Executive and his estate. If Executive shall die prior to full payment of
amounts due pursuant to this Agreement, such amounts shall be payable pursuant
to the terms of this Agreement to his estate.
(e) SEVERABILITY. Any provision in this Agreement which is
prohibited or unenforceable in any jurisdiction by reason of applicable law
shall, as to such jurisdiction, be ineffective only to the extent of such
prohibition or unenforceability without invalidating or affecting the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
(f) NON-ALIENATION. Executive shall not have any right to pledge,
hypothecate, anticipate or assign this Agreement or the rights hereunder, except
by will or the laws of descent and distribution.
(g) NOTICES. Any notices or other communications provided for in
this Agreement shall be sufficient if in writing. In the case of Executive,
such notices or communications shall be effectively delivered if hand delivered
to Executive at his principal place of employment or if sent by registered or
certified mail to Executive at the last address he has filed with the Company.
In the case of the Company, such notices or communications shall be effectively
delivered if sent by registered or certified mail to the Company at its
principal executive offices.
(h) CONTROLLING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Texas.
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<PAGE> 7
(i) RELEASE. As a condition to the receipt of any benefit under
Paragraph 3 hereof, Executive shall first execute a release, in the form
established by the Company, releasing the Company, its shareholders, partners,
officers, directors, employees and agents from any and all claims and from any
and all causes of action of any kind or character, including but not limited to
all claims or causes of action arising out of Executive's employment with the
Company or the termination of such employment.
(j) FULL SETTLEMENT. If Executive is entitled to and receives the
benefits provided hereunder, performance of the obligations of the Company
hereunder will constitute full settlement of all claims that Executive might
otherwise assert against the Company on account of his termination of
employment. Executive hereby acknowledges that the Company has heretofore
rescinded and terminated the Company's Executive Severance Policy, as amended
from time to time, which policy was originally adopted on January 1, 1994, and
Executive hereby waives any and all rights Executive may have under such
policy.
(k) UNFUNDED OBLIGATION. The obligation to pay amounts under this
Agreement is an unfunded obligation of the Company, and no such obligation shall
create a trust or be deemed to be secured by any pledge or encumbrance on any
property of the Company (including its subsidiaries).
(l) NOT A CONTRACT OF EMPLOYMENT. This Agreement shall not be deemed
to constitute a contract of employment, nor shall any provision hereof affect
(a) the right of the Company (or its subsidiaries) to discharge Executive at
will or (b) the terms and conditions of any other agreement between the Company
and Executive except as provided herein.
(m) NUMBER AND GENDER. Wherever appropriate herein, words used in
the singular shall include the plural and the plural shall include the singular.
The masculine gender where appearing herein shall be deemed to include the
feminine gender.
-7-
<PAGE> 8
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the 18th day of July, 1996.
"EXECUTIVE"
-------------------------------------
DANNY R. RICHARDSON
"COMPANY"
MARINE DRILLING COMPANIES, INC.
BY:
----------------------------------
NAME: JAN RASK
TITLE: CHIEF EXECUTIVE OFFICER
-8-
<PAGE> 1
EXHIBIT 15
LETTER REGARDING UNAUDITED INTERIM FINANCIAL INFORMATION
The Board of Directors and Shareholders
Marine Drilling Companies, Inc.:
Re: Registration Statement No. 33-56920 on Form S-8 dated January 11, 1993
No. 33-61901 on Form S-8 dated August 17, 1995
No. 333-6997 on Form S-3 dated June 27, 1996
No. 333-6995 on Form S-4 dated June 27, 1996
With respect to the subject registration statements, we acknowledge our
awareness of the use therein of our report dated October 16, 1996, related to
our review of interim financial information. Pursuant to Rule 436(c) under the
Securities Act of 1933, such report is not considered part of a registration
statement prepared or certified by an accountant within the meanings of
Sections 7 and 11 of the Act.
KPMG PEAT MARWICK LLP
Houston, Texas
October 16, 1996
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 17,460
<SECURITIES> 9,851
<RECEIVABLES> 20,669
<ALLOWANCES> 0
<INVENTORY> 973
<CURRENT-ASSETS> 51,158
<PP&E> 142,633
<DEPRECIATION> 30,478
<TOTAL-ASSETS> 163,588
<CURRENT-LIABILITIES> 7,956
<BONDS> 0
<COMMON> 445
0
0
<OTHER-SE> 132,625
<TOTAL-LIABILITY-AND-EQUITY> 163,588
<SALES> 78,418
<TOTAL-REVENUES> 78,418
<CGS> 44,166
<TOTAL-COSTS> 44,166
<OTHER-EXPENSES> 8,545
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 593
<INCOME-PRETAX> 20,725
<INCOME-TAX> 7,469
<INCOME-CONTINUING> 13,256
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,256
<EPS-PRIMARY> .30
<EPS-DILUTED> 0
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